Hong Kong-based developer Intercontinental Energy (ICE) unveiled plans in mid-May for a vast green hydrogen project on Oman’s central coast—the scale of which is unprecedented in the sleepy sultanate.

The plan is to channel some $30bn into developing a complex in the remote eastern Al-Wusta governorate producing 25GW of wind and solar power, the bulk of which would be converted into green hydrogen and ammonia for export. For perspective, the country’s total installed capacity at end-2020 was around 12GW—of which a mere 159MW was derived from renewables. ICE is developing the project in partnership with local downstream parastatal OQ and Kuwaiti government-owned clean energy investor Enertech.

“Oman’s is an oil and gas economy, so as it looks to diversify, it makes sense to do so within the energy environment” Martinsen, Rystad

Muscat has been strongly signalling its intent to move into cleaner energy—not only for domestic power-generation but as a diversification play away from historic economic and fiscal dependence on fossil fuel exports. “Oman’s is an oil and gas economy, so as it looks to diversify, it makes sense to do so within the energy environment,” says Audun Martinsen, head of energy service research at consultancy Rystad Energy.

State-led Petroleum Development Oman (PDO), Oman’s main oil producer, was symbolically renamed Energy Development Oman last year to reflect its owner’s intent. Smaller green hydrogen ventures have been launched over the past year at the northern industrial city of Sohar and at Duqm, near the proposed site of the sprawling ICE complex.

While the wheels of government decision-making can crank slowly, the authorities have in the past (of necessity) successfully overseen major directional shifts within the domestic energy sector. PDO pioneered the regional use of advanced tertiary recovery techniques when its maturing oil fields went into decline in the 2000s, while BP alongside OQ's upstream arm began developing the sultanate’s complex tight gas reverses last decade to stave off a growing shortage of the resource. In this instance, Muscat appears to be laying down a marker and angling for first-mover advantage, as other sun-drenched Gulf petrostates—notably Saudi Arabia, which shares the boon of plentiful available land—inch sideways into the hydrogen space.

Climactic conditions for renewables in the selected area, a largely desert governorate bordering the Indian Ocean, are ideal—“exhibiting the optimal diurnal profile of strong wind at night and reliable sun during the day”, according to ICE. The location is also propitious for serving the fledgling international hydrogen market: Muscat has been developing a refining and petrochemicals hub at Duqm for the past decade based on its position on major trade routes to the East but outside the overcrowded and politically sensitive Strait of Hormuz—and the same rationale applies. “The project could more easily export to major Asian markets than European producers—as well as exporting competitively to Europe,” says Martinsen.

Growth market

Rystad forecasts global hydrogen demand to grow fivefold by 2050, driven mainly by the greening of shipping and industry. China will become a major market, as will South Korea and Malaysia, while over the longer-term India has huge potential, assuming it eventually decarbonises its steel industry.

$30bn – Planned investment in project

While currently a fraction of global supply, green hydrogen costs are expected to come down substantially worldwide in the coming decades through economies of scale and technological improvement. ICE is targeting production costs of under $2/kg for the entire Omani project, and says this is conservative. “It has the potential to be one of the lower-cost producers,” says Martinsen. Capacity is intended to reach 1.75mn t/yr of hydrogen, convertible into up to 9.9mn t/yr of ammonia.

Securing finance for such a vast investment in a still relatively new industry will be challenging. An FID is not envisaged before 2026, and some scaling-back would not be unexpected. ICE’s flagship project, the similar 26GW ‘Asian Renewable Energy Hub’ in Western Australia, has been on the drawing board since 2014, and the start of construction remains years off.

However, having Muscat on board as an equity partner from the outset should induce confidence. The presence as a founding investor of Enertech (a vehicle owned by Kuwait’s $500bn-plus sovereign wealth fund), which has a remit to develop green energy and environmental projects across the Middle East, is symptomatic of a wider desire by Gulf investors to move out of oil and gas but keep their money within the region, with Oman looking a comparatively safe destination. The strong political ties between the governments of Oman and Kuwait are based partly on their shared insistence on remaining neutral in the region’s myriad conflicts. Collaborating in the global drive for carbon-neutrality could prove an equally wise strategy.

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Author: Clare Dunkley