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Oman: the next hydrogen energy superpower

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A solar plant in Jericho, Palestine: Oman aims to become a hydrogen energy hub by harvesting energy from sun, winds and coastal waters
  • Sultanate seen as geologically ideal location for green hydrogen
  • H2 predicted to be 14 percent of EU’s energy mix by 2050

With lengthy daytime sun, strong overnight winds and an accessible coastline, H2 investors and developers have long admired Oman, dubbed a “future renewable superpower,” by green energy titans.

The government has noticed their admiration, and is looking to hydrogen to help power the oil-rich country’s energy grid and recharge its fossil fuel-reliant economy. 

Since announcing plans to become a regional hydrogen hub, the sultanate has unveiled its intention to build a “hydrogen-centric economy” by 2040, replete with grand developments and the world’s largest green hydrogen plant. 

The new hydrogen agenda revolves around the Omani government’s establishment of a national hydrogen alliance — known as Hy-Fly — in August, comprising 13 public and private organisations for facilitating the production of H2 energy for domestic use and export.

The government hopes that H2 will catalyse their ambitions listed in the Vision 2040 Energy Diversification Plans, which includes a headline target of 39 percent of electricity production to be renewable by that date. The sultanate wants 20 percent by the close of this decade, banking on new giga-watt H2 plants to help reach that rate. 

H2 energy comes in two main forms: blue and green. Blue hydrogen is produced through the manipulation of natural gas with a process called steam methane reforming. It’s a potent energy source — and cheaper than green hydrogen — but it carries a burden of CO2 emissions, using up the precious natural resources that Oman is hoping to become less reliant on. By contrast, green hydrogen is produced by ‘splitting’ water through renewable-powered electrolysis, turning the H2O into H2 and O, allowing power plants to use the hydrogen for energy purposes while venting the oxygen into the atmosphere with no environmental cost.

Industry experts believe that the sultanate’s coastal areas, boasting high wind and solar levels, will allow them to cheaply produce a bulk of green hydrogen. Multiple vast green hydrogen projects have already been planned in Oman, with InterContinental Energy, Omani oil & company OQ and Kuwaiti state-owned tech company EnerTech announcing a 14GW plant last May.

New plans have been drawn up since the announcement of the hydrogen alliance with BP, a member to the agreement, inking a strategic partnership in January to cover a variety of renewable projects, including investigation to scope out a multiple-GW green hydrogen hub. 

Preparing for the decline of fossil fuel

Industry insiders told AGBI that the Omani government’s renewable energy charm offensive is predominantly motivated by economic self-interest and stability. Oil and gas receipts cover 68 percent of the government’s budget and just under half of total GDP, and there are fears that fossil fuels won’t be available for extraction after 20 years. The Vision 2040 reform plans are “directly linked” to that concern, an Omani entrepreneur said on condition of anonymity. 

Riddled by expensive carbon capture and storage technology, blue hydrogen costs are expected to rise by 59 percent by 2040. The sultanate’s green hydrogen plans are also threatened by the cost of production, which is exacerbated by high energy requirements and the price of electrolysers. But research and consultancy firm Wood Mackenzie has indicated that green hydrogen energy costs could fall by 64 percent by 2030 due to anticipated advances in solar and wind technology, indicating that producers will need renewable energy prices at $30/MWh or below for green H2 to be economically viable. With this in mind, Omani plans for efficient hydrogen production this decade seem excessively optimistic.

Challenges to developing alternative energy

Omani businessman Yousef Albaloshi said: “Initially I was excited by the push to alternative energy, but realistically the ambitions are much higher than what can be achieved in the short term. The plans are a bit too ambitious in terms of all alternative energies. 

“It won’t be easy to reduce the reliance on oil and gas over the next decade to 20 years. This is due to a couple of things: the technology in alternative energy, and hydrogen in particular, is not developing fast enough. Also, our economies in the GCC are centred on oil and gas.”

Albaloshi, who previously worked at Petrofac and is now CEO of Blue Yonder Group, told AGBI: “The current plans they are putting together in Oman and the GCC are about limiting oil and gas by going along with a global trend and agenda that is being pushed in Europe, the UK and the West in general. But if we are being realistic, I cannot see this happening in the timeframe they are talking about. 

“In Oman, they have put in their vision that the objective was to have 30 percent of energy consumption powered by alternative energy by 2030, but after two years they have revised it to 10 percent. Oman is not progressing quickly towards this transition because solar, wind and hydrogen alternatives do not have the same internal rate of return as oil and gas.”

He added: “Investors will also consider their opportunity cost and the value of money they will lose if they do not invest in the most profitable energy projects in Oman.” 

While Albaloshi laments attempts to appeal to predominantly Western agendas, green hydrogen’s business opportunity has undoubtedly been enhanced by developed, Western economies pledging to add more of it to their energy mix. In 2020, the European Commission predicted that hydrogen would rise from 2 percent of the EU’s energy mix to 14 percent by 2050. Blighted by more austere weather conditions, European leaders could turn to Oman’s potent energy-producing cocktail of sun, wind and water to charge their economies with greener fuel rods. There is always a nascent market in Asia, where governments want to attract hydrogen imports to displace fossil fuel consumption.

Keen to lap up those interests, Oman is now establishing new directives, regulations and government bodies to attract foreign investment into the burgeoning green hydrogen sector. In March, Sultan Haitham issued five royal directives for the hydrogen sector, supporting information gathering, and a development of the policy and legal framework, which law firm Dentons said was “particularly welcome” and “essential to support the growth of green hydrogen in Oman.”

To support foreign companies looking at investing in the Omani alternative energy sector, the government has established a Directorate General for Clean Energy and Hydrogen at the Ministry of Energy and Minerals. The Energy Development Oman, a government-owned firm that aims to support the sultanate’s energy transition, will gain a new subsidiary called Hydrogen Development Oman. As it stands, some $30 billion worth of investments have been proposed in the Omani hydrogen sector, and that figure could grow as the global market and regulatory frameworks expand.

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