Middle East's clean hydrogen capacity plans double year on year

Planned clean hydrogen capacity in the Middle East has more than doubled year on year, with the first large projects securing final investment decisions in the race to start exports by 2030.

The region has 83 low carbon or renewable hydrogen/ammonia projects with combined production of nine million metric tonnes hydrogen per year, S&P Global Commodity Insights' data show.

In October 2022, the region had 37 projects with combined capacity of 4.2 million mt/yr.

"There are a lot of announcements that have been made and will continue to be made given the kind of visibility countries are placing on green hydrogen and ammonia as part of their decarbonization initiatives," Ashwani Dudeja, Group President & Director, Green Hydrogen and Ammonia at Acme Group said Sept. 22.

"Deals will start happening by 2027, which I think is a very safe assumption because some of the governments have already announced the timelines for awarding subsidies," Dudeja said.

Japan and Korea are targeting end of 2024 for awarding the subsidies which meant they are expected to be in the market to start placing contracts by 2025, according to Dudeja.

The Middle East is already sending its first cargoes, with Saudi Arabian Mining Co, Ma'aden, making a shipment of blue ammonia to China in May, part of an agreement to export 25,000 mt of the fuel to Shenghong Petrochemicals.

The cargo follows the first transports of clean ammonia by INPEX, IHI Corp. and Mitsui OSK lines to Japan from the UAE in July 2022 and ADNOC's blue ammonia cargoes to INPEX, Idemitsu and Itochu in 2021.

"There is a lot of activity in the Middle East with regard to the export market as demonstrated by the trial shipments of clean ammonia," said Matthew Hodgkinson, Hydrogen Analyst at S&P Global.

"A small proportion of their energy exports go to Europe and the Far East, and they are looking to replace that with clean fuels because of upcoming new policies. They are collaborating with these regions and they will be looking to send both blue and green products," he said.

While early shipments test the logistics of future trade, potential destination markets are busy working on clean hydrogen specifications in order to establish a framework for commercial trades. The EU released its rules for renewable hydrogen production earlier this year.

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.

Platts, a part of S&P Global Commodity Insights, assessed Qatar hydrogen produced with steam methane reforming including carbon capture storage at $1.84/kg Sept. 22, up 5.75% month-on-month. It assessed Saudi Arabia hydrogen produced via alkaline electrolysis (including capex) at $3.22/kg Sept. 22, nearly the same as a month ago.

Project milestones

On the supply side, the massive Neom Green Hydrogen project in Saudi Arabia reached financial close in the first quarter of 2023, some 23 banks and investment firms providing $8.4 billion in finance. The project is targeting output of 240,000 mt/yr of renewable hydrogen by end 2026.

Meanwhile ACME's 100,000 mt/yr renewable ammonia project in Duqm in Oman closed financing in July for a first phase, backed by Rupee 40 billion ($487 million) from Indian company REC.

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

"We've started the basic construction activity and placed orders for all long-lead items. For our phase one, we plan to go for an alkaline electrolyzer," ACME's Dudeja said. "The real milestone is commissioning, and that is targeted at the end of 2025 or early 2026."

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.

In all, nine Middle East hydrogen projects have now secured final investment decisions as compared to 13 in Australia, S&P Global's hydrogen database shows. S&P Global estimates Middle Eastern clean hydrogen project capital volume at $50.02 billion versus $77.23 billion in Australia.

On the other hand, 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 that grants the consortium the right to develop facilities for producing renewable hydrogen in the Al Wusta region of Oman.

"The initial phase of development for the GEO project is expected to produce 150,000 mt/yr of green hydrogen from 4 GW of installed renewable energy capacity, with the plan to progressively expand to 25 GW of renewable energy capacity over subsequent phases," Tony Nieman, Head of the Middle East at InterContinental Energy, told S&P Global Sept. 15.

"While green hydrogen projects have their challenges, reaching commercial scale by the end of this decade, in line with demand signals, is realistic," he said.

Trade corridor

Meanwhile the region's larger ambitions were reflected by the G20's Sept. 9 announcement of a planned trade corridor including hydrogen pipelines through India, the Middle East and Europe.

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

A large Indian developer said on the condition of anonymity, that the hydrogen pipeline would likely mean speedier clearances of clean hydrogen/ammonia exports via existing rail, road and sea routes.

The Middle East is forecast to produce 18.15 million mt hydrogen by 2030, exporting one million mt of mostly low carbon and renewable hydrogen, data from S&P Global Commodity Insights show.

By 2040, Middle East is seen leading all other regions with production projected at 28 million mt of clean hydrogen, with exports at 6.28 million mt.