Saudi Arabia is committed to transitioning to a cleaner and more sustainable energy system, which is an essential input into most industrial sectors’ production processes, and is required for export diversification and import substitution strategies. Saudi Arabia has already made significant strides under Vision 2030 in terms of diversifying energy sources and increasing local content, by developing new industrial sectors and taking advantage of existing supply chains. At the moment, blue and green hydrogen are increasingly gaining international prominence as some of the most promising clean energy sources and exports.
Green hydrogen can be produced by utilizing renewable energy to break down water into hydrogen and oxygen molecules through electrolysis. Saudi Arabia is specially equipped to adopt green hydrogen because of its land abundance and its optimal location with a high capacity factor for renewable energy. Moreover, the Saudi industrial sector is showing a great appetite for developing blue hydrogen production capacity and technologies, which are based on creating blue hydrogen from natural gas through steam methane reformation, while simultaneously capturing any resultant carbon for later usage or storage. Later, green and blue hydrogen can be used for domestic energy usage or exported in the form of ammonia for global buyers as a source of income.
Hydrogen is a clean energy carrier; it could deliver or store enormous amounts of energy and then be used in the industry, transport, and electricity sectors. However, the adoption of hydrogen remains constrained by its costs. Recently, the last and noticeable decline in the costs of renewable energy sources has highlighted the potential of hydrogen and makes green hydrogen production more feasible than before. Moreover, the escalation of global environmental protection policies and climate change mitigation measures are leading to increasing the costs of conventional energy sources, hence, improving the outlook for hydrogen.
For all these reasons taken together, Saudi Arabia can rely less on domestic oil thanks to green hydrogen production, especially with the ongoing trend of decreasing costs of solar photovoltaic generation globally. Bloomberg New Energy Finance data indicates that the levelized cost of green hydrogen will drop to an average of $1.2 per kilogram by 2050, while the average cost was equivalent to $3.5 per kilogram in 2019. Saudi policymakers are currently assessing the current and possible progress for the future deployment of hydrogen production projects, and are aiming to achieve positive returns on investments in hydrogen technologies, as well as helping Saudi Arabia to gain the first-mover advantage in its transition from a petrostate to an electrostate.
In August of 2020, NEOM announced a $5 billion Saudi green hydrogen plant powered by 4 gigawatts of renewable energy. It aims to produce 650 tonnes of hydrogen by 2025 and export it to the global market to be the world’s biggest hydrogen project announced so far. In addition, Saudi Aramco announced its first shipment of hydrogen from Saudi Arabia to Japan in September 2020. The 40 tonnes of high-grade blue ammonia in the shipment, which is meant for use in zero-carbon power generation, marks the first of its kind worldwide.
In this regard, Saudi Arabia is going through a paradigm shift by adopting hydrogen and activating the Circular Carbon Economy. During its G20 presidency, Saudi Arabia promoted clean energy transition through the Circular Carbon Economy, comprising 4(Rs) strategies. First, Reduce the amount of carbon entering the atmosphere through energy efficacy and using zero-carbon energy supplies. Second, Reuse carbon by capturing and converting it to another useful feedstock. Third, Recycle carbon by transforming it into fertilizer, cement, or synthetic fuels. Fourth, Remove carbon from the system and store it geologically or chemically.