Beyond oil and gas: how to unlock MENA’s low-carbon hydrogen potential

On December 13, COP28 closed having reached the “UAE consensus”. The closing text of the conference includes a landmark deal to “transition away” from fossil fuels, which represents a first after decades of climate talks and negotiations. For its host country, the United Arab Emirates, but also the wider region, the deal reinforces the strategy of steadily and surely diversifying the economy in a transition towards a more sustainable society by capitalizing on the proceeds of the vast and extensive oil and gas industry in the region.

Zooming in on the low-carbon hydrogen sector, the road towards COP28 was also highly instrumental in accelerating the transformative shifts ongoing in the global energy space including several key announcements, of which three are highlighted. Firstly, the Intergovernmental Declaration of Intent on Mutual Recognition of Certification Schemes for Hydrogen and Hydrogen Derivatives, which provides a crucial step towards capturing green premiums for low-carbon hydrogen. Secondly, the International Standards Organization published its methodology to assess greenhouse gas emissions for low-carbon hydrogen. The ISO standard (TS 19870) provides a means to ensure certification schemes can trust on a verifiable approach for ensuring low-carbon hydrogen is truly low-carbon. Thirdly, within the Middle East and North Africa (MENA) region, several countries have set substantial hydrogen production targets. Noteworthy are Masdar’s (UAE) commitment to producing 1 million tonnes per annum of low carbon hydrogen by 2030 and NEOM Green Hydrogen Company’s (the Kingdom of Saudi Arabia) objective to produce 1.2 Mtpa of low carbon hydrogen by 2026.

Since 2020, the World Economic Forum, in collaboration with Accenture, has worked on and published Enabling Measures Roadmaps to accelerate low-carbon hydrogen developments using a regional approach. The purpose of these Roadmaps is to identify key enablers to achieve a scaled and traded low-carbon hydrogen market.

Considering the MENA region is emerging as a pivotal player in the low-carbon hydrogen ecosystem, and building on our previous work, the Forum and Accenture have collaborated to now release an Enabling Measures Roadmap for Low-Carbon Hydrogen in the Middle East and North Africa. This roadmap serves as a valuable toolbox to gain an overview of top policy developments, funding, and initiatives across the MENA region, and assesses the progress made toward the hydrogen economy at scale and provides a set of applicable recommendations.

The MENA region holds 52% of global oil reserves, 43% of global gas reserves and accounts for one-third of global energy trade. At the same time, the region is well-positioned to export its vast renewable energy resources through clean hydrogen value chains. The unique simultaneous presence of renewables potential, steep ambitions, and financial means to deliver make the region a major contender to lead the way in the low-carbon hydrogen economy that is unfolding.

Within the region, there are several countries that may qualify as “high-potentials”, including Morocco, Egypt, Saudi Arabia, the UAE, Oman and Qatar. Although there exists heterogeneity in terms of the current starting point and future potential across these countries, commonalities can be found in how the region approaches the transition away from fossil fuels and embraces low-carbon hydrogen solutions.

How far along is the region? An answer to that question is structured across three key plays that are observed in the MENA region’s hydrogen strategies being: (1) the export play, (2) the grey for low-carbon play, and (3) the new applications play.

Here are some key takeaways from the recently published Enabling Measures Roadmap for Low-Carbon Hydrogen in the Middle East and North Africa.

Within the MENA region, North Africa is strategically positioning itself as a key export low-carbon hydrogen player. The region is capitalizing on its existing natural gas infrastructure, including the SoutH2Corridor and the Maghreb-Europe Gas Pipeline, a well-established phosphorus fertilizer ecosystem, and abundant renewable energy resources.

Serving as a gateway to Sub-Saharan Africa, North Africa faces the challenge of ensuring cost competitiveness in a global landscape marked by increasing competition. Notably, competing with EU low-carbon hydrogen prices is demanding due to robust capital deployment and exploitation subsidies from the Hydrogen Bank. Similar challenges arise in competing against US production meeting American demand, with support mechanisms being mobilized through the IIJA and the IRA.

The Arabian Peninsula is strategically positioning itself as a key player in the export of low-carbon hydrogen, focusing on derivatives such as ammonia, fertilizer and steel. Leveraging its well-established oil and gas infrastructure, the region is capitalizing on vast renewable energy potential and ample capital to facilitate rapid large-scale deployment. With a primary focus on exports, the Arabian Peninsula is actively seeking off-takers for low-carbon hydrogen who are willing to pay a premium for both the commodity and its derivatives.

In the MENA region, capitalizing on the decarbonization of current hydrogen uses and industries involves leveraging low-carbon hydrogen, particularly in fertilizer, steel, and the chemicals industry. However, the challenges in this grey-for-low-carbon endeavour include the need to establish competitive business cases in an environment where conventional sources such as oil and gas remain abundant, remarkably affordable, and highly profitable.

Our research indicates that widespread domestic demand support mechanisms are currently insufficient to significantly accelerate the adoption of low-carbon hydrogen in hard-to-abate sectors. Consequently, only a limited number of projects in this category have successfully reached the Final Investment Decision (FID) stage. Most of the projects that have managed to secure FID predominantly focus on an export play. Notable examples of projects include the 1.2 Mtpa ammonia NEOM Green Hydrogen Company project in Saudi Arabia, and six binding agreements signed in Oman, each with mandates to produce a minimum production of 150 ktpa by 2030 and 750 ktpa by 2050.

The MENA region stands out for its capacity to envision ambitious goals and secure the necessary capital for implementation. This distinctive quality allows energy leaders in the region to explore a variety of innovative applications for low-carbon hydrogen. Ongoing initiatives involve exploring uses in marine shipping, sustainable aviation fuel and green steel.

With countries in the region strategically positioned along major trade routes, notably the Suez-Canal Economic zone handling 12% of global maritime shipping, there is considerable potential for the region to emerge as a significant platform for advancing new applications to maturity.

The Accelerating Clean Hydrogen Initiative has developed similar Enabling Measures Roadmaps for other regions, including Europe, Japan and China. Upcoming, the Indian Roadmap will be published between COP28 and the Annual Meeting in Davos 2024 and the Latin American Roadmap will be published in May 2024. Like the Middle East and North Africa Roadmap, the additional regional roadmaps will identify key policy measures aimed at accelerating development of the clean hydrogen economy whilst being sensitive to the respective regional context.