MUSCAT: The government of Oman’s ambitious targets to expand local green hydrogen production could support key credit metrics, such as GDP, fiscal revenue and the balance of payments, over the long term against the backdrop of the global energy transition, although uncertainty around potential outcomes remains high at this early stage of the sector’s development, says Fitch Ratings.
The government aims to raise renewable energy-based hydrogen production to at least one million metric tonnes (mt)/year by 2030, rising to at least 3.25 million mt by 2040 and 7.5 million mt by 2050. Local state-owned enterprise (SOE) Hydrogen Oman (Hydrom) signed six investment agreements, worth over USD38 billion, with partners in 2023, says Fitch, noting that the country’s hydrogen strategy will not involve large-scale SOE investments or associated sovereign contingent liabilities, with Hydrom only providing prepared plots and another SOE, OQ Alternative Energy, only taking relatively modest minority stakes in selected projects. Most projects focus on producing and exporting either hydrogen – in the form of ammonia – or steel.
The main impact of the green hydrogen development plan in the near term is likely to be on investment, external metrics and employment, according to Fitch Ratings. The significant inflows of foreign direct investment would boost GDP, but the lift would be counterbalanced by rising imports for project delivery, it cautions. “We estimate that in-country value-added requirements for these investments will support existing GDP and ancillary sectors,” the international ratings agency points out.
The projects’ exports would support Oman’s current account balance, but this will be partly offset by external debt repayment and dividend payments to parent companies. The sector’s activity would also boost GDP and employment. A large share of staffing needs would be sourced abroad, but producers will also be subject to employment targets for Omani nationals.
Fitch stated in September 2023, at the time of its upgrade of Oman’s rating to ‘BB+’ from ‘BB’ with a Stable Outlook, that growth of the non-oil economy that notably improves non-oil fiscal revenues and reduces social spending pressures on the government could lead to positive rating action.
In the longer term, Oman's success in the development of a green hydrogen sector would help to reduce somewhat its high dependence on fossil fuels and its exposure to the global energy transition. Fiscal and export revenues from green hydrogen may still be susceptible to global energy-price cycles, but if Oman is able to develop an export base for green steel, this could diversify its exports.
“Fitch believes Oman has potential to compete in green hydrogen production, reflecting its low renewable-energy costs, available export infrastructure through Hydrom and the under-utilised Duqm port, and a clear, relatively low tax framework. However, the sector’s long-term viability will depend on a number of factors, including the speed and scale of global adoption of green hydrogen, carbon prices (particularly in Europe) and the emergence of competitors,” it added.
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