Middle East eyes global role in green hydrogen trade – S&P Global

Middle East eyes global role in green hydrogen trade – S&P Global

Hydrogen project developers in the Middle East are expected to vie for low-carbon hydrogen/ ammonia tenders across Asia and Europe, capitalizing on successful trial shipments in recent years and significant capacity currently under construction, according to industry experts.

The region has 67 low-carbon or renewable hydrogen and ammonia projects in development with combined production capacity of 9 million mt/year, of which 1.4 million mt/year is in advanced development, S&P Global Commodity Insights data shows.

The potential for low-cost renewable power generation from wind and solar, and existing gas production make the Middle East well-placed to be a source of cheap low-carbon hydrogen for the global market. However, the volumes available for export are somewhat in doubt, with an increasing share of production being allocated to domestic demand, according to Commodity Insights analysts.

The prospects of low-carbon ammonia exports from the wider region got a boost in July after H2Global awarded the first German hydrogen derivative import tender to Fertiglobe at Eur1,000/mt ($1,088/mt) for delivery to Northwest Europe, from its Ain Sokhna plant in Egypt. Fertiglobe is to supply a total of up to 397,000 mt by 2033, with an initial volume of 19,500 mt in 2027.

In May, Abu Dhabi National Oil Company sent a cargo of certified blue ammonia to Japan. It came in the wake of several trial cargoes from the Middle East, including Saudi Arabia’s Arabian Mining Co.’s Ma’aden shipment of a blue ammonia cargo to China in May 2023, part of an agreement to export 25,000 mt to Shenghong Petrochemicals.

The cargo followed the first transports of clean ammonia by INPEX, IHI Corp. and Mitsui OSK Lines to Japan from the UAE in July 2022 and Abu Dhabi National Oil Company’s blue ammonia cargoes to INPEX, Idemitsu and Itochu in 2021.

The next step is to bid in the upcoming tenders – a Japanese Contracts for Difference scheme to support the supply of low-carbon hydrogen and derivatives currently underway, to help close the price gap with conventional fuels; and a South Korean auction earlier in 2024 for low-carbon hydrogen-fired power generation for up to 6,500 GWh/year over a 15-year period, from 2028.

according to the November update of Commodity Insights’ report,

The Middle East is emerging as a cluster of lowcarbon hydrogen production,

“Hydrogen production with carbon capture and sequestration: Status of the global project pipeline.”

The report said, noting the region now has 40% of global capacity under construction,

Middle East’s production [is] likely even cheaper than subsidized US production,

With the region having become a large producer of low-carbon fuels, there was a possibility of a competition between the US and Middle East for export markets in Japan and South Korea, S&P Global analysts Brian Murphy, Matthew Hodgkinson and Katherine Leydon said in the report.

To aid future trade, potential destination markets are busy working on clean hydrogen specifications to establish a framework for commercial trades. The EU released its rules for renewable hydrogen production in 2023.

The Azeri UN Climate Change Conference presidency officially launched in November the COP29 Hydrogen Declaration, which seeks to promote low-carbon hydrogen uptake and accelerate global standards around the green energy carrier.

In the Middle East, developers are backed by substantial capital, and once the rules around specifications – such as matching hydrogen and renewable energy – are released, they can make their projects compliant with markets they are looking to sell products to, experts say.

The region has among the lowest levelized costs of renewable hydrogen production globally, and these are forecast to fall.

Platts, part of Commodity Insights, assessed hydrogen production via alkaline electrolysis in Qatar at an average of $4.12/kg in October, compared with around $8/kg in Europe and Japan.

The Middle East is forecast to produce 17.6 million mt of hydrogen by 2030, exporting 0.8 million mt of mostly low-carbon and renewable hydrogen, data from Commodity Insights show.

By 2040, Middle East will be the fourth largest producer of clean hydrogen, behind the Asia-Pacific region, Europe and North America, with production projected at 9.1 million mt, exporting 2.4 million mt of low-carbon hydrogen.

In 2023, the region was seen as the leading production and export region, but developments elsewhere have leapfrogged the Middle East, as projects accelerate in Europe and elsewhere.

Project milestones

Commodity Insights analysts expect the Middle East to have 7.4 GW of electrolyzer capacity online and 700,000 mt/year of carbon capture-enabled methane reforming production by the end of 2030.

The 2.2-GW Neom green hydrogen megaproject under construction in Saudi Arabia reached financial close in the first quarter of 2023, with some 23 banks and investment firms providing $8.4 billion in finance. The project is targeting 240,000 mt/year of renewable hydrogen production from 2026, powered by 4 GW of renewables. Air Products has an exclusive offtake agreement for the green ammonia produced from the plant and is lining up supply agreements in Europe.

Meanwhile, ACME’s 100,000 mt/year renewable ammonia project in Duqm in Oman closed financing in July 2023 for a first phase, backed by Rupee 40 billion from Indian company REC.

Both Neom and ACME moved to construction ahead of FID: Neom in October 2022 and ACME in December 2022.

ACME’s project, being built in partnership with Norway’s Scatec, has a binding term sheet agreement with fertilizer giant Yara International, to be formalized into an offtake agreement for what is expected to be the entire output from phase one.

InterContinental Energy and its partners including Shell and OQ, developing the Green Energy Oman (GEO) project, entered into an agreement with the government’s hydrogen sector developer Hydrom in June 2023 that grants the consortium the right to develop facilities for producing renewable hydrogen in the Al Wusta region of Oman.

Wataru Ikushima, general manager of New Energy at Marubeni, told Commodity Insights in May, spelling out the company’s global plans, where Omani and Saudi Arabian projects have a significant position.

The reason why we’re working with both Japan and Korea is that we have projects in Australia, Canada and Middle East, and we need to have many offtakers,

Infrastructure

Middle Eastern companies are expanding their carbon capture, utilization and storage (CCUS) project portfolios, aiding the growth of low-carbon hydrogen, the Commodity Insights report said.

The November report said :

Owing to low gas prices and construction costs, the Middle East could be an appealing exporter of ammonia produced with CCUS,

“About 400,000 mt/year H2 of capacity went into construction in the Middle East this quarter.”

The region’s larger ambitions were reflected in a G20 announcement in September 2023 of a planned trade corridor including hydrogen pipelines through India, the Middle East and Europe.

European Commission President Ursula von der Leyen said at the G20 summit in New Delhi in 2023,

It will be the most direct connection to date between India, the Arabian Gulf and Europe, with a rail link that will make trade between India and Europe 40% faster with an electricity cable and a green hydrogen pipeline to foster clean energy trade,

A large Indian developer said that the India-Middle East-Europe hydrogen economic corridor would likely mean speedier clearances of clean hydrogen/ammonia exports via existing rail, road and sea routes.

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