How hydrogen can transform the Gulf and drive growth

Without a doubt, for much of the last century the MENA region has established itself as the epicentre of global energy production – led by significant production and innovation across the Gulf states.

Over the past two decades in particular, the rapid development of its cities, diversification of economies, focus on sustainability and its prominence in delivering on global energy security have greatly contributed to the region’s growing global influence and comparative advantages. The upcoming COP28 conference held in Dubai later this year is just one of many examples of this established position.

So, what comes next for a region with the ambition to shape the energy system of the future?

Hydrogen as the next frontier

The Gulf’s existing energy infrastructure, advantageous geographical location, and technological expertise, provide the perfect foundations. But, for the Gulf to harness its full potential, ambitious policies and regional and local investment programmes are critical.

These foundations that can effectively be grouped across three areas of opportunity. First, utilising hydrogen’s role as a clean vector enabling a continuous use of the high performing oil & gas fields of the region with carbon capture (CCUS) policies.

Second, the strong petrochemical platforms developed by the GCC strengthen the ability to ultimately transform the region into a carbon sink hub. Lastly, the potential around renewals for the region goes far beyond its own electricity needs but is based on the significant value derived from properly pricing hydrogen vectors in global markets.

For this to happen on time and at scale, ambitious policies and investment programmes, as well as strategic deployment of public and private capital will be essential. The focus should be spread across infrastructures, technology and innovation. On the policy front, we are already seeing significant developments.

Rather than relying on the hydrocarbon resources which have fuelled the region’s rapid growth to date, Governments across the region have a keen eye on the future and are acting to develop the renewable energy sources which will form a key pillar of the transitions – installing 35GW of total renewable energy capacity across the region in 2022 alone.

At individual country level, the United Arab Emirates currently seems to lead the way through investment and its ambitious commitment to a net zero implementation strategy by 2050 – coupled with its National Hydrogen Strategy – providing strong tailwinds for the development of renewable energy in the region.

Unlocking investor appetite

As the world continues its transition away from hydrocarbons, the MENA region’s established prowess in the sector provides a pole position in what is set to be a defining race with the US, China and Europe to develop clean and cost-effective hydrogen – at scale and at pace. Regional players are rising to the challenge and acting with resolve.

As of November 2022, the region had completed 50 integrated CCS or renewable-based hydrogen projects, with a total value of $165bn of contemplated investments. And notably, to date, the region is home to the largest and most advanced green and clean hydrogen projects.

Governments are clearly aware of this opportunity and should be credited for taking early steps in this space. However, this has yet to be matched by stronger engagement from investors. Many of whom still view clean hydrogen as a risk-intensive investment, in comparison to renewable energy infrastructure or electrification.

To unlock investor appetite, governments and businesses will need to further demonstrate long-term determination and showcase the viability of hydrogen projects. This can be approached by directly addressing ongoing concerns around project cost and demand commitment.

The tools for this are relatively straightforward – governments should look to implement new policy measures to ramp up volumes. They could do this by bringing down costs via dedicated finance mechanisms such as tax credits, levies and underwriting the riskiest projects.

In addition, many GCC markets have possibly a significant advantage with their ability to swiftly and effectively ensure permitting processes for dedicated hydrogen zones. This would further strengthen development of infrastructure hubs and contribute to ensuring secure and reliable supply chains. At a more grassroots level, the success of this can be underpinned by ensuring training, education and workforce growth.

The use of large-scale clean hydrogen in energy intensive industries will also support downstream industry investment in the zone and support decarbonisation of local transportation. The Middle East and North Africa region has already made significant strides in building the foundations of this industry.

Again, the United Arab Emirates has shown itself to be ahead of the curve. Earlier this year, the UAE’s Ministry of Energy and Infrastructure event went as far as announcing its intentions to be among the top 10 hydrogen-producing countries globally. Saudi Arabia also has outlined clear intentions to become a world leading supplier of hydrogen and intending to attract more than $36 billion of investment by 2030, reflected within its ambitious Hydrogen Industrial Strategy, announced last April.

It is heartening to witness so much progress and recognition of the hydrogen opportunity in the region. With the right policies enabling speed and scale and investment decisions taken today, governments can succeed in ensuring that the MENA region remains at the epicentre of global energy production for the century to come.