November 12, 2024 [Oil Price]- Saudi Arabia is reportedly preparing to unleash $10 billion in investments to gain exposure to one of the more debatable aspects of the energy transition green hydrogen. The news comes amid a slew of green hydrogen project cancelations and revisions.
Bloomberg reported recently that Saudi Arabia’s Public Investment Fund will be pouring at least $10 billion into green hydrogen, with a view to expanding the amount depending on demand, according to unnamed sources.
Speaking of demand, another Middle Eastern green hydrogen hopeful, Emirati Masdar, recently pushed back its target for 1 million tons in green hydrogen production capacity from 2030 to 2034.
“Green hydrogen is currently more expensive,” said the chief executive of Emsteel Group, Masdar’s partner in the green hydrogen venture in comments on the news. “This highlights the need for alignment with regulators, suppliers, steel producers and customers,” Saeed Ghumran Al Remeithi added.
When a business executive talks about the cost of a technology and “alignment with regulators,” he most probably means state fund support, also known as subsidies. Indeed, green hydrogen is several times as expensive to produce as the cheaper versions of the element that feature natural gas. This appears to be an obstacle that is increasingly looking insurmountable.
One illustration of this was the recent report that Australian mining major Andrew Forrest was dropping his plans to turn Fortescue into a green hydrogen company, cutting 700 jobs and canceling a target for 15 million tons in green hydrogen production annually by 2030.
Per a Financial Times report on the news, an unnamed source close to the businessman said Forrest had realized that target was unrealistic. The realization dawned on Forrest just two years after he stated his purpose of turning Fortescue into a green hydrogen powerhouse.
At the time, Forrest—and other green hydrogen enthusiasts—believed the element could become a globally traded commodity, pretty much like oil and gas. For that to happen, per Forrest’s vision, green hydrogen would be produced in places where solar energy is cheap, turned into ammonia, and transported around the world.
The Middle East offers massive cheap solar opportunities. Saudi Arabia’s rulers know this as well as their peers in the UAE know it. Yet Masdar is dialing back its green hydrogen ambitions—because they depend on demand, and that demand is nowhere to be seen.
German utility Uniper last month scrapped plans to invest some 8 billion euro, or around $10 billion, in green hydrogen production, citing the absence of demand. “As things stand today, there are hardly any major customers who buy green hydrogen,” company chief executive Michael Lewis told Germany’s Frankfurter Allgemeine Zeitung. “That’s why we have to step on the brakes a little.”
It is in this environment that the Saudis are reportedly joining what was supposed to be a green hydrogen party, but it has yet to take off. But Saudi Arabia may be a step ahead of the competition in this respect. It is already building a green hydrogen plant, set to be completed by the end of 2026. Not only that, but according to a Bloomberg report from October, one of the equity partners in the project—a total of 23 banks—had agreed to buy the plant’s full output.
This is the crux of the matter with green hydrogen. If you have no one to sell your green hydrogen to because it is too expensive to produce, there is no economic point in producing it. But if the Saudis have found a way to produce green hydrogen at a lower cost, then the technology may have a fighting chance against its much cheaper—but politically incorrect—alternatives.
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