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Saudi Mulls World’s Largest Hydrogen Plant In Energy Gambit

Theo Normanton
Feb 14, 2022
Photo: Antonio Garcia via Unsplash.

Saudi Arabia is considering building the world’s biggest hydrogen plant linked to its massive solar resources, as investors increasingly turn to climate-friendly projects.

The new plant would cost several billion dollars and have a daily production target of 650 tonnes of “green” hydrogen (made from renewable energy).

Currently the world’s largest exporter of oil, Saudi Arabia has long sought to diversify its economy and reduce its dependence on fossil fuels. The Kingdom’s government was still 75% dependent on oil exports for its budget in 2021, according to the Guardian.

Experimenting with green investments would at least keep Saudi in energy, which is familiar territory.

To encourage the economy’s transition towards the fuels of the future, Crown Prince Mohammed bin Salman has introduced a package of economic reforms called Vision 2030. This strategy includes the creation of a $500 billion green megacity called Neom.

This city is designed to simultaneously satisfy three of Saudi Arabia’s biggest needs: an enhanced international reputation, an economy less dependent on oil, and more highly qualified immigrants. Neom is also the proposed site for the hydrogen plant.

Situated on the coast in the northwestern corner of Saudi Arabia, the climate in Neom’s planned location will lend itself to the production of renewable energy, which is needed in large quantities to produce green hydrogen. With consistent year-round sunshine and coastal winds, the planned city and hydrogen plant will be able to harness natural energy in all seasons. The Kingdom is already home to the largest wind farm in the Middle East.

Green hydrogen production is currently inefficient and costly, because huge energy capacity is required for the process. The chemical reaction used to produce green hydrogen involves splitting the water molecule into hydrogen and oxygen using electrolysis. While this process has been successfully piloted, and even used to create carbon-neutral steel, it has failed to gain scale. The hope is that ever more affordable solar generation will close this gap.

This could change, though, if the capacity of renewable energy were ramped up. In addition to its geographical advantage, Neom would have the advantage of generating the renewable energy for hydrogen production at the same location where it will be used. The difficulty of transporting and storing renewable energy remains one of the biggest barriers to its expansion. Hydrogen is essentially one way to store it.

Saudi Arabia also plans to participate in the production of “blue” hydrogen, which is created from natural gas, and involves carbon capture. Although it has a larger carbon footprint than green hydrogen, blue hydrogen is still more environmentally friendly than burning traditional fossil fuels. Saudi Arabia has confirmed that it will allocate a gas field for blue hydrogen production.

The hydrogen market is set to grow as the world searches for ways to de-carbonise industry and transport. According to the Hydrogen Council, the market for hydrogen and hydrogen technologies could be worth about $2.5 trillion a year by 2050.

Russia and the UAE have both expressed an interest in capturing at least 20% of the world’s hydrogen market, but so far none of the major players have made substantial steps towards unveiling large-scale green hydrogen production facilities. Saudi Arabia is at a strategic advantage here in having abundant sun, lots of free land, and plenty of money to invest. The planned hydrogen facility is mostly being financed by the Kingdom’s $500 billion sovereign wealth fund.

Meanwhile, oil demand is slowly decreasing. The International Energy Association sees oil demand falling from 88 million barrels a day (mb/d) in 2020 to 72 mb/d in 2030. Even if these forecasts are optimistic, there is a certain logic in Riyadh trying to find a foothold in new energies. It will look to reduce its economy’s exposure to oil – or to make sure it has a place in any future energy market.

As the world’s swing producer of oil, it will likely be the last one standing among major oil countries if the petroleum era really does go into decline.

Production at the Red Sea hydrogen plant is reportedly planned to begin in 2026, but it is still far from certain that the plant will be built. Neom itself has been criticised as a prohibitively ambitious project. Situated in a sparsely populated part of Saudi Arabia’s desert, it would be challenging to construct all the infrastructure needed to sustain a city the size of Belgium from scratch.

Buoyed by rising oil prices, Saudi Arabia’s economy grew in the third quarter of last year. But it could easily become stagnant as the economic recovery from the coronavirus pandemic slows. Such a scenario would really put the government’s resolve on this green giant to the test.

Theo Normanton

Theo Normanton covers tech, ESG and the circular economy, with a particular interest in the markets of Russia and the CIS.

Tweets at: @TheoNormanton

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