Navigating the energy transition and the changing demands of the energy mix have been hot button topics within the oil and gas industry. Numerous solutions have been suggested as to how the world can reduce its reliance on hydrocarbons and help mitigate climate change and, of these, hydrogen has emerged as a serious contender as the future fuel of choice.
While experts and policymakers continue to call for the electrification of as many industries as possible, hydrogen can play a crucial role in not just providing power for these industries, but in helping decarbonise sectors that are difficult to electrify.
Oil & Gas Middle East has been running an ongoing thinktank series with experts, industry insiders, and stakeholders from the energy industry on the subject of hydrogen to help our readers better understand the technology and developments in the sector. A quarterly event, each discussion looks back at learnings uncovered from the previous conversation and examines what the outlook is for hydrogen and how expectations have changed.
In this, our first discussion of 2022, Oil & Gas Middle East was joined by Vinod Raghothamarao, director – energy consulting for S&P Global Commodity Insight and Brice Raisin, vice president, heavy duty gas turbine sales for GE Gas Power Europe, Middle East and Africa (EMEA).
Hydrogen accelerating
Since the previous thinktank discussion at the end of 2021, there have been significant geopolitical developments that are likely to effect the outlook for hydrogen implementation. Russia’s invasion of Ukraine has prompted European powers to look at how they can reduce their reliance on Russian gas and accelerate their energy transitions. This situation has led to some European countries to already sign deals to increase their import of liquefied natural gas, such as from Qatar, with hydrogen playing a role in future gas plants.
“The thing that has changed if you look broader than the Middle East region, is some acceleration in Europe with the current situation that we have. Projects have accelerated with very aggressive hydrogen content target for new gas plants, specifically for Germany. I think that’s interesting to see. Because that’s new from only a month ago, and things that we were thinking would come later have started to come now,” Raisin said.
Raisin went on to explain that requests for quotation that are coming to his firm are now asking for 75 or 85 percent hydrogen readiness by 2028, which is an “acceleration on what we were asked before.”
Raghothamarao said that over the past three months he has seen a “flurry of activities in the hydrogen space, especially within green hydrogen or clean hydrogen.” Additionally, experts are now gaining confidence that the cost curve for low carbon hydrogen is increasingly likely to bend further, buoying plans for more green hydrogen plants, he said.
“I think green hydrogen or clean hydrogen is definitely the way forward. And I think since the last time we spoke, a lot of companies have begun jumping on the bandwagon so that they make sure they don’t miss out on the momentum they don’t miss out on the race,” Raghothamarao said.
He also highlighted the increasing number of Middle East operators that have announced joint study agreements or MoUs “with a multitude of green hydrogen value chain providers.”
One factor perhaps driving increased activity in the hydrogen space is the fact that operators and investors are beginning to grow a much clearer vision of how the hydrogen ecosystem needs to work. For Raisin, when meeting customers in the Middle East, he has felt over the past three months that there has been “a good articulation of the business associated with hydrogen.”
Developers, for instance, are now “a lot clearer” on what the hydrogen business means, while investors now understand the business case for the technology “as a future provider of hydrogen for several industries.”
“We didn’t have that much detailed discussion last year, we didn’t feel our customers were as ready in terms of how they studied the hydrogen business case for them and what it means. Now, though, this dynamic has changed,” Raisin said.
The Middle East as a scalable hub for hydrogen
Some Middle Eastern countries, especially in the Arabian Gulf, have made big bets on hydrogen as being part of the future of energy. One example is a green hydrogen facility currently under development at the futuristic Saudi Arabian city of NEOM. When completed, the plant is set to deliver 650 tonnes of green hydrogen daily, but the project carries a huge price tag, requiring an investment of $5 billion.
The Middle East is a region ripe for the development of green hydrogen, featuring some of the most abundant, quality sunlight in the world which can be used for solar power to fuel green hydrogen plants.
In terms of commercialisation of this opportunity, Raghothamarao believes the region has now entered its “slow and steady phase,” with leaders discussing concepts around how to localise green hydrogen production and transportation.
“Definitely it is it is promising, and I’m sure it’s just a matter of time, maybe in the next three quarters or so, when we can see a visible improvement in commercialisation scalability of hydrogen initiatives,” he said.
For the region to achieve its aspirations of becoming a hydrogen hub and hydrogen supplier, it will need customers, however. In this, Raghothamarao sees Europe as a potential option, with several memorandums of understanding signed between European countries and the Middle East.
“I think UAE and Saudi could probably be the potential suppliers for hydrogen to the European markets for them to achieve net zero goals,” he explained, adding that we will likely see more developments in this regard “a least in the latter end of the year.”
Raisin echoed Raghothamarao’s comments regarding the opportunities in the region to rapidly scale up its production. In the UAE and Saudi Arabia specifically, he sees market players talking about how to scale up with the land available for green hydrogen and associated businesses.
“Saudi Arabia and the UAE have the scale potential to provide hydrogen at the right cost for the world. You are starting to have developers positioning themselves, they are looking for the market,” Raisin said.
This development feeds back into earlier comments regarding the way in which the business case for hydrogen technology has grown.
“They now know how much they need to invest where, when, and, potentially, where they can sell it and at which price to make a business out of it. That’s really new, for me, at least,” Raisin said.
Colouring the future
The way in which hydrogen will be produced in the future is still unclear. Creating hydrogen requires power, and the way in which this power is generated denotes the name of hydrogen. While green hydrogen is created from renewable energy, such as solar power, blue hydrogen is created using fossil fuels where emissions are captured using carbon capture utilisation and storage (CCUS) technology. CCUS is another piece of future technology that has yet to reach wide scale adoption, but has seen significant investment.
On the slow deployment of CCUS, Raisin said that the technology is still “targeted at the moment,” and currently “you see [CCUS] popping up wherever this is empty gas wells available, that’s the right spot where start to see this coming.”
“The countries that are leading the way are the US and the UK, because there are empty gas fields available, first of all. Second, there are specific subsidies that have been put in place to make this project happen,” he explained.
Wide scale adoption of CCUS will be likely in the future, however, once “new technologies that are getting developed improve the efficiency of it. That’s the dynamic we see. We really believe that it will kick off.”
Meanwhile, Raghothamarao stressed the importance of CCUS as part of an overall agenda to decarbonise.
“The way forward is definitely in how CCUS plays, how companies capture, and then take the strategy forward in terms of carbon capture. That’s actually an important pathway methodology to decarbonisation,” he said.
The Middle Eastern hydrogen hub
Plans are underway around the world to build out hydrogen plants. However, while these plans may serve to create hydrogen, the question remains as to whether it will be at a cheap enough cost and at a high enough quantity in order to service decarbonisation needs.
Brice believes the answer to this question is “probably not,” which is the area in which the Middle East can use some of its natural advantage to scale green hydrogen production and position themselves “to be a big provider for that with the right investors.”
“That’s also important. There is a right investment and the right investor that are willing to invest in the scale of project,” he said.
Raghothamarao agreed, noting that the Middle East, and especially the GCC “has a very good greater potential to capitalise given the abundant source of solar energy.”
“I think there is definitely a momentum happening in terms of pilot projects in the GCC. Initially, probably for local consumption, I think maybe 10 or 15 years down the line, there’s a huge potential for exports, even earlier,” he explained.
These exports can be sent to Europe to help feed into net zero plans, and will help lead the way for countries across the region to remain energy suppliers to the world.
“I think even though Middle East hydrogen is at a premium as we speak today, it is definitely required for them to get that source of hydrogen to meet their goals. With Saudi Arabia and UAE at the forefront of the region’s production, I think they will probably pave the way forward for other Middle East countries to get into the hydrogen journey,” Raghothamarao commented.
The issue of delivering hydrogen is particularly pertinent at the moment, as businesses around the world have looked to build resilience into their supply chain as disruptions caused by Covid-19 continue to plague the global economy. The ongoing crisis in the supply chain is one driver of the inflationary pressure that countries around the world are now grappling with. In this light, regarding hydrogen, the conversation has turned to questions how to increase the level of localisation in the supply chain to reduce reliance on global, and thus easily disrupted, supply.
“I don’t know if it makes complete sense to make everything in-country, but definitely what I feel is maybe that certainly some processes of the value chain, like an assembly fabrication installation deployment, that could probably be localised as a pilot stage,” Raghothamarao said.
He urged caution, however, in terms of some other technologies, like electrolyser manufacturing, which require a significant number of hard to produce components.
“You have a lot of interdependencies from across the globe, which kind of defeats the purpose [of localisation] in terms of cost and economies of scale, and so on. So probably the best choice would be to localise certain parts of the value chain, like, say, an international manufacturer can probably set up a JV within Saudi Arabia or within the UAE, to do a transfer of technologies or see how they could use a local company to assemble, fabricate, install, and deploy for local market,” he added.
Brice noted that for suppliers like his firm, the ongoing issues with the supply chain are “tough,” and serve as a lesson in trying to forecast costs. When looking at how to build the Middle East as a hydrogen hub, Brice said that the cost forecasts and price forecasts for hydrogen are not entirely reliable, as these costs are likely to change.
“Depending on which forecasts you take there, then you get a very different outcome to show whether green hydrogen makes sense at a specific price level or it does not, and we need to check these assumptions,” he said.
There are still many questions left unanswered, he continued, including whether it makes sense to manufacture hydrogen equipment close to the point of sale or, instead, transport it from a low cost country.
The forecasts
As with the last iteration of the Oil & Gas Middle East Hydrogen Thinktank, the panel experts were asked for their forecast for the next quarter and throughout the rest of the year.
“If we look at short term, this is a continuity of what we saw on the last three months. Because now projects with hydrogen targets are coming to commercial phase, basically, that’s where we are for our industry, including in the Middle East,” Brice said.
For the next quarter, Brice pointed in particular to new gas plant requests that are coming from Saudi Arabia that have clear decarbonisation requests attached, which is the first time in the Middle East that this discussion has been included.
Raghothamarao agreed that there will be more announcements coming out of Saudi Arabia and the UAE, but added that industry watchers should keep their eye on global heavy industry, including steel, ammonia, methanol, and chemicals, for announcements in how they can tap into green hydrogen demand.
“Definitely net zero [goals] will propel hydrogen demand and then carbon pricing. I also feel maybe some green ammonia announcements might happen, and, of course, there’ll definitely be more alkaline electrolysers market technologies over the other technologies, not to say that SOEC won’t catch up, but I think alkaline will definitely have a leap forward compared to other technologies when it comes to electrolysers,” he concluded.
