Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and ...

CommentarySaudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Jan Frederik Braun and Rami Shabaneh

June 2021

2Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

The Kingdom has also articulated its

interrelated ambition to become a global

powerhouse in clean hydrogen from renewables and fossil

fuel-based variants

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 of oil exports is massive. The Kingdom is therefore planning to convert half of its power sector to gas and the other half to renewables.

The Kingdom has also articulated its interrelated ambition to become a global powerhouse in clean hydrogen from renewables and fossil fuel-based variants. Powered by renewable energy sources (RES), water electrolysis can produce zero-carbon hydrogen. Natural gas-based methods of hydrogen production include steam methane reforming with carbon capture, utilization and storage (CCUS) and methane pyrolysis, which produces solid carbon as a byproduct. These variants are labelled ‘green,’ ‘blue’ and ‘turquoise’ hydrogen (Figure 1).

Figure 1. Green, blue and turquoise variants of hydrogen production.

Source: Yunus Syed and the authors (KAPSARC).

Hydrogen generated viarenewables

Electricity from RES

Water electrolysis

H2O2

Hydrogen based on fossil gas with

solid carbon

Natural gas

Methane pyrolysis

Fugitiveemissions

Solid Carbon

H2CH4 C

Hydrogen based on fossil gas with CCUS

Natural Gas

Steam reforming

CCUS Residualemissions

Fugitiveemissions

H2CO2 CO2 CH4

3Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

An $11 trillion global commodity market

for clean hydrogen is predicted to develop

over the next 30 years

Saudi Arabia is a prime example of a country

with an immense potential for clean

hydrogen

Clean hydrogen production options are currently undervalued

for their zero or low greenhouse gas (GHG)

emissions

An $11 trillion global commodity market for clean hydrogen is predicted to develop over the next 30 years (Bloomberg New Energy Finance 2020). Governments and industry players worldwide currently consider clean hydrogen to be an energy vector that is ideally positioned to undertake three overarching roles:

• Decarbonize hard-to-abate segments of the energy value chain that 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 for clean hydrogen. The Kingdom and the other countries of the Gulf Cooperation Council (GCC) are continuing their ambitious plans to diversify their economies away from oil and gas. Thus, the region shows a growing interest in the development and potential of the emerging clean hydrogen sector. Fully leveraging clean hydrogen to sustainably power the global economy would give the Kingdom and other GCC members a competitive 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 or low greenhouse gas (GHG) emissions. In the short-to-medium term, however, this undervaluation may change as countries and regions ramp up a range of decarbonization measures following the COVID-19 pandemic. Although best used as part of a policy suite to drive the types of innovation required to reach a net-zero world, carbon pricing initiatives are a prominent tool in a policymaker’s toolkit to deter the use of carbon-intensive fuels and incentivize cleaner technologies.

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).

4Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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). 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 ETS.

Recent data show that 16% of total global GHG emissions were taxed in 2020 (World Bank Group 2020). Despite new or expanded initiatives in many jurisdictions, the average international carbon price in 2020 was 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 price soared beyond 50 euros ($60) per tCO2 in the second quarter of 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 2021; Mathis 2021). Estimations suggest that a global carbon price of at 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).

Figure 2. Multi-level carbon pricing initiatives (2021) and the planned CBAM.

Estimations suggest that a global carbon price of

at 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)

Source: Authors, based on the World Bank Group (2020) and the Hydrogen Council and McKinsey & Company (2021).

5Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Clean hydrogen has the potential to play a critical role in an increasingly carbon-constrained world. Deep decarbonization pathways for the world show that green hydrogen alone could meet anything between zero and 24% (or 696 million metric tonnes) of final energy demand in 2050 (Figure 3).

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 cost-competitive clean hydrogen. The Kingdom is a low-intensity hydrocarbon producer with 6 trillion cubic meters of proven natural gas resources, the eighth largest in the world. It has about 25 gigatonnes of CO2 storage capacity in multiple giant storage formations. Finally, it has very high direct normal irradiance and wind speeds (BP 2020; Qamar 2020; Ward, Heidug, and Bjurstrøm 2018).

Figure 3. Green hydrogen as a percent of final energy demand in 2050 under different scenarios.

Source: Authors, based on Carbon Brief (2020).

Clean hydrogen has the potential to play a critical

role in an increasingly carbon-constrained

world

Saudi Arabia has the resources, infrastructure

and skills to produce cost-competitive clean

hydrogen

6Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

NEOM, a futuristic city along the Red Sea coast in northwestern Saudi

Arabia, is expected to be part of any future Saudi

hydrogen ecosystem

The cost of blue hydrogen production is expected to remain cheaper than that of

green hydrogen until at least 2030

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 along the Red Sea coast in northwestern Saudi Arabia, is expected to be part of any future Saudi hydrogen ecosystem. The first planning phase makes it clear that NEOM aims to be a hydrogen 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 done in collaboration with such mega-players as the Saudi Basic Industries Cooperation (SABIC) and Saudi Aramco (Carpenter 2021).

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 hydrogen production is expected to remain cheaper than that of green hydrogen until at least 2030. Saudi Aramco has successfully demonstrated the production and shipment of 40 tonnes of blue ammonia to Japan for carbon-neutral power generation (Shabaneh, Al Suwailem, and Roychoudhury 2020). This demonstration was in partnership with SABIC and the Institute of Energy Economics Japan and supported by Japan’s Ministry of Economy, Trade, and Industry. Turquoise hydrogen production, 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.

7Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Saudi Arabia’s hydrogen economy ambitions can benefit immensely from scaling up production, cooperation, demand

and infrastructure throughout the GCC

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 with other GCC countries. In this way, these countries can attain economies of scale and pool human, capital and technical resources in a cost-efficient manner. Candidate projects can include regional CCUS and hydrogen hubs modelled on the EU’s Projects of Common Interest (PCIs) (Almazeedi et al. 2021). PCIs are key cross-border infrastructure projects that link EU countries’ energy systems. They benefit from, for example, accelerated planning and permit granting by a single national authority and a common funding instrument (European Commission 2021). Similarly, Saudi Arabia’s hydrogen economy ambitions can benefit immensely from 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).

8Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Finally, 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).

9Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Box 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.

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).

Source: Ministry of Energy of Saudi Arabia.

10Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Clean 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 few alternatives (Liebreich 2020). Other parts of the transport sector (i.e., private and public road vehicles, buses and trucks) face more uncertainty, and applications may be used in combination. For example, battery electric vehicles (BEVs) may be used for short-distance travel in personal vehicles and within cities. Hydrogen fuel cells (H2FCs) may be used for long-distance and heavy-duty road transportation. The future of water and space heating is also uncertain. Hybrid heating pumps that use hydrogen or green gas during peak demand times may be used to heat buildings. Different regions and countries may choose different policy directions (e.g., more H2FCs in Asia, Australia and the U.S. and more BEVs in Europe).

Ultimately, however, the evolution of the global clean hydrogen market over the next three decades remains uncertain. Outside of the EU, no country in the G20, a group of leading rich and developing nations, has committed to electrolyzer capacity, production and demand targets. Most of these 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).

Outside of the EU, no country in the G20, a group of leading rich

and developing nations, has committed to

electrolyzer capacity, production and demand targets. Most of these

countries lack dedicated policy support for

hydrogen

11Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

In 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 CCUS backbone and infrastructure to scale up blue hydrogen production. These investments should preferably be made in cooperation with stakeholders beyond its borders.

Saudi Arabia’s 2015 Nationally Determined Contribution (NDC) under the United Nations Framework Convention on Climate Change provides a starting point for developing policies and incentives. It mentions CCUS with EOR as a climate mitigation option (The Government of the Kingdom of 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 Arabia’s blue hydrogen ambitions will require the creation of value for storage and new ways of supporting CCUS deployment. KAPSARC has proposed a new transferable asset class as a complementary incentive alongside carbon pricing policies that is specific to CCS technology. This asset class is a carbon sequestration or carbon storage unit (CSU) and represents a verified tonne of securely stored CO2 or carbon (Zakkour and Heidug 2019).1 This double incentive can help address the past challenges of deploying CCS. These challenges principally include the inability of 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.

Saudi Arabia’s blue hydrogen ambitions will require the creation of value for storage and

new ways of supporting CCUS deployment

The Kingdom needs to increase its investments

in a CCUS backbone and infrastructure to

scale up blue hydrogen production

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.

12Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Implementing 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 complementarity with electricity, hydrogen business models will likely be demand-driven rather than supply-driven and will be increasingly decentralized (Almazeedi et al. 2021).

Green hydrogen projects will remain very costly relative to blue hydrogen in the short-to-medium term. Saudi Arabia should provide government incentives in the near term to drive initial projects and construct the necessary infrastructure to improve green hydrogen’s affordability. These incentives can include mobilizing sufficient public and private capital to develop solar and wind electricity projects. The government can also make swaths of public and private land available to project developers, preferably via long-term leases. Finally, it can allocate renewable electricity capacity 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 projects that are either under implementation or are signed as power purchasing agreements will add roughly 3,300 MW over the coming years. The Kingdom’s anticipated total installed capacity for renewables in the coming years is therefore 3,670 MW (Figure 6).

Saudi Arabia should provide government

incentives in the near term to drive initial projects and

construct the necessary infrastructure to improve

green hydrogen’s affordability

The Kingdom’s green hydrogen ambitions, along with those of

other GCC countries, are challenged by the currently low installed

capacity for renewables

13Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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 GW of installed capacity. This capacity would mainly come from solar photovoltaics and wind. Importantly, this calculation leaves out the many gigawatts of dedicated renewable electricity needed for green hydrogen production.

NEOM’s Head of Energy, Peter Terium, has already stated that the city will “need a multiple of the 4 GW of renewable energy output in the next five to 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 its renewables-based electricity capacity for domestic consumption and clean hydrogen production purposes.

Figure 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 Arabia faces the enormous challenge of rapidly scaling up its renewables-based electricity capacity for domestic consumption

and clean hydrogen production purposes

14Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Hydrogen’s low volumetric energy density also presents a transport challenge for exporters like Saudi Arabia. Figure 7 shows the estimated delivered cost of green hydrogen from the western region of Saudi Arabia to the Port of Rotterdam by 2030. Estimations are made for three different carriers: ammonia (NH3), liquid organic hydrogen carriers (LOHC) and liquid hydrogen (LH2) (Hydrogen Council and McKinsey & Company 2021).

Hydrogen’s low volumetric energy

density also presents a transport challenge

for exporters like Saudi Arabia

A major challenge facing Saudi Arabia is that of water required

for hydrogen production

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 and aluminum. Exporting green hydrogen-based end products can both decarbonize the domestic industry and create competitive advantages in carbon-constrained markets, such as the EU.

Finally, a major challenge facing Saudi Arabia is that of water required for hydrogen production. Specifically, water is directly used as a feedstock for

15Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

Given the increasing importance of assessing

the environmental impacts of the hydrogen

value chain, Saudi Arabia should include

specific considerations in its water resource

planning

Saudi Arabia has both the ambition and opportunity to become

a frontrunner in the nascent clean hydrogen

market

Saudi Arabia must introduce dedicated policies to promote increasingly large

demonstration projects and coordinate complex

actions

the electrolysis process and as a process gas (steam) for steam methane reforming. In a water-stressed region like Saudi Arabia, most water is sourced from the sea and is desalinated, purified and transported. This process is enormously energy intensive and leaves a massive carbon footprint (Tong et al. 2020). Saudi Arabia has about one-fifth of global water desalination capacity and used about 11% of its primary energy consumption in 2019 for water desalination (BP 2020; ECRA 2020). Given the increasing importance of assessing the environmental impacts of the hydrogen value chain, Saudi Arabia should include specific considerations in its water resource planning. For example, the Kingdom may develop a roadmap for powering seawater desalination with 100% renewable energy and allied technologies, such as brine-free electrolysis (Caldera, Bogdanov, and Afanasyeva 2018).

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.

That being said, it is clear that Saudi Arabia has both the ambition and opportunity to become a frontrunner in the nascent clean hydrogen market. Like all governments wishing to build local hydrogen capacity, however, Saudi Arabia must introduce dedicated policies to promote increasingly large demonstration projects and coordinate complex actions. Furthermore, we have noted that both zero- and low-carbon hydrogen options are 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 and similar highly ambitious exporters. Such progress will strengthen the incentives to rapidly scale up clean hydrogen production and demand.

The Kingdom has heard the call for rapid decarbonization. In addition to the National Program for the CCE, HRH The Crown Prince announced the Saudi and Middle East Green Initiatives in March 2021. The Saudi initiative 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 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.

16Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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17Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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18Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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19Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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About the Project

This commentary is written as part of KAPSARC’s ongoing work for an edited book titled ‘Saudi Arabia and the Hydrogen Economy.’ In this context, and together with research conducted with stakeholders from government, industry and academia within and beyond Saudi Arabia, this commentary provides an early analysis of the Kingdom’s opportunities and challenges in the fast-changing market for clean hydrogen. It serves as an input not only for the aforementioned book, which KAPSARC is editing together with KAUST, but also to support academic thinking, policy discussions and decision-making on clean hydrogen development in Saudi Arabia.

20Saudi Arabia’s Clean Hydrogen Ambitions: Opportunities and Challenges

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. TheDocument shall not be reproduced, in whole or in part, without the written permissionof KAPSARC. KAPSARC makes no warranty, representation or undertaking whetherexpressed or implied, nor does it assume any legal liability, whether direct or indirect,or responsibility for the accuracy, completeness, or usefulness of any information thatis contained in the Document. Nothing in the Document constitutes or shall be implied toconstitute advice, recommendation or option. The views and opinions expressed in thispublication are those of the authors and do not necessarily reflect the official views orposition of KAPSARC.

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