GCC should invest in low-cost green hydrogen supply chains

26 April 2021 Consultancy-me.com 4 min. read

With green hydrogen technology racing towards industrial scale production, GCC economies must focus on building a supply chain to export the new fuel to distant markets. A new Strategy& report explains how ammonia could be a valuable asset.

Setting the context: hydrogen is an energy-dense, low-emission and abundant alternative to fossil fuels. Fuel grade hydrogen that is produced using renewable energy creates a low carbon cycle, and is known as ‘green hydrogen’ – a concept that has gripped global energy markets in recent years.

With abundant supplies of solar energy, the GCC is well positioned to mass produce green hydrogen, and control the energy market of the future – helped along by stellar supply and demand indications. “Rapid scale and technology improvements mean that green hydrogen production costs are expected to fall sharply in the next decade, with cheaper renewable energy making an important contribution,” noted Strategy& Middle East partner Ulrich Koegler. 

Landed cost of supplying green hydrogen to Europe from the GCC

“By 2050, global green hydrogen demand is expected to reach over 530 million tons, equivalent to around 7 percent of global primary energy consumption. This would displace 10 billion barrels of oil equivalent per year, around 37 percent of current global oil production.” Indeed, a Strategy& report from last year pegged green hydrogen as a $300 billion market opportunity for the GCC by 2050. 

Securing production is key to reaching this potential, although the experts point out how truly dominating the global green hydrogen market is a supply chain game. The fact is that transporting green hydrogen is exceptionally costly – double the cost of production itself in some cases. The farther the export market – Europe or East Asia for instance – the heavier this burden. 

The value of ammonia

Cutting this cost base is the next step for green hydrogen producers. According to Strategy& Middle East partner and energy expert James Thomas, success here boils down to the mass sustainable production of a single compound – ammonia.

Green ammonia can cut hydrogen shipping costs for distant markets

“Hydrogen is mostly provided in a gaseous state for end-use applications, which is difficult to transport except over short distances via pipeline. The best way for GCC producers to supply large import markets in Europe and East Asia is to convert green hydrogen to green ammonia. Upon arrival, it is then converted back to gaseous hydrogen for end users through a chemical process known as “cracking.””

“Based on our analysis, delivering hydrogen in the form of green ammonia has the best cost advantages for export markets that are over 2,300 kilometers from production sites.” 

Market factors are favourable too: ammonia is traded worldwide, and has a well-established value chain. The drawback is that current ammonia production falls far short of volumes required to meet green hydrogen demand – globally and within the GCC. Topping this off, ammonia production requires intensive heat – a process that could potentially be emission intensive.

Long-term strategic priorities for GCC green hydrogen producers

For regional producers, a clear multi-pronged agenda is emerging. Efforts to build up green hydrogen production should remain at full steam, while governments should help build state-of-the-art ammonia production facilities powered by renewable energy – ‘green ammonia’ plants. Per the researchers, both hydrogen and ammonia production could be concentrated in “hubs” across the GCC – located near renewable energy centres.

Investment will also be required to build ammonia cracking capabilities at export destinations – best “integrated within port terminal infrastructure” according to the experts. An effective strategy would be to limit exports to a handful of key markets, where hydrogen demand is high and cracking can be achieved at low costs. 

The task at hand is monumental, although necessary in light of a collective global shift away from fossil fuels. “By seizing the green hydrogen opportunity, GCC countries can lay the foundation for economic growth in a decarbonised world and ensure their continued influence in the energy market,” said Koegler, highlighting the region’s good position to do so.