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Middle East, North Africa hold key to low-carbon fuel supplies: study

02 June 2022 Amena Saiyid

Middle Eastern and North African (MENA) countries can tap their abundant hydrocarbon reserves and related infrastructure to supply the rest of the world with low-cost and lower-carbon emitting hydrogen and ammonia, according to recent analysis.

As fossil fuels currently are responsible for 80% of global energy consumption, with many of today's applications posing challenges to electrification, US-based environmental advocacy group Clean Air Task Force (CATF) makes the case that "very large volumes of low-carbon fuels" will be required in a decarbonized economy.

CATF said decarbonized fuels, such as hydrogen and ammonia, can be produced cheaply in the Middle East to power the high GHG-emitting, yet hard-to-abate cement and steel sectors in Europe and meet energy needs in largely oil imports-dependent South Asia.

"CATF anticipates that natural gas-derived hydrogen will have particular salience in nations with significant hydrocarbon reserves and an interest in repurposing the existing uses of oil and gas for export to preserve the value of these resources," the group wrote in a 24 May study, "Poised to Lead: How the Middle East and North Africa Can Accelerate the Global Energy Transition."

For these opportunities to be realized though, CATF said the region needs clear policy signals from Europe that their products will have markets as well as some domestic regulatory frameworks.

Based on the EU's plans, the region's hydrogen demand is expected to increase from around 8 million metric tons (mt) a year today, and the European Commission has recognized Europe will not be able to produce enough of its own hydrogen, highlighting the need for imports.

Under REPowerEU, the bloc's emergency plan released in March to wean itself off Russian gas, renewable-sourced "green" hydrogen is identified as key to replacing natural gas, coal, and oil in hard-to-decarbonize industries and transportation. REPowerEU sets a target of 10 million mt of domestic renewable hydrogen production and 10 million mt of renewable hydrogen imports by 2030.

No EU plan for blue hydrogen

But, as CATF pointed out in its report, the EU has yet to develop a strategy or a framework for how it can meet its needs through blue hydrogen. Such a framework, the report authors say, is badly needed to incentivize blue hydrogen development in the MENA region.

In a separate yet related report on developing carbon capture and storage (CCS) in the EU, CATF said using CCS "to decarbonize the production of hydrogen from natural gas offers a rapidly scalable source of low-carbon hydrogen that can help prioritize renewable energy for power sector decarbonization."

To achieve those ends, CATF recommends that the EU develop a certification scheme to ensure that hydrogen derived from natural gas meets "ambitious thresholds (including upstream emissions) that is adaptive to technology development."

Oil and natural gas producers regularly produce conventional "gray" hydrogen molecules from natural gas using the steam reformation process. What makes hydrogen "blue" and pricier than its gray counterpart is when technology to capture and store the resulting CO2 is added to the steam reformation process.

The most expensive and sought-after hydrogen is "green" hydrogen because it doesn't involve fossil fuels and is produced from electrolyzing water with renewable energy.

Looking to MENA for hydrogen

"The MENA region has a very good opportunity to be 'a serious player' in supplying zero-carbon fuels: it has the technical know-how, it has natural resources to deploy both blue and green hydrogen. And given what we know, we will need the blue and we're going to need the green," Olivia Azadegan, the author of both reports and CATF energy transition director for Europe, the Middle East, and Africa, told Net-Zero Business Daily by S&P Global Commodity Insights in a 23 May interview.

Citing a November 2020 study by energy consultants Qamar Energy, the report said industrial conventional or gray hydrogen in the Middle East can cost as low as 90 cents/kg, but adding carbon capture, utilization, and storage (CCUS) might raise the price by 35-50%, or about 50 cents/kg, for an all-in price of $1.40/kg.

Russia's war on Ukraine has exacerbated an already tight market by driving up natural gas prices to record highs that in turn are pushing up the cost of conventional hydrogen, making blue hydrogen attractive.

At the close of trading 1 June, Platts assessed the Dutch TTF day-ahead spot contract at €74.10/MWh, down about 13.74% day on day and its lowest level since 21 February's €71.60/MWh, according to S&P Global. In the interim, the price was as high as €208.93/MWh on 8 March. A year ago, the day-ahead spot benchmark European natural gas price was hovering in the €4.90/MWh range.

Natural gas, though a fossil fuel, is seen by many—including the EU—as the fuel that will bridge the transition between high GHG emitting coal and oil and the cleaner sources of renewable electricity.

CCS has a role in decarbonization

Despite the high natural gas prices, the International Energy Agency's (IEA) May 2021 analysis of a net-zero future by 2050 made it clear that fossil fuels aren't going away just yet, and that CCS will play a key role in any scenario.

IEA projects low-carbon hydrogen needs will rise from 9 million mt in 2020 to 150 million mt in 2030 and 520 million mt in 2050. More than half of this demand (54%) in 2030 will be met through electrolysis, while the remainder (46%) will be produced from natural gas, IEA said. By 2050, it said renewable power-sourced hydrogen will account for 62% of output, while the remainder will still come from natural gas.

The CATF report said using natural gas for producing hydrogen will benefit members of the Gulf Cooperation Council, including Saudi Arabia, which is seeking to preserve its gas reserves for higher value products as petrochemicals. Egypt in particular can tap into the deep ports serving both the Red Sea and the Persian Gulf as well as the natural gas infrastructure it already has in place to supply Europe and Asia.

Moreover, the geology of the region has been found to be suitable for underground CO2 storage. A 2013 study estimated that the region has the capacity to accept 170 billion mt of CO2.

Recently announced hydrogen strategies that include blue hydrogen as a transitional solution are driving development of CCS and associated infrastructure in countries such as Saudi Arabia and the United Arab Emirates, according to S&P Global Commodity Insight's May overview of global CCS projects.

Hydrogen powerhouses

Both the UAE and Saudi Arabia have released plans they expect to turn them from petrostates into renewable and hydrogen power houses.

Saudi Arabia already has some of the region's largest existing carbon capture projects. Since 2015, national oil company Saudi Aramco—the world's largest oil producer—has operated a CCS plant with an annual capacity of 800,000 mt at the Hawiyah gas production facility. The CO2 is used to enhance oil recovery in the Uthmaniyah field.

In the same year, United commissioned a 500,000 mt/year plant to capture CO2 from the production of ethylene glycol at its Jubail site. United is an affiliate of chemical producer Saudi Basic Industries Corp (SABIC), which is 70% owned by Aramco.

Aramco also shipped 40 metric tons of "blue" ammonia to Japan in September 2020, with the resulting CO2 partly used in an enhanced oil recovery project at the Uthmaniyah field, and partly to produce methanol.

What Saudi Arabia needs is to develop funding mechanisms to mitigate costs and establish a regulatory framework for monitoring CO2 storage, according to Paola Perez Pena, a principal research analyst for clean energy technology at S&P Global.

Outside of Saudi Arabia, Qatar Petroleum, the sovereign gas company, already is capturing 2.1 million mt of CO2 each year from the LNG plant in Ras Laffan, some 80 miles north of the capital Doha. It announced plans to expand the capture rate to 5 million mt a year with a corresponding expansion in its LNG operations.

Water scarcity and green hydrogen

Although the MENA region is blessed with ample solar power, the report's authors downplayed the prospects for green hydrogen. CATF said scaling up green hydrogen projects from demonstration level and studies could be a problem because hydrogen from electrolysis requires water with a high degree of purity.

According to Qamar Energy, electrolyzer systems used to split water molecules require around 9 liters of water to produce 1 kg of green hydrogen. "Freshwater access can become an issue in water-scarce or water-stressed areas, meaning desalinated seawater will likely be required in the Gulf," Qamar Energy wrote, adding that current electrolyzers require desalinated water, though new generations are under development that could work with salt water.

However, a shortage of fresh or desalinated water is not stopping the UAE, which unveiled its Hydrogen Leadership Roadmap last November that includes a target to conquer 25% of the global low-carbon hydrogen market by 2030 without providing a production target.

Green hydrogen

Launched in 2006 as a clean energy business and now fully engaged in developing green projects is Abu Dhabi government-owned Masdar in which Abu Dhabi National Energy Company, Mubadala Investment Company, and Abu Dhabi National Oil Company each hold stakes.

In January, Masdar sealed a collaboration agreement with ENGIE to study a 200-MW green hydrogen facility, which could come online in 2025 to supply Fertiglobe's ammonia facilities at Al Ruwais, Abu Dhabi. This came after the pair pledged to invest $5 billion in green hydrogen production from at least 2 GW of electrolysis capacity by 2030 in December.

Masdar also has teamed up with TotalEnergies and Siemens Energy to co-develop a demonstration plant at Masdar City in Abu Dhabi that aims to turn green hydrogen into sustainable aviation fuel.

And last May, a 1.2-MW green hydrogen pilot was unveiled at the Mohammed bin Rashid Al Maktoum Solar Park.

Likewise, Saudi Arabia is planning to bring online by 2025 a green hydrogen production facility that is expected to produce 650 mt per day of green hydrogen and more than 3,200 mt per day of green ammonia. This facility will be powered by at least 4 GW of wind and solar.

Apart from Saudi Arabia and UAE, other countries in the MENA bloc also have green hydrogen projects in various stages of planning.

For instance, Egypt, which is hosting the UN COP27 conference this November, also is looking to burnish its clean energy credentials with its EgyptVision2030 and issue a green hydrogen strategy by October. It is looking to build a 100-200 MW electrolyzer to produce green hydrogen for which it signed a contract with Siemens in August 2021.

Egypt is an example of a country that is capitalizing on its existing oil and gas infrastructure and its strategic location to not only supply LNG to European markets, but also to supply green hydrogen.

In late April, UAE's Masdar and Egypt's Hassan Allam Utilities agreed to develop the infrastructure along the Suez Canal Economic Zone and on the country's Mediterranean coast for green hydrogen projects. These include developing 4 GW of electrolyzer capacity by 2030 that will produce up to 480,000 mt each year, and a manufacturing facility that will start in 2026 to produce 100,000 mt/year of e-methanol for bunkering in the Mediterranean.

Both companies see Egypt as a hub for green hydrogen production, targeting the bunkering market, exports to Europe, and boosting local industry. Egypt enjoys abundant solar and wind resources that allow generation of renewable power at a highly competitive cost—a key enabler for green hydrogen production. In the second half of 2021, Egypt began exporting LNG to Europe.

However, Egypt also is vulnerable to climate-influenced sea-level rise. These negative impacts are compounded by a large proportion of its population living on the Nile Delta, according to the United Nations Development Programme. Egypt is one of only three African nations with a population greater than 100 million people.

Posted 02 June 2022 by Amena Saiyid, Senior Climate and Energy Research Analyst

This article was published by S&P Global Commodity Insights and not by S&P Global Ratings, which is a separately managed division of S&P Global.


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