BrazilMiddle East energy executives optimistic on hydrogen potential
Most executives in the Middle East are bullish on hydrogen and carbon capture, according to a new report from strategy consultancy Bain & Company. The low cost of energy in the region gives companies there the upper hand in becoming major suppliers of hydrogen.
Countries like Saudi Arabia, the UAE, and Oman are already investing in hydrogen energy as the world begins to turn towards the promising energy source as a potential solution to transitioning away from fossil fuels.
While some types of hydrogen are produced with energy derived from fossil fuels, green hydrogen is completely net-zero, though more needs to be done in finding ways to make it cost effective.
Inadequate investment in low-carbon initiatives
Despite falling considerably short of the annual capital required to achieve net-zero emissions by 2050, the primary bottleneck in the energy transition is not necessarily the availability of capital.
Most energy and natural resource sectors have access to capital. However, instead of being funneled into initiatives that promote low-carbon growth, an increasing proportion is finding its way back to shareholders.
“There’s no clear consensus on what the transition’s end point will look like or what pathway will take us there. For executives of energy and natural resource companies, the more pressing concern is navigating the global energy and carbon transition already taking place,” said Joe Scalise, leader of the Energy & Natural Resources practice at Bain & Company.
In recent years, energy companies have been increasingly investing in low-carbon growth areas. But rapidly developing new energy systems and infrastructure at the scale required for the green transition could potentially strain supply chains to their limits. Energy transition goals require unprecedented growth in numerous sectors that is not being met.
The truth is that consumers are also not so keen on paying more to address climate issues. The report found that the majority of consumers in the US and Europe were decisively opposed to funding reductions in greenhouse gas emissions through increases in residential electric bills. In the case of raising taxes on wealthy households, however, their tune changed and the majority was in favor.
Hydrogen – Green energy of the future?
Executives in the Middle East are bullish on hydrogen and carbon capture, but executives in most other regions expect these technologies to become more important only after 2030, according to the report.
According to Bain & Company’s report, the Middle East has the right cards to become a major exporter of green hydrogen, in particular due to the availability of abundant and low-cost renewables, existing export infrastructure and the availability of major financing funds.
In Europe, there too is excitement for green hydrogen, which is seen as having huge potential in shifting energy requirements away from natural gas. European countries have struggled with meeting energy demand after sanctions imposed on Russia (stemming from the invasions of Ukraine) saw shortages and a surge in prices.
In the United States, the passage of the US Inflation Reduction Act made green hydrogen instantly cost competitive with gray hydrogen, a form of hydrogen that creates greenhouse gas emissions in its production.
According to an estimate from Arthur D Little, the economic value of the global green hydrogen market could reach $700 billion by 2050. Reaching that level will however require massive investments in assets, renewable energy, people, and more. Deloitte’s economists recently put a price tag to that number: at least $9 trillion worldwide.
“A crucial piece of the energy transition will be scaling up promising subsectors of the energy system that are early stage but growing fast: Think green hydrogen use cases, second-generation biofuels, energy storage, carbon capture and storage, and broad energy-as-a service platforms,” said Scalise.
