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Saudi-Japan hydrogen cargo may herald major trade route

Saudi Arabia has big plans for hydrogen, and its recent shipment of blue ammonia to Japan looks like a sign of things to come

As hydrogen gains traction around the world, it is beginning to reshape strategic relations in the oil industry. In late September, the first shipment of blue ammonia set sale from Saudi Arabia headed for Japan, a country reliant on imports for more than 90pc of its primary energy supply.

The cargo is part of a supply network demonstration project between Saudi Aramco and the Institute of Energy Economics, Japan (IEEJ) in partnership with Saudi Arabian Basic Industries Corp. While the volume is small, at 40t, it is a significant step and is seen by many as heralding a major shift towards the growth of the circular carbon economy.

Groundwork complete

The project is the culmination of plans laid out by Aramco and IEEJ in 2017. This followed the Japan-Saudi Arabia Master Plan, which sought to further strengthen the strategic partnership through the Saudi-Japan Vision 2030.

Later in 2017, Japan’s Ministry of Economy, Trade, and Industry (Meti) announced its new hydrogen strategy, which established a roadmap for the first commercial imports of “CO2-free ammonia” as a hydrogen energy carrier “by the mid-2020s”. Japan’s hydrogen strategy emphasises the development of an international hydrogen supply chain that supports a cost target of 18ȼ/m3.

“Saudi Arabia can produce 30mn t of carbon-neutral blue ammonia hydrogen per year by sequestering CO2” Masakazu, IEEJ

While the initial cargo is small, it is a significant milestone for both countries. In documents provided to Petroleum Economist by IEEJ, chairman and CEO Toyoda Masakazu alluded to the clear intention to build upon a successful pilot.

“According to our research, all the oil refineries in Saudi Arabia can produce 30mn t of carbon-neutral blue ammonia hydrogen per year by sequestering CO2. That means that almost 10pc of power in Japan can be generated by such blue ammonia hydrogen available now only in Saudi Arabia,” says Masakazu.

“As an action plan, we can start with co-firing blue ammonia hydrogen at coal or gas fired power stations and finally need to move to single firing of 100pc blue ammonia hydrogen.”

Strategic shift

For Japan, with scant natural resources of its own, the urgency to implement a hydrogen/ammonia supply chain is unsurprising. However, Saudi Arabia’s plans to dive into hydrogen come as part of the wider aim of Vision 2030 to diversify the economy away from its historic dependence on oil.

Mindful of the role hydrogen may play in the global energy industry, Aramco is positioning to translate its leadership of the oil sector into the hydrogen economy. In addition to the financial benefits of creating further value from every barrel of hydrocarbons produced, the company is likely to gain reputationally from very visibly and tangibly embracing the energy transition.

Plans for a listing on international stock markets remain on the table, and ensuring that the company is viewed positively through the lens of environmental, social and governance criteria is a major priority for senior management.

Multiple projects

The main hydrogen story in Saudi Arabia is the recent signing of a $5bn deal to develop the world’s largest hydrogen production facility at Neom, the kingdom’s $500bn smart city under construction on the Red Sea coast.

However, various other initiatives are ongoing that highlight the kingdom’s shift towards hydrogen. Over the past 18 months, Aramco has acquired hydrogen fuel cell vehicles from Hyundai and Toyota for pilot projects, while opening Saudi Arabia’s first hydrogen charging station. Meanwhile, earlier this year, French firm Air Liquide started supplying hydrogen from a facility in Yanbu Industrial City to nearby Samref, the Middle East’s largest refinery.

40t — Initial cargo of hydrogen

Aramco’s chief technology officer, Ahmad Al Khowaiter, stated publicly: “Our approach is to develop fuel-flexible, efficient reforming technologies that can transform oil and gas into hydrogen while capturing the CO2. This will allow the production of carbon-free hydrogen wherever it is needed in the world.”

Despite being 98.5pc state-owned, Aramco increasingly measures itself against IOCs. Just as has been evident in the recent shift in focus of BP, Shell and Total, the Saudi company has been actively progressing a strategy of diversification.

With crude unit costs of less than $4/bl, oil production will remain core to the company’s business model for decades to come, but blue hydrogen, ammonia and renewables have already started to become increasingly important. With cheap oil and gas and some of the world’s most efficient solar electricity production, Saudi Arabia has all the ingredients to lead another energy market.

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