Hydrogen is the lightest and most abundant element in the universe. It also has considerable potential as the energy of the future, as using hydrogen the by-product is water, rather than polluting CO2 from fossil fuels. Gulf states, with a strategic eye on diversifying their economies and planning for a post-oil future, are starting to invest heavily in hydrogen production and related technologies.
Uses of hydrogen are multiple: As a way of storing energy generated by renewables; in transportation, to drive fuel cell-powered vehicles, with particular applications in heavy goods vehicles; potentially in aviation ultimately to replace fossil fuel use, and as a lower carbon alternative in ‘hard to abate’ sectors such as cement and steel manufacture, where renewable technologies cannot produce the high temperatures needed.
The reasons that the use of hydrogen has been limited is that some necessary technologies have not been sufficiently advanced or economic at scale, and because while its use as a fuel or store of energy is clean, its production has not been. Hydrogen has had industrial uses for many years for example in the manufacture of ammonia as a crop fertiliser, and to reduce the sulphur content of oil. But its production has been from fossil fuels, in a process known as ‘grey hydrogen’, which is a polluting process.
‘Green’ hydrogen involves using renewable energy to produce the element through electrolysis, and advances in material science and engineering have meant that this process has become more economically viable. Some estimates are that hydrogen could reach up to 24% of total energy use by 2050, and that green hydrogen use could be growing by 55% per year from 2028. There are currently 46 green hydrogen projects in the Middle East and Africa.
A comprehensive switch from fossil-based to green hydrogen is a huge task however. There is not yet a global market, and its transport is expensive. A relatively clean alternative is known as blue hydrogen. This uses fossil fuels, but deploys carbon capture to ensure zero or low emissions of CO2.
The ambition of Gulf states to ensure that they are leading global players in a future hydrogen market has been considerable. Oman has prioritised green hydrogen, Qatar has partnered with European countries to export its liquefied natural gas (LNG) for blue hydrogen production, and Saudi Arabia and the United Arab Emirates are investing in both. The UAE announced at the COP26 summit in 2021 that it was working on a ‘Hydrogen Roadmap’, aimed at establishing itself as a leader in developing the fuel. At the same time Saudi Arabia announced its ambition to become the world’s leading provider of hydrogen.
Gulf states have many natural advantages in their ambitions to be significant participants in a future hydrogen market: Strong in capital reserves, ample land space, growing renewable technology, for example Qatar’s 800MWp solar plant at Al Kharsaah. The one necessary resource in short supply is fresh water. Desalination plants are necessary to produce the water necessary for hydrogen production; the capital expenditure for desalination plants is considerable, although the subsequent running costs are a small proportion of the total.
In addition, Qatar has invested $1bn in a ‘blue ammonia’ plant. Blue ammonia is a low-energy way of producing the chemical, through steam methane reformation. This replaces an energy-intensive method of combining nitrogen and hydrogen under high pressures and temperatures in a process that is more than 100 years old.
There is no single strategy that will ensure a global transition to clean energy, but it is increasingly clear that hydrogen plays a role, and it is a technology for which Gulf states are positioning themselves as strategic leaders. Investors are astute in identifying hydrogen as a potentially disruptive technology, in addition to being environmentally friendlier, as they diversify from oil and gas. There will be other cleaner technologies that may reduce the market for fossil fuels. A concept known as Wright’s Law, nearly a century old, holds that unit costs fall reliably as production of a new technology increases. This is occurring in renewable technologies. The price per megawatt hour of electricity generated by solar photovoltaic cells fell from $378 to $68 between 2010 and 2019.
Disruptive technology offers opportunities and also risks. Companies as big as the photographic giant Kodak failed to adapt effectively to the digital age. Despite having been a pioneer in the technology, it did not adjust its business model to the rise of social media and the smartphone. Businesses and nations currently benefiting from high revenues from oil and gas are correct to anticipate that markets in energy and propulsion are beginning some fundamental changes.
The author is a Qatari banker, with many years of experience in the banking sector in senior positions.
