Hydrogen Market Making and COP 27

By Jonathan Gorvett

1039 words - 3 mins read

Hydrogen market making and COP 27

While the final declarations at the UN’s COP 27 climate change conference in November contained few overt references to hydrogen, this lighter-than-air gas still floated everywhere in Sharm El-Sheikh.

Indeed, beyond those international agreements and pathways, hydrogen development is now front and centre in most countries’ national strategies for carbon reduction.

Yet, while the ambitions behind hydrogen may be giant and global, the market for this gas-as-energy breakthrough is still to be created. A new industry will have to mushroom out of a much smaller, existing hydrogen sector that is more accustomed to supplying local chemical plants and refineries than to saving the planet.

How this infant industry now grows into an adult, international energy powerhouse depends on how it overcomes a range of technical, regulatory and logistical problems.

In this, Gulf Cooperation Council (GCC) states such as the UAE are taking a leading role.

With abundant hydrocarbon and renewable energy resources, a strong asset base and existing global energy market infrastructure, the Gulf states are set to take a major share of what could be a $400bn sector in just five years’ time.

Lighter than air

While all the GCC member states have recognised hydrogen’s potential, each has taken a slightly different approach to its development.

The UAE’s 10-pillar National Hydrogen Strategy — due for official launch in 2023 — includes plans for the country taking a 25% share of the world’s major hydrogen markets by 2030.

Seven strategic hydrogen projects have been announced, with these set to produce a total of 14mn-22mn tonnes of the gas annually by 2050.

Highlights of the Emirates’ hydrogen drive already implemented include: the Dubai Electricity and Water Authority hydrogen from solar power project; the June 2022 announcement of a South Korean consortium-built $1bn green hydrogen and ammonia production plant in the Khalifa Industrial Zone;and the Abu Dhabi National Oil Company delivery in September 2022 of the first hydrogen-derived ammonia cargo to Germany, a country that is seeking to source much of its future hydrogen requirements abroad.

Meanwhile, last year, neighbour Saudi Arabia announced plans to become the world’s biggest supplier of hydrogen, with a target of $36bn of investment by 2030 under its own National Hydrogen Strategy.

Highlights so far include a $5bn green hydrogen project in the planned new smart city NEOM, which aims to integrate 4GW of renewable energy production with output of 600 tonnes/day of hydrogen and 1.2mn tonnes/year of green ammonia, all by 2026.

Elsewhere, Oman has announced plans to take a major share of global green hydrogen production, with a target of 1mn tonnes of output by 2030. This will be led by HYDROM, a new agency tasked with implementing the Sultanate’s green hydrogen strategy. Supporting regulations underpinning this are due by the end of the first quarter of this year, while the first bidding round for land blocks on which to build production facilities was opened by HYDROM in November.

At the same time, QatarEnergy is working with Industries Qatar and Qatar Fertiliser Company on a 1.2mn tonne/year blue ammonia plant, with which the Gulf state hopes to capture a slice of the global blue hydrogen market.

Neighbour Bahrain has green and blue hydrogen production in its Industrial Strategy 2022-26, but until now has largely stood back from the sector — as has Kuwait.

Over the rainbow

For all this activity, however, the brand-new hydrogen-as-energy industry still faces a number of key challenges. These range from the technical to the regulatory, with questions also still to be answered over what the most appropriate organisational models are.

This last point is well illustrated by the Gulf. While the region has recently taken a leading role in investing in hydrogen production, none of its countries signed up to the COP 26 Hydrogen Breakthrough.

In addition, only the UAE has signed up to COP 27’s follow-up programme, and then only to one of its five Priority International Action agendas — the one calling for a periodic ‘light touch’ review and updating of the global hydrogen development landscape.

While this may be partly because of the complicated relationship some Gulf states have with the UN System Staff College and other international institutions, such as the International Energy Agency, it is also an indicator that they do not wish to get locked in to a particular framework in a market still very much in its infancy.

“The Gulf countries are willing to invest, but not to take on all the risk,” Dr Dawud Ansari, global energy transition researcher from the German Institute for International and Security Affairs, told Everose. “Their approach is slightly optimistic, but pragmatic.”

Many of the Gulf state’s hydrogen plans thus concern capturing a key share of a potentially new part of the global energy market. This also enables them to hedge against future oil and gas fluctuations, while helping achieve emissions-reduction targets.

The UAE is pursuing a multi-coloured hydrogen strategy, with ‘green’ hydrogen produced from renewable energy, ‘blue’ hydrogen produced from natural gas and ‘pink’ hydrogen from nuclear power. Saudi Arabia has a similar approach.

Qatar, meanwhile, is concentrating largely on offshoring blue hydrogen — exporting its abundant natural gas and LNG to countries that will then use it to manufacture hydrogen. This also gets around a key difficulty facing the nascent industry — that of how to transport hydrogen over long distances.

Ammonia is a popular candidate for this purpose, as it absorbs a large amount of hydrogen and can be transported by ship. However, major conversion losses currently make the economics of this questionable if the ammonia is to be converted back into hydrogen at destination. Other ideas, such as transporting liquified hydrogen, would require keeping the cargo at extremely low temperatures — far lower than with LNG.

While these technical headaches preoccupy industry insiders, a further uncertainty is that the jury is still out in some parts of Europe — potentially one of the Gulf’s largest hydrogen export markets — over importing anything other than green hydrogen.

Yet the massive ramp-up in renewable energy production necessary to meet de-carbonisation goals purely via green hydrogen means that in the shorter term, blue hydrogen might be the most cost-effective option.

Meanwhile, given Europe’s uncertain policy environment, the gas is making the fastest inroads in East Asia, with South Korea, Japan and China leading the way in terms of contracts for delivery.