Strategy&: Green hydrogen a major opportunity for GCC market

15 July 2020 4 min. read

The GCC is ideally positioned to capitalise on a rapidly expanding green hydrogen export market worldwide, which is expected to reach a value of $300 billion by 2050. This is according to new Strategy& analysis. 

Experts position green hydrogen as an answer to the world’s energy demands going forth, to the extent that it could generate the equivalent of more than 10 billion barrels of oil over the next three decades – accounting for nearly 40% of the oil-based energy generation market across the globe.

Against this backdrop, most major markets including the US, China, Australia and Canada have all ramped up their investment in green hydrogen. However, according to Strategy&, the domestic energy needs within these vast markets will consume most of the green hydrogen output, at least in the near future.

Hydrogen demand is rising steadily

Markets in the GCC region, meanwhile, have the potential to meet domestic energy needs through green hydrogen, but are also likely to have a surplus that could feed a vibrant export trade. Targeted initiatives are needed to realise this scenario, primarily at the research, regulatory and trade levels.

Green hydrogen?

Green hydrogen is produced by splitting water into hydrogen and oxygen molecules via electrolysis – a process powered by renewable sources. Carbon emissions from the entire energy generation process are minimal as a result, which differentiates green hydrogen from previous iterations of gray and blue hydrogen, which also generate carbon while producing hydrogen.

Given its efficiencies, the demand for hydrogen has been skyrocketing in recent years, although ease of production has given gray and blue hydrogen the dominant position in the market. With the advent of advanced electrolysis technology and an increase in renewable energy capacity, however, green hydrogen has become a viable option to feed the hydrogen market.

Green hydrogen should become cost competitive compared to gray and blue hydrogen

To capitalize on the opportunities, Strategy& suggests that GCC markets launch a research & development (R&D) pilot project that can create electrolysis capacity. The project would ideally have connection to renewable energy, an electrolysis facility and a “source of demand” for the green hydrogen.

“The pilot project will help policymakers develop domestic technical capabilities, identify local environmental challenges, and initiate R&D activities to develop potential mitigation measures — all in the context of real-world applications rather than theoretical scenarios,” wrote co-author of the report and partner at Strategy& Middle East Yahya Anouti.

Overall, the pilot should take up to four years to deliver all the requisite information. The next step is to develop a policy framework that will enable production as well as encourage consumption of green hydrogen. Setting clear production targets is a central feature of this framework, as is a governance structure, funding model, safety standards, and a number of other regulatory nuances.Export potential of GCC countriesSuch an institutional framework might take up to 15 years to find its legs in the region, at which point the stage will be set for a thriving export market. By this time the firm expects that the cost of green hydrogen production will have gone further down, making the market ripe for investment.

Strategy& predicts that exports will begin in secondary form through industrial products such as green steel or green polymers. Intermediate products such as green methanol or green reduced iron come next. Only then will direct green hydrogen energy exports become a viable option.

“Eventually, the green hydrogen company should take the lead in signing supply agreements with key green hydrogen export markets. These should be based on an understanding of regional imbalances in hydrogen and which export markets are most accessible from the GCC compared to other exporters. With the right markets established, governments can then build the export terminal and infrastructure for shipping and pipeline channels,’ wrote co-author and partner at Strategy& Middle East Raed Kombargi.

As a growing number of GCC markets look to strategise their oil production and consumption, becoming a leader in the renewables market of the future will be an ideal platform to conserve, channel and maximise the value of oil.