‘Huge potential’ for Germany and Saudi to collaborate on hydrogen

Reuters/Ahmed Yosri

• Saudi trade mission returns from Germany 
• Kingdom has expertise in low-carbon fossil fuel production
• Germany patents and manufactures hydrogen technologies 

Top-level talks have taken place in Germany to boost trade and investment with Saudi Arabia, as experts describe the potential for collaboration on producing cost-competitive hydrogen as “huge”.

As the world seeks cleaner energy solutions to meet net zero climate targets, analysts say the two countries have the resources, infrastructure and skills to build on an initial agreement signed in 2021 to encourage bilateral cooperation in the sector.

“Germany has been active in looking for ties with countries across the Middle East and Africa to solve the demand issue. These include Saudi Arabia and also Namibia, South Africa, and Mauritania,” said Andrew Horncastle, head of energy and natural resources, India, Middle East and Africa, at Oliver Wyman. 

“There are still open questions regarding logistics but, in general, the gas and hydrogen relationship between the Middle East and Europe will grow exponentially in the coming years.”

• $8.5bn funding deals signed for Saudi green hydrogen project
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Lerato Monaisa, senior power and renewables analyst at Fitch Solutions, said that Germany and Saudi Arabia are partners on the Neom project, which is earmarked to become a hydrogen hub for the kingdom.

“In addition to the resources to develop hydrogen, both markets have made green hydrogen production a priority source to diversify their energy sectors as well as decarbonise their carbon-intensive industries,” she added.

The comments come as a public and private sector delegation from Saudi Arabia returns from a trade mission to Germany.

The visit, led by minister of investment Khalid bin Abdulaziz Al-Falih, aims to expand cooperation, stimulate investment partnerships and discuss opportunities in sectors including clean energy.

Al-Falih also attended the Saudi-German Investment Forum in Berlin which he described as an “important step to strengthen the partnership”.

He said that both countries play a “leading role in the global energy market” and that the kingdom possessed “competitive advantages” for investors from Germany. Seven memoranda of understanding were signed in the areas of chemical industries, engineering consulting and systems and technology.

Germany is a global leader in the patenting and manufacturing of hydrogen technologies, the analysts said, while Saudi Arabia has extensive expertise in low-carbon fossil fuel production as a result of its oil and gas industries. 

Germany’s size and the nature of its industries mean it will be the biggest demand centre in western Europe – by 2030, that need will be around 110 terawatt hours of hydrogen per year, more than doubling to 350 terawatts by 2040.

“The vast majority of this will need to be imported, so the demand is strong and Saudi Arabia is in a great cost position,” said Horncastle.

Industry experts expect green hydrogen to dominate both markets as renewable electricity capacity is ramped up.

James Thomas, a partner specialising in the oil and gas industry at PwC’s global strategy consulting team Strategy&, said there is “huge potential” for collaboration.

“The Russia-Ukraine conflict has highlighted the strategic vulnerability of Germany’s energy mix being so dependent on gas,” he said.

“The German government has made substantive commitments to investment in greener energy sources, including hydrogen.

“Saudi Arabia can supply the renewable energy resources and land, Germany can supply research, technology and know-how to manufacture and operate electrolysers in Saudi, and to crack the ammonia back to gas at the German end.”

However, experts cautioned that technical issues remain around the cost, transport and handling of hydrogen. 

Monaisa said: “Given the distance between both markets, hydrogen would need to be transported via ships.

“Shipping is constrained by space as well as the high-cost impact of converting hydrogen into its final derivatives.

“These issues will weigh in on the collaboration potential.”

Thomas added: ”A surplus volt of power in the desert of Saudi isn’t any use unless you can get it to a point of demand.

“You need to convert it into something that’s more easily transportable across intercontinental distances and the world seems to be moving to a consensus that hydrogen/ammonia is the best way to do that.”

He said that value chain partnerships are far more critical in hydrogen than in hydrocarbons, meaning long-term commitments are necessary to co-invest in integrated infrastructure.

Earlier this month agreements were signed to fund the world’s largest green hydrogen production facility, which will be built in Neom with a total investment of $8.5 billion.

The plant, a key part of the kingdom’s ambitions to become the world’s leading hydrogen producer, will run on 4gw of wind and solar energy.

GCC countries currently use large quantities of natural gas-based grey hydrogen. Global investment in hydrogen is forecast to reach $500 billion by 2030, far short of the $1.2 trillion required to reach long-term net zero goals.