The difficulties of making the switch to hydrogen power in the oil-rich Middle East

Primary energy consumption is projected to increase by 42% over the next 30 years, from 49 EJ in 2015 to 69 EJ in 2050, as seen in the chart below, taken from DNV's Energy Transition Outlook. Fortunately, scientists predict that by 2050, just 71% of the world's energy will come from fossil fuels (with solar and wind providing the remaining 18% and 6%, respectively). The world's electricity production is forecast to expand 3.6 times from its current level to 6,800 TWh in 2050, with solar and wind power accounting for the vast majority of this increase. Oil consumption reduction will be driven primarily by increased usage of electricity. Petrol will continue to be a "transition" fuel even as its percentage of the energy mix decreases.

Hydrogen taking off in MENA

It is anticipated that the Middle East and North Africa will play a significant role in the generation of low-carbon hydrogen. The majority of this growth will come from blue hydrogen produced from methane reforming with CCS, and volumes are projected to increase from roughly 1 mt in 2030 to 10 mt by 2050. However, from the 2040s onward, greater quantities of both green hydrogen and yellow hydrogen connected to the grid are anticipated.

Blue hydrogen can be produced in Saudi Arabia, the United Arab Emirates, and Oman thanks to their massive solar and wind power potential and natural gas supplies. For example, in Egypt, Masdar and Hassan Allam Utilities have signed an MOU to develop 4 GW of electrolyser capacity by 2030, and in Saudi Arabia, a number of industrial companies and state-linked energy companies like ADNOC, ACWA Power, and Aramco have signed MOUs for projects like the NEOM Helios Green Fuels project.

It is anticipated that regional emissions would continue to climb until at least the middle of the 2030s

The majority of the petrostates in the area are aiming for zero net energy growth. The United Arab Emirates (UAE) has taken the initiative by declaring its intention to reach net zero by the year 2050. Turkey has pledged to reach net zero emissions by 2053, and Israel aims to reduce emissions by 85% from 2015 levels by that year. Saudi Arabia expects to get there by the year 2060. However, even after 2050, the region will still be producing a lot of emissions due to its energy use.  By the middle of the 2030s, regional emissions will have reached a peak of 3.3GtCO2, an increase of 18% from 2010 levels. However, we expect them to decrease to 2.5GtCO2 by 2050, which is 5% lower than 2020 levels.

A carbon price of USUS$30/tCO2 in 2030 and US$100/tCO2 in 2050, a rapid shift to electric transportation, significant power generation from biomethane with CCS, a ban on new greenfield oil and gas capacity additions beginning in 2028, and a ban on coal power plants beginning in 2045 are all necessary to reach net zero by 2050 in this region.

A significant amount of clean hydrogen will be produced in the Middle East

Green hydrogen has the potential to displace fossil fuels as a primary energy source in the Middle Eastern region, where they are now used for approximately three-quarters of global greenhouse gas emissions in the transportation, electricity, and heating sectors.

Although there are still considerable obstacles to overcome, the region appears to be in an excellent position to play a leading role in realising green hydrogen's promise. A 2022 Strategy& research indicates that the cost of producing solar, wind, and green hydrogen in the Gulf is around one-third of the world average, and that Gulf solar panels produce double the electricity that those in Germany do.

The 1.2 GW Noor Abu Dhabi solar facility is the world's largest single-site solar plant, and the 2 GW Al Dhafra solar plant will go live in the emirate this year. When Dhafra secured its finance in December 2020, it achieved a solar industry low price of $0.0132/kWh, a new record low. The Mohammed bin Rashid Al Maktoum Solar Park in Dubai has a 1.6 GW capacity now and will increase to 5 GW by 2030.

Green hydrogen production is one of the goals of Gulf politicians. In order for the Gulf Cooperation Council (GCC) countries to diversify their economies, they should take advantage of their competitive advantage of low-cost renewable energy resources. This potential can be attributed to two main aspects of the region's energy supply system: (1) an abundance of high-yield renewable resources, and (2) a financially viable model for private investment.

At now, hydrogen is often created through a chemical process involving gas or coal, which results in significant carbon emissions. Only about two percent of the world's hydrogen is "green hydrogen," which is produced by electrolysers running on renewable electricity to separate water into its oxygen and hydrogen components.

Hydrogen has many applications, including usage as a fuel (with water as the only byproduct), energy storage (for use with renewable power sources), and material production.

A lot riding on hydrogen

Murray Douglas, Wood Mackenzie's Head of Hydrogen Research, has predicted that the Middle East will emerge as a leading participant in the clean hydrogen market. Over half of the overall cost of a green hydrogen project may come from energy.

The more competitive a project is, in general, Douglas said, the lower the cost of electricity.

The Saudi Arabian government has committed US$5 billion to the construction of the world's largest green hydrogen plant, which will use solar and wind energy to generate 650 tonnes of hydrogen each day. In 2026, production will begin.

Wood Mackenzie projects that demand for low-carbon hydrogen, which includes blue hydrogen that collects and stores carbon created when manufacturing the gas using conventional techniques, will increase from less than 100 Mt in 2022 to 223 Mt in 2050. Investment opportunities in green hydrogen production are estimated to be US$600 billion by the consultants.

The governments in the Gulf region appear to be in agreement. The United Arab Emirates' energy minister stated in January that his country plans to produce hydrogen using electrolysis and natural gas in order to grab around 25% of the worldwide hydrogen market.

Douglas stated, "Whether that's feasible depends on the timeframe." The great draw of hydrogen is that you may enhance your diversity of supply due to supposedly lower entry barriers. This is especially appealing to policymakers in Europe and East Asia, where the hydrogen market is still relatively young.

For too long, the European Union has relied on a single source, Russia, for 43 percent of its gas. UAE efforts to corner a quarter of the global hydrogen market may not be well received by the EU, which prefers to buy from a wide variety of providers.

Together with Emirates Steel, the Abu Dhabi National Energy Company (TAQA) plans to develop green hydrogen for use in the production of green steel. A green ammonia plant on an industrial scale is in the "advanced stage" of development by TAQA and Abu Dhabi Ports Co, both of which are majority controlled by the government of the emirate. Clean solar hydrogen will be processed there. Green hydrogen will also be produced at Dubai's solar park.

Oman and BP have a deal from January that will see them create green hydrogen projects by 2030. As part of the agreement, the oil giant will analyse data from wind and solar farms covering 8,000 square kilometres to find the best spots to set up shop.

According to Wood Mackenzie's calculations, Egypt's declared hydrogen project capacity as of June 30 was around 1.5 million tonnes per year.

As Douglas pointed out, "Egypt has the resources in terms of solar and wind potential," but the country is confronting severe economic and fiscal issues that it has historically found very hard to overcome.