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PEER STRATEGY

Mideast Gulf NOCs Embrace Hydrogen Economy

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  • Faced with an inevitable shift away from fossil fuels, Mideast NOCs are seeking to position themselves as future suppliers of clean fuels such as hydrogen.
  • Saudi Aramco and Abu Dhabi National Oil Co. (Adnoc) are targeting production and export of larger volumes of low-carbon ammonia and hydrogen in the longer term.
  • While test cargoes have been sent successfully to Asian and European destinations, scaling up production will depend on demand-side developments.

The Issue

Although Mideast national oil companies are pressing ahead with upstream investments to speed up monetization of their hydrocarbon reserves, they are also wise to the potential their region has to produce one of the much-hyped fuels of the future: hydrogen. High solar power potential and vast spaces of available land provide fertile grounds for green hydrogen, while the prevalence of gas and suitable geological conditions are favorable for the blue form of the fuel. Production of hydrogen and its more dispatchable carrier, ammonia, have therefore become central to decarbonization strategies for the likes of Aramco and Adnoc.

Blue Is the Color

Aramco, the world’s most profitable oil company, has set a target of achieving net-zero greenhouse gas emissions (Scopes 1 and 2) by 2050 and has started working on production of fuels with a lower carbon footprint, including hydrogen. Its vice president of chemicals and low-carbon hydrogen, Olivier Thorel, recently told Energy Intelligence that the potential existed to produce and export significant quantities of blue hydrogen — derived from natural gas — going forward.

However, it would require governments to put in place the right policies to create the demand needed to scale up investments given hydrogen’s still-high cost compared to other solutions available today. “None of this is commercial without proper incentives or regulations that mandate the use of such low-carbon fuel, or ... provide incentives for people to use it," Thorel said. "The demand to a large extent, and the speed at which it will come, will depend on how countries like Japan, [South] Korea and Europe put in place the regulatory framework that makes it economical for power producers, shipping companies, transportation [and] railways to use hydrogen or ammonia as a fuel."

Aramco has so far focused mainly on blue hydrogen produced from domestic natural gas resources in combination with carbon capture and storage (CCS) technology. The company has also started testing exports of hydrogen by converting it into blue ammonia to overcome the inherent difficulties involved in shipping hydrogen itself. The ammonia is made by combining blue hydrogen with nitrogen and, as tests have shown according to Thorel, the resulting blue ammonia can be burned alongside coal in power plants, thereby reducing emissions. It could be used also as a fuel for ships. Aramco, in collaboration with the Institute of Energy Economics, Japan, sent its first demo shipment of blue ammonia to Japan in September 2020 and followed that up with a cargo sold to trading house Itochu in 2021.

Selected Trial Ammonia Shipments by Mideast Gulf NOCs
OriginSellerDestinationAnnouncedVol. (tons)
Saudi ArabiaAramcoJapanSep '2040
UAEAdnocJapan (Itochu)Aug '21NA
UAEAdnocJapan (Idemitsu)Aug '21NA
UAEAdnocJapan (Inpex)Aug '21NA
UAEAdnocGermany (Aurubis)Sep '22NA

Poised for a Pickup?

Aramco previously said it believes hydrogen demand won't pick up in a significant way before 2030, but once it does happen, the company could scale up blue hydrogen output by displacing its existing production of gray hydrogen, which follows the same process without capturing the emissions. Aramco hasn't set any numerical targets for its hydrogen production, however. A lot of the required CCS capacity could come from the massive CCS hub planned in the industrial city of Jubail in Saudi Arabia's Eastern Province with capacity to store up to 9 million tons of CO2 per year by 2027 — an ambitious undertaking by any standard. As part of its net-zero target, Aramco also aims to produce 11 million tons/yr of blue ammonia by 2030, a goal set out in its sustainability report.

Adnoc may have announced its own net zero by 2050 target just this week — more than a year after Aramco did — but this hasn't prevented the United Arab Emirates giant from setting in motion a string of initiatives in line with a broader energy transition push in Abu Dhabi. Like Aramco, Adnoc has sent demonstration cargoes of blue ammonia to Japanese clients, netting an attractive premium to gray ammonia in the process, and is looking to position itself for an expected pickup in hydrogen demand, in particular in key markets such as Europe and Japan. Both companies are seeking to exploit their blue hydrogen potential by utilizing their low-cost gas resources and expanding the application of existing CCS infrastructure, making the technology more economical, especially compared to still-costly green hydrogen.

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Adnoc already produces over 300,000 tons/yr of gray hydrogen in its downstream facilities, which mostly goes to industrial uses, but has plans to raise this to 500,000 tons/yr. Furthermore, the company plans to scale up its hydrogen and ammonia production capabilities by developing a 1 million ton/yr low-carbon ammonia plant at Ta'ziz, a chemicals and logistics hub at Ruwais in Abu Dhabi. The project is part of Adnoc's ambition to expand domestic hydrogen production in order to supply up to 25% of the fuel bought by key global markets.

Collaborative Approach

Abu Dhabi's blue and green hydrogen strategies rely on the close collaboration between state and state-backed entities including Adnoc, Masdar and Taqa, as well as investment firm Mubadala and conglomerate ADQ. But external cooperation is also on the agenda. Among the international partners working with Adnoc on the hydrogen front is BP, which was joined by Adnoc and Masdar at the UK major's blue and green hydrogen projects, respectively, in northeast England in May. Back in the UAE, BP and Adnoc are studying a new "world-scale" blue hydrogen project in Abu Dhabi. Last year, Adnoc had agreed to carry out a joint study with three Japanese players — Inpex, Jera and state-owned Jogmec — to explore the commercial potential of blue ammonia production in the UAE.

Similar schemes are under way elsewhere in the Mideast Gulf. In Qatar, state giant QatarEnergy — despite not having set a 2050 net-zero target — this year announced it would build a 1.2 million ton/yr blue ammonia plant at a cost of nearly $1.2 billion, which is set to come on line in 2026. In nearby Oman, meanwhile, Petroleum Development Oman — whose shareholders include Shell (34%), TotalEnergies (4%) and Thailand's PTT Exploration and Production (2%), as well as the Omani government (60%) — has ambitions to develop and grow in areas such as blue hydrogen and CCS.

Topics:
Hydrogen, Low-Carbon Policy, Corporate Strategy , Carbon Capture (CCS), NOCs
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