Oman’s energy sector projects have historically moved slowly: a greenfield refinery at Duqm, its flagship downstream project since the late 2000s, started up only in February. Hydrocarbon licensing rounds are also drawn-out affairs.

However, less than 18 months after the sultanate launched its innovative system of green hydrogen auctions—whereby prospective developers bid for allocation of land in the most renewables-rich areas to carry out integrated production projects—eight schemes have been licensed. The projects envisage total output of 1.4mt/yr by the end of the decade and investment of more than $49b, roughly equivalent to the country’s entire existing foreign direct investment stock.

The speed of progress reflects the importance the embryonic sector has assumed in the government’s long-term economic diversification strategy; a holistic policymaking and regulatory approach; and, relatedly, the level of international investor interest in exploiting Oman’s climatic and geographical advantages to produce green hydrogen.

$49b – Total investment

In late April, the initial licensing programme concluded with the award of two 340km² blocks in the southern Dhofar region tendered in a second auction launched in June last year for projects said to entail combined investment of more than $11b.

One went to a team of Australia’s Fortescue and the UK’s Actis for a scheme to produce 200,000t/yr of green hydrogen, either for intended sale to local industrial users or for export as green ammonia from Salalah—a southern port and industrial hub.

The vote of confidence of Perth-based Fortescue is a notable fillip for the authorities. Amid the dizzying proliferation of green hydrogen projects announced worldwide over the past three years, the company is one of the few to have taken FIDs—on three schemes in the US and Australia.

The second plot was allocated to a consortium of France’s EDF Renewables, Japan’s Electric Power Development Company and London-based hydrogen startup Yamna for a 2.5GW project ending in the development of a 1mt/yr green ammonia plant in the Salalah Free Zone. Each will require the installation of around 4.5GW of greenfield renewables capacity.

Another tranche of land in the sun- and wind-rich region was apportioned to a ‘legacy’ scheme— under early design and development before regulatory structures caught up—to a team led by Japan’s Marubeni. The project is targeting 1mt/yr of carbon-free ammonia.

Need for speed

The need for speed was inherent in Muscat’s ambitious green hydrogen strategy, unveiled in October 2022, which targets 1–1.25mt/yr of production onstream by 2030. The eight schemes now licensed would take output comfortably over the line—on the hugely optimistic assumption that all proceed as planned. In common with the second round, the debut auction last year for plots around Duqm, on the east-central coast, attracted an impressive roster of aspirant developers: oil majors BP and Shell will bring vast expertise and connections along and across international energy value chains to their respective ventures, while several legacy projects in the area again absorbed into the new regulatory purview have been under detailed planning for several years.

Nonetheless, the schemes will face the same problems hindering the sector’s evolution worldwide, irrespective of the calibre of the developer—notably a vicious circle whereby high costs preclude securing the offtake commitments required to make projects sufficiently bankable to enter construction, and a resulting lack of firm demand for electrolysers also preventing their price falling.

Offtake milestone

A significant milestone was thus reached in March when India’s Acme secured the first binding long-term offtake commitment for Omani-made green hydrogen. It firmed up a non-binding agreement signed a year earlier with Norwegian fertiliser giant Yara International to sell the 100,000t/yr of green ammonia produced in the first phase of a planned 1.2mt/yr project at Duqm.

In a reversal of the typical project implementation process, the developer finalised financing for the initial stage in July by way of a $488m loan from Indian green infrastructure funder REC, and construction activity is underway. Looking to future phases, Acme signed a memorandum of understanding (MOU) with Germany’s Hydrogenious in early April to look at the potential to transport output to European supply hubs using the latter’s thermal oil benzyltoluene-based liquid organic hydrogen carrier technology.

Other schemes have a clear line of sight to likely buyers. South Korean steelmaker Posco intends to use the output from the Duqm project it signed up to last year to help decarbonise its domestic operations. Marubeni’s SalalahH2 scheme will be used to green production at an existing ammonia plant at the southern city owned by OQ, the government’s energy sector holding company. Both hubs, each located on major maritime trade routes, will offer opportunities to supply hydrogen-based bunkering fuels as the shipping industry decarbonises fuels.

Each developer has ultimate responsibility for securing customers, but Muscat is also working hard to create potential supply chains in readiness for the sector’s global tipping point. In mid-March, Hydrom—the state-owned company tasked with spearheading the industry’s development—signed  an MOU with German gas company VNG calling for exploration of a potential green hydrogen and ammonia supply chain between the two countries and, more specifically, of a long-term offtake agreement.

A similar deal with respect to the Netherlands was signed in December with Port of Amsterdam, Athens-based shipping firm Gaslog and the US’ Zenith Energy Terminals, in that instance committing the signatories to examine the possible development of an open-access hydrogen liquefaction, storage and export facility in the sultanate. Brussels’ REPowerEU strategy calls for green hydrogen imports of 10mt/yr by 2030, making the bloc a key target market alongside more proximate prospective buyers in Japan and South Korea.

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Author: Clare Dunkley