Climate change and the energy transition have been top of the agenda for the energy industry, with discussions at the COP26 summit in Glasgow, and ADIPEC 2021 focusing heavily on how to move to a lower carbon future.
A recurring topic in these discussions has been hydrogen, be it green, blue, or any of the myriad of other colours suggested. However, the feasibility, challenges and difficulties facing the nascent technology have still to be overcome.
As such, Oil & Gas Middle East has launched an ongoing thinktank discussion with experts, industry insiders, and stakeholders from the energy industry in a bid to better help our readers understand hydrogen and the developments in the sector. The thinktank will continue to meet on a quarterly basis.
In this, the first discussion, Oil & Gas Middle East was joined by Otmane Benamar, GM of New Units Engineering, GE Gas Power Europe, Middle East, and Africa; Alan Hayes, Head of Energy Transition Pricing, S&P Global Platts; Vinod Raghothamarao, consulting director at IHS Markit; Rajeev Singh, Partner, EY; and Gurmeet Kaur, partner at Pinsent Masons.
Setting the stage
The discussion began with an examination of the industry’s current perception of hydrogen as a power source.
“I think hydrogen is really important for the power generation sector … carbon capture technology and hydrogen provides a lot of flexibility,” Benamar says. “The technology can accommodate burning hydrogen, then you can decarbonise depending on the level of the blend, then you will decarbonise to different levels.”
Benamar notes that by decarbonising using hydrogen technology, investment is maximised in the long term, in contrast to gas technology which, while attractive currently, will not be able to completely decarbonise in the future.
Hayes explains that in terms of efforts to decarbonise, hydrogen investment represents the biggest “bang for your buck,” given the opportunities to use the technology to decarbonise markets that are difficult to electrify.
The flexibility of how hydrogen can be developed and used is a key advantage of the technology, Hayes adds.
“In theory, you could go all the way from having hydrogen injecting into your existing gas pipeline network, all the way through to planes, using hydrogen as a fuel source. This flexibility is what has helped to generate the excitement around hydrogen as a decarbonisation fuel,” Hayes says.
Meanwhile, Singh notes that in terms of commercial scalability, he believes hydrogen is still 5 to 10 years away, and the energy industry is making an effort to capitalise on the potential of hydrogen.
He compares it to the solar energy market, where he says energy majors generally missed “a great opportunity” a few years ago because “they always thought solar PV was much further away than they thought it would be.” As such, international oil companies are now taking the energy transition much more seriously and becoming “a little bit more aggressive around their hydrogen strategy.”
“They don’t want to be caught napping with being two steps behind. So this time around, it’s the large IOCs and the NOCs who are stepping up beginning to put their money where their mouth is and say ‘we want to be the first movers in this space.’ And that’s creating some serious buzz in the market around this discussion,” Singh explains.
The GCC, and especially Saudi Arabia and the UAE, were highlighted by Raghothamarao as “potentially attractive locations” for hydrogen investment. In particular, Raghothamarao notes that the region will likely need to embrace both blue hydrogen and green hydrogen to tap the innate resources of the region.
“I agree that we shouldn’t forget the discussion on blue hydrogen this part of the world given the decline in oil prices, and some of the challenges that companies are facing,” Kaur comments.
Benamar likewise notes that the advantage of blue hydrogen over green can currently be found looking at the difference in volumes. As an example, Benamar points to the world’s biggest green hydrogen project in NEOM, Saudi Arabia. When completed, the facility is set to produce 650 tonnes of green hydrogen daily, but it requires a huge investment, carrying a price tag of $5 billion.
“One of our latest technology gas turbines will consume that in a single day … so making such volumes available with green hydrogen is quite a major investment today … I think blue hydrogen is more important than the other colours. I think we need all those streams to make sure that we supply enough volume,” Benamar adds.
Oil and gas firms are inherently in a positive position to pivot to blue hydrogen as the essential ingredients needed to make the product can generally be found using waste gas and existing infrastructure.
“I think these companies, the big oil companies, have an interest to provide blue hydrogen, because this is what will sustain the industry, the oil industry in the region, and make enough hydrogen available for the different industries,” he notes.
Contrasting this view point, Singh notes that the oil and gas industry buzz around blue hydrogen is simply because it represents “a very small natural diversification of their current portfolio to step up production … this is what the commercial realities are today.”
The excitement around green hydrogen, however, is quite different, with the enthusiasm focused on the possibility of bringing costs down to the same level as blue hydrogen. Singh also notes that it is important to pay attention to the way in which the world is dividing into “a couple of large centres of hydrogen production for export.”
In this regard, the Middle East has a natural advantage, although the nature of scaling up green hydrogen production for a global market still leaves some questions unanswered, Hayes says.
“In terms of how that affects the Middle East, [the question is] what’s the cost advantage that can be achieved by the traditional definition of green hydrogen in the Middle East?
“If we can deliver something along the timetable that we’ve seen in the solar sector, then we’re looking at by the end of this decade, or not that much longer, for green hydrogen to be cost competitive,” Hayes says.
“All of the different colours of the rainbow”
While the general excitement around hydrogen has continued, the way in which the fuel is produced is quite varied. Most industry conversation has focused on green and blue hydrogen, but other alternatives exist, such as turquoise and pink hydrogen. The colour refers to the different method in which the fuel is produced, and can also stand as a reference as to how climate friendly it is in production.
However, these differences mean that pricing hydrogen as a whole is a difficult process, with the climate friendly nature of different types of hydrogen proving a challenge. Instead, Hayes suggests that developing a new classification system is key to delivering a global hydrogen market at scale. “We’re looking at something that completely gets rid of the colour designations. And you have what is developing in other commodity markets where you have carbon accounted commodities,” he says
“You don’t really think about the production route or whether it’s green or blue, you just say this production route has this much amount of carbon attached to it, and you almost separate that from the molecule. And then in that way, you bring the whole hydrogen market together as one to facilitate the scaling up that we’re trying to deliver for the hydrogen economy on a global basis,” Hayes explains.
This change would combine “all of the different colours of the rainbow into one hydrogen market where you can easily trade across regions because you understand the carbon intensity of my hydrogen versus your hydrogen,” he notes.
“My own view is that the colour coding is a proxy for the carbon content that you’re talking about. So people are just using that as a simple way of [designating the type of hydrogen they want], which is like Germany saying, ‘I’m happy to take green hydrogen from anywhere in the world, but I will not take blue hydrogen,’” Singh says.
More regulatory work needed
In the Middle East, Kaur points to the regulatory framework as a key challenge facing hydrogen development, noting that it’s “really quite undeveloped at the moment.”
Without a solid regulatory framework, “there’s no clear incentive to actually move the industry in one way or the other,” she says.
In comparison to the solar industry, frameworks on how to distribute solar power and legislation were put in place to try and incentivise the market, and a similar push is needed for green hydrogen, Kaur explains.
Meanwhile, Raghothamarao notes that the lack of specific country wide and national hydrogen strategies has left different governments in the GCC with “complete freedom” without a specific path to decarbonisation and hydrogen development.
While from the outset this may appear as a negative, Singh explains that when examining the evolution of the power and renewable energy sectors, regulations tended to follow the introduction of large scale investment.
Incentives were also highlighted by participants as a significant trigger for the introduction of substantial hydrogen development.
“I think incentives are quite important. As we’ve seen with renewables, in this area the incentives will be key,” Benamar says, noting the incentive structure could take different forms. Incentives could be linked, “to the fuel itself, or to the carbon emission,” he adds.
“I think both can be a good play to make sure that the introduction of hydrogen goes faster than what we are seeing,” Benamar comments.
However, despite the importance of these incentives, Benamar notes that these have been absent from the Middle East so far, despite conversations ongoing. Opposing the likelihood of these incentives, however, Kaur explains that the introduction of these incentives would be against the historical development of the Middle East.
“I think traditionally in this part of the world you wouldn’t see the sort of incentives that [Benamar] mentioned,” Kaur comments. “I think we’ve discussed and tried this a few times when solar was first talked about, but it never eventuated in any sort of regulatory policies … I very much doubt that you will see that sort of incentives and it will be more along the lines of giving probably tax holidays or some kind of investment support.”
Looking to the future
Given the ongoing nature of the hydrogen discussion, all participants were asked for their outlook on the future and what developments are likely to occur over the next three months and further into 2022:
“I think next year is going to be connecting ammonia and hydrogen together to deliver the potential for hubs like the Middle East, to get the hydrogen out into the world. We can look 10 years down the line and there will be more vessels potentially, that are capable of moving hydrogen. But there are markets that exist right now and technologies that exist right now to transport blue ammonia out of the Middle East and into the rest of the world. And I think that is going to become much more part of the conversation as we get into next year,” Hayes says.
“I think over three months we will definitely see multiple decarbonisation pathways with probably more focus on how to keep the costs coming down further, more improvements in technologies, in enterprise capacities, and also probably even government support in establishing new hydrogen programs and initiatives to drive forward different goals of different GCC countries,” Raghothamarao says.
“I think what will be interesting is to see the development in Oman and elsewhere, with new players coming in. So more and more private sector players moving away from just the companies that we’ve heard so far … I also think there’ll be more discussion about storage and transport of hydrogen, because in order to get to a truly global market … what we really need to discuss is storage and transport,” Kaur says.
“With this short term I think what we will see is more conversion of those announcements about long term objectives, and people trying to lay out the path to achieve those objectives. I think we will see every country, every industry, laying out that path in the short term. And also this will be especially true for the region. I think this will be pushed by the organisation of COP27 and COP28 in Egypt and the UAE,” Benamar says.
“I think Abu Dhabi will start taking pole position in our region, I would be hopeful to see some development, positive development in Saudi Arabia, because I think at the moment, there’s more talk there, but I want to see some action. And I would be delighted to hear an announcement of an actual project or some sort of initiative that’s happening … And then, of course, the regulation and development. I think, hopefully Abu Dhabi will, by that time, have appointed their advisors, which demonstrates, I think, another positive step on the ground,” Singh says.
