The Hydrogen Ambitions of the Gulf States

Hydrogen policy in the Arab Gulf states

In October 2021, Saudi Arabia’s Minister of Energy, Abdulaziz bin Salman al-Saud, an­nounced the goal of becoming the world’s largest hydrogen producer. A formalised hydrogen strategy does not exist; however, the country’s hydrogen policy is closely linked to Vision 2030, which was published in 2016. The vision assumes a holistic trans­formation of Saudi Arabia and is considered a key project of Crown Prince Mohammed bin Salman (MBS). Although Vision 2030 does not explicitly mention hydrogen, its strategic goals demand significant increases in domestic value creation, non-oil exports, renewable energy, and the natural gas indus­try. Also the Circular Carbon Economy – a concept co-developed by Saudi actors and adopted by the G20 during Saudi Arabia’s presidency – relates to (blue) hydrogen. The framework encompasses the four Rs (“reduce, reuse, recycle, remove”), which translate into energy efficiency, carbon-neutral power generation, natural carbon reduction, and – most importantly – ex­tensive carbon capture. The captured CO₂ can be used by the industry (if demand for CO₂ as a raw material can be established) or by injection into oil reservoirs for tertiary oil production (so-called CO₂ flooding).

Also Oman’s Vision 2040 does not explicitly mention hydrogen but calls for a gen­eral “diversification of energy sources”. A national hydrogen strategy was announced in February 2020 and is expected soon. EJAAD, a collaboration platform between the Ministry of Oil, the Ministry of Research, and the state-owned oil company, is leading this effort. In August 2021, Oman founded the “Hy-Fly Alliance”, which brings together government agencies, the oil and gas sector, education and research institutions, and the ports of Sohar and Duqm in a joint plat­form. At the same time, hydrogen divisions were set up in several ministries, as well as a state-owned hydrogen company named Hydrogen Development Oman.

The UAE announced at the COP26 summit in November 2021 that it was working on a “Hydrogen Roadmap”, which aims at establishing the country as a leader in hydrogen. The UAE intends to create new value chains for the export of low-carbon hydrogen and its derivatives, as well as the hydrogen-based production of steel and jet fuel. To this end, a clear regulatory frame­work with suitable policies, standards, and certifications is planned. The roadmap has not yet been published, but the UAE has already set a target of 25 per cent of the global hydrogen market. The hydrogen agenda is also linked to the Energy Strategy 2050, which was adopted in 2017 and aims to increase the share of clean energy in primary energy consumption to 25–50 per cent by 2050. The UAE’s Nationally Deter­mined Contributions (NDCs), which were updated in December 2020, refer to hydro­gen as the “energy carrier of the future”.

Qatar’s approach is the opposite. The gas-rich emirate has no plans for a policy frame­work or measures to increase domes­tic hydrogen production. Instead, Qatar relies on its position as the world’s leading exporter of liquefied natural gas (LNG); the country’s strategy is to export LNG and let importers produce blue hydrogen abroad. It continues to develop relationships with importers for this purpose. Hydrogen itself is also reflected in Qatar’s NDCs, which cite it as a means to fulfil the contributions.

Kuwait has not yet adopted a national hydrogen strategy, but the government-related think-tank KFAS presented a white paper for a strategy in January 2021. Its points overlap with the overarching Vision 2035 “New Kuwait”. The white paper sug­gests promoting carbon capture, renewable energy, and both green and blue hydrogen production. It also advocates for the domes­tic use of hydrogen and intensified coopera­tion with other GCC countries. Although the white paper focusses on blue hydrogen, green hydrogen is more realistic, as Kuwait is a net importer of natural gas.

Bahrain’s approach to hydrogen has been hesitant. Although feasibility studies for a domestic hydrogen economy were com­missioned in November 2020, the government said it only wanted to observe developments. It was not until the Indus­trial Strategy 2022–2026 got published in January 2022 that the production of green and blue hydrogen was declared a goal.

Key players in the hydrogen development plans

National energy ministries are at the fore­front of shaping the path towards a hydro­gen economy. Under the umbrella of national strategies, the ministries take the lead in striking international agreements. In Saudi Arabia, Oman, and Qatar, the ministries (or the respective ministers) thus play the central role in national hydrogen policy. In the UAE, but also in Oman, numer­ous alliances and committees have been established to coordinate and develop strategies.

Other important players are the national oil companies, which are closely linked to the ministries: Saudi Aramco, the Kuwait Petroleum Corporation (KPC), the Bahrain Petroleum Company (BAPCO), QatarEnergy (QE), the Abu Dhabi National Oil Company (ADNOC) in the UAE, and Petroleum Devel­opment Oman (PDO). They are vertically integrated, publicly owned companies (apart from PDO, of which 40 per cent is owned by Royal Dutch Shell, Total, and Partex, as well as a small number of Aramco shares in private hands). In addition to operating the petroleum business, their tasks also include developing and executing petroleum policy. Within this framework, they also have a mandate to design and implement hydrogen policies.

Moreover, utility companies – predominantly power and water suppliers – have a stake in hydrogen, for example to supply desalinated water or renewable electricity. Saudi Arabia’s ACWA Power, which is re­sponsible for power and water grid invest­ments, is a regional player in this regard.

Another key actor in the Gulf states are sovereign wealth funds (SWFs). They man­age public assets developed from petroleum revenue through profit-oriented investments, but they also finance national devel­opment projects. These are the Saudi Ara­bian Public Investment Fund (PIF, approx. 500 bn. US$ in volume), the Kuwait Invest­ment Authority (approx. 700 bn. US$), the Qatar Investment Authority (approx. 450 bn. US$), the Oman Petroleum Reserve Fund (approx. 1.3 bn. US$), the Oman Investment Authority (approx. 17 bn. US$), and Mum­talakat for Bahrain (approx. 17.5 bn. US$). In the UAE, the federal and complex ruling structure gives rise to several SWFs. The most relevant one for hydrogen is Mubadala, which includes sustainability and eco­nomic diversification among its goals.

Despite these favourable financial conditions, the Gulf states do not necessarily have a competitive advantage in terms of financing, because at the same time they need larger sums elsewhere: Although energy and land are abundant, water is scarce. Freshwater – a central component for hydrogen production – requires desali­nation plants. The additional energy for water desalination is marginal when com­pared to the overall cost of hydrogen pro­duction; it accounts for only around 1 per cent. However, desalination plants need billions in investments and considerably increase the capital required for developing hydrogen supply in the GCC.

Another key actor, especially in Oman, are special economic zones (SEZs). They have allocated land, infrastructure, and export-related know-how. Hydrogen plants are to be built partly in these SEZs, which is why they are involved in project design and future operations. In Oman, these are Sohar, Duqm, and Salalah. Saudi Arabia’s Neom – a controversial sci-fi utopia on the Red Sea coast, envisaged as part of Vision 2030 – will host a large-scale facility for green ammonia (a downstream fuel or transit medium for hydrogen).

Finally, selected national research institutions engage in developing the Gulf’s hydrogen economy. Examples are the Saudi University KAUST and the influential think tank KAPSARC, Khalifah University (UAE), and Sultan Qaboos University (Oman). Last but not least, international networks pro­vide important collaboration platforms.

First initiatives for a hydrogen economy

Reasons and perspectives for cooperation with Germany

Conclusion and recommendations

The GCC countries are keen on hydrogen – though not all to the same extent. While Saudi Arabia initiates major undertakings with no formal framework, Oman is creat­ing new structures and introducing various projects. The UAE has announced a policy framework and successfully realised its first ventures. Qatar continues to focus on LNG and blue hydrogen production abroad. Kuwait and Bahrain remain cautious and are sticking to investments and feasibility studies. Regarding the hydrogen colour spec­trum, the Gulf states are agnostic: Oman is focussing on green, Qatar is stay­ing with blue, and the UAE and Saudi Ara­bia are planning a balance between both.

However, the eventual implementation of those projects remains to be seen – big announcements without follow-ups are not unusual in the region. Also, the topic of transport is still open: ammonia, hydrogen, or continuing with LNG? For LNG-exporter Qatar, existing infrastructure may already determine the answer, but other countries are still struggling with the right strategy. Germany and the EU should adopt a unified approach to transport and, if necessary, participate instead in smaller but fully thought-out pilot projects.

The GCC governments’ strong interest in hydrogen is hardly intrinsic. Instead, it fol­lows the goal of securing prosperity and the promise of foreign demand. Hydrogen pro­vides the Gulf states with an opportunity to largely maintain economic and political power structures despite a global energy transition. Green hydrogen complements existing (fossil) energy exports and hedges against long-term risks. Blue hydrogen offers medium-to-long-term prospects for natural gas reserves and is therefore of great interest mainly to Qatar, the UAE, and Saudi Arabia. European hydrogen imports from the region can thus contribute to climate change mitigation on both sides of the deal.

This, however, creates two central dilem­mas for Germany and the EU as prospective importers.

First, hydrogen’s ability to improve the Gulf countries’ climate compliance stems largely from its ability to secure existing power-political structures. However, this also means that hydrogen may hinder social development. The struggles of labour migrants, human rights violations, and the lack of political participation can hardly improve if the hydrogen economy stabilises current power structures. In general, citing the Ukraine war for cutting trade with Russia while simultaneously turning to autocracies that are waging war in Yemen is an inconsistent and unpleasant move. On the one hand, Germany and Europe will have to re-negotiate within their societies on where to draw the line between prag­matism and principles. On the other hand, it will be all the more important to empha­sise nuances between the individual states. In terms of political monopolisation, in­volve­ment in the Yemen war, the human rights situation, and foreseeable reliability as trading partners, there are major differ­ences between the individual Gulf states that need to be evaluated and considered.

Second, the example of the Gulf states illustrates the increasingly relevant trade-off between national and global climate action. Germany and Europe have so far restricted their focus to (carbon-neutral) green hydrogen. Low-carbon blue hydrogen may not meet European ambitions, but it can reduce the global supply of carbon-intensive fuels, and thus prevent emissions that would otherwise simply occur else­where. Climate change mitigation must be understood as a global cross-cutting issue and take individual perspectives into ac­count. It cannot be established unilaterally or by brute force. Among the many prob­lems, such an approach fails to recognise that the Gulf states, which are highly effi­cient oil and gas producers, can massively impede global climate action – also uni­laterally. Therefore, climate policy and foreign policy need to converge and factor in the diplomatic, geopolitical, and trade-related interdependencies of global climate issues. Along these lines, Germany and the EU should question their ideological fixa­tion with green hydrogen – an objective approach to low-carbon tech is an essential step towards feasible and effective energy and climate policy.