Hydrogen has a critical role to play in the global energy transition. While many countries are looking to capture a proportion of the market opportunity, the UAE is poised to become a leader and key exporter of this energy carrier.
Both Abu Dhabi and Dubai are well-placed to capture the hydrogen opportunity. In fact, the Department of Energy in Abu Dhabi approved a Position Paper in December 2020, following which Mubadala, ADNOC and ADQ formed an alliance in January 2021 to establish Abu Dhabi as a hub for green and blue hydrogen.
Similarly, Dubai has inaugurated a green hydrogen plant in May 2021, the first-of-its-kind in the MENA region to use solar power for production. It is designed to accommodate test platforms for transportation and industrial uses. In addition, MENA nations already have almost 8GW of electrolyser projects in the pipeline to 2030.
A promising local environment
The UAE has long been at the centre of the global energy supply market and brings with it robust experience, a strong asset base, and important geo-political relationships and partnerships which will be key to determining the future of import and export dynamics.
Meanwhile, an abundance of low-cost gas combined with CCUS potential, will see the UAE become a leader in the export of blue hydrogen (or ammonia). In addition, it benefits from access to some of the cheapest renewable energy sources on the planet—solar power.
Progress is already underway with the UAE’s Hydrogen Leadership Roadmap launched in November 2021 - a comprehensive national blueprint to support domestic, low-carbon industries, contribute to the nation’s net-zero ambition, and establish the country as a competitive exporter of hydrogen.
However, there are a number of challenges that must be addressed for these ambitions to become a reality.
1. Advancing strategy, policy and regulation
The Hydrogen Leadership Roadmap is a welcome step but for the UAE to fully capitalise on this opportunity, it must also address key fundamentals such as developing a robust regulatory framework, working with the international community to implement certification schemes and technical standards as well as establishing a licensing process.
2. Rising upstream competition
It appears many regions are now aspiring to become the new “Middle East for hydrogen”. For example, South American countries are already looking to develop supply chains in Europe, and North Africa’s proximity to Southern Europe puts it in a strategic position to potentially supply low carbon gas into the European market. In this brave new world, new players from regions with access to low-cost renewables will enter the energy supply market. This will enourage competition, allow organisations and regions to develop new relationships and drive innovation. There have been already some international agreements signed, and local stakeholders must invest in global outreach to keep up with the pace and scale of change.
3. Addressing the midstream question
Safely and economically transporting and storing large volumes of hydrogen across continents is a major challenge but one that must be overcome for a globally traded hydrogen/low carbon gas market to emerge. Hydrogen must be converted to ammonia to be shipped today and we may see existing ammonia supply chains grow and be utilised for hydrogen, but this will likely only make economic sense where the end use is ammonia. For hydrogen supply chains to become a reality, there are significant technical, economic, efficiency and scale challenges that need to be overcome. This could present a medium-term opportunity for UAE to grow its industrial base and become a global leader in producing high demand products such as green steel.
4. A dose of reality required downstream
Just because hydrogen can be used in a vast range of applications, doesn’t mean it should be. For example, decarbonising existing (CO2 intensive) hydrogen demand may be a wise place to start as it requires minimal investment/conversion capex for offtakers. According to the IEA, global hydrogen demand was ~90 Mt in 2020, with 80 percent from mostly unabated fossil fuels and the remainder from residual gases produced mainly in refineries. Decarbonising this ‘grey’ hydrogen should keep early low carbon hydrogen producers busy for some time before even considering alternative use cases in applications such as HGVs in transport, backup power (fuel cells or GTs), and heat in industry or buildings.
5. Collaborative partnerships
Power and gas markets are becomingly increasingly integrated, which will see now partnerships emerge between energy companies, coalitions form across governments, and significant rise in deal activity as global energy players begin to reposition themselves and ensure they are well placed to capitalise on the opportunity. For many, partnerships or alliances will be preferred to pure M&A, with the ultimate goal to secure and de-risk the supply chain, assets and infrastructure, competitive financing, and end demand markets. This requires the industry to collaborate and think broadly when structuring equitable ventures, where all parties feel their assets, knowledge, IP or markets are appropriately valued. It will be important to set up a “partnerships” team that can both identify external opportunities as well as effectively articulate what value they bring to the table.
The development of a global hydrogen market will be an evolution rather than revolution. It is a transition that will happen in stages and will present discreet opportunities in new markets that energy companies globally can capitalise on.
The first step is to set up basic infrastructure within the country: establishing a regulatory framework, standards, and business models across the value chain. Subsequently, it will become a matter of vital importance to build capability and skills within the country, and identify the right strategic partners for this journey.