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Oman's green hydrogen to face competition from Saudi Arabia, UAE
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Samuel Wendel
Senior Market Research Analyst, Al-Monitor
March 24, 2023
Oman’s aspirations to become a new clean fuel giant got a boost in March 2023, when its new state hydrogen company Hydrom signed binding commercial term sheets with global developers for the first six green hydrogen projects in the Sultanate, requiring total expected investments of around $20 billion. Those will be pivotal to reaching Oman’s targets of producing 1 million tons of green hydrogen annually by 2030 and roughly 8 million tons by 2050, goals that could require investments of $140 billion to reach. This comes as Saudi Arabia and the UAE also seek to become major green hydrogen producers and exporters, raising the competitive stakes for Oman as it pursues needed economic diversification.
- Forecasts vary, but consultant Strategy& projects that global demand for green hydrogen—created using renewables instead of fossil fuels—could grow significantly in the medium term to reach about 530 million tons by 2050, potentially displacing about 37% of current global oil production.
- Gulf states have adopted ambitious plans and are keen on teaming up with partners to develop technology, investment and trade in this sector, according to Dawud Ansari, a researcher with the German Institute for International and Security Affairs (SWP) and author of the recent paper “Omani Hydrogen for Germany and the EU.”
- Already, the UAE is targeting a 25% global market share of low carbon hydrogen by 2030. Powering that goal is renewable energy company Masdar, which aims to produce up to 1 million tons of green hydrogen annually by 2030.
- Notably, Saudi Arabia’s megacity NEOM includes a $8.5 billion green hydrogen project being developed by Riyadh’s ACWA Power and US-based industrial gas supplier Air Products. Scheduled to be commissioned in 2026, the facility would be able to produce 219,000 tons of green hydrogen annually.
- Meanwhile, Oman is banking on hydrogen and renewables as part of a diversified energy strategy amid a broader wave of reforms since 2020. The Sultanate is facing a long-term slowdown in oil production, with limited future growth in reserves, according to S&P Global Platts. However, Oman does feature excellent solar and wind resources and a strategic location along shipping routes.
- Oman unveiled an ambitious green hydrogen strategy in October 2022 that outlined production targets and foresees $140 billion in investment by 2050. The government simultaneously established Hydrom to implement the strategy. The state-owned hydrogen company launched its first phase of tenders in November 2022, opening a public auction for two land blocks set to be awarded by April 2023. It plans to award four more blocks by the end of Q4 2023, with a bid submission deadline in October.
- These concessions are each about 320 square kilometers in size and will run for 47 years. The blocks have an estimated investment value of about $4 billion to $5 billion dollars each, according to Oman’s news agency, which reported in January 2023 that over 180 entities had registered interest and over 50 companies had received qualification requirements for the first phase of the bidding process. Shortly afterwards Hydrom also extended bidding by one month.
- Oman expects developers to bid as a consortium and deliver integrated projects, including a wind and solar mix ensuring competitive production costs. A government-owned entity will have a 20% stake in each project. Developers must also secure off-take, as Oman hasn’t committed to buying electricity or connecting projects to the grid.
- Ahead of announcing winning bids in April 2023, Hydrom also signed term-sheets in March for the six existing projects, which are expected to deliver approximately 15-GWs of renewable energy and over 700,000 tons of green hydrogen. These followed preliminary agreements Oman signed with these energy companies prior to issuing a clear regulatory framework.
- Although Oman had been producing more hydrogen MoUs than neighboring Gulf countries, until 2023 the vast majority were rather vague agreements around cooperation, SWP’s Ansari told Al-Monitor. “The recent wave of agreements are an important step, as they are binding.”
- One agreement was with Green Energy Oman, or GEO, a 25-GW green hydrogen mega project reportedly worth around $30 billion. A consortium consisting of Omani state energy company OQ, Singapore’s InterContinental Energy and Kuwaiti state-owned firm EnerTech launched GEO in 2018 and last year contracted out engineering and environmental studies.
- In January 2023, Shell acquired a 35% stake in GEO and joined as lead operating partner. Expected to be developed in phases, the project could eventually produce around 1.8 million tons of green hydrogen.
- Also of note, OQ signed a joint development agreement with ACWA Power and Air Products in May 2022 on a green hydrogen-based ammonia production facility in Oman reportedly worth about $7 billion.
- That said, Oman’s hydrogen goals face various obstacles. For instance, global off-take and importing arrangements for hydrogen overall (not just green) are lagging behind the scale of planned exports, noted the IEA in 2022, with developers and investors facing uncertainty in a nascent market. Oman’s agreements so far have focused on production, with other pieces of the value chain needing to fall into place, said Ansari, who also pointed to technological challenges that need to be worked out, especially on the transport side.
- Competition is also a factor as green hydrogen ambitions ramp up. “In the hydrogen sector there hasn’t been much regional coordination yet, but the Gulf states have started to compete over export partners,” said Ansari.
- Green hydrogen also competes with blue hydrogen, which is produced with natural gas and utilizes carbon capture technology. Blue hydrogen is promoted as a cheaper alternative, although research has found its production still produces significant greenhouse gas emissions. Also, costs of producing hydrogen from renewable electricity could fall 30% by 2030, according to the IEA.
- Oman’s focus is on green hydrogen, but other Gulf players also target blue hydrogen: Saudi Arabia plans to use a large portion of gas from the $110 billion Jafurah development to produce blue hydrogen, Bloomberg reported in 2021.
Scenario 1: COP28 sees regional hydrogen coordination emerge.
Recognizing that renewables and hydrogen offer a strategic opportunity to replicate their role as fossil fuel exporters, the UAE uses the UN climate summit to forge collaboration with regional partners, including Oman, around clean fuel development and export.
Yet, current collaborations are still nascent and regional cooperation limited. Broader rivalries—particularly between the UAE and Saudi Arabia—could easily prevent or undermine impactful regional coordination.
Scenario 2: Oman’s green hydrogen ambitions struggle to lift off.
The Sultanate’s efforts to secure investments and launch projects are derailed by a recession, rising regional competition and limited offtake opportunities. It falls behind schedule and fails to reach 2030 targets.
That said, Oman successfully accelerated its hydrogen plans in recent months and looks like an increasingly attractive destination for foreign investment. A transparent approach and competitive auctions based around Hydrom should also give global investors confidence in the long-term production opportunities Oman offers.
Oman’s green hydrogen plans motor ahead on schedule, with Hydrom awarding six blocks to big name developers and signing additional agreements over the next year. Plus, the recent set of binding agreements on existing projects should pave way for tangible progress. “We can definitely expect things to happen on the ground,” Ansari told Al-Monitor. Now, Oman needs to go beyond production agreements to secure financing and offtakers to keep ahead of its targets. More broadly, the UAE and Saudi Arabia could also amplify regional hydrogen competition, resulting in global players overlooking Oman—but COP28 also gives the Sultanate an opportunity to push its agenda. Ultimately, Oman’s green hydrogen roadmap leads to lofty targets, but so far it’s staying on course.
Samuel Wendel is a senior market research analyst with Al-Monitor covering economic, tech and business trends across the Middle East. He has previously served as a journalist with Forbes Middle East and Wamda, where he reported on key industry developments spanning a range of sectors in the region.
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