Saudi Arabia’s
Bold Plan to Rule the $700 Billion Hydrogen Market
The kingdom is building a $5
billion plant to make green fuel for export and lessen the country’s dependence
on petrodollars.
By
7 Mart 2021 07:00 GMT+3
Land
set aside for a hydrogen plant and the wind and solar farms to power it in
Neom, Saudi Arabia.
Source:
Neom
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Sun-scorched expanses and steady Red Sea
breezes make the northwest tip of Saudi Arabia prime real estate for what the
kingdom hopes will become a global hub for green hydrogen.
As governments and industries seek less-polluting
alternatives to hydrocarbons, the world’s biggest crude exporter doesn’t want
to cede the burgeoning hydrogen business to China, Europe or Australia and lose
a potentially massive source of income. So it’s building a $5 billion plant
powered entirely by sun and wind that will be among the world’s biggest green
hydrogen makers when it opens in the planned megacity of Neom in 2025.
The task of turning a patch of desert the size of Belgium into a metropolis powered by renewable energy falls to Peter Terium, the former chief executive officer of RWE AG, Germany’s biggest utility, and clean-energy spinoff Innogy SE. His performance will help determine whether a country dependent on petrodollars can transition into a supplier of non-polluting fuels.
Peter
Terium
Photographer: Simon Dawson/Bloomberg
“There’s nothing I’ve ever seen or heard of this
dimension or challenge,” Terium said. “I’ve been spending the last two years
wrapping my mind around ‘from scratch,’ and now we’re very much in execution
mode.”
Hydrogen is morphing from a niche power source — used
in zeppelins, rockets and nuclear weapons — into big business, with the
European Union alone committing $500 billion to scale up its infrastructure.
Huge obstacles remain to the gas becoming a major part of the energy
transition, and skeptics point to Saudi Arabia’s weak track record so far
capitalizing on what should be a competitive edge in the renewables business,
especially solar, where there are many plans but few operational projects.
But countries are jostling for position in
a future global market, and hydrogen experts list the kingdom as one to watch.
Saudi Arabia's
Hydrogen Hopes
Saudi
Arabia's Hydrogen Hopes
The
U.K. is hosting 10 projects to heat buildings with the gas, China is deploying
fuel-cell buses and commercial vehicles, and Japan is planning to use the gas
in steelmaking. U.S. presidential climate envoy John Kerry urged the domestic
oil and gas industry to embrace hydrogen’s “huge opportunities.”
That
should mean plenty of potential customers for the plant called Helios Green
Fuels. Saudi Arabia is setting its sights on becoming the world’s largest
supplier of hydrogen — a market that BloombergNEF estimates could be worth as
much as $700 billion by 2050.
“You’re seeing a more diversified portfolio of energy
exports that is more resilient,” said Shihab Elborai, a Dubai-based partner at
consultant Strategy&. “It’s diversified against any uncertainties in the
rate and timing of the energy transition.”
Blueprints
are being drawn and strategies are being announced, but it’s still early days for the industry. Hydrogen is expensive
to make without expelling greenhouse gases, difficult to store and highly
combustible.
Green
hydrogen is produced by using renewable energy rather than fossil fuels. The
current cost of producing a kilogram is a little under $5, according to
the International Renewable Energy Agency.
Saudi Arabia possesses a competitive advantage in its perpetual sunshine and wind, and vast tracts of unused land. Helios’s costs likely will be among the lowest globally and could reach $1.50 per kilogram by 2030, according to BNEF. That’s cheaper than some hydrogen made from non-renewable sources today.
Competing on Cost
Projected green hydrogen production costs
by 2030 ($/kg)
Source:
BloombergNEF
Note:
Levelized cost of hydrogen assuming optimistic projection for alkaline
electrolyzer costs
It’s more expensive to produce renewable energy in
Europe, and the continent’s anticipated demand while implementing a Green Deal
should exceed its own supply, Terium said. That $1 trillion-plus stimulus
package will try to make the continent carbon-neutral.
“By no means will they be able to produce
all the hydrogen themselves,” he said. “There’s just not enough North Sea or
usable water for offshore wind.”
Terium, who is Dutch, joined Neom in 2018 to design
its energy, water and food networks. His enthusiasm for technologies such as
electric vehicles and digital networks wasn’t matched by Innogy’s investors,
but it is by the backers of Neom.
The
most important of those is Crown Prince Mohammed bin Salman, the 35-year-old de
facto ruler, who envisions Neom as a zero-emissions exemplar helping transform society
and the economy. The hydrogen plant is part of that vision. But while Neom’s
$500 billion price tag prompts questions about whether it will go ahead exactly
as planned, the hydrogen effort doesn’t depend on the megacity’s overall
success.
There
are other challenges, too: The country produces one-eighth of the world’s oil
supply, but its operational renewables capacity is small by regional standards, and it’s starting
from zero with green hydrogen.
The
government is partnering with Acwa
Power, a Riyadh, Saudi Arabia-based power developer partly owned by
the kingdom’s sovereign wealth fund, and Air
Products and Chemicals Inc., a $58 billion company based in
Allentown, Pennsylvania, to build the green hydrogen plant.
The trio is splitting the costs of Helios, which will
use 4 gigawatts of solar and wind power.
“As the first gigawatt plant, we will have an
advantage in developing further innovation,” Terium said. “This is not going to
be the end of the game.”
For starters, Helios will produce 650 tons of hydrogen
a day by electrolysis – enough for conversion to 1.2 million tons per year of
green ammonia. Air Products will buy all of that ammonia, which is easier to
ship than liquid or gaseous hydrogen, and convert it back upon delivery to
customers.
Enough green hydrogen will be produced to maintain about 20,000 city buses. There are about 3 million buses operating worldwide, and Air Products wants to be a mainstay in depots switching to hydrogen, said Simon Moore, vice president of investor relations.
A
hydrogen-powered bus in London. The city government has pledged
that all 9,200 buses across London will be zero emission by 2037.
Photographer: Dukas/Universal Images Group/Getty Images
“We’re not going to wait until this project comes
on-stream in 2025 to think about additional capacity,” he said.
Fuel-cell vehicles could capture as much as 30% of
bus-fleet volume globally by 2050, with growth coming primarily from China and
the European Union, according to BNEF. Moore declined to identify Helios’s
clients.
Hydrogen will cost more than polluting alternatives at
first, but enough governments and businesses face stringent carbon targets that
need the gas to meet them, Moore said. Thirteen nations have hydrogen
strategies in place, and another 11 are preparing theirs, according to BNEF.
Germany said it needs “enormous” volumes of green
hydrogen, and it hopes Saudi Arabia will be a supplier.
“The interest Saudi Arabia has had from investors
leads us to believe that there is a sound economic case for hydrogen, even at
current prices,” a spokesman for the Energy Ministry said.
At the same time, the government is trying to boost
its own scant use of renewable energy. Currently, under 700 megawatts operate
nationwide -- less than 2% of Spain’s installed capacity. The nation plans to
meet half of its power needs from renewables by 2030 and has several projects
under construction or soon to start.
Saudi Arabia also is one of the few countries
regularly burning crude to make electricity. The highly polluting practice
reached a four-year peak in August, and critics say the energy used by the Neom
plant should be diverted into the national grid instead.
Yet the focus remains on exports.
Petrostates stand to lose as much as $13 trillion by 2040 because of
climate-change targets, and Saudi Arabia is among those expected to be most
affected.
The hydrogen plant will produce 15,000 barrels of oil
equivalent per day at most, hardly a match for the 9 million barrels of crude
the kingdom pumps daily. Even so, finding a way to corner part of the
clean-fuels market represents a necessary economic lifeline.
“It’s sponsored at the highest possible level, so if
any project happens, it’s got to be this,” Elborai said.
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