The scene is set and excitement permeates through the energy transition landscape. Major developments such as Saudi Arabia’s flagship 2.2GW green hydrogen project in NEOM, the first gigawatt-scale green hydrogen project to receive FID and begin construction, demonstrate how countries in the Middle East and North Africa (MENA) are vying to become global leaders in hydrogen development.

Ambitious national hydrogen strategies have been announced by several countries in the region, driven by their wish to meet their economic diversification targets. This is aided by the abundance of renewable energy resources with the potential to power the production process.

MENA has emerged as a leader in today’s energy transition race. Across the region, several countries have committed to ambitious long-term climate goals and have introduced decarbonisation policies.

The UAE, the seventh-largest oil producer globally, was the first nation in the region to announce its ‘net zero by 2050’ strategic initiative in 2021, followed shortly by Saudi Arabia, the world’s second-largest oil producer, which committed to a net-zero economy by 2060.

Leveraging a first-mover advantage

While most of the MENA countries are widely known for their oil and gas endowments, the region is also rich in renewable energy resources. According to the World Bank, ten of the top 15 countries with the world’s best solar potential are in the MENA region, providing them with a distinct competitive advantage in deploying renewable energy.

According to the International Renewable Energy Agency, solar power production costs in the MENA region are one-fifth of the global average, with the region continuously breaking record lows when it comes to solar electricity costs. In 2020, the Al Dhafra solar PV project in Abu Dhabi achieved a world-record tariff of ¢1.32/kWh, to be surpassed one year later by the Al Shuaiba PV project in Saudi Arabia, which set a new world-record low price of ¢1.04/kWh.

MENA has emerged as a leader in today’s energy transition race

With the region proving very competitive in terms of renewable energy costs, governments soon realised the potential to competitively produce renewable-based hydrogen, and thus quickly started leveraging a first-mover advantage. Saudi Arabia capitalised on this potential with its flagship green hydrogen project in NEOM.

The UAE, Oman, Egypt and Morocco have already published dedicated hydrogen strategies. While Saudi Arabia has yet to launch a formal strategy, the government has set clear objectives for target production volumes of low-carbon hydrogen of 2.9mt/yr by 2030, increasing to 4mt/yr by 2040. Furthermore, Oman aims to scale up production of renewable hydrogen to 1mt/yr by 2030, while the UAE plans to produce 1.4mt/yr by 2031 (of which 1mt/yr will be renewables-based hydrogen) and aspires to a tenfold increase to 15mt/yr by 2050.

Pivoting towards exports

The rising level of ambition and the significant renewables potential in the region, in tandem with the presence of existing infrastructure and expertise in large-scale hydrocarbon and chemicals projects, could make the region a major contender to lead in the hydrogen trade space.

According to an IEA report, Oman could become the sixth-largest global exporter of hydrogen by the end of 2030. The NEOM green hydrogen project in Saudi Arabia will be producing carbon-free hydrogen in the form of green ammonia to serve global demand. Egypt aims at capturing 5% of the international hydrogen market by 2030 and 8% by 2040. The UAE and Morocco have also positioned themselves as future hydrogen exporters, with much of the focus being on exports to serve key demand centres in Europe and Asia.

While hydrogen presents an opportunity for these countries to diversify their export bases, there remains considerable uncertainty surrounding the prospects for scaling up a hydrogen export market within the next decade.

Developing the infrastructure across the entire value chain, which encompasses export and import facilities, transportation, storage and distribution, requires significant investment and can involve very long lead times. Large renewable energy infrastructure is also required to facilitate the scale-up of hydrogen production. The substantial time required to develop all the infrastructure pushes the timeline for scaling up hydrogen trade significantly beyond the 2030 horizon.

Hydrogen’s economic competitiveness can also be affected significantly by the cost of transportation, which can be substantial depending on the carrier and the distance. For this reason, most hydrogen production and use facilities are co-located to minimise potentially high transportation costs.

Another significant risk factor is the lack of clarity with respect to the demand outlook. Demand assessments, including the potential role that hydrogen can play, usually vary widely, making it hard for investors to realise the scale of opportunity, with many projects struggling to reach FID. The lack of a common internationally agreed methodology to determine the emission intensity of hydrogen, as well as an established hydrogen leakage monitoring mechanism, are also adding up.

A domestic transition powered by hydrogen

While technology and the required infrastructure develop to enable trade, hydrogen can present an equal—albeit faster—opportunity for an ‘in-country’ value for the MENA economies. Developing a domestic market for hydrogen will be crucial for the governments in the region to meet their decarbonisation and net-zero targets. The heavy reliance on non-renewable energy sources has led to significant CO₂ emissions. Countries such as Qatar, Kuwait, the UAE, Oman and Saudi Arabia are among the world’s top ten per capita carbon emitters.

The MENA region has a unique opportunity to leverage its abundant renewable energy resources to become a global leader in hydrogen production

Developing a domestic market for hydrogen would also help these countries better position themselves for international trade by producing “green products” for export. Renewables-based hydrogen would reduce the carbon content of industries’ finished products, helping mitigate costs and enhancing the resilience of the region’s export base as environmental policies become more stringent globally.

Some early steps in this direction are already evident in the region. For instance, Masdar and Emirates Steel Arkan in the UAE are developing a green steel demonstration project, the first-of-its-kind in the MENA region, which will be using green hydrogen rather than natural gas to extract iron from iron ore.

In Oman, the Amnah Consortium, which secured the country’s first land block from green hydrogen, plans to use its renewable-based hydrogen to supply the local steel industry.

Egypt plans to produce green methanol to leverage the strategic location of the Suez Canal to meet maritime demand. On the aviation front, the UAE intends to develop its local capacity for sustainable aviation fuel, a hydrogen derivative, supplying national airlines at UAE airports by 2031.

However, the domestic offtake market remains at a nascent stage as renewables-based hydrogen is unable to compete on price with conventional fuels. Addressing this challenge requires governments to step up their efforts and implement clear regulatory frameworks as well as incentives that can make hydrogen more competitive, while creating stability and revenue predictability.

Developing the right legally binding policies, all aligned with other national development plans, while providing financing tools and incentives will be critical to enable investment at scale for the wider adoption of hydrogen. A wide range of instruments and approaches could be considered, from phasing out fossil fuel subsidies to subsidising green projects, developing carbon pricing instruments, providing grants and funding, guarantees and low-interest loans, among others.

From potential to reality

The MENA region has a unique opportunity to leverage its abundant renewable energy resources to become a global leader in hydrogen production. This hydrogen revolution could be an important vehicle for decarbonising both domestic and foreign industries while diversifying economies away from fossil fuels. However, to fully capitalise on this potential, governments must move beyond high-level visions and strategies.

The implementation of clear, targeted policies and incentives will be critical to making hydrogen cost-competitive, driving investment, and scaling up both domestic use and exports. By taking decisive action now, the MENA region can secure its position at the forefront of global energy transition.

Dr Valentina Dedi is lead economic advisor at KBR.

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Author: Valentina Dedi