Egypt’s green hydrogen goals get BP boost

Reuters

• BP to invest $3.5bn in Egypt
• Green hydrogen central focus
• Gulf states vying for green hydrogen status

Egypt’s ambitions to develop a green hydrogen industry have been given a major boost with the announcement that BP is to invest $3.5 billion in the country over the next three years.

Egyptian president Abdel Fattah El Sisi and BP CEO Bernard Looney announced the plans on Monday.

A portion of the funding will go towards renewable energy projects, and production of green hydrogen – gas created entirely from renewable sources – has been highlighted as the most important. 

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Separately, it was reported last month that Mostafa Madbouly, Egypt’s prime minister, had met several officials to discuss an offer proposed by a foreign company to establish a large-scale green hydrogen plant in Egypt. 

The plant is expected to have an annual capacity of 400,000 tons and its entire production is set to be exported to Europe. It is targeting exports worth $1 billion a year. A feasibility study will be conducted in the coming months. 

Should they materialise, both developments will provide a shot in the arm to Egypt’s ambitions to become a global green hydrogen hub. 

Regional rivals

The Egyptian government has signed more than 20 green hydrogen memoranda of understanding – a potential $83 billion pipeline – but only a few have developed into tangible projects. 

“Certain projects have begun their establishment process,” Mohamed Hafez, policy adviser at Egypt’s General Authority for Investment and Free Zones (Gafi), told AGBI.  “These projects are expected to commence green hydrogen production by early 2025.”

This would give Egypt a headstart over its Gulf neighbours, which are also vying to become global green hydrogen hubs. 

The most notable is Saudi Arabia, where around $8.5 billion is being invested to build the world’s largest production facility, the Neom Green Hydrogen Project. 

The mega-plant aims to produce up to 600 tonnes per day of green hydrogen by the end of 2026. 

Oman, meanwhile, is on track to become the sixth-largest hydrogen exporter in the world and the largest in the Middle East by 2030, according to the International Energy Agency. 

The sultanate aims to produce at least 1 million tonnes of renewable hydrogen a year by the end of the decade, up to 3.75 million tonnes by 2040 and up to 8.5 million tonnes by 2050.

In June, Hydrogen Oman SPC (Hydrom) signed three deals to develop green hydrogen projects with investments worth over $20 billion. They are expected to yield a total production capacity of half a million tonnes of green hydrogen per annum.

The UAE unveiled its national hydrogen strategy in July. It aims to turn the UAE into a leading and reliable producer and supplier of low-carbon hydrogen by 2031. It included “tangible steps” to establish two hydrogen hubs and explore three more.

The Gulf investments are likely to target Asian markets. Egypt tends to export into the Mediterranean and Europe.

“The EU has demonstrated significant interest in making substantial investments in green hydrogen within Egypt,” said Gafi’s Hafez. 

In May the Egyptian cabinet approved a new bill containing a package of incentives for green hydrogen projects. These include a series of tax exemptions, including on VAT and customs duties, as well as regulatory exemptions including on import and export registry. 

“Egypt boasts several economic strengths that can foster competition with the Gulf nations, including cost-effective labour and production expenses,” Hafez said.

Currency troubles

Even though Egypt’s projects are scheduled for completion earlier than some others, analysts say it is likely the country’s volatile currency and lack of a clear investment framework are deterring some projects from moving forward. 

The Egyptian pound was devalued three times in 2022, and analysts predict a fourth devaluation.

Mariam Hassaballah is an associate in the London office of law firm Pinsent Masons, who specialises in infrastructure and energy sectors in the UK and the Middle East.

She said the currency challenges made it difficult for foreign investors to consider getting involved in such projects, adding that investors are also concerned that Egypt has yet to publish its strategy on hydrogen.

It has been in development since 2021 and was expected to be announced and published during the country’s hosting of Cop27 last year, but it has yet to materialise. 

“It would provide a lot of comfort for investors to see that there actually is a strategy, what its deliverables and KPIs are, and how it is going to manifest in practice,” Hassaballah said. 

Further investment

The European Bank for Reconstruction and Development (EBRD) is also looking to plug the investment gap and kickstart the industry’s growth. 

In October last year, EBRD granted an $80 million equity bridge loan to Egypt Green Hydrogen, a company based in the Suez Canal Economic Zone, to develop and operate the first green hydrogen facility in Egypt.

The facility will act as a proof of concept for green hydrogen projects in Egypt and is targeting annual production of up to 15,000 tonnes.

The EBRD said the facility is central to its efforts to support Egypt in drafting its national hydrogen strategy, and the development of a low-carbon pathway for the country’s ammonia sector. 

“The advantageous location and proximity that Egypt provides to EU markets have prompted the consideration of developing a national green hydrogen strategy in collaboration with the EBRD,” Hafez said.