Scaling up of both production and consumption of hydrogen is increasingly seen as a vital part of achieving global decarbonisation. Evidence of that scaling on the production side is seen in several key projects of Middle East origins, which are already looking at commercialising hydrogen, including the UAE's recently announced $1 billion green ammonia facility in Khalifa Industrial Zone Abu Dhabi, or KIZAD. The project has access to Khalifa Port, the main export hub of Abu Dhabi, and will start production in the second quarter of 2024 with exports targeted mainly to Europe and the US.
A second $1 billion green ammonia project at KIZAD, a unit of state-owned Abu Dhabi Ports, would be powered by a 2 GW solar power plant. The plant would supply ships using ammonia as a bunker fuel and for export via gas carriers.
Partnerships, including offtake agreements, will power these developments, such as the cooperation agreement reached with German utility Uniper to secure green ammonia from Oman's Hyport Duqm renewable hydrogen project. The project will be built in the Arabian seaport of Duqm in Oman, and will work well with the company's global hydrogen strategy, Uniper said.
Other end-users, such as Japan's largest refiner ENEOS, see the Middle East as a region with some of the world's lowest levelised costs of electricity, which gives producers within the region an advantage and offers the operators of these new sites the potential to deliver cost-competitive hydrogen or its derivatives, such as green ammonia, to Europe and Asia.
As large projects are announced and developed, port developers will have to examine where they have the biggest bottlenecks to allow production of clean hydrogen from renewable sources or where they have the capacity to add carbon capture and storage.
Conversion of gas shipping lines for H2, ammonia
Cooperation agreements are being drawn up with companies such as Italy's Eni to develop renewable and low-carbon hydrogen in Egypt using depleted gas fields to store CO2 produced from conventional hydrogen production. The agreement allows Eni to work with their suppliers to investigate potential local demand for hydrogen, as well as explore export opportunities.
Shipping from the Middle East to Europe and Asia also takes advantage of existing supply lines for natural gas and LNG -- via the Suez Canal into Europe and around to Asia.
Deciding whether to buy domestic or imported hydrogen will largely depend on production and transportation costs, including terminal and other fees. Project developers must weigh the cost of producing decarbonised hydrogen or ammonia domestically against the cost of producing it with cheap electricity in the Middle East plus transportation costs.
In Japan, S&P Global Platts launched calculated cost of production assessments in February 2020. The costs are based on fixed values such as capital costs and plant efficiency along with daily variable inputs, including gas and electricity.
The Platts cost of production prices show that the cost of producing hydrogen conventionally through a Steam Methane Reforming unit without carbon capture and storage remains the cheapest, averaging $2.61/kg since the assessments were launched.
In comparison, producing hydrogen through electrolysis averaged $7.96/kg over that same period. This difference between the two production routes is largely driven by a surge in electricity costs at times of peak consumption during winter, which drove up the cost of production via electrolysis.
Prices for delivering LNG on a MMBtu basis remain much cheaper, and are expected to remain so over the next decade.
However, while shippers might be focused on costs, end-users could be focused on how many tons of CO2/kg H2 are saved. Pressure continues to mount on industry and governments to reduce carbon emissions amid rising challenges of climate change.
The World Energy Council's 'Hydrogen on the Horizon: Ready, Almost Set, Go?' report released July 27 also stresses the need to move beyond traditional supply-centric energy perspectives to focus more on the demand-side and the role of consumers, given their potential for disruptive innovation.
Better understanding of hydrogen demand has proved particularly challenging in the early stages of its development, the report said.
Storage will depend on hydrogen export strategy
As port projects produce more hydrogen and supply agreements identify end-users, questions around efficient storage will continue to dominate.
Middle East hydrogen producers, terminals and end users will have questions around storage location and how much storage is needed. If hydrogen is produced using renewable electricity, more storage is needed near the production site given the intermittent nature of renewables.
While some Middle East production sites may be considerably larger in size in comparison to European production sites, that should not change the green hydrogen picture for storage as these sites will also be intermittent. However, as Middle East producers develop export activity, it will also require storage between production and the export terminals.
In the early stages of the development of the hydrogen market in the Middle East, this chicken-and-egg question of whether the production or storage comes first will need to be resolved. It is likely that cooperation between industry and government will be an essential part of finding a solution to developing the necessary infrastructure. However, as investment decisions come under closer scrutiny, transparency around current and future hydrogen pricing will also become increasingly important.
(The author is EMEA Hydrogen Pricing Specialist, S&P Global Platts)
(Any opinions expressed in this article are the author’s own)
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