The heat is on for renewable investments in the Middle East, as Saudi giga-project NEOM has reached a major financing agreement for its immense green hydrogen plans. Global Net-Zero plans will not be attainable as long as a sufficient supply of green hydrogen is available, and a functional hydrogen commodity market supports the latter. The role of the Middle East, and Egypt, is pivotal. However, economic and financial constraints need to be tackled, while geopolitical conflicts are waiting around the corner.
The last days, Saudi Arabia’s media-genic and high-profile giga-project NEOM announced that is joint-venture with Saudi utility ACWA Power and international engineering giant Air Products, NEOM Green Hydrogen Co (NGHC) has secured a financial close on a green hydrogen production facility at a total investment value of $8.4 billion. The green hydrogen plant is slated to start production in 2026.
The hydrogen plant is currently being constructed at Oxagon, the floating port project of NEOM City. As indicated by NGHC, Air Products will be the EPC partner. At the same time NEOM also has put in place a 30-year exclusive off-take agreement for all green ammonia produced with Air Products. The hydrogen plant is currently being built at Oxagon, in Saudi Arabia’s NEOM city. NGHC has also concluded the engineering, procurement, and construction (EPC) agreement with Air Products as the nominated contractor and system integrator for the entire facility. NGHC also secured an exclusive 30-year off-take agreement with Air Products for all the green ammonia produced at the facility. The plant will integrate up to 4GW of solar and wind energy to produce up to 600 tons per day of carbon-free hydrogen by the end of 2026, in the form of green-ammonia as a cost-effective solution for the transportation and industrial sectors globally.
At the same time, major projects are being planned in the UAE, Oman and Egypt. Abu Dhabi is leading the game, as its main players ADNOC and Masdar are investing multibillions. Abu’s energy company Abu Dhabi National Energy Company (TAQA) expects to produce green hydrogen for green steel via Emirates Steel, while in February TAQA signed a memorandum of understanding (MoU) with Japan’s top power generator JERA to develop thermal power and other green energy projects in the Middle East. Masdar at present targets a 2030 production volume of 1 million tons green hydrogen per year, aiming to make Abu Dhabi a green hydrogen hub. Of Masdar’s 1 million tons target, around 50% will be produced in the emirate itself.
Masdar also has JVs with several main international parties, such as French utility Engie. The latter is slated to build a 200 megawatt (MW) green hydrogen plant in Abu Dhabi. It also will be owner of a 2GW offshore wind and green hydrogen project in Azerbaijan. The Gulf countries also have set their eyes on Egypt, as shown by Masdar’s agreement with Egypt to develop 4GW of green hydrogen plants.
Egypt at present is taking advantage of the green hydrogen/renewables boom in the Middle East. As a low-cost country, with strong access to Europe, it is a clear transport and production hub in future. Cairo has signed major green hydrogen projects already, such as with British energy giant BP. At the same time, the EBRD has agreed to finance part of a 100MW electrolyzer plant. China also has entered Egypt, targeting a green hydrogen project with a capacity of 140,000 tons.
At present the market is not only looking at demand-supply issues and constraints but also worried about the feasibility of a global supply chain. An increasing amount of analysts, after looking first and fore-all at exotic places such as Chile, Namibia, South Africa and Iceland, while Europeans and Americans have set their eyes on their own local options, such as offshore wind North Sea or offshore Portugal-Italy, is now convinced that the Middle East North African region (MENA) is possible low-hanging fruit and commercially attractive from the start. Looking at the available wind-solar capacity of this region, using all to support the set-up of a green hydrogen/ammonia production and export strategy is clear. After being the world’s most important oil and gas-producing region for decades, it will also be playing its part in the global energy transition. Arab national oil companies and its compatriots (natural gas, chemicals or engineering) will possibly be part of the region’s potential renewable energy superpowers. Even though hydrocarbons will be playing a pivotal role in the global economy for decades to come, Gulf Arab countries have already decided to be also leaders post-oil, renewable energy and products are the main targets of giants such as Aramco, ADNOC, PDO and Qatar’s gas giants.
The Year-2023 already will be a possible watershed moment in the region’s hydrocarbon power play, as ADNOC’s CEO Sultan Al Jabr is also leading the COP28 discussions this year. Renewable energy, decarbonization and the region’s economic diversification and energy transition are making headlines daily. As Al Jabr (ADNOC) or Amin Nasr (Aramco) reiterate to all, the region will be playing a major producing and exporting role in the renewable energy sector in the future. To set all up, national oil companies are well equipped, as they have vast knowledge in setting up multibillion energy projects, have technical knowledge of producing the relevant products and also hold assets in global supply chains. As geography, in the end, rules all, the Middle East is and will be having a central role in a possible global renewable energy supply chain. Their vicinity to future renewable energy markets, especially Europe and Asia (China, India, Japan) is a clear advantage, as transport and distance to markets is going to be critical.
The UAE, Saudi Arabia and others have understood that hydrocarbons are finite resources. Change is needed, as shown in the regional economic diversification strategies, such as Vision 2030. At the same time, countries such as the UAE, have increased investments in renewables, shown by the fact that the UAE aims to generate 50% of its electricity from renewables by 2050, and Saudi Arabia has a target of installing 58.7 GW of renewable energy capacity by 2030. In the coming years even more renewable energy is expected, at cheap costs and available for green hydrogen or ammonia production.
Based on these conditions, and available financing, the Middle East is tipped to be the new green hydrogen hub of the world. Backed also by a full-scale decarbonization and electrification strategy of its hydrocarbon-based production (upstream-downstream) the region is for sure poised to keep its current strategic position.
Where the rest of the world’s energy transition is targeting primarily private finance or government subsidies, the Middle East has a main advantage, its vast sovereign wealth funds (SWFs). The growing cooperation between international energy companies, local energy giants and engineering companies, is being supported by sovereign funds in the Gulf and Egypt. Green hydrogen is a main focus area, as it is not only a possible substitute for hydrocarbon-based energy but also an ingredient in a carbon-free industrial process future, such as steel.
Supply meets geopolitics?
Where plans and investments are moving in the right direction, as shown by major investments in the region and possible feasible and affordable production in the next 2-5 years, demand is still constrained.
Most analysis is focused on the technical or economic/commercial feasibility of these projects. In the first couple of years, pressure on prices and margins will be a major constraint, as long as no real commodity market exists. Without real price points, traders, investors and clients will be very wary.
Looking at however that it will be a commodity market, like hydrocarbons or metals, green hydrogen and ammonia will most probably face the same externals, aka geopolitics and security. Again the Middle East and Egypt will be having to set up their own regional strategies to decide which markets (and owners) are the most attractive. Renewables are not without geopolitical impact or influence. Some even have already stated that OPEC will have to be changed to OHEC (Organization of Hydrogen Exporting Countries). The latter should be on the mind of all parties, producers – transport – clients. As is the case with hydrocarbons, markets and geopolitics will be intertwined. The fact that most renewable exports will be maritime-bound, having the MIDDLE East as a centre of gravity, is also a necessity to be addressed. For OECD countries, it will be a necessity to address access to markets, access to ports and maritime security, if green hydrogen and ammonia have to arrive in the ARA (Amsterdam – Rotterdam – Antwerp) region or UK/SE Europe.
At present the outcome is not yet clear, as there is no real global power in the lead for access. US-EU investments are in line with Asian activities in the Middle East, so still able to pull its weight. Being however less proactive, the West could be soon facing the already “Go-East” views in the Arab world. Green hydrogen projects are not set up in the Gulf or Egypt only to supply Europe, the world (Asia) will be competing for volumes at the same time. To expect a level-playing field in the Middle East is at present wishful thinking. European parties and governments need to step up their efforts to take a huge piece of the cake. If not linked to investments, security and military support, or access of hydrocarbons to European internal markets, Arabs (including Egypt) will find their customers. Current BRICS discussions in the region need to be a warning sign for all. Renewables are green, but US$ also. Make it a symbiotic strategy, and a win-win situation for all.