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Saudi Arabia commits to hydrogen ‘new future’

The Opec kingpin is keen to extend its oil export prowess by leveraging the world’s cheapest solar to produce green hydrogen

Saudi Arabia is best-known for its prowess in oil production and role as the de facto leader of the Opec cartel. However, as has been highly publicised over the past few years, with the ambitious but controversial Crown Prince Mohammed bin Salman shaping the kingdom’s future, things are changing.

Indeed, while surprise and considerable scepticism met the 2016 launch of Vision 2030—which professed that Saudi would diversify its economy to reduce dependence on oil while developing the health, education, infrastructure, recreation and tourism sectors—real progress is being seen on the ground. This has come in the form of a wide variety of social, commercial and industrial initiatives that have included the highly publicised lifting of a ban on women driving and the opening up of the kingdom to Western tourists.

State-backed projects throughout the Middle East are rarely done in half measure, and Saudi Arabia’s are no different. As one part of Vision 2030, plans were announced in 2017 to create the Neom (which translates to New Future) smart city entailing a $500bn business and industrial zone covering 26,500km2 between the Red Sea and the border with Jordan.

540mn t/yr – Pure hydrogen consumption by 2050

Despite its vast size, Neom has a stated aim of being “built and powered completely by renewable energy” as it strives to lead the world in commercialising clean energy intensive industries including green hydrogen, produced from renewable electricity.

The first stage in this process came in early July this year when Neom signed a $5bn deal with Air Products, a US industrial gas and chemical company, and Acwa Power, a Saudi Arabian power and desalination utility, to build the world’s largest hydrogen project. The production facility will be powered through the integration of more than 4GW of renewable power from solar and wind.

It will use technology from German industrial engineering giant Thyssenkrupp to produce c.650t/d of hydrogen through electrolysis, with nitrogen produced by Air Products’ air separation technology. Meanwhile, catalysis technology from Danish specialist Haldor Topsoe will be used to produce 1.2mn t/yr of green ammonia when the facility comes onstream in 2025.

Air Products will export the green ammonia around the world, where it can be converted back into carbon-free hydrogen for fuel-cell buses and trucks, among other uses. The company expects the link-up to end-user distribution to cost an additional $2bn.

Production costs

Though traction is building, the hydrogen sector remains in its infancy and the development of green hydrogen, in particular, is held up by cost. The most cost-effective feedstock for producing hydrogen remains coal (black hydrogen) and natural gas via steam reforming (grey hydrogen, or blue hydrogen if the CO2 generated is captured and stored).

“Thermal winds over the Red Sea pick up every afternoon and are complementary to solar PV, yielding a high annual load factor” Wouters, EU GCC Clean Energy Network

Hydrogen produced using steam reforming or coal gasification ($0.90-2.10/kg) has a significant cost advantage compared with blue ($1.50-2.50/kg) or green ($2.50-9.50/kg) hydrogen, according to management consultancy Kearney’s Energy Transition Institute.

However, the cost of green hydrogen has already fallen by around half in the last five years, with another 30pc reduction anticipated by 2025, according to information provider IHS Markit, and countries with large renewables capacity are beginning to invest in larger-scale projects.

Saudi Arabia shelved a $200bn project with Japan’s SoftBank in 2018 that would have resulted in the world’s largest solar power project, at up to 200GW of capacity. But the region is already home to the world’s cheapest solar power projects; when it was launched in late 2019, the 300MW Sakaka project, located inland from Neom in the northwestern Al-Jawf province, boasted a unit price of just 2.34¢/kWh, making it the world’s cheapest at the time.

Sun king

A daytime solar PV project such as Sakaka could be complemented by integrating concentrated solar power with thermal storage to provide 24-hour electricity for as little as 4¢/kWh, according to a report by Frank Wouters, director of the EU GCC Clean Energy Network, and sustainable energy entrepreneur Ad van Wijk. By applying this assumption and introducing an electrolyser, Saudi Arabia could produce hydrogen for $1.75/kg, comparable with the production costs using methane.

Speaking to Petroleum Economist, Wouters says: “The Neom project is much larger and we have seen more aggressive prices for solar PV in the region recently. In January, Total and [Japan’s] Marubeni offered 1.56¢/kWh in Qatar’s 800MW tender and in April, [France’s] EDF and [China’s] JinkoPower submitted 1.35¢/kWh for a 1.5GW project in Abu Dhabi.”

However, Wouters is confident that Neom will be able to surpass that by using a combination of solar PV and wind, “because the thermal winds over the Red Sea pick up every afternoon and are complementary to solar PV, yielding a high annual load factor”.

Neom claims to be among the best sites in the world for green hydrogen in terms of production cost. Wouters says: “The resulting cost of green ammonia will also be among the lowest in the world. I believe that if we then factor in a carbon price… the green ammonia could be competitive in the market.”

While the production of ammonia has many uses—including fertilisers, cleaning products and in manufacturing—perhaps its greatest appeal lies in the ease in which it can be transported over long distances and green hydrogen re-extracted. It therefore represents a vital cog in the energy transition. As such, Kearney estimates that, by 2050, pure hydrogen consumption could grow to 540mn t/yr, with the bulk of the increase coming from the transport and industrial sectors.

Leading role

With such an abundance of available land on which to install PV projects, energy sector knowhow from decades of developing world-class oil and gas assets and its strategic location, the countries of the Mid-East Gulf could become world leaders in hydrogen production. As is clear with Neom, export markets are going to be key to the development of the industry as demand for green hydrogen and ammonia grows in Asia and Europe.

2.34¢/kWh – Unit price of 300MW Sakaka project

While these export markets develop, it is likely that Middle Eastern green hydrogen producers will also begin to develop local applications. Wouters notes there are likely to be a diverse set of drivers for the sector’s development throughout the region. “In the UAE hydrogen may be a solution for the potential excess winter power after the 5.6GW nuclear power plants come online,” he says, adding that “clean transport fuels in the GCC would be very welcome to improve the air quality, especially in the cities”.

Riyadh is keen for Neom to become a global hub for innovation and technological advancement. If it succeeds in creating a world-scale project capable of producing and exporting hydrogen to world markets, it is likely to usher in a new era of hydrogen developments throughout the Mid-East Gulf.

While doing so will take many years, Saudi Arabia’s hydrocarbon resources offer Riyadh the convenience of time. As demand for crude drops and the role of hydrogen in the energy mix increases, it could turn out to be the kingdom’s next great resource.

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