The Middle East and North Africa (Mena) region, including the UAE, KSA, and Oman, is positioning itself to become a hub for green hydrogen production, leveraging its abundant solar and wind resources. This strategic resource is expected to significantly reduce the cost of green hydrogen production, making it more competitive with traditional fossil fuels like natural gas. According to the International Renewable Energy Agency (Irena), the cost of producing hydrogen in Saudi Arabia could drop to between $0.7 and $1.3 per kilogramme by 2050.
This forecast is based on the region's potential for low-cost renewable energy generation, which is essential for economically viable green hydrogen production — numerous factors contribute to the potential cost reduction, including abundant Renewable Energy resources. The Mena region's high solar and wind energy potential enables cheap electricity for hydrogen production via electrolysis. Scaling up infrastructure, technological advancements in electrolysers, and supportive policies will lower costs, making green hydrogen competitive with natural gas over time. This aligns with global decarbonisation efforts and rising carbon emission costs.
The established oil and gas industry in the Mena region provides a strong infrastructure foundation and logistical expertise crucial for developing and exporting hydrogen and its derivatives. The existing gas industry supports potentially cost-effective blue hydrogen production, serving as a transitional solution while green hydrogen capacity is increased. The region's strategic location facilitates access to key markets in Europe and Asia, enhancing export opportunities.
Although the regulatory frameworks for green hydrogen in MENA are still developing, there is high potential for government support like the US Inflation Reduction Act and EU green proposals. This support could significantly boost the energy transformation ecosystem. Overall, the combination of natural resources, existing infrastructure, strategic location, and potential regulatory support positions the Mena region as a leading hub for green hydrogen development.
Still, the demand for hydrogen is expected to rise faster in regions with advanced regulatory frameworks such as Europe. This increase in demand is anticipated to align with various policy targets and market dynamics. The European Union’s regulatory environment, including the Renewable Energy Directive III (REDIII), aims to achieve a 42% target for the use of renewable energy in industry by 2030. This is likely to drive significant demand for hydrogen, especially in industries such as refineries, ammonia production, and steel manufacturing.
In Germany, the phase-out of coal by 2040 will necessitate the adoption of alternative energy sources, including hydrogen, to fill the energy gap and support carbon neutrality efforts. Hydrogen demand will be driven by sectors that are hard-to-abate i.e. difficult to decarbonise, such as steel manufacturing and shipping, which require high-temperature processes and energy-dense fuels, which hydrogen can provide. It is hoped use in industrial processes as in refineries and ammonia production, will see an earlier rise in hydrogen demand, driven by regulatory targets and the need for cleaner production processes.
From 2035 onwards, hydrogen demand is expected to grow significantly in the transport sector, including maritime and aviation, and likewise in certain power generation. This aligns with broader decarbonisation goals and the transition to sustainable energy sources in the likes of Japan and South Korea. In these countries, the initial demand for hydrogen will be driven by power generation. Subsequently, other industries such as steel manufacturing will also start adopting hydrogen as a key energy source.
Several major countries, from the US to India are announcing multiple green hydrogen projects. However, project developers typically require offtake agreements (demand commitments) before reaching the Final Investment Decision (FID), suggesting that oversupply will not be a bottleneck for green or low-carbon hydrogen production. While competition among powerful nations will help lower costs, balancing supply and demand will also depend on infrastructure, certifications, and regulations.
In summary, the rising demand for hydrogen is contingent on several factors, including regulatory frameworks, sector-specific needs, and market dynamics. The alignment of supply and demand will depend on how quickly these factors converge and how effectively hydrogen production can be scaled to meet the needs of various industries and regions.
John Roper
The author is CEO Middle East, Uniper Global Commodities SE
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