This is an extract from a recent study by the Saudi-German Energy Dialogue “Hydrogen cooperation potential between Saudi Arabia and Germany”
Saudi Arabia’s Energy Minister and Germany’s Minister for Economic Affairs and Energy signed a Memorandum of Understanding (MoU) in March 2021 to encourage bilateral cooperation in the production, processing, application, and transportation of renewable and low-carbon hydrogen. Low-carbon hydrogen is produced using natural gas, with carbon emissions captured, stored, and used, whereas renewable hydrogen is produced from renewable electricity. The MoU was signed as part of the German Saudi Energy Dialogue and demonstrates both countries’ commitment to achieve the Paris Agreement targets by promoting clean hydrogen as part of the energy transition. Relevant stakeholders from research institutions, private sector, and government entities are involved in the collaboration. These efforts should help Saudi Arabia develop a hydrogen-based energy sector, promote the use of German technologies, and facilitate the development of a hydrogen market in Germany and elsewhere.
The German National Hydrogen Strategy
The German energy transition aims to combine security of supply, affordability, environmental sustainability, and climate protection. Besides energy efficiency and renewable energies, the energy transition heavily relies on carbon dioxide free and carbon neutral gaseous and liquid energy carriers like hydrogen. The German Federal Government recognises hydrogen as a vital component of the future energy system. By providing an action plan for the National Hydrogen Strategy, the Federal government lays a solid foundation for private investment in cost-effective and sustainable hydrogen generation and transport. The National Hydrogen Strategy consists of two phases. Phase one runs until 2023 and is set to kick off the market ramp-up and build the basis for a well-functioning hydrogen market while simultaneously addressing critical issues such as research and development (R&D) and international trade. On the other hand, Phase two will run from 2024 to 2030 and will focus on strengthening the newly developed market. An updated version of the National Hydrogen Strategy is expected in the second half of 2022.
To accelerate the application of these technologies, the government supports research, funds implementation, and develops political strategies. The National Innovation Programme for Hydrogen and Fuel Cell Technology provided €700 million between 2006 and 2016 to support research on green hydrogen technologies. The 7th Energy Research Programme, which was introduced in 2018 promotes hydrogen related research activities. The German Federal Government also set-up government-funded regulatory sandboxes to test implementation of hydrogen technologies.
Hydrogen potentials in Saudi Arabia
Currently, the Kingdom is developing a national hydrogen strategy that focuses on production, exports, and domestic uses of hydrogen. This strategy aims to establish essential aspects of the green and blue hydrogen production process, domestic hydrogen demand use cases in transportation and using hydrogen in products with export potential. The following table 1 highlights the hydrogen ecosystem services in Saudi Arabia.
Saudi Arabia’s energy minister expressed the Kingdom’s ambition to become a pioneer in both renewable and low-carbon hydrogen production. For this purpose, it is working with many countries on hydrogen projects. Shortly after pledging to neutralise the world’s warming emissions within its borders by 2060, the Saudi government announced that it would use a large portion of the $110 billion Jafurah project, a field estimated to hold 200 trillion cubic feet of gas, to produce blue hydrogen. On green hydrogen, NEOM is scheduled to be part of any future Saudi hydrogen ecosystem. The first planning phase clarifies that NEOM aims to be a hydrogen hub to provide the basis for clean feedstock used in the production of fertilisers, chemicals, and oil derivatives; this in collaboration with mega-players like the Saudi Basic Industries Cooperation (SABIC) and Aramco.
Cost of hydrogen production
The costs of hydrogen production are mainly determined by the CAPEX and OPEX. OPEX, makes up the large share of the levelised costs for green hydrogen production. At electricity prices of around US $2 ct/kWh, green hydrogen becomes cost-competitive with blue and grey hydrogen in some parts of the world. At prices below US $1 ct/kWh, green one becomes the cheapest hydrogen option. On average, the renewable electricity prices today in Saudi Arabia range between US $1.99 ct/kWh for wind and US $1.6 ct/kWh for solar PV. Electrolyser system costs are expected to decrease from around US $640/kW today to around US $200/kW in 2050.
Given the significantly higher prices for renewable electricity in Germany, costs of green hydrogen production are currently around US $5/kg to almost 3 times as high as in Saudi Arabia. Blue hydrogen costs range from US $1.5/kg to US $2.5/kg of hydrogen. The levelised cost of blue hydrogen based on a typical SMR plus CCUS configuration is mainly dependent on the natural gas price. While in a location with access to low-cost natural gas such as in North America, the Middle East, and Russia, natural gas accounts for approximately 40 percent of the levelised costs. In regions with generally higher natural gas prices they can equate to up to circa 60% of hydrogen production costs.
Production potential in Saudi Arabia and Germany
Saudi Arabia is one of the few countries in the world that can produce both green and blue hydrogen cost-effectively. Saudi Arabia already produces significant volumes of hydrogen to supply its domestic refining industry. This industry can act as a base or ʻhubʼ for scaling up blue hydrogen production in the Kingdom. As part of its economic diversification efforts under Vision 2030, Saudi Arabia plans to double its natural gas production within the decade and expand its gas infrastructure. Natural gas contributes enormously to the local hydrogen production for making ammonia, methanol, and uses in its local refineries. Saudi Arabia can store significant amounts of carbon dioxide in its subsurface to enable blue hydrogen production. Saudi Aramco operates one of the largest carbon dioxide enhanced oil recovery plants globally, i.e. the Uthmaniyah demonstration plant around the giant Ghawar oil field. This carbon capture and storage (CCS) plant can capture 0.8 million tonnes of carbon dioxide per year. There is about 25 gigatons of potential carbon dioxide storage capacity in the Kingdomʼs existing major oil and gas fields.
However, the countryʼs ultimate carbon dioxide storage potential is significantly higher if saline aquifers and other depleted oil and gas reservoirs are included. In September 2020, and in partnership with SABIC, Aramco shipped the worldʼs first blue ammonia to Japan. Forty tonnes of blue ammonia were shipped from Saudi Arabia to Japan for zero carbon power generation. The blue ammonia was created by converting natural gas into hydrogen, then converted into ammonia for shipping and combustion at power plants. This blue ammonia shipment showcases how the Kingdom can use its existing infrastructure to ramp-up blue hydrogen production.
The situation in Germany is different where renewable electricity is scarce and needed for the ongoing electrification of the transport, buildings, and industry sectors. Offshore wind in northern Germany is likely to be suitable for local hydrogen production, which can also contribute to grid-side relief at grid nodes or feed-in points without sufficient transmission capacity for large amounts of offshore wind power. It is also conceivable that wind turbines could be connected exclusively to electrolysis capacities and thus forego a connection to the electricity grid. Instead, these plants could feed their production indirectly in the form of hydrogen. Agora Energiewende estimates 19 TWh of green hydrogen production in Germany by 2030, going up to 96 TWh by 2045. For a transitional period, blue hydrogen can play a significant role until the corresponding renewable power generation capacities are available. Domestic hydrogen production at this scale requires sites with appropriate connections to shipping routes for carbon dioxide removal.
International hydrogen trade
The industrial use of hydrogen is already a significant global business, with a total global demand of around 120 million metric tons in 2018 worth about US $135.5 billion. As the level of maturity of hydrogen technology and the commitment to take concrete policy action on climate change varies, it is expected that this industry will grow at different speeds across the globe. Additionally, the level of competition between hydrogen and other low carbon technologies also differs between sectors. Hydrogen faces few competitors in industries such as aviation, shipping, or iron and steel production. However, in other areas such as passenger vehicles, the competition will be more intense. Here direct electrification is already playing a more dominant role. Nonetheless, conservative estimates of the midterm opportunity for the hydrogen market represents US$1 billion to US$25 billion by 2030, then increasing rapidly towards 2050 and beyond.
Cost comparison between hydrogen pipelines and shipping
One time energy losses from conversion drive the cost of shipping. For pipeline transport, cost correlates with distance linearly for each kilometre in length, one kilometre of pipeline needs to be built. At a certain distance, the cumulated cost for pipeline construction exceeds the cost induced by energy losses for liquefaction or conversion. The exact location of this breakeven point between pipelines and shipping is still under debate. Regardless, it can be concluded that pipelines are more economical for short and medium distance transport while shipping is cheaper at longer ones. Shipping is more suitable for low volume imports than pipeline transport. That is because shipping is less dependent on economies of scale.
Pipelines offer more cost-efficient transport options for high-volume and long distance hydrogen imports from countries within Europe and neighbouring regions such as North Africa or Ukraine. However, ship transport can work well for low volumes and imports outside Europe like the Gulf region and countries far away like Australia or Chile. Given the high-cost impact of conversion and space constraints, the shipping route is most economical for importing derivatives as the final product. The following figure reflects upon cost comparison of shipping and pipeline hydrogen transport routes.
Saudi Arabia’s blue and green hydrogen ambitions require carbon sequestration and large-scale storage options in geological sites. Any blue hydrogen potential can only be fully realised with access to abundant carbon dioxide storage. The Kingdom’s typical geological features and extensive fossil-fuel required infrastructure offers across-the-board storage opportunities for carbon dioxide and hydrogen. The mapping and detailed geological evolution of underground storage sites, including deep saline aquifers and depleted gas wells, are in progress within the Kingdom to identify potential storage sites. The Kingdom has a maximum storage capacity potential of 25 Gt of carbon dioxide, with 90 percent of the deep saline formations in the Middle East.
Next to large-scale geological storage, small- to medium-scale storage forms a crucial link in the hydrogen value chain. The energy losses associated with the high-pressure compression, liquefaction, or boil-off can be significant. The technologies for chemical conversion to hydrogen carriers and metal hydrides are mostly at a low TRL. Challenges associated with storage at such a scale must be addressed in the Kingdom. There is an enormous need to invest in R&D capacity and technology transfer in these areas to Saudi Arabia.
Potential for cooperation between Saudi Arabia and Germany
Hydrogen’s penetration as an energy vector in Saudi Arabia’s energy mix is dependent on technological advancements and adaptation as much as it is on political-economic incentives and financial support. The most significant hurdles in this context remain the large-scale production and deployment of electrolysis with an abundant availability of solar and wind-generated electricity. So affordable technological advancements in renewables are directly tied up with green hydrogen availability.
Blue hydrogen is a natural fit under these conditions, further enabled by emerging technologies in cleaner reforming and heavy residue gasification with carbon capture and sequestration. With a combination of green and blue hydrogen production, the Kingdom can emerge as a leader in hydrogen export, maximise hydrogen utilisation, and contribute to the decarbonisation of key global economic sectors. Hydrogen as an energy carrier and a fuel has low volumetric density, which limits application in standalone utilisation systems like ships and aircrafts. Fuel cells may be a good fit for ground transportation, especially over long distances.
Hydrogen combustion entails enormously high flame speeds that impede power generation applications like burning in gas turbines, ICEs, and steam boilers. Several other sectors like steel, glass manufacturing, cement, and chemicals require high process temperatures where utilisation of hydrogen has not progressed so far. Operational safety is another critical area that needs attention when considering the penetration of hydrogen usage. Hydrogen can be readily converted to ammonia, a zero-carbon hydrogen carrier for long-distance or intercontinental transport and cracked back to hydrogen at the end user’s site.
In the transition period towards a possible widespread usage, hydrogen can be blended with low-carbon intensity fuels like natural gas, ammonia, or methanol for combustion applications. Gas turbine, reciprocating engine, and steam boiler equipment manufacturers are making considerable technological strides in achieving 100 percent hydrogen burning capability by 2030. The Saudi power generation and desalination sector, which is wholly dependent on oil and natural gas combustion as a primary energy source, can be transitioned to hydrogen- or ammonia-based burning in the short term.
The Kingdom has made significant strides in R&D associated with hydrogen and CCUS-focused technologies. A few representative examples from ongoing research at KAUST, SABIC, and Aramco in hydrogen and energy carrier value chains includes a mix of factors. Many scientific and technology pieces need to be put together and move towards a higher TRL at affordable costs for a hydrogen-based transition to become a reality. However, this overview is not exhaustive.
R&D in hydrogen-focused technologies should receive significant budgetary provisions and prioritised funding in the Kingdom. Pilot-scale, high TRL demonstration projects can pave the way for the industrial deployment of mature technologies at a faster rate.
As a leader in the market development of hydrogen, Germany can offer technology transfer across the entire value chain to speed up the development and deployment of R&D infrastructure in the Kingdom. Overall, an ecosystem of scientific advancements and innovation must encompass the Kingdom’s foray into the hydrogen economy, with German collaborative exchanges and local development of new knowledge in this field.
Access the report here