Saudi Arabia sets sights on green hydrogen future

Green hydrogen, hailed as a key component of the future energy transition, is facing an uncertain path forward.

Saudi Arabia is reportedly preparing to invest $10 billion in green hydrogen, a sector that remains a highly debated component of the global energy transition. This announcement comes amidst several green hydrogen project cancellations and revisions across the industry, Caliber.Az reports per foreign media.

The Saudi Public Investment Fund (PIF) plans to allocate at least $10 billion to the development of green hydrogen, with the possibility of increasing the investment based on demand. However, demand remains a key concern. For example, Emirati energy company Masdar has delayed its target for producing 1 million tons of green hydrogen, pushing the deadline from 2030 to 2034.

“Green hydrogen is currently more expensive,” stated Saeed Ghumran Al Remeithi, CEO of Emsteel Group, Masdar's partner in the venture. “This highlights the need for alignment with regulators, suppliers, steel producers, and customers.” When business leaders mention the cost of a technology and the need for “alignment with regulators,” it’s often a reference to government support, typically in the form of subsidies. Green hydrogen, in its current form, is several times more expensive to produce than the version derived from natural gas, a challenge that seems increasingly difficult to overcome. 

An example of these growing obstacles is the recent decision by Australian mining magnate Andrew Forrest to abandon plans to transform his company Fortescue into a green hydrogen producer. Forrest's move included cutting 700 jobs and scrapping a goal of producing 15 million tons of green hydrogen annually by 2030. According to a Financial Times report, an unnamed source close to businessman Andrew Forrest revealed that he had come to the realization that his goal of making Fortescue a green hydrogen giant was unrealistic. 

This realization came just two years after Forrest declared his ambition to turn Fortescue into a leader in the green hydrogen space. At the time, Forrest and other green hydrogen advocates believed the element could become a globally traded commodity, much like oil and gas. Forrest envisioned that green hydrogen would be produced in regions with cheap solar energy, converted into ammonia, and transported worldwide. The Middle East, with its vast potential for inexpensive solar power, was seen as a key player in this vision. 

Saudi Arabia and the UAE are both keenly aware of this opportunity. However, Masdar, the Emirati company, has recently scaled back its green hydrogen ambitions, citing the lack of demand for the product. German utility Uniper, too, announced last month that it was abandoning plans to invest around €8 billion (approximately $10 billion) in green hydrogen production, also pointing to the absence of sufficient demand. "As things stand today, there are hardly any major customers who buy green hydrogen," said Uniper's CEO Michael Lewis in an interview with Germany’s Frankfurter Allgemeine Zeitung. "That's why we have to step on the brakes a little." 

Amid this climate, Saudi Arabia is reportedly preparing to enter the green hydrogen market, despite the current challenges. But the Kingdom may be ahead of the curve. It is already constructing a green hydrogen plant, set to be completed by 2026, and one of the project's equity partners—a consortium of 23 banks—has agreed to purchase the entire output of the plant. 

This highlights the central challenge of the green hydrogen industry: without a viable market to sell the product, especially given its high production costs, there is little incentive to produce it. However, if Saudi Arabia has figured out a way to reduce production costs, it could give green hydrogen a competitive edge against cheaper but environmentally controversial alternatives.

By Naila Huseynova