$700 Billion Hydrogen Market – Saudi Arabia’s new kingdom?

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Governments and industries are seeking eco-friendly alternatives to hydrocarbons, the world’s biggest crude old exporter is not looking to cede the burgeoning hydrogen business. It is not looking to leave China, Europe or Australia take over a potentially massive source of income.

The Kingdom of Saudi Arabia is building a $5 billion plant powered entirely by sun and wind that will be one of the world’s biggest green hydrogen makers when it opens in 2025 within the planned megacity of Neom. This is geared to take over the production of green fuel for export and lessen the country’s dependence on petrodollars.

The sun-scorched sandy expanses and steady Red Sea winds make the northwest tip of Saudi Arabia ideal real estate for what the kingdom aims to make the global hub for green hydrogen.

Peter Terium, the former chief executive officer of RWE AG, Germany’s biggest utility and its clean-energy spinoff Innogy SE helms the task of transforming this patch of desert the size of Belgium into a metropolis powered by renewable energy. His success will help determine if the country dependent on petrodollars can transition into a supplier of non-polluting fuels.

Terium said, “There’s nothing I’ve ever seen or heard of this dimension or challenge. 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 fast changing from being a niche power source used in zeppelins, rockets and nuclear weapons into big business fuel that is eco-friendly. The European Union has committed $500 billion to scale up its infrastructure for the use of Hydrogen fuel. Huge obstacles remain to the gas becoming a major part of the energy transition, and sceptics 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.

Hydrogen experts list the kingdom as one to watch in this mad race to the top. 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.

Helios Green Fuels is looking at a list of potential customers once it commences operations at Neom. 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.

The U.K. is presently incubating 10 projects to heat buildings with the gas, China is deploying Hydrogen fuel-cell buses and commercial vehicles and Japan is planning to use the gas in steelmaking. John Kerry, the U.S. presidential climate envoy urged the oil and gas industries to embrace hydrogen’s “huge opportunities.”

Green hydrogen produced using renewable energy costs a little under $5 for producing a kilogram, 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.

Terium joined Neom in 2018 to design its energy, water and food networks. His enthusiasm for technologies such as electric vehicles and digital networks is backed by Neom’s investors 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.

This hydrogen plant is part of that vision. The country produces one-eighth of the world’s oil supply and now its starting from zero with its green hydrogen initiative.

The government is partnering with ACWA Power, the Riyadh 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 to 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.

The focus remains on exports. Petrostates stand to lose as much as $13 trillion by 2040 because of climate-change demands and Saudi Arabia is expected to be the worst 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. But investing heavily 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,” Shihab Elborai, a Dubai-based partner at consultant Strategy& said.

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