Excitement surrounding the nascent hydrogen market has not been lost on the world’s largest oil companies. As the majors make strides to embrace hydrogen in their new green and transition-aligned strategies, state-owned players have also started to make their own moves.

With access to some of the world’s largest oil and gas reserves, Saudi Aramco and the UAE’s Adnoc are perhaps not the archetypal leaders of the cleantech revolution. However, the growing role of hydrogen presents a significant opportunity for these firms to both diversify revenues and decarbonise operations.

Meanwhile, with estimates suggesting that the world’s largest oil economies will lose out on up to $13tn over the next two decades as progress is made to achieve climate targets, an impending financial threat provides further impetus for change.

“There is no credible way of reaching global climate goals without seriously advancing and ensuring the widespread adoption of carbon capture and storage” – Jaber, Adnoc

Adnoc and Aramco have a combined crude production capacity of more than 14mn bl/d and oil exports account for the majority of Abu Dhabi’s and Riyadh’s annual income. As they look to turn this threat into an opportunity, they have sought to capture early-mover advantage by expanding their already strong relationships with consumers beyond oil to include hydrogen.

Asian countries account for more than 80pc of Middle East oil exports and Japan, South Korea and Malaysia have already been the subject of early hydrogen deals at both the state and company levels.

Supply chain

It is unsurprising that Japanese and Korean firms have been the first to sign deals with the Gulf giants when one considers recent comments by Aramco’s chief technology officer, Ahmad al-Khowaiter. “We think Japan and South Korea will be where the first hydrogen trading markets will begin in the end of 2020s, early 2030s.”

Earlier this month, Adnoc announced a deal with South Korea’s GS Energy to explore opportunities in the field of blue hydrogen and carrier fuels such as blue ammonia. And back in January the Emirati firm signed a fuel ammonia co-operation deal with Japan’s Ministry of Economy, Trade and Industry (Meti). These deals were reached during government-level virtual business trips to the respective countries, which covered broader energy sector collaboration.

Likewise, Aramco last year sent the initial 40t cargo of blue ammonia to Japan under a joint pilot project with the Institute of Energy Economics, Japan (IEEJ) and Saudi Arabian Basic Industries Corp (Sabic). And this month it signed a deal with refiner Hyundai Oilbank to provide the Korean firm with LPG for conversion to hydrogen, agreeing to reimport the CO₂ captured in the process.

The deals come as Japan sets out its stall as the key benefactor of a blue hydrogen supply chain by the end of the decade, with the Middle East and gas- and coal-rich Australia accounting for the bulk of feedstock.

Meanwhile, Adnoc agreed a broad strategic framework with Malaysian state-owned oil firm Petronas covering the full oil and gas value chain, including hydrogen technologies and R&D in carbon capture, utilisation and storage (CCUS).

Circular economy

However, for both Adnoc and Aramco, the circular economy benefits of these projects are perhaps equally significant to the export proceeds.

As in the Aramco/IEEJ pilot project, CO₂ captured during the hydrogen generation process can be utilised in the production of methanol and other products as well as in enhanced oil recovery (EOR) to improve or sustain hydrocarbon flows. In the pilot example, CO₂ from the pilot is diverted to Sabic’s Ibn-Sina facility methanol plant and to the Uthmaniyah oilfield.

$13tn – Amount petrostates could miss out on by 2040 as countries try to meet climate targets.

For its part, Adnoc developed the 800,000t/yr Al Reyadah CCUS project with Abu Dhabi Future Energy Co. in 2016 before acquiring full ownership. CO₂ from the plant is piped to Adnoc’s Rumaitha and Bab onshore oilfields for use in EOR, and the company intends to increase its CO₂ capture capabilities to 5mn t/yr by 2030.

As oilfields throughout the Gulf mature, EOR is becoming increasingly necessary as a means to maintain production from their most valuable assets.

While neither Adnoc nor Aramco responded to requests for comment, according to UAE Minister of Industry and Advanced Technology and Adnoc’s managing director and group CEO Sultan al-Jaber, “there is no credible way of reaching global climate goals without seriously advancing and ensuring the widespread adoption of carbon capture and storage”.

Indeed, for the Gulf’s major oil producers, combining blue hydrogen and CCUS appears the most pragmatic way to future-proof their business models while continuing to develop their abundant hydrocarbon resources.

While the Saudi Ministry of Energy recently spoke of potentially piping green hydrogen to Europe, as pressure builds on governments to move away from hydrocarbons, the Kingdom and its northeastern neighbour are securing their role as a one-stop-shop for traditional and clean fuels for their vital Asian customer base.

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Author: Ian Simm