The EU’s ambition to import 10mt/yr of clean hydrogen by the end of the decade is a potential opportunity for Central Asian and Caspian governments. Both regions boast extensive hydrocarbon experience as well as ample renewable resource.

Kazakhstan alone has the potential to produce up to 2.62mt/yr of low-carbon hydrogen by 2040, according to the UN. As the ninth-largest country in the world, with around 20m people, Kazakhstan sits on vast untapped wind and solar resources.

Further south, Turkmenistan and Azerbaijan both have the potential to draw desalinated water from the Caspian Sea. Doubly landlocked Uzbekistan is also blessed with substantial solar resources, the country arguably emerging as the most advanced in the race to scale clean hydrogen production.

“Kazakhstan, Uzbekistan and Azerbaijan all have a strong green hydrogen potential” Zabanova, RIFS Potsdam

“Kazakhstan, Uzbekistan and Azerbaijan all have a strong green hydrogen potential due to the still largely untapped renewable energy potential and land availability,” said Yana Zabanova, an associate at Germany’s Research Institute for Sustainability Potsdam.

“In Azerbaijan, offshore wind, which the government is intent on developing, could play an important role in green hydrogen production. Uzbekistan has a rich solar resource, and Kazakhstan is likely to rely both on wind and solar,” she said.

Taking baby steps  

Few major projects have yet to get off the ground in the region, but one exception is the joint venture in Uzbekistan between Saudi firm ACWA Power and state-owned chemical company UzKimyoSanoat. The project, partly funded by the European Bank for Reconstruction and Development, to develop large-scale green hydrogen and green ammonia production, is the first of its kind in the country.

Once operational, the project will generate 3,000t/yr of green hydrogen before adding 500,000t/yr of green ammonia during the second phase. The scheme is underway despite limited government support for renewable hydrogen.

In May 2021, Uzbekistan published its presidential decree on the Measures to Develop Renewable Energy and Hydrogen, which focused on the need for more R&D within the sector. Starting this year, the US Agency for International Development is also implementing a new project in Uzbekistan called the Green Hydrogen Hub as part of its Power Central Asia funding programme. The programme aims to boost energy security and trade in the region.

Realistic ambitions?

Further north, Kazakhstan struck a strategic deal with the EU in 2022 to boost green hydrogen production and hopes to reach FID on the $50n HyrasiaOne project by 2026.

Swedish-German energy firm Svevind is aiming to build one of the largest green hydrogen projects in the world in the steppes of southwestern Kazakhstan. Once operational, the 20GW project will be capable of outputting 2mt of green hydrogen, or 11mt of green ammonia, every year.

Zabanova explained the project focused on exports to the EU as its key rationale from the start, but that that is now starting to change. Recently, there has been creeping realisation that European demand will take longer to develop than was originally anticipated.

“The project is increasingly positioning itself as ready to supply domestic consumers, and the government in its draft hydrogen concept [released in April 2024] also put a large emphasis on local uses,” she continued. “However, it also lists a wide range of such uses, which makes it clear that not much thought has gone into prioritisation and identifying what is feasible.”

Laying the foundations  

The main problem across the region is that there are still no instruments in place to support the development of domestic demand. “In general, there is hardly any government support for low-carbon hydrogen in Central Asia and the Caspian region,” noted Zabanova. “There are no production subsidies, hydrogen mandates, sectoral emission reduction plans, carbon contracts for difference, or the like.”

$50b – Cost of HyrasiaOne project

Kazakhstan is the only country in the region with an emissions trading scheme. This could potentially help incentivise industrial decarbonisation—including through hydrogen—but it suffers from the overallocation of free allowances and excessively high benchmarks, resulting in very low CO₂ prices.

However, the government is at least starting to think about how best to support domestic hydrogen. In April, the Kazakh authorities published a draft hydrogen development concept that will be open for consultation and is expected to be finalised in the coming months. While that must be seen as a positive, Zabanova pointed out the energy ministry also acknowledges its lack of expertise in developing a robust strategy.

Midstream limitations  

Other countries are similarly thinking about green hydrogen exports. In Azerbaijan, Emirati state-owned renewables firm Masdar recently began construction on three renewables projects with a combined 1GW of capacity. The company has said it is exploring the possibility of using the Southern Gas Corridor (SGC) to transport green hydrogen to Europe. The European Commission previously recommended using the SGC to transport and blend hydrogen.  

In December 2022, a subsidiary of Australian iron ore company Fortescue Metals Group signed a framework agreement with Azerbaijan’s government to study and develop green hydrogen projects in the country. The agreement was to explore up to 12GW of renewable and green hydrogen projects, but little progress has been publicly announced since.   

Like Azerbaijan, Turkmenistan may also hope to transit gas and hydrogen to Europe, but that depends on approval from Iran and Russia. For 30 years, geopolitical motives have blocked any pipeline expansion across the Caspian Sea—the result being that Turkmenistan still depends on China for its gas exports.  

And even if the geopolitical situation were to change, accessing the SGC appears unlikely at least in the near term. In 2022, the EU agreed to import an extra 10bcm/yr of gas from Azerbaijan starting in 2027. This will require expanding sections of the SGC, including the Trans-Anatolian pipeline, which has 16.2bcm/yr of capacity and takes gas across Turkey.

A 2023 report from the Oxford Institute for Energy Studies pointed out that adding 10bcm /yr from Turkmenistan was currently unfeasible, while after 2027 capacity will be limited to just Azerbaijani gas. An extra 10bcm/yr of Turkmen gas or hydrogen would require an entirely new transportation system at a cost of around $15b, plus the extra transportation fees that would make markets in Central Europe especially costly.

A long road ahead  

Even exporting to China has its challenges. The Asian economic giant appears to be targeting self-sufficiency in hydrogen and has the potential for domestic production.

“Azerbaijan has a more advantageous position in being closer to Europe and having a direct infrastructure link, which could potentially be repurposed to carry hydrogen,” said Zabanova. “However, any types of hydrogen infrastructure are very cost-intensive and heavy on upfront capital investment, and to what extent and at what cost gas infrastructure can be repurposed to carry hydrogen is still an open question.”

She added that, given the persisting uncertainty about future hydrogen demand, “I do not see the region's governments or private investors committing to such projects any time soon”. After all, even infrastructure projects closer to home, like the 10GW Norway–Germany blue hydrogen pipeline, was recently cancelled due to perceived lack of demand.

Until European demand is commercially proven, Central Asian and Caspian governments may wish to focus on decarbonising their own domestic markets. In 2023, the UN said fossil fuels still accounted for 95% of total energy supply in the five countries of Central Asia (Kazakhstan, Kyrgyzstan, Tajikistan, Turkmenistan and Uzbekistan).

To comply with the goals of the Paris Agreement, the UN estimates the region would need to invest $1.41t between 2020 and 2050. Like much of the world, without concrete government support and robust regulations, it is hard to see from where that investment will materalise.

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Author: Marat Aslan