As the global push for decarbonisation gathers momentum, hydrogen—currently a niche industry dominated by the fossil-fuel–derived variety of the fuel—is rapidly evolving. However, only 5% of the planned low-carbon hydrogen projects have reached the investment decision stage.

The market leaders of tomorrow will be those who can navigate the technical, financial, regulatory and infrastructural challenges today. Gulf Cooperation Council (GCC) countries are among those seeking to strategically position themselves as leaders in low-carbon hydrogen production and trade.

They possess several advantages that may give them an edge over competitors. Navigating the infrastructure and export challenges will be crucial as they continue to implement their plans. GCC countries could leverage their positions to develop green hydrogen’s derivatives market for long-distance transport and to refurbish pipelines for short distances.

Investment in research and development is critical to scale electrolysers and CCS. Robust certification processes are also needed to build an efficient hydrogen market.

Much of the excitement is centred on the potential of low-carbon hydrogen to fuel energy-intensive industries such as steel, cement, petrochemicals and heavy transport. Together, these account for 30% of global greenhouse gas emissions and are difficult to decarbonise because the technology is either lacking or too expensive. Green and blue hydrogen are seen as promising solutions, expected to help reduce emissions by 20% by 2050, according to Ricardo Roa Barragan, CEO of Colombian NOC Ecopetrol, in an article for the World Economic Forum.

The market leaders of tomorrow will be those who can navigate the technical, financial, regulatory and infrastructural challenges today

The hype around hydrogen’s potential is reflected in demand forecasts. By 2050, low-carbon hydrogen is expected to displace more than one-third of current global oil demand, according to the UK’s Department for Business, Energy & Industrial Strategy. Global consumption is expected to reach 145mt by 2030 and up to 660mt by 2050, exceeding $1t in value, Ecopetrol’s Barragan wrote. This compares with 95mt overall in 2022, equal to just 2.5% of the world’s energy consumption, according to the IEA.

The hydrogen industry is rapidly evolving as countries across the globe seek to capitalise on future demand by enacting policies to incentivise projects. The US and the EU are heavily subsidising the production of clean hydrogen, China is on a project and pipeline building streak, and the announced number of projects globally keeps growing.

In the MENA region, the outlook for the industry is positive. According to the IEA, the Middle East is third globally in terms of hydrogen consumption (13%) after China (29%) and North America (17%); it ranks third after China and Europe in the concentration of planned low-carbon hydrogen projects.

The Gulf is home to the world’s largest green hydrogen project under construction: Neom in Saudi Arabia. The project achieved financial closure in mid-2023 with a total investment value of $8.4b and is expected to start production in 2024. Saudi Arabia and other countries in the GCC are working to position themselves at the forefront of low-carbon hydrogen production and may possess significant advantages in financing and cost-reduction compared with Europe and North America.

Technological, financial and regulatory barriers

For the countries with ambitions to become market leaders in hydrogen production, creating an environment conducive to scaling hydrogen projects is still a challenge.

Scaling up production is a key hurdle for, and focus of, innovators and industry players in low-carbon hydrogen. A key constraint is the scalability of interlinked technologies: electrolysis and renewable energy, in the case of green hydrogen; and CCS in the case of blue hydrogen.

Increasing both the size and efficiency of electrolysers while reducing costs is a key barrier in green hydrogen production. The process is energy-intensive, and the amount of energy lost significant; meanwhile, capital costs exceed $1,000/kW and must fall to under $400/kW to be competitive with fossil fuel technologies.

Installing sufficient renewable energy to power electrolysers is another technical challenge. Renewable energy installations need to be ramped up but are often constrained by large land requirements and lack of land availability, high inflation, high component costs, and lengthy licensing processes.

For blue hydrogen, mass deployment of CCS remains challenging due to technical limitations, including inefficiency and cost.

Financial and regulatory complexities

To create more certainty in the emerging hydrogen market, it will be important to address the low development rate of the technology as well as the lack of standard regulations across the supply chain.

Without these issues being addressed, the market faces a set of financial complexities. The high capital investment costs—billions of dollars for large-scale hydrogen projects—coupled with high inflation driving up the costs of equipment and low financing incentives, make traditional lenders and financing institutions risk averse. In 2020, green hydrogen was expected to sell at $2.5/kg by 2030; however, inflation and interest rates have seen this figure shoot to an estimated $5–6/kg by 2030, according to Neom, driven in particular by the cost of renewables and electrolysers. The total investment gap in the global hydrogen market is expected to reach $460b by 2030.

Developing regulatory frameworks and standardising transport, storage, and safety requirements and certifications will be key to facilitating the market’s development. The implementation of safety regulations is vital given that hydrogen is a highly flammable gas.

Infrastructure and global trade

Building the required infrastructure remains a major impediment to the development of the global hydrogen market. Production, storage and transport needs are estimated at several trillion dollars.

At the root of the issue is the cost and complexity involved in storing and shipping hydrogen, which has a lower energy density by volume than fossil fuels. The most promising storage medium is compressed hydrogen in a gaseous state, which is difficult to transport. While technically and financially challenging, some natural gas pipelines can be retrofitted to carry the fuel over short distances.

However, long-distance transportation requires liquefaction by cooling (to below -253°C), a process that results in total energy loss of 30–40%. Storing hydrogen in liquid state at that temperature also requires special insulated cryogenic storage tanks, the cost of which is substantial.

GCC’s competitive edge

The GCC countries are home to ten of the 14 planned or newly completed trade pilot projects for low-carbon hydrogen between 2020 and 2023, with Saudi Arabia in first place. The Kingdom, together with the UAE and Oman, leads the region in low-carbon hydrogen projects. The three countries are home to 37 projects under development overall. A large number, 75%, are in green hydrogen. In total, 14% of the projects have already reached FID, according to data from the IEA.

145mt – Hydrogen consumption expected by 2030

The GCC countries benefit from financial robustness—although at different levels— enabling them to invest in capital-intensive technologies and infrastructure as well as in much-needed research and development. Saudi Arabia and the UAE are also well-positioned to tap into foreign debt issuance.

Additionally, the Gulf region boasts significant renewable energy resources, coupled with vast areas of cheap land, and relatively speedy licensing and development processes compared with the US and EU countries. These factors, in addition to financial resources, have led to record-low renewable energy prices. Competitive prices are vital for powering electrolysers and producing cost-competitive green hydrogen.

These financial resources can be diverted into low-carbon technologies that can scale up hydrogen, such as renewable energy developments, electrolysers and CCS.

Strategic leverage

Beyond hydrogen production, a key asset of the GCC region is in optimising distribution
infrastructure and export by exploring possible linkages with the existing ammonia trade market.

Despite the cost, repurposing pipelines, when applicable, for transporting green hydrogen short distances is the path forward. For long distances, green ammonia, a hydrogen-derivate, could emerge as viable solution. Green ammonia can be liquefied at higher temperatures than hydrogen and thus potentially be transported across long distances at lower cost. Ammonia is already a globally traded commodity for industrial uses, mostly for fertiliser production. However, green ammonia is still at a nascent stage of technological development and therefore requires significant feasibility assessments and research and development resources.

Additionally, the GCC countries are geographically well-positioned to meet the ambitious green hydrogen goals of the EU and some Asian markets, and to service routes for the trade of green ammonia. The development of the dedicated infrastructure would require, in addition to financing, establishing market regulations and safety standards. Building hydrogen hubs can also leverage the region’s location to facilitate the distribution and storage of hydrogen across the region and to Europe and Asia. Hubs can optimise supply chain efficiency and reduce transport costs.

Components such as electrolysers and CCS must be scaled and their efficiency improved. All of this requires substantial investment in research and development, as well as in project deployment, requiring innovative financing mechanisms and government support.

Finally, the harmonisation of international standards and the development of robust certification processes will be key to fostering an efficient global hydrogen market. If all these factors are addressed, the hydrogen economy will provide the same leverage for GCC countries as the hydrocarbon economy—placing them in an advantageous position as the rest of world catches up.

 Jessica Obeid is head of energy transitions at independent research and advisory firm SRMG-Think.

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Author: Jessica Obeid