Commentary Saudi Arabia's Clean Hydrogen Ambitions: Opportunities and Challenges - June 2021 Jan Frederik Braun and Rami Shabaneh - KAPSARC
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Commentary Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges June 2021 Jan Frederik Braun and Rami Shabaneh
In early 2021, Energy Minister Prince HRH Abdulaziz bin Salman stated
that Saudi Arabia aims to become “another Germany when it comes
to renewables” (Martin, El Wardany, and Abu Omar 2021). Currently,
Saudi Arabia’s power mix is dominated by oil-fired steam turbines and,
increasingly, by gas plants. Thus, the opportunity to cost-effectively
improve the efficiency of domestic energy use and maximize the potential
The Kingdom has of oil exports is massive. The Kingdom is therefore planning to convert half
also articulated its of its power sector to gas and the other half to renewables.
interrelated ambition The Kingdom has also articulated its interrelated ambition to become
to become a global a global powerhouse in clean hydrogen from renewables and fossil
fuel-based variants. Powered by renewable energy sources (RES), water
powerhouse in electrolysis can produce zero-carbon hydrogen. Natural gas-based
clean hydrogen from methods of hydrogen production include steam methane reforming with
carbon capture, utilization and storage (CCUS) and methane pyrolysis,
renewables and fossil which produces solid carbon as a byproduct. These variants are labelled
fuel-based variants ‘green,’ ‘blue’ and ‘turquoise’ hydrogen (Figure 1).
Figure 1. Green, blue and turquoise variants of hydrogen production.
Hydrogen based on
Hydrogen generated via Hydrogen based on fossil gas with
renewables fossil gas with CCUS solid carbon
Electricity from RES Natural Gas Natural gas
Water electrolysis Steam reforming Methane pyrolysis
O2 CO2 CO2 CH4 CH4 C
H2 H2 H2
CCUS Residual
emissions
Fugitive
emissions
Fugitive
emissions
Solid
Carbon
Source: Yunus Syed and the authors (KAPSARC).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 2
An $11 trillion global commodity market for clean hydrogen is predicted to An $11 trillion global
develop over the next 30 years (Bloomberg New Energy Finance 2020).
Governments and industry players worldwide currently consider clean commodity market
hydrogen to be an energy vector that is ideally positioned to undertake for clean hydrogen is
three overarching roles:
predicted to develop
• Decarbonize hard-to-abate segments of the energy value chain that over the next 30 years
cannot be easily electrified (e.g., high-temperature heavy industrial
processes, heavy-duty and long-haul road transport, aviation and
shipping).
• Enable sector coupling by integrating the electric power sector with the
heating and cooling, transport and industrial sectors.
• Complement electricity in the energy transition more generally.
Saudi Arabia is a prime example of a country with an immense potential Saudi Arabia is a prime
for clean hydrogen. The Kingdom and the other countries of the Gulf
Cooperation Council (GCC) are continuing their ambitious plans to diversify example of a country
their economies away from oil and gas. Thus, the region shows a growing with an immense
interest in the development and potential of the emerging clean hydrogen
sector. Fully leveraging clean hydrogen to sustainably power the global potential for clean
economy would give the Kingdom and other GCC members a competitive hydrogen
edge in an increasingly carbon-constrained world in which net-zero carbon
dioxide (CO2) emissions are both a requirement and a condition for
survival.
This commentary therefore analyzes the opportunities and challenges
facing Saudi Arabia as it aims to become a frontrunner in the nascent
global clean hydrogen market.
Clean Hydrogen in a Carbon-Constrained World
Clean hydrogen production options are currently undervalued for their zero
Clean hydrogen
or low greenhouse gas (GHG) emissions. In the short-to-medium term, production options are
however, this undervaluation may change as countries and regions ramp
up a range of decarbonization measures following the COVID-19 pandemic.
currently undervalued
Although best used as part of a policy suite to drive the types of innovation for their zero or low
required to reach a net-zero world, carbon pricing initiatives are a prominent
greenhouse gas (GHG)
tool in a policymaker’s toolkit to deter the use of carbon-intensive fuels and
incentivize cleaner technologies. emissions
Currently, 64 carbon pricing initiatives are in place or scheduled for
implementation worldwide. They include 31 emissions trading systems
(ETS) and 33 carbon taxes at the city, state, national and regional levels
(Figure 2). Saudi Arabia’s largest export markets, China and the European
Union (EU), are making substantial efforts to develop such initiatives.
Simultaneously, the EU is planning a carbon border adjustment mechanism
(CBAM). This mechanism will take one of three forms. It may entail a
carbon tax adjustment at the border or the inclusion of importers within
the EU ETS. Alternatively, it may involve import tariffs on products from
countries whose climate policies are not in line with the Paris Agreement
(European Parliament 2020).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 3
Figure 2. Multi-level carbon pricing initiatives (2021) and the planned CBAM.
Source: Authors, based on the World Bank Group (2020) and the Hydrogen Council and McKinsey & Company (2021).
The EU’s CBAM is formulated as a solution to the problem of carbon
leakage. It aims to increase the effectiveness of domestic European
carbon prices. Essentially, the goal is to promote a level playing field for
internationally traded goods and services in terms of embodied carbon
(Blazquez, Dale, and Jeffries 2020). Other countries and regions that are
implementing carbon pricing to reduce emissions will ultimately need to
implement some form of CBAM to offset price differences.
In this context, and with President Xi Jinping’s recent ‘carbon-neutral-
by-2060-pledge’ in mind, it is important to point out that China officially
launched the first phase of its national ETS in February 2021. China’s ETS
allows provincial governments to set pollution caps for 2,267 coal- and
gas-fired power plants for the first time. These firms can purchase the right
to pollute from other firms with lower carbon footprints (Enerdata 2021).
Estimations suggest that China’s ETS is expected to cover one-third of China’s emissions when it is
fully operational. It will eclipse that of the EU to become the world’s biggest
a global carbon price of ETS.
at least $50-100/tCO2
by 2030 is necessary to Recent data show that 16% of total global GHG emissions were taxed in
2020 (World Bank Group 2020). Despite new or expanded initiatives in
cost-effectively reduce many jurisdictions, the average international carbon price in 2020 was
CO2 emissions to meet around $3 per tonne of CO2 (tCO2). In comparison, this price was $2/tCO2
in 2019 (Goldman Sachs 2020). Under the EU ETS, however, the carbon
the Paris Agreement’s price soared beyond 50 euros ($60) per tCO2 in the second quarter of
temperature goals 2021. A prominent London hedge fund expects that this price will reach
100 euros ($121) per tCO2, possibly by the end of this year (Ember-Climate
(High-Level Commission 2021; Mathis 2021). Estimations suggest that a global carbon price of at
on Carbon Prices 2017) least $50-100/tCO2 by 2030 is necessary to cost-effectively reduce CO2
emissions to meet the Paris Agreement’s temperature goals (High-Level
Commission on Carbon Prices 2017).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 4
Clean hydrogen has the potential to play a critical role in an increasingly Clean hydrogen has the
carbon-constrained world. Deep decarbonization pathways for the world
show that green hydrogen alone could meet anything between zero and potential to play a critical
24% (or 696 million metric tonnes) of final energy demand in 2050 (Figure role in an increasingly
3).
carbon-constrained
world
Figure 3. Green hydrogen as a percent of final energy demand in 2050 under different scenarios.
Source: Authors, based on Carbon Brief (2020).
Under Bloomberg New Energy Finance’s strong policy scenario, which
assumes global warming limited to 1.5 degrees Celsius (°C) above
pre-industrial levels, hydrogen meets 24% of final energy demand by
2050. Here, hydrogen plays a significant role in meeting the energy
needs of hard-to-abate sectors, such as industry and transport. The
Hydrogen Council, a global CEO-led initiative of over 90 leading energy,
transportation, industry and investment companies, estimates that green
hydrogen could meet 18% of total final energy demand by 2050 in a global
warming scenario of 2°C above pre-industrial levels. For either scenario to
be realized, comprehensive decarbonization measures must be in place,
and the cost of hydrogen production must drop. Demand for hydrogen must
be created to enable a decline in production costs, and infrastructure must
be built. All of these changes will require substantial policy support.
Saudi Arabia’s Clean Hydrogen Opportunities
Saudi Arabia has the resources, infrastructure and skills to produce Saudi Arabia has the
cost-competitive clean hydrogen. The Kingdom is a low-intensity
hydrocarbon producer with 6 trillion cubic meters of proven natural gas resources, infrastructure
resources, the eighth largest in the world. It has about 25 gigatonnes of and skills to produce
CO2 storage capacity in multiple giant storage formations. Finally, it has
very high direct normal irradiance and wind speeds (BP 2020; Qamar 2020; cost-competitive clean
Ward, Heidug, and Bjurstrøm 2018). hydrogen
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 5
Saudi Arabia’s capabilities are exemplified by its decades-long experience
in the oil and gas industry and world-class chemical production
facilities. Saudi Aramco’s CO2 capture plant at Hawiyah captures and
transports CO2 from the Hawiyah gas processing plant. It then injects the
compressed CO2 into the Uthmaniya oil field. As a mechanism for CO2
storage with enhanced oil recovery (EOR), Hawiyah has a sequestering
capacity of 800,000 tCO2 per year (Aramco 2015). Together with the Al
Reyadah plant in Abu Dhabi, Hawiyah’s carbon capture and storage (CCS)
project plant is the largest in the Middle East.
In addition, the Royal Commission of Jubail, on the Arabian Gulf, and
Yanbu, on the Red Sea coast, are developing dedicated hydrogen pipeline
networks within their industrial cities. The first network was commissioned
in Yanbu Industrial City earlier this year (Almazeedi et al. 2021). Industrial
clusters in cities like Jubail and Yanbu are favorable locations for hydrogen
hubs for several reasons:
1. They can fully integrate industrial gas hubs centered on producing
hydrogen via steam methane reforming with an associated pipeline
network linking these hubs to industrial end users (Air Products 2020a).
2. They are valuable testing grounds for a variety of applications and
business models utilizing CO2. Waste from one application, such as
CO2 from hydrogen production with CCS or excess heat from steel
production, can be used as an input to another application.
3. They provide infrastructure synergies such that heavy industries,
particularly chemicals, fertilizer and refineries, can interface with
shipping, freight transport, pipelines and renewables.
NEOM, a futuristic city NEOM, a futuristic city along the Red Sea coast in northwestern Saudi
Arabia, is expected to be part of any future Saudi hydrogen ecosystem.
along the Red Sea coast The first planning phase makes it clear that NEOM aims to be a hydrogen
in northwestern Saudi hub. Its goal is to provide the basis for the clean feedstock used in the
production of fertilizers, chemicals and oil derivatives. This work is being
Arabia, is expected to be done in collaboration with such mega-players as the Saudi Basic Industries
part of any future Saudi Cooperation (SABIC) and Saudi Aramco (Carpenter 2021).
hydrogen ecosystem NEOM Helios, the world’s largest renewable hydrogen-to-ammonia facility,
marks the beginning of this plan. This project is a joint venture between Air
Products, ACWA Power and NEOM and is scheduled to go onstream in
2025. The plant is powered by 4 gigawatts (GW) of renewables, i.e., solar
energy during the day and wind power at night. These weather conditions
will allow the electrolyzers at Helios to run at a high load factor, with an
estimated annual green ammonia output of 1.2 megatonnes per year. Air
Products will be the exclusive off-taker of this ammonia, which it intends
to transport worldwide as a hydrogen carrier. This ammonia will then
be cracked on site to green hydrogen for the transportation market (Air
Products 2020b).
The cost of blue
The cost of blue hydrogen production is expected to remain cheaper than
hydrogen production that of green hydrogen until at least 2030. Saudi Aramco has successfully
is expected to remain demonstrated the production and shipment of 40 tonnes of blue ammonia
to Japan for carbon-neutral power generation (Shabaneh, Al Suwailem, and
cheaper than that of Roychoudhury 2020). This demonstration was in partnership with SABIC
green hydrogen until at and the Institute of Energy Economics Japan and supported by Japan’s
Ministry of Economy, Trade, and Industry. Turquoise hydrogen production,
least 2030 which does not require CCUS, could act as a substitute for blue hydrogen.
Its marketability, however, depends on improved economics, meaning a
larger market for solid carbon products.
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 6
Due to these characteristics, Saudi Arabia and other GCC countries such
as Kuwait could have a first-mover advantage in the production of blue
hydrogen. This advantage is considered crucial “to secure a foothold in
what could be a 10-to-20-year window of opportunity” (Almazeedi et al.
2021). In the long run, however, green hydrogen will likely prevail over
blue. Green hydrogen will become more competitive as the costs of
renewable energy and electrolyzers decline further. If an effective carbon
price is established, green hydrogen production will likely become more
competitive than blue hydrogen production as renewables-based electricity
will thus replace natural gas as a feedstock.
Saudi Arabia’s hydrogen opportunities also extend beyond its borders.
Specifically, Saudi Arabia can participate in projects of common interest
Saudi Arabia’s hydrogen
with other GCC countries. In this way, these countries can attain economy ambitions can
economies of scale and pool human, capital and technical resources in a
cost-efficient manner. Candidate projects can include regional CCUS and
benefit immensely from
hydrogen hubs modelled on the EU’s Projects of Common Interest (PCIs) scaling up production,
(Almazeedi et al. 2021). PCIs are key cross-border infrastructure projects
that link EU countries’ energy systems. They benefit from, for example,
cooperation, demand
accelerated planning and permit granting by a single national authority and and infrastructure
a common funding instrument (European Commission 2021). Similarly,
Saudi Arabia’s hydrogen economy ambitions can benefit immensely from
throughout the GCC
scaling up production, cooperation, demand and infrastructure throughout
the GCC (Figure 4).
Figure 4. Saudi Arabia’s hydrogen economy within and beyond the GCC.
Source: Yunus Syed (KAPSARC).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 7Finally, Saudi Arabia and Australia were among the first countries
worldwide to signal their plans to produce and export more hydrogen than
they consume. The Kingdom can therefore benefit from participating in
ongoing efforts to establish demand-side incentives, such as standardized
certificates or guarantees of origin (GOs) for hydrogen.
A GO system provides clear labels for hydrogen products, which can
increase consumer awareness and accurately describe the commodity’s
value. Moreover, it can help facilitate market valuation and international
trade in clean hydrogen. The latter is crucially important to countries with
high hydrogen export ambitions, such as Saudi Arabia. The International
Partnership for Hydrogen and Fuel Cells in the Economy (IPHE) has
formed a Hydrogen Production Analysis Task Force (H2PA TF). This
task force is currently developing a technical and analytical methodology
that can be used for market valuation. In particular, it can be used for
the purchase of hydrogen across regions and to identify the emissions
footprint of the various sources of hydrogen (IPHE 2020). The results of the
H2PA TF’s efforts are non-mandatory and are subject to each member’s
discretion. However, its longer-term aim is to contribute to the definition of
clean hydrogen (IPHE 2020).
A mutually recognized, robust international framework for GOs is needed.
Such a framework can avoid mislabeling or double-counting environmental
impacts and can cover CO2-equivalent inputs to hydrogen-based fuels and
feedstocks (IPHE 2020). A GO scheme should also be based on life cycle
GHG emissions from upstream activities, such as electricity generation and
transport. In this way, it can ensure consistency and compatibility with GHG
certification schemes for other commodities, such as electricity or fossil
fuels (IRENA 2020).
Although Saudi Arabia has signaled its clean hydrogen production
intentions, the Kingdom, unlike Australia, has not yet joined the IPHE. The
partnership is open to “national governmental entities” with “significant
commitments to invest resources into research, development and
demonstration activities to advance hydrogen technologies” (IPHE 2020).
Actively engaging in certification discussions would allow the Kingdom
to shape the ongoing discussions on this topic. In turn, these efforts
would serve and strengthen government-to-government and business-
to-government partnerships with major importers, such as Germany, with
whom the Kingdom recently signed a Memorandum of Understanding
(MoU) (Box 1).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 8Box 1: MoU Establishing Cooperation on Hydrogen between Saudi Arabia and Germany.
On March 11, 2021, Energy Minister HRH Abdulaziz bin Salman Al Saud and Economic Affairs Minister Peter
Altmaier signed an MoU on hydrogen. This MoU aims to promote bilateral cooperation in the production,
processing, application and transportation of clean hydrogen.
Source: Ministry of Energy of Saudi Arabia.
To promote bilateral cooperation for the production, processing, application and transport of clean hydrogen and
for joint marketing projects, the MoU aims to:
• Involve relevant stakeholders from research institutions and private and public sector entities in the
implementation of appropriate activities.
• Promote mutual knowledge sharing and technology transfers to Saudi stakeholders and deploy German
technologies to implement and localize new technologies for start-up projects in the Kingdom.
• Make efforts to implement concrete projects, including NEOM.
• Facilitate the development of a CO2-neutral hydrogen sector in Germany.
• Establish a Saudi-German innovation fund to promote clean hydrogen. (Federal Ministry for Economic
Affairs and Energy of Germany 2021).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 9Clean Hydrogen Challenges Within and Beyond Saudi Arabia
The trajectory of clean hydrogen’s future demand as an energy vector
remains highly uncertain. In the long run, green hydrogen may replace
current hydrogen production in the chemicals industry, forcing out
fossil-fuel-based chemical feedstocks. It may form either the fuels or
building blocks for fuels in aviation and shipping, as these sectors have
Outside of the EU, no few alternatives (Liebreich 2020). Other parts of the transport sector (i.e.,
country in the G20, a private and public road vehicles, buses and trucks) face more uncertainty,
and applications may be used in combination. For example, battery
group of leading rich electric vehicles (BEVs) may be used for short-distance travel in personal
and developing nations, vehicles and within cities. Hydrogen fuel cells (H2FCs) may be used for
long-distance and heavy-duty road transportation. The future of water and
has committed to space heating is also uncertain. Hybrid heating pumps that use hydrogen
electrolyzer capacity, or green gas during peak demand times may be used to heat buildings.
Different regions and countries may choose different policy directions (e.g.,
production and demand more H2FCs in Asia, Australia and the U.S. and more BEVs in Europe).
targets. Most of these
Ultimately, however, the evolution of the global clean hydrogen market over
countries lack dedicated the next three decades remains uncertain. Outside of the EU, no country
policy support for in the G20, a group of leading rich and developing nations, has committed
to electrolyzer capacity, production and demand targets. Most of these
hydrogen countries lack dedicated policy support for hydrogen (Figure 5).
Figure 5. Dedicated hydrogen policies among G20 countries (excluding fuel cells).
Source: Authors, based on Bloomberg New Energy Finance (2021).
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 10In addition to formulating ambitious blue and green hydrogen targets, any
dedicated Saudi policy approach will have to address many challenges
amid this uncertainty. Like any government that wishes to build local
production capacity, Saudi Arabia will require government-funded subsidies
to achieve its ambitions. In addition to spearheading the development of
hydrogen hubs, the Kingdom has several subsidy options. One option is
to set progressive quotas for specific industries to gradually increase the
share of hydrogen among the fuels used. Another is to provide producers
with regulated returns, which would allow them to realize pre-determined
returns on costs. Additionally, Saudi Arabia can provide subsidies to end
users of hydrogen. These subsidies would enable users to pay a premium
to use clean hydrogen instead of incumbent carbon-intensive fuels
(Almazeedi et al. 2021).
Next to Hawiyah, the Kingdom needs to increase its investments in a The Kingdom needs to
CCUS backbone and infrastructure to scale up blue hydrogen production.
These investments should preferably be made in cooperation with increase its investments
stakeholders beyond its borders. in a CCUS backbone
Saudi Arabia’s 2015 Nationally Determined Contribution (NDC) under the and infrastructure to
United Nations Framework Convention on Climate Change provides a scale up blue hydrogen
starting point for developing policies and incentives. It mentions CCUS with
EOR as a climate mitigation option (The Government of the Kingdom of production
Saudi Arabia 2015). HRH King Salman announced the Kingdom’s National
Program for the Circular Carbon Economy (CCE) during Saudi Arabia’s
G20 presidency in November 2020. This program will need to build on the
NDC and expand upon the essential requirements, such as:
• A CCUS policy strategy with clear targets and commitments, including
a consistent CO2 capture requirement.
• A legal and regulatory framework for CCUS.
• Essential transport and storage infrastructure to enable the
development of CCUS projects.
• CO2 storage capacity and regulations and location potential.
• Financial enablers for the Kingdom, such as subsidies for captured
CO2, government grants and direct investments in CCUS projects.
CO2 markets worldwide are expected to growth substantially. Thus, Saudi Saudi Arabia’s blue
Arabia’s blue hydrogen ambitions will require the creation of value for
storage and new ways of supporting CCUS deployment. KAPSARC has hydrogen ambitions will
proposed a new transferable asset class as a complementary incentive require the creation of
alongside carbon pricing policies that is specific to CCS technology. This
asset class is a carbon sequestration or carbon storage unit (CSU) and value for storage and
represents a verified tonne of securely stored CO2 or carbon (Zakkour and new ways of supporting
Heidug 2019).1 This double incentive can help address the past challenges
of deploying CCS. These challenges principally include the inability of CCUS deployment
carbon pricing alone to support emergent clean hydrogen technologies
such as CCS and the lack of a price signal for CO2 storage. These
issues have hampered commercial transactions of physical CO2 between
capturers and storers in the absence of utilization.
1
CSUs have no intrinsic emission reduction or removal value but rather will provide a verified record of carbon stock additions to
the geosphere. As such, they can complement and supplement emissions reduction-based policy instruments.
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 11Implementing this plan would require considerable international climate
action by the Kingdom as it will need to establish a voluntary ‘CCS club’
under Article 6 of the Paris Agreement. This club would comprise countries
with high dependencies on fossil fuel production and countries that wish
to prominently include CCS in their NDCs. A CCS club would also provide
a means for differentiated contributions based on the common interest of
pursuing cleaner fossil fuels (Zakkour and Heidug 2019).
A related challenge facing the Kingdom is that blue hydrogen is already
being relegated to a potential transitionary role. Some policymakers in
markets with greater demand for clean hydrogen, such as Europe, have
started to direct most of their policy support mechanisms toward green
hydrogen. The Kingdom’s most effective response is to develop parallel
strategies for blue and green hydrogen production in partnership with other
oil and gas producers. It can then lobby policymakers to create a level
playing field between these two hydrogen options. Almazeedi et al. (2021)
note that “failure to do so may undermine the role of blue hydrogen in the
energy transition.” This bargaining approach should depart from the notion
that clean hydrogen’s business models and use cases may differ strongly
from typical models in the oil and gas industry. Owing to hydrogen’s high
Saudi Arabia should complementarity with electricity, hydrogen business models will likely
be demand-driven rather than supply-driven and will be increasingly
provide government decentralized (Almazeedi et al. 2021).
incentives in the
near term to drive Green hydrogen projects will remain very costly relative to blue hydrogen
in the short-to-medium term. Saudi Arabia should provide government
initial projects and incentives in the near term to drive initial projects and construct the
construct the necessary necessary infrastructure to improve green hydrogen’s affordability. These
incentives can include mobilizing sufficient public and private capital to
infrastructure to improve develop solar and wind electricity projects. The government can also make
green hydrogen’s swaths of public and private land available to project developers, preferably
via long-term leases. Finally, it can allocate renewable electricity capacity
affordability to electrolysis.
The Kingdom’s green hydrogen ambitions, along with those of other
GCC countries, are challenged by the currently low installed capacity for
renewables. Slightly more than 400 megawatts (MW) of installed capacity
in Saudi Arabia’s 80+ GW power system are dedicated to renewables.
The Kingdom’s green The projects that are either under implementation or are signed as power
hydrogen ambitions, purchasing agreements will add roughly 3,300 MW over the coming years.
The Kingdom’s anticipated total installed capacity for renewables in the
along with those of coming years is therefore 3,670 MW (Figure 6).
other GCC countries,
are challenged by the
currently low installed
capacity for renewables
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 12Figure 6. Fossil fuel and renewable installed electricity capacity (MW) in GCC countries (2020 and planned).
Source: Authors and Linah Al Hamdan, based on IRENA (2021).
Saudi electricity consumption in 2019 was 289 terawatthours (TWh)
(ECRA 2019). This level of consumption translates to 144.5 GW of
installed capacity. The Kingdom aims to convert half of its power sector to
renewables. Assuming consumption beyond 2019 is 300 TWh, converting
half of the power sector (150 TWh) to renewables would require 90 Saudi Arabia faces the
GW of installed capacity. This capacity would mainly come from solar enormous challenge
photovoltaics and wind. Importantly, this calculation leaves out the many
gigawatts of dedicated renewable electricity needed for green hydrogen of rapidly scaling up
production. its renewables-based
NEOM’s Head of Energy, Peter Terium, has already stated that the city will
electricity capacity for
“need a multiple of the 4 GW of renewable energy output in the next five to domestic consumption
ten years” (Carpenter 2021). This amount is in addition to the Helios facility.
In short, Saudi Arabia faces the enormous challenge of rapidly scaling up
and clean hydrogen
its renewables-based electricity capacity for domestic consumption and production purposes
clean hydrogen production purposes.
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 13Hydrogen’s low Hydrogen’s low volumetric energy density also presents a transport
challenge for exporters like Saudi Arabia. Figure 7 shows the estimated
volumetric energy delivered cost of green hydrogen from the western region of Saudi Arabia
density also presents to the Port of Rotterdam by 2030. Estimations are made for three different
carriers: ammonia (NH3), liquid organic hydrogen carriers (LOHC) and
a transport challenge liquid hydrogen (LH2) (Hydrogen Council and McKinsey & Company 2021).
for exporters like Saudi
Arabia
Figure 7. Estimated delivered cost of green hydrogen from the western region of Saudi Arabia to Rotterdam (2030).
Source: Authors, based on the Hydrogen Council and McKinsey & Company (2021) and Lambert and Schulte (2021).
We can draw two important conclusions from Figure 7. First, the delivered
cost of hydrogen from Saudi Arabia may be competitive with future
European production costs. These costs range from $3 to $5 per kilogram
(Lambert and Schulte 2021). Second, decomposing or dehydrogenating
LOHC or converting ammonia back to pure hydrogen increases costs
by $1 to $2 per kilogram. If demand for pure hydrogen increases, LH2
will be an ideal carrier once the technology matures and becomes
commercially viable. The direct use of ammonia is more feasible, as the
delivered cost may be much lower than the cost of producing hydrogen in
Europe. In the long run, it may therefore be more viable for Saudi Arabia
to export green hydrogen-based end products, such as steel, cement
A major challenge and aluminum. Exporting green hydrogen-based end products can both
decarbonize the domestic industry and create competitive advantages in
facing Saudi Arabia is carbon-constrained markets, such as the EU.
that of water required
Finally, a major challenge facing Saudi Arabia is that of water required for
for hydrogen production hydrogen production. Specifically, water is directly used as a feedstock for
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 14the electrolysis process and as a process gas (steam) for steam methane Given the increasing
reforming. In a water-stressed region like Saudi Arabia, most water is
sourced from the sea and is desalinated, purified and transported. This importance of assessing
process is enormously energy intensive and leaves a massive carbon the environmental
footprint (Tong et al. 2020). Saudi Arabia has about one-fifth of global
water desalination capacity and used about 11% of its primary energy impacts of the hydrogen
consumption in 2019 for water desalination (BP 2020; ECRA 2020). Given value chain, Saudi
the increasing importance of assessing the environmental impacts of the
hydrogen value chain, Saudi Arabia should include specific considerations Arabia should include
in its water resource planning. For example, the Kingdom may develop a specific considerations
roadmap for powering seawater desalination with 100% renewable energy
and allied technologies, such as brine-free electrolysis (Caldera, Bogdanov, in its water resource
and Afanasyeva 2018). planning
Conclusion
Saudi Arabia faces significant hydrogen opportunities and challenges
beyond the scope of this analysis. Those topics will be explored in
upcoming work by KAPSARC and the King Abdullah University of Science
and Technology (KAUST). These issues pertain to creating a hydrogen
market in general and targeting end-use markets, infrastructure usage
and resource requirements. They also relate to further environmental
considerations for producing hydrogen at a massive scale. Finally, policy
coordination between private and state actors in multiple industries at
multiple levels merits further analysis.
Saudi Arabia has
both the ambition and
That being said, it is clear that Saudi Arabia has both the ambition and opportunity to become
opportunity to become a frontrunner in the nascent clean hydrogen market.
Like all governments wishing to build local hydrogen capacity, however, a frontrunner in the
Saudi Arabia must introduce dedicated policies to promote increasingly nascent clean hydrogen
large demonstration projects and coordinate complex actions. Furthermore,
we have noted that both zero- and low-carbon hydrogen options are market
presently undervalued given their GHG emission characteristics. The
growth in climate policy efforts worldwide, and especially in the EU, is
reasonably likely to lead to an impactful CO2 price in the medium to
long term. Progress toward implementing climate goals in line with the
Paris Agreement will directly or indirectly impact the business cases for Saudi Arabia must
Saudi Arabia and similar highly ambitious exporters. Such progress will introduce dedicated
strengthen the incentives to rapidly scale up clean hydrogen production
and demand. policies to promote
increasingly large
The Kingdom has heard the call for rapid decarbonization. In addition to
the National Program for the CCE, HRH The Crown Prince announced the
demonstration projects
Saudi and Middle East Green Initiatives in March 2021. The Saudi initiative and coordinate complex
aims to restore millions of degraded land areas by planting 10 billion trees
within the Kingdom by 2030. The Middle East initiative aims to plant 40
actions
billion trees throughout the region by 2030 (Saudi Press Agency 2021).
Directly or indirectly, creating a market for clean hydrogen will undoubtedly
also play an essential role in Saudi Arabia’s decarbonization efforts.
Together with future dedicated hydrogen policy support, the CCE and the
Green Initiatives can seize the opportunities and tackle the challenges
mentioned in this analysis. They can pave the way for Saudi Arabia to
become a global clean hydrogen powerhouse in the twenty-first century.
The authors thank Linah Al Hamdan, Dongmei Chen, Dr. Amro Elshurafa
and Yunus Syed (KAPSARC) as well as Dr. Saumitra Saxena (KAUST),
Wael Al-Mazeedi (Avance Labs), Dr. Noé van Hulst (IPHE), Mustafa
Alkhabbaz (Air Products) and Professor Ad van Wijk (Delft University of
Technology) for their valuable contributions to this commentary.
Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 15References
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About KAPSARC The King Abdullah Petroleum Studies and Research Center (KAPSARC) is a non-profit global institution dedicated to independent research into energy economics, policy, technology and the environment across all types of energy. KAPSARC’s mandate is to advance the understanding of energy challenges and opportunities facing the world today and tomorrow, through unbiased, independent, and high-caliber research for the benefit of society. KAPSARC is located in Riyadh, Saudi Arabia. Legal Notice © Copyright 2021 King Abdullah Petroleum Studies and Research Center (“KAPSARC”). This Document (and any information, data or materials contained therein) (the “Document”) shall not be used without the proper attribution to KAPSARC. The Document shall not be reproduced, in whole or in part, without the written permission of KAPSARC. KAPSARC makes no warranty, representation or undertaking whether expressed or implied, nor does it assume any legal liability, whether direct or indirect, or responsibility for the accuracy, completeness, or usefulness of any information that is contained in the Document. Nothing in the Document constitutes or shall be implied to constitute advice, recommendation or option. The views and opinions expressed in this publication are those of the authors and do not necessarily reflect the official views or position of KAPSARC. Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges 20
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