A trio of pacts last month between state-owned Adnoc and Asia’s leading energy consumers to cooperate in the development of the fast-growing hydrogen industry illustrated the speed with which even the world’s leading oil parastatals are being forced to bend to international decarbonisation pressures.

Deals were struck in quick succession with South Korea, Malaysia and India—as the Emirati behemoth scrambles to lock in a dominant role in the changing energy landscape. And in early April, the UAE’s federal authorities signed an accord with Japan, which is emerging as the regional pioneer in hydrogen use, to collaborate on the development of an international supply chain for the fuel.

3mn t/yr – Japan’s target for hydrogen in generation mix by 2030

That Tokyo should choose the UAE for its first intergovernmental hydrogen deal builds on a mutual, albeit asymmetric, energy dependence dating back decades between the chronically energy-poor Asian giant and the federation’s oil-rich main emirate. Adnoc typically sells over a quarter of its crude to Japan (the world’s fourth-largest importer), to which it is the second-largest supplier, and until 2019, Japanese power companies had bought the Emirati giant’s entire LNG production, while Inpex and other Japanese parastatals own extensive upstream equity stakes.

The evolution of the partnership to adapt to the buyer’s changing energy preferences appears inevitable. Japan’s Carbon Neutral 2050 plan calls for the energy mix to incorporate 3mn t/yr of hydrogen by end-decade—by which time the government intends to have in place an international blue ammonia supply chain—and 20mn t/yr by mid-century.

Innovations

The revolution under way in the international energy industry strikes Adnoc at a propitious time in its 50-year history. Since the oil price crash in the middle of last decade, the company has cast off its conservative reputation to undertake a series of financial and operational innovations—including an early venture into carbon capture, utilisation and storage (CCUS) that will expand sixfold to 5mn t/yr under ambitious blue hydrogen plans unveiled in January.

However, there is also a sense of urgency: the potential for any country with sufficient endowment of renewable resources to produce green hydrogen at scale theoretically implies a multitude of possible long-term competitors while, more pressingly, other regional oil producers are likewise aiming to corner the fledgling blue market. Saudi Aramco shipped a pilot blue ammonia cargo to Japan in September. The memorandum of cooperation between the UAE's Ministry of Energy & Infrastructure and Japan's Ministry of Economy, Trade and Industry calls for a feasibility study on a similar arrangement—and builds on a deal between the latter and Adnoc, inked three months earlier.

One innovation by the company under its newly dynamic iteration was the expansion of its upstream equity partnerships beyond Japan to other key Asian consuming countries through allocating their state energy firms stakes in the emirate’s main oilfield concessions in the second half of last decade. The strategy is now bearing unforeseen fruit. On 4 March, one of the firms, South Korea's GS Energy, formally pledged to explore collaboration opportunities in blue hydrogen production and its export as ammonia, while a vaguer energy sector co-operation agreement two weeks later with New Delhi (an upstream stakeholder since 2018) singled out hydrogen as an area for potential joint efforts. 

An agreement with Malaysian NOC Petronas on 10 March to collaborate in both hydrogen and CCUS differed in being the first between the two state companies—reflective of Malaysia being only a minor crude importer. Its context, amid a wider cooperation pact including upstream hydrocarbons, is also a reminder that Abu Dhabi still has lucrative oil and gas sector investment opportunities with which to tempt prospective partners. Two licences from Adnoc’s second international bid round remain unawarded, while further upstream auctions are planned. Petronas also signed a pact with Abu Dhabi’s original clean energy pioneer, state-owned Masdar, to examine joint investment in green hydrogen and renewables.

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Author: Clare Dunkley