KAPSARC identifies hydrogen opportunities in Saudi Arabia

20 Jun 2022
KAPSARC identifies hydrogen opportunities in Saudi Arabia

According to a recent report from Riyadh-based King Abdullah Petroleum Studies and Research Centre (KAPSARC), green hydrogen produced from electrolysis in Saudi Arabia could begin to ship to the Port of Rotterdam in 2030 at prices quite competitive with European hydrogen

According to a recent report from Riyadh-based King Abdullah Petroleum Studies and Research Centre (KAPSARC), green hydrogen produced from electrolysis in Saudi Arabia could begin to ship to the Port of Rotterdam in 2030 at prices quite competitive with European hydrogen. Its competitiveness would depend partly upon the shipping method used.

The researchers also see significant potential for hydrogen in Saudi Arabia’s domestic industry. Hydrogen and hydrogen-based fuels could replace grey hydrogen to make Saudi products greener, thereby strengthening their export potential as more costs are imposed on carbon emissions worldwide.

They see great potential for both blue (with carbon capture) and green (with renewable energy) hydrogen, with technology and production costs gradually falling for both types. Therefore, they advocate a balanced approach, anticipating regional specialization within the country.

The research, which is preliminary, looks promising for potential hydrogen exports. However, it affirms that to really make way for an export market for green hydrogen, a carbon price in some form will need to be imposed.

 

Realistic assumptions

The report, “The Economics and Resource Potential of Hydrogen Production in Saudi Arabia” was issued in March.

The KAPSARC researchers look at realistic cost scenarios based on realistic assumptions about the price of natural gas in Saudi Arabia, and the cost of electricity from renewable sources. The anticipated costs and capacity factors of electrolysis systems are also carefully considered.

Saudi Arabia is already a large consumer of hydrogen for its refinery and chemicals industries; primarily ‘grey’ hydrogen produced with high carbon emissions. It is by far the cheapest way to produce the gas at about $0.90/kg. But costs of blue and especially green hydrogen are expected to decline substantially in the next few years.

Blue hydrogen gains an advantage from Saudi Arabia’s huge production of natural gas and its closed market for it. KSA neither exports nor imports natural gas and maintains a low price, currently at $1.25/MMBtu. At this price, the cost of producing blue hydrogen could fall from the current $1.34/kg to $1.13/kg by 2030. This assumes ongoing cost reductions in carbon capture & storage (CCS) methods as the technologies are scaled up.

The cost of green hydrogen is highly dependent on the cost of electricity from renewable sources and electrolysis. It is $2.16/kg today based on an electricity price of $18.3/MWh (an average of auction prices for new solar projects in Saudi Arabia). The researchers see that this cost could fall to $1.48/kg by 2030, if renewable energy costs fall to $13/MWh.

The cost of green hydrogen production in KSA could fall further to $1/kg by 2050. Reaching the vaunted $1/kg target assumes electrolyser capital costs drop to $400 per kilowatt, with renewable energy costs falling below $10/MWh, both realistic scenarios.

The researchers see an enormous advantage in Saudi Arabia’s ability to achieve high-capacity factors in its production of renewable electricity. They assert that capacity factors can reach 60% in the production of renewable power in Saudi Arabia, that it is possible with a PV-Wind hybrid system. In fact, large areas of the country, especially in the western region, are favourable for diurnal (day and night) solar and wind energy production. This greatly surpasses, for example, wind power in Europe with a capacity factor of about 35%.

With this advantage, a carbon price in some form will still be required. The report says that green hydrogen will be competitive with grey hydrogen by 2030, at the current domestic natural gas price of $1.25/MMBtu and a carbon price of about $65 per tonne.

 

Getting Started

Assuming a green hydrogen production cost of $1.48/kg by 2030, the delivered cost of hydrogen from Saudi Arabia’s western region to the Port of Rotterdam via the Suez Canal can be quite competitive.  

To estimate it, the researchers also make assumptions about conversion to carrier, shipping and dehydrogenation costs. They think liquid hydrogen can arrive at Rotterdam in 2030 with a delivery cost averaging between about $3.50/kg and $4.50/kg. This compares favourably to the expected cost of green hydrogen production in Europe, which according to recent research will be between $3/kg and $5/kg in 2030.

While it appears that Saudi hydrogen exports to Europe can be competitively priced, much will depend on the type of carrier used. Methods for the sea transport of liquid hydrogen, or in the form of a liquid organic hydrogen carrier (LOHC), are still in development. Ammonia is a proven carrier of hydrogen energy, but ammonia requires cracking the ammonia back to hydrogen (dehydrogenation) if pure hydrogen is needed. This adds an additional cost ranging from $1/kg to $2/kg according to recent research.

To avoid this potential cost, the KAPSARC researchers suggest that Saudi producers focus on opportunities to trade ammonia for direct use, whether blue or green. Markets may be found by substituting for grey ammonia in the production of fertilizers. New applications, such as blue ammonia used in Japan for power generation, may also open opportunities for export.

They also advocate for de-carbonizing domestic industries, such as ammonia and methanol plants, by switching them to low-cost blue or green hydrogen. This conversion could extend to other domestic industries, such as steel, cement and aluminium. The researchers also see potential in the transport sector, with new fuel cell applications and sustainable jet fuel.

While this could quickly lower the country’s carbon footprint, it could also open new opportunities for the production of carbon-neutral products for export. Low-carbon hydrogen would lower the carbon content of many industries’ finished products, thereby better positioning them for international markets as carbon policies become more stringent worldwide.

 

Unique advantages

Saudi Arabia’s vast territory suggests that regional specialization for hydrogen production is feasible. The KAPSARC report sees two general regions where unique combinations of infrastructure and natural features could make hydrogen production costs among the lowest in the world, for both green and blue hydrogen.

The country’s eastern region, with its great apparatus of oil and gas production, refining, and chemical industries, has much of the infrastructure in place to support the development of a blue hydrogen industry. This includes access to deep saline aquifers for CO2 storage.

The western region enjoys very strong solar and wind resources to produce low-cost electricity for green hydrogen production. The Neom project, in the northwest, is already the site of what is planned to be one of the largest green ammonia production plants in the world. Its hydrogen will be used to produce ammonia intended largely for export.

These unique regional advantages may allow Saudi Arabia to pursue a broad hydrogen strategy that encompasses both green and blue hydrogen. Some recent analysis is forecasting difficulty for blue hydrogen in the face of rising costs of natural gas. Green hydrogen, anticipated to benefit from falling costs of renewable energy and electrolysis, should beat blue in price in many regions of the world in 2030, according to some analysts. But Saudi Arabia’s numerous advantages in producing low-cost hydrogen of both types may allow it to sustain a balanced approach for the long term.

 

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