While the world begins to build the infrastructure of a future hydrogen economy, the economics of global trade in carbon-free hydrogen are becoming more clear. Among countries expected to find significant opportunities in that future market is Saudi Arabia.
According to a recent report from a notable Riyadh-based research institute, green hydrogen produced from electrolysis could begin to ship to the Port of Rotterdam in 2030 at prices quite competitive with European hydrogen, depending partly upon the shipping method used.
The researchers also see significant potential for hydrogen in KSA’s domestic industry. Hydrogen and hydrogen-based fuels could replace gray hydrogen, strengthening Saudi export potential in a range of products as more costs are imposed on carbon emissions worldwide.
They see great potential for both blue (with carbon capture) and green (with renewable energy) hydrogen, with technology and production costs gradually falling for both types. Their outlook for blue is more positive than that of some recent analyses, which foresees green hydrogen beating blue on price in many regions of the world by 2030.
But Saudi Arabia’s apparent advantages in producing low-cost hydrogen of both types may allow it to develop each for the long term. Therefore the researchers advocate a balanced approach, anticipating regional specialization within the country.
Realistic assumptions
The report, “The Economics and Resource Potential of Hydrogen Production in Saudi Arabia” by the King Abdullah Petroleum Studies and Research Center (KAPSARC), was issued in March.
The KAPSARC researchers look at realistic cost scenarios based on realistic assumptions about the price of natural gas in Saudi Arabia, and the cost of electricity from renewable sources. The anticipated costs and capacity factors of electrolysis systems are also carefully considered.
Saudi Arabia is already a large consumer of hydrogen for its refinery and chemicals industries; primarily ‘gray’ hydrogen produced with high carbon emissions. It is by far the cheapest way to produce the gas at about $0.90/kg. But costs of blue and especially green hydrogen are expected to decline substantially in the next few years.
Blue hydrogen gains an advantage from Saudi Arabia’s huge production of natural gas and its closed market for it. KSA neither exports nor imports natural gas and maintains a low price, currently at $1.25/MMBtu. At this price, the cost of producing blue hydrogen could fall from the current $1.34/kg to $1.13/kg by 2030. This assumes ongoing cost reductions in carbon capture & storage (CCS) methods as these scale up.
The cost of green hydrogen is highly dependent on the cost of electricity from renewable sources and electrolysis. It is $2.16/kg today based on an electricity price of $18.3/MWh (an average of auction prices for new solar projects in Saudi Arabia). The researchers see that this cost could fall to $1.48/kg by 2030, if renewable energy costs fall to $13/MWh.
The cost of green hydrogen production in KSA could fall further to $1/kg by 2050. Reaching the vaunted $1/kg target assumes electrolyser capital costs drop to $400 per kilowatt, with renewable energy costs falling below $10/MWh, both realistic scenarios.
The researchers see an enormous advantage in KSA’s ability to achieve high capacity factors in its production of renewable electricity. They assert that capacity factors can reach 60% in the production of renewable power in Saudi Arabia; that it is possible with a PV-Wind hybrid system. In fact, large areas of the country, especially in the western region, are favorable for diurnal (day and night) solar and wind energy production. This greatly surpasses, for example, wind power in Europe with capacity factors of approximately 35%.
With this advantage, however, a carbon price in some form will still need to be imposed in Saudi Arabia. The report says that green hydrogen will be competitive with grey hydrogen by 2030, at the current domestic natural gas price of $1.25/MMBtu and a carbon price of about $65 per tonne.
Expediting exports
Assuming a green hydrogen production cost of $1.48/kg by 2030, the delivered cost of hydrogen from Saudi Arabia’s western region to the Port of Rotterdam via the Suez Canal can be quite competitive.
To estimate it, the researchers also make assumptions about conversion to carrier, shipping and dehydrogenation costs. They think liquid hydrogen can arrive at Rotterdam in 2030 with a delivery cost averaging between about $3.50/kg and $4.50/kg. This compares favorably to the expected cost of green hydrogen production in Europe, which according to recent research will be between $3/kg and $5/kg in 2030.
While it appears that Saudi hydrogen exports to Europe can be competitively priced, much will depend on the type of carrier used. Methods for the sea transport of liquid hydrogen, or in the form of a liquid organic hydrogen carrier (LOHC), are still in development. Ammonia is a proven carrier of hydrogen energy, but it requires cracking the ammonia back to hydrogen (dehydrogenation) if pure hydrogen is needed. This adds an additional cost ranging from $1/kg to $2/kg according to recent research.
To avoid this potential cost, the KAPSARC researchers suggest that Saudi producers look for opportunities to trade ammonia for direct use, whether blue or green. Markets may be found by substituting for gray ammonia in the production of fertilizers. New applications, such as blue ammonia for power generation in Japan, may also open opportunities for export.
They also advocate for de-carbonizing domestic industries, such as ammonia and methanol plants, by switching them to low-cost blue or green hydrogen. This conversion could extend to other domestic industries, such as steel, cement and aluminum. The researchers also see potential in the transport sector, with new fuel cell applications and sustainable jet fuel.
This strategy could lower the country’s carbon footprint while also opening new opportunities for the production of carbon-neutral products for export. Low-carbon hydrogen would lower the carbon content of many industries’ finished products, thereby better positioning them for international markets as carbon policies become more stringent worldwide.
Regions green and blue
Saudi Arabia’s vast territory suggests that regional specialization for hydrogen production is feasible. The KAPSARC report sees two general regions where unique combinations of infrastructure and natural features could make hydrogen production costs among the lowest in the world, for both green and blue hydrogen.
The country’s eastern region, with its great apparatus of oil and gas production, refining, and chemical industries, has much of the infrastructure in place to support the development of a blue hydrogen industry. This includes access to deep saline aquifers for CO2 storage.
The western region enjoys very strong solar and wind resources to produce low-cost electricity for green hydrogen production. The NEOM project, in the northwest, is already the site of what is planned to be one of the largest green ammonia production plants in the world. Its hydrogen will be used to produce ammonia intended largely for export.
These unique regional advantages may allow KSA to pursue a broad hydrogen strategy that encompasses both green and blue hydrogen.
Whether such a regional strategy proves viable will depend on the relative costs of blue and green hydrogen. Recent analysis by BloombergNEF, which looks at costs in 28 countries, shows that blue hydrogen will not be viable in many parts of the world in 2030. Even in countries such as the United States, with relatively inexpensive natural gas, green hydrogen from renewable power will cost less to produce than blue hydrogen in 2030, according to this analysis.
But the case may be different in KSA, which was not among the countries modeled in the BloombergNEF analysis.
“The competitiveness of blue hydrogen would depend on the price at which gas is acquired from Aramco,” says Antoine Vagneur-Jones, head of Trade and Supply Chains at BloombergNEF, currently working on a forthcoming report on Middle East & North Africa hydrogen exports.
“Existing production, transport and storage infrastructure, and a local hydrocarbon value chains are of course advantages when scaling blue H2,” he says.
Vagneur-Jones cautions that opportunities for blue hydrogen export may be limited by competition and by external constraints. Europe’s emerging demand for hydrogen imports may be restricted by the mandate for green hydrogen. Meanwhile, places looking to import blue hydrogen, such as Japan, may find a closer low-cost supplier, namely Australia.
Therefore he thinks that Saudi Arabia’s green hydrogen is destined for export while its blue variety will help decarbonize local hydrogen consumption (which, at 2.29 million metric tons per year in 2019, is the largest in the Middle East by far).
“Local gray hydrogen is used to make methanol and refined oil products, both of which are high potential sectors for low-carbon hydrogen use,” he says.
