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Fast emerging globally as a means to help the world decarbonise, green hydrogen is a market where GCC countries have an advantage, thanks to the region's abundance of inexpensive solar energy.
Powered by renewable sources, green hydrogen can fuel a range of applications, from industrial processes to passenger cars. But low production costs are not enough – transporting green hydrogen to attractive markets can cost up to two times the initial production expense.
As a result, the success of green hydrogen ultimately depends on the supply chain. GCC countries will only be able claim a stake in this fast-growing market if they reduce both the energy and cost intensity of supply-chain processes – ie, if they lower the landed cost of getting green hydrogen to customers.
By 2050, demand for green hydrogen worldwide will top 530 million tonnes, according to analysis by Strategy&.
That equates to approximately 7 per cent of global primary energy consumption, displacing roughly 10 billion barrels of oil equivalent a year, more than a third of global production right now.
GCC countries have a clear cost advantage over the competition in terms of green hydrogen production. However, transportation to the most attractive import markets in Europe and Asia requires that it is converted to green ammonia during shipping, and then converted back to gaseous hydrogen at the destination, through a process called 'cracking'.
Ammonia, a widely traded commodity, is manufactured through a well-established process that calls for high pressure and temperature. Most shipping routes for ammonia track the same potential flows for green hydrogen exports, with port facilities already equipped to handle ammonia at scale.
Moreover, some advances are in the works to reduce the complexity and energy required to produce ammonia, so that the process itself will become greener.
At the destination site, the cracking process required to convert ammonia back to highly pure hydrogen is the least mature aspect of the value chain. Yet, as with ammonia production, new technologies will likely simplify the process while also increasing its efficiency.
A key risk for GCC countries is timing. Other countries have already begun investing in green hydrogen. To remain competitive, GCC policymakers need to focus on four strategic imperatives:
> 1. Develop capabilities to produce green hydrogen at scale and at the lowest possible cost
First, countries should reinforce their cost advantage in green hydrogen production. To produce the energy needed, they should continue their investments in utility-scale solar farms.
At the same time, they should develop technologies most suitable for at-scale green hydrogen production.
> 2. Increase green ammonia production
The second imperative is to build green ammonia production plants that are tightly integrated with hydrogen generation facilities.
By implementing established processes, and applying technical innovations to improve them over time, GCC countries can reduce costs and capitalise on scale advantages. Securing sizable offtake agreements for cornerstone volumes will be critical to the economic viability of green ammonia production plants.
There are already moves within the GCC to this effect. For example, US-based Air Products and Saudi Arabia's utilities developer Acwa Power and Neom recently announced an agreement to build a $5bn green hydrogen-based ammonia production facility that is expected to be operational by 2025.
Air Products will be the exclusive offtaker of the green ammonia and intends to transport it globally to be cracked to produce green hydrogen for the transportation market.
> 3. Focus on master cracking
The third imperative is to redouble efforts to implement ammonia cracking in core export destinations, including the EU, Japan, South Korea and the UK. Vertically integrated cracking operations could reduce cracking costs by 15 to 20 per cent through scale advantages.
> 4. Develop green hydrogen hubs
The fourth imperative is to create integrated hubs that combine green hydrogen and ammonia infrastructure.
Domestically, these hubs can focus on the production of green hydrogen and ammonia. In key export destinations, centralised facilities can focus on reconverting ammonia back to high-purity hydrogen for end customers.
Ideally, these facilities can leverage existing port and industrial infrastructure, such as for liquefied natural gas.
As with other components of the green-hydrogen economy, concentrating capabilities and infrastructure can generate scale effects throughout the hydrogen supply chain, creating efficiencies and leading to lower unit costs.
Such infrastructure investments are already under way in other geographies, most notably in Australia, which is expected to be a key global competitor to the GCC for green hydrogen exports.
For example, in late October last year, the Australian government announced it was moving forward with a $50bn green hydrogen hub in Western Australia, with 26GW of renewable energy generation capacity from wind and solar. The project is scheduled to come online in 2027.
As the world moves to decarbonise, green hydrogen could be a critical part of the energy mix. Moreover, it represents a lucrative opportunity for GCC countries to transition away from their reliance on carbon-based resources and build the capabilities need to thrive in a sustainable future.
This opportunity will not wait however. Governments must take decisive action in order to capitalise on the market, or they risk losing ground to hydrogen producers and exporters in other markets.
About the authors
By Ulrich Koegler and James Thomas, partners, and Susie Almasi, executive advisor, with Strategy& Middle East, part of the PwC network
More from MEED on the hydrogen market
> Firms plan 1GW clean hydrogen plant in Oman
> Region ramps up hydrogen agenda
> Clean hydrogen could compete with fossil fuels by 2030
> Germany supports Saudi hydrogen project
> Gulf nears hydrogen benchmark
> Water electrolysis market to reach $10.2bn
> Green hydrogen consortium formed
> Annual $1bn green hydrogen investments in 2023
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