Saudi Arabia’s Plan to Rule the $700 Billion Hydrogen Market from a Marine Perspective

Energy & Emissions

Mar 17

Summary - Saudi Arabia is building a $5 billion plant called Helios to make green fuel for export and decrease the country’s dependence on petrodollars. The 4 gigawatt plant will be completely powered by wind and solar energy. All of the zero-carbon fuel it produces will be shipped to international buyers in the form of ammonia. Helios should be fully operational by 2025 and produce 650 tons of hydrogen a day by means of electrolysis – enough for conversion to 1.2 million tons per year of green ammonia. Price of the hydrogen is expected to be in the range of $1.50 per kilogram in 2030, the price of the ammonia is not yet disclosed.

The inspiration for this article is Bloomberg Green, click here to check it out. You can also listen to the podcast we made about this project.

Changing desert into a renewable paradise

As governments and industries seek less-polluting alternatives to hydrocarbons, the world’s biggest crude exporter doesn’t want to cede the upcoming hydrogen business to China, Europe or Australia and lose a potentially massive source of income. Saudi Arabia is therefore building a $5 billion plant called Helios Green Fuels powered entirely by sun and wind. It will be among the world’s biggest green hydrogen makers when it opens in the planned megacity of Neom in 2025. Neom is a planned cross-border city in the Tabuk Province of northwestern Saudi Arabia. It is planned to incorporate smart city technologies and also function as a tourist destination.

The task of turning a patch of desert the size of Belgium into a metropolis powered by renewable energy falls to Peter Terium, the former chief executive officer of RWE AG, Germany’s biggest utility, and clean-energy spinoff Innogy SE. His performance will help determine whether a country dependent on petrodollars can transition into a supplier of non-polluting fuels.

Peter Terium, who is Dutch, joined Neom in 2018 to design its energy, water and food networks. His enthusiasm for technologies such as electric vehicles and digital networks might not have been matched by Innogy’s investors, but it is by the backers of Neom. The most important backer is Crown Prince Mohammed bin Salman, the 35-year-old de facto ruler, who envisions Neom as a zero-emissions example helping transform society and the economy. The hydrogen plant is part of that vision. But while Neom’s $500 billion price tag prompts questions about whether it will go ahead exactly as planned, the hydrogen effort doesn’t depend on the megacity’s overall success.

“There’s nothing I’ve ever seen or heard of this dimension or challenge,” Terium said. “I’ve been spending the last two years wrapping my mind around ‘from scratch,’ and now we’re very much in execution mode.”

Sun-scorched expanses and steady Red Sea breezes make the northwest tip of Saudi Arabia prime real estate for what the kingdom hopes will become a global hub for green hydrogen.

And this is the man responsible for transforming the desert into a renewable paradise. Peter Terium is a Dutch business executive and was the Chief Executive Officer of innogy from 1 April 2016 until 19 December 2017.

Hydrogen opportunities…

Hydrogen is morphing from a niche energy carrier — used in zeppelins, rockets and nuclear weapons — into big business, with the European Union alone committing roughly $500 billion to scale up its infrastructure. Many believe it could also play a role as fuel for the marine industry. Huge obstacles remain for the gas becoming a major part of the energy transition. Skeptics also point to Saudi Arabia’s weak track record so far capitalizing on what should be a competitive edge in the renewables business, especially solar, where there are many plans but few operational projects.

Countries are jostling for position in a future global market however, and hydrogen experts list the kingdom as one to watch. The U.K. is hosting 10 projects to heat buildings with the gas, China is deploying fuel-cell buses and commercial vehicles, and Japan is planning to use the gas in steelmaking. U.S. presidential climate envoy John Kerry urged the domestic oil and gas industry to embrace hydrogen’s “huge opportunities.” That should mean plenty of potential customers for the Helios plant.

Saudi Arabia is setting its sights on becoming the world’s largest supplier of hydrogen — a market that BloombergNEF estimates could be worth as much as $700 billion by 2050. This is still far ahead in the future, but goes to show that there is a lot of confidence in the growth of hydrogen.

… and challenges

Blueprints are being drawn and strategies are announced, but it is still early days for the industry. As most readers are aware, hydrogen is difficult to store and highly combustible. In the current market, hydrogen is most often made by means of steam reforming, expelling large amounts of greenhouse gases in the process. The resulting hydrogen is commonly referred to as grey hydrogen. The current cost of producing a kilogram is a little under $5, according to the International Renewable Energy Agency.

On the contrary, green hydrogen is produced by using renewable energy rather than fossil fuels, in a process that is called electrolysis. That is where Saudi Arabia possesses a tremendous competitive advantage.

With its perpetual sunshine and wind, in combination with vast tracts of unused land, electric power comes cheap in the desert. Helios’s costs will likely be among the lowest globally and could reach $1.50 per kilogram by 2030, according to BNEF. That’s cheaper than some hydrogen made from non-renewable sources today. Even with the ambitious plans from the EU, that cheap hydrogen will most likely find its way into Europe.

Exporting hydrogen to the EU

Peter Terium expects Europe’s anticipated demand should exceed its own supply, even while implementing the Green Deal . That $1 trillion-plus stimulus package will try to make the continent carbon-neutral. “By no means however will the EU be able to produce all the hydrogen themselves,” he said. “There’s just not enough North Sea or usable water for offshore wind.”

It is a prime opportunity for Saudi Arabia, a country that produces one-eighth of the world’s oil supply. Its operational renewables capacity is however small by regional standards, and it’s starting from zero with green hydrogen. The government is partnering with Acwa Power, a Riyadh, Saudi Arabia-based power developer partly owned by the kingdom’s sovereign wealth fund, and Air Products and Chemicals Inc., a $58 billion company based in Allentown, Pennsylvania, to build the green hydrogen plant.

The trio is splitting the costs of Helios, which will use 4 gigawatts of solar and wind power. “As the first gigawatt plant, we will have an advantage in developing further innovation,” Terium said. “This is not going to be the end of the game.” For starters, Helios will produce 650 tons of hydrogen a day by electrolysis – enough for conversion to 1.2 million tons per year of green ammonia. Air Products will buy all of that ammonia, which is easier to ship than liquid or gaseous hydrogen, and convert it back upon delivery to customers (albeit with some efficiency losses).

How much green ammonia will be produced?

The amount of green hydrogen produced is enough to maintain about 20,000 city buses. There are currently about 3 million buses operating worldwide, and Air Products wants to be a mainstay in depots switching to hydrogen, said Simon Moore, vice president of investor relations. “We’re not going to wait until this project comes on-stream in 2025 to think about additional capacity,” he said. According to BNEF, fuel-cell vehicles could capture as much as 30% of bus-fleet volume globally by 2050, with growth coming primarily from China and the European Union.

It is hard to say what the impact - if any - will be on marine applications. An advantage for using it in the marine industry as opposed to busses, is the fact that the green ammonia does not have to be converted back to hydrogen before it can be used in vessels. Ammonia could potentially be directly used for combustion in existing engines. The question then remains, will the produced ammonia be enough?

Last year, some 10 million m3 of bunker fuel is supplied to vessels in Rotterdam, which equals roughly 25,000 metric tons of fuel per day. With a little of 3,000 metric tons of green ammonia supply per day from Helios, it could serve close to 15% of maritime consumption in Rotterdam. This is of course if, and only if, the entire production would be shipped to Rotterdam. Given the increased electrification of land-based transport, including buses, marine application could pose a more interesting long-term application for the green ammonia produced by Helios. There is still a long road ahead before this can become a reality however.

A hydrogen-powered bus in London. The city government has pledged that all 9,200 buses across London will be zero emission by 2037. Photographer: Dukas/Universal Images Group/Getty Images

At the same time, electric busses are gaining a large market share. There are already roughly 500,000 electric busses in operation worldwide, almost all of which are located in China. As per industry experts, China adds approximately 9,500 electric … — At the same time, electric busses are gaining a large market share. There are already roughly 500,000 electric busses in operation worldwide, almost all of which are located in China. As per industry experts, China adds approximately 9,500 electric buses every five weeks.

Carbon targets? Hydrogen targets!

Hydrogen will cost more than polluting alternatives at first, but enough governments and businesses face stringent carbon targets that need the gas to meet them. Thirteen nations have hydrogen strategies in place, and another 11 are preparing theirs, according to BNEF. Germany said it needs “enormous” volumes of green hydrogen, and it hopes Saudi Arabia will be a supplier. “The interest Saudi Arabia has had from investors leads us to believe that there is a sound economic case for hydrogen, even at current prices,” a spokesman for the Energy Ministry said.

Saudi Arabia plans to meet half of its power needs from renewables by 2030 and has several projects under construction or soon to start. At the same time they are also one of the few countries regularly burning crude to make electricity. The highly polluting practice reached a four-year peak in August, and critics say the energy used by the Neom plant should be diverted into the national grid instead.

Yet the focus remains on exports. Petrostates stand to lose as much as $13 trillion by 2040 because of climate-change targets, and Saudi Arabia is among those expected to be most affected. The hydrogen plant will produce 15,000 barrels of oil equivalent per day at most, hardly a match for the 9 million barrels of crude the kingdom pumps daily.

Even so, finding a way to corner part of the clean-fuels market represents a necessary economic lifeline, one Saudi Arabia needs to keep its status as energy exporter in the future.