Saudi Arabia aims to become a global leader in hydrogen

Saudi Arabia, the Middle East’s leading energy producer, continues to invest significant resources in developing low-emission, zero-carbon hydrogen, seemingly determined to capture a major share of the emerging global industry.

According to news reports this week, the Kingdom’s Public Investment Fund (PIF) has created the Energy Solutions Company to finance “green hydrogen” energy production with up to $10 billion in investment capital.

An official announcement is expected soon. The news follows a statement by PIF governor and Aramco chairman Yasir Al Rumayyan earlier this year that Saudi Arabia wants to invest more in green hydrogen and have 15 percent of global “blue hydrogen” production.

While a national hydrogen strategy first appeared in draft in 2020, the country has moved forward gradually under the guidance of the Saudi Ministry of Energy. Its various hydrogen pathways include numerous initiatives by state oil company Saudi Aramco and affiliates and the new NEOM project.

Significant obstacles remain as Saudi industries face underlying cost factors and regulatory uncertainties in foreign markets, which combine to impede rapid expansion into low-carbon hydrogen.

However, the government and industry continue to promote new domestic markets while considering future opportunities for large-scale export. Their pursuit of more low-carbon hydrogen pathways could maximize the likelihood of realizing profitable projects.

Saudi regions

Aramco deploys considerable industrial capacity to capture carbon in support of oil production. Its carbon capture and storage (CCS) business is creating the infrastructure to eventually produce large quantities of blue hydrogen and derivatives, including ammonia and synthetic fuels, using fossil fuels with captured and stored emissions.

At the same time, the Kingdom is beginning to deploy its vast renewable energy resources to produce large amounts of “green” hydrogen, with the potential for much more.

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Regional distinctions are evident, with blue hydrogen and carbon capture in the industrial centers of the Eastern Province, where the oil industry is centered. However, the east also offers potential for the future of carbon-free hydrogen, with ample solar and wind resources even near Aramco’s headquarters in Dhahran.

Meanwhile, the northwest of the country, with its magnificent wind and solar resources, is home to the NEOM Green Hydrogen Company (NGHC), which is now developing the largest project of its kind in the world, with first production expected next year.

Aramco’s approach

Aramco, its subsidiaries and partners are working on a number of schemes for carbon capture and blue hydrogen production. Aramco’s stated goal is to produce 11 million tonnes per annum (mtpa) of blue ammonia by 2030.

The company has gained considerable experience in carbon capture at one of the world’s largest CCS plants at Hawiyah in the Eastern Province. In operation since 2015, it captures 800,000 tons of CO2 per year from the Hawiyah gas processing plant, which is transported to the Uthmaniyah oil reservoir to be injected for enhanced oil recovery.

Aramco has been working with the Ministry of Energy since 2022 to establish a much larger CCS hub. The company signed an agreement with Linde and SLB to build the hub in the Jubail industrial area to capture up to 9 million metric tons of CO2 per year starting in 2027.

The Jubail CCS Hub will facilitate the capture of CO2 from Aramco and neighboring industrial plants in the area, according to the company’s announcement, although it is unclear how much of the hub will be dedicated to blue hydrogen production.

This year, the company made a significant foray into low-carbon hydrogen production by acquiring a 50% stake in Jubail-based Blue Hydrogen Industrial Gases Company (BHIG). The company is a wholly owned subsidiary of Air Products Qudra (APQ), a joint venture between Air Products and Qudra Energy.

BHIG will deploy CCS to produce low-carbon hydrogen, which it plans to supply via a pipeline network in Eastern Province, serving regional customers with the option for Aramco to take over the hydrogen and nitrogen. The company will operate in coordination with Aramco’s ongoing CCS activities.

Aramco’s work to build CCS infrastructure is complemented by its majority-owned subsidiary SABIC (Saudi Basic Industries Corporation), which operates a carbon capture and utilization plant in Jubail, deploying proprietary technology to capture 500,000 tonnes of CO2 per year for to be used in a number of industrial processes.

It was announced this summer that SABIC Agri-Nutrients Company has secured a natural gas feedstock allocation from the Saudi Ministry of Energy to build a plant in Jubail to produce 1.2 million metric tons per year (mmtpa) of low-carbon blue ammonia, although the project’s cost and operational start date were not provided.

In 2022, Aramco and SABIC Agri-Nutrients received the world’s first independent certifications issued by the German certification agency TÜV Rheinland for the production of blue hydrogen and ammonia. SABIC’s expertise in CO2 utilization could complement Aramco’s CCS capabilities, helping the parent company expand CO2 utilization beyond storage and enhanced oil recovery.

Other Saudi industries are entering the field with ambitious projects, including the petrochemical company Sipchem, which is currently carrying out front-end engineering for the production of 1.2 million tonnes per year of blue ammonia. The engineering phase is planned to be completed early next year.

Changing the business model

Many observers see hydrogen and low-carbon derivatives becoming a core part of Aramco’s business, even as the nascent industry continues to face headwinds.

“Aramco’s capital spending has shifted more towards natural gas development and low-carbon technologies,” says Rami Shabaneh, Senior Fellow at the King Abdullah Petroleum Research and Studies Center (KAPSARC) in Riyadh.

“Under its 2024-2026 Capex guidance, 10% of its capital will be diverted to its newly established New Energies organization covering renewables, CCS and hydrogen initiatives,” he says.

“Its recent acquisition of 50% of BHIG from Air Products Qudra is proof of its intent to meet its blue hydrogen goals and that it can do so competitively.

“However, hydrogen projects will depend on finding customers who are willing to sign long-term purchase agreements to finance these projects,” he adds.

Shabaneh is an editor of the extensive compendium on Saudi hydrogen, The Clean Hydrogen Economy and Saudi Arabia: Domestic Developments and International Opportunities (Routledge, 2024).

He sees Saudi Arabia’s hydrogen production expanding with new demand in both foreign and domestic markets.

“I think they will grow simultaneously,” he says. “Both have their advantages and disadvantages

“With export projects you are exposed to a larger market that allows you to build projects on a global scale, taking advantage of economies of scale.

“However, you are vulnerable to the pace of regulation, infrastructure build-out and demand for hydrogen in import markets proving to be slower than anticipated.”

He says the current divergence in definitions and standards for low-carbon and zero-carbon hydrogen across countries and regions adds another level of complexity. So domestic markets will be important.

“In domestic markets, volumes may be lower,” he says. “But there is a potentially stronger alignment between the goals of government and state-owned enterprises and other stakeholders to unlock the hydrogen market more quickly.

“The common denominator in both cases is to secure long-term procurement agreements to guarantee cash flow and justify the development of these projects.”

The potential of the domestic market

In 2020, Aramco and SABIC conducted a demonstration shipment of 40 tons of blue ammonia to Japan, where it was used to produce fuel for electricity. In 2022, Aramco partnered with SABIC AGRI-Nutrients to deliver 25,000 tonnes of blue ammonia to South Korea.

These successful demonstrations may point to future routes for Saudi low-carbon hydrogen exports. While observers point to the great potential of domestic industry hubs, both NGHC and Aramco continue to express export-oriented ambitions.

“The ambition is certainly there, but Aramco is struggling to find buyers for its blue hydrogen due to high costs,” says Jan Frederik Braun, Senior Expert International Hydrogen Economy and Policy (MENA Region) at Fraunhofer ISE. He also edited the recent volume on Saudi hydrogen.

“Even in promising or potential export markets such as Japan and South Korea, there are too few regulatory and policy incentives to make a business case for it, particularly in terms of demand.”

Regarding the latter, Braun emphasizes the importance of starting hydrogen demand in the Kingdom’s domestic industrial sectors.

“There is too much emphasis on exporting H2 to profitable markets such as Europe, Japan and South Korea and too little emphasis on strengthening the business case for hydrogen domestically and in countries with substantial industrial sectors,” he says.

“In a 1.5°C scenario, for example, Saudi Arabia’s current 2.5 Mt (grey) hydrogen demand could increase by double digits, making it the country with the sixth largest domestic demand for hydrogen by 2050, after China, India, Russia, USA. and Japan.

“While these are early estimates, they point to the huge case for applying low-carbon H2 at home, rather than simply an opportunistic export focus.”

By Alan Mammoser for Oilprice.com

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