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UAE targets global hydrogen dominance as Saudi Arabia, Oman jockey for position
Al-Monitor Pro Members
Sebastian Castelier
Business journalist covering Gulf economies
Aug. 21, 2023
Hydrogen cooperation took center stage during Japanese Prime Minister Fumio Kishida’s Gulf tour in July. The United Arab Emirates is positioning itself to capture a share of the emerging global hydrogen economy, which it expects to become “a major part of the energy mix” in the next 10 years as it emits no planet-warming gasses when burned. The UAE adopted its National Hydrogen Strategy to set the contours of its strategy in this new industry on July 3, but the hydrogen race is already on as Saudi Arabia and Oman eye a share of the pie.
- The UAE plans to produce 1.4 million tons of hydrogen annually by 2031 as it seeks to position itself as “one of the largest” hydrogen producers globally. By 2050, it expects its hydrogen production to increase tenfold to 15 million tons.
- Hydrogen is branded as carbon-neutral, but not all hydrogens are the same. Green hydrogen is produced in a carbon-neutral process that uses green electricity to split water molecules into hydrogen and oxygen. Currently, only 1% of the hydrogen produced globally is green; the rest is made from fossil fuels. The in-between alternative is blue hydrogen, which is produced from natural gas, with the CO2 generated captured and stored. Seventy-one percent of the UAE’s expected hydrogen production by 2031 will be green; the remaining will be made of blue hydrogen. The country is home to the Arab world's first nuclear power plant but has not unveiled any plans to produce pink hydrogen, which uses nuclear power to split water molecules.
- The demand side: Based on projects in the pipeline globally, the International Energy Agency forecasts that exports of low-emission hydrogen will reach 12 million tons by 2030, of which 2.4 million tons could come online by 2026. Global demand for hydrogen, including hydrogen made from fossil fuels, is expected to reach 115 million tons by 2030. This represents a 22% increase compared to the 94 million tons consumed in 2021. Estimates vary for the long-term outlook, but studies see hydrogen demand to be around 450 to 590 million tons by 2050, about two-thirds of that green.
- The UAE plans to produce hydrogen in production hubs known as hydrogen oases. Two locations have been selected: the Khalifa Industrial Zone (KIZAD) in Abu Dhabi and Ruwais, an industrial city about 240 kilometers (150 miles) west of Abu Dhabi, where the national oil and gas company ADNOC produces over 300,000 tons of hydrogen each year. Since 2021, the country has been operating a pilot plant at the Mohammed bin Rashid Al Maktoum Solar Park in Dubai that generates hydrogen during the day and converts it into electricity at night. The UAE currently has 28 hydrogen projects “on board,” as stated by an official at the Ministry of Energy in March 2023, without providing further details. By 2050, a total of five hydrogen oases are expected to be operational.
- Like other Gulf countries, the UAE has access to low-cost sources of energy required for hydrogen production. The region has some of the world’s highest solar exposure rates, the lowest solar power tariffs and abundant gas resources. Also, decades of technical expertise in oil and gas, along with the ability to attract investors to develop a capital-intensive sector, would prove advantageous. After all, hydrogen is a fuel.
- The share of hydrogen destined for export is undisclosed, but the UAE’s preliminary roadmap released in 2021 mentioned an “initial focus on Japan, South Korea, India and Europe while simultaneously pursuing export opportunities across other markets.” In January 2023, UAE’s renewable energy company Masdar agreed with four Dutch companies to explore an opportunity to export hydrogen to the Netherlands.
- Also, the UAE wants hydrogen to “support low-carbon local industries,” which would assist the country in seizing an opportunity to become an energy-rich, low-carbon industrial hub equidistant from Asia, Africa and Europe. The UAE plans to increase the industrial sector’s contribution to its GDP from $50 billion to $82 billion by 2031.
- Yet cost competitiveness could pose a barrier to developing the UAE’s hydrogen output. The production of green hydrogen in the UAE in June 2023 cost between $5.15 and $6.1 per kilogram, including capital expenditures, depending on the technology used, commodity pricing agency S&P Global Platts estimated. This is 53% to 60% more than in Saudi Arabia. Globally, the IEA said green hydrogen production costs could drop by 30% by 2030. The UAE holds an edge in blue hydrogen production, which it can produce for $2.4 per kilogram, nearly on par with Qatar, Oman and Saudi Arabia.
- The need for 9 liters of purified water to produce 1 kilogram of hydrogen is also concerning — 42% of the UAE's total water requirement is met by desalination plants.
Scenario 1: The hydrogen market fails to take off.
The use of hydrogen in most sectors consumes several times more energy than direct electrification, as vast amounts of energy are required to split water molecules, and the most likely vehicle to export hydrogen, ammonia, comes with efficiency losses. Global hydrogen importing plans lag behind planned exports.
This scenario is unlikely because hydrogen is expected to be "one of the building blocks" to "fill the gaps" where electrification is not yet an option, such as in hard-to-abate industries. The hydrogen rainbow is "slowly turning from gray to blue and green," accounting firm Deloitte wrote. Blue hydrogen's sustainability credentials are contestable, primarily due to the release of methane, a planet-warming gas 28 to 34 times more potent than CO2 over a 100-year timescale. As a result, blue hydrogen's greenhouse gas footprint is 20% greater than burning natural gas.
Scenario 2: UAE ambitions face stiff Gulf competition.
Saudi Arabia and Oman are also eyeing a share of the global hydrogen market's pie to diversify energy revenues. Oman unveiled its green hydrogen strategy in 2022, and its state-owned hydrogen company has begun granting blocks for the development of hydrogen projects. Saudi Arabia plans to produce 219,000 tons of green hydrogen annually at the NEOM Green Hydrogen Project.
Nevertheless, demand forecasts allow several Gulf states to ramp up production simultaneously without undermining each other, similar to fossil fuel markets. Also, the hydrogen market serves as a means to maintain the status quo. "Hydrogen provides the Gulf states with an opportunity to largely preserve economic and political power structures despite a global energy transition," the German Institute for International and Security Affairs (SWP), a think tank advising Germany on global affairs, wrote in 2022.
The UAE’s hydrogen strategy falls within the country’s far-reaching ambition to develop new revenue streams to double the size of its economy to over $800 billion by 2030. But significant challenges should be expected in export markets as cost competitiveness will prove more difficult to achieve than for fossil fuels. Indeed, hydrogen production is not limited by geological factors and elevated transport costs could push countries to produce their own green hydrogen to meet local demand. Still, the UAE can turn lower-than-expected demand for exports to its advantage by rerouting green hydrogen produced locally to decarbonize its energy mix and industrial processes to emerge as an industrial hub with net-zero emissions by 2050 and equidistant from Asia, Africa and Europe.
Sebastian Castelier has been reporting on GCC countries since 2016, with a focus on how the oil-rich region navigates the long-term energy transition economically, socially and politically. He has been a contributor to Al-Monitor since 2019 and writes for various publications, including Haaretz, Al Jazeera, The Independent and Le Temps, among others.
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