Javier Doblas

In pursuit of the Paris Agreement’s goal of reducing global greenhouse gas emissions, and limiting the rise in global temperatures to no more than 1.5°C above pre-industrial levels, replacing fossil fuels with renewable energy is critical to achieving this global target.

However, the electricity generated using renewable energy sources will not be sufficient to meet the needs of sectors that are difficult to operate electrically, such as the steel industry, cement, aviation and shipping. This will prompt the adoption of low-carbon hydrogen and its derivatives such as ammonia, methanol and kerosene (the so-called “Power to X”), as this fuel must provide an average of 10% to 12% of total global energy consumption to achieve the goal of climate neutrality by 2050.

Today hydrogen development is one of the most important global industries, with more than 90 million tons produced almost exclusively from fossil fuel sources (so-called grey hydrogen) and consumed in a few key sectors such as ammonia and methanol production and refining. Low-carbon hydrogen (green and blue hydrogen) is a more recent and developed sector.

According to the Boston Consulting Group’s expectations for the level of future demand for low-carbon fuels, the world will witness a rise in demand for low-carbon hydrogen and its derivatives by 2050. Reaching the barrier of 350 million tonnes annually, to reduce global warming to 2 degrees Celsius and continue to rise to 540 million tonnes annually to achieve the target of 1.5 degrees Celsius.

In the first stage, low-carbon hydrogen will be adopted to replace the grey hydrogen currently used, to be adopted later in specific additional fields (such as the steel industry, aviation, shipping and long-term storage). Boston Consulting Group estimates that the low-carbon hydrogen market could be worth about $600 billion to $1.1 trillion by 2050.

There are currently more than 900 low-carbon hydrogen projects in the global arena, most of them in the green hydrogen category. The Middle East region, in particular, sees an ambitious future for developing and adopting low-carbon hydrogen on a large scale, with the UAE looking to produce 100 gigawatts of renewable energy and 1 million tonnes of green hydrogen annually by 2030. Saudi Arabia also recently announced its vision to become the largest exporter of low-carbon hydrogen globally, with an investment of $266 billion in a targeted plan to boost reliance on clean energy. Oman is currently organizing an auction dedicated to outsourcing large-scale green hydrogen projects, aiming to achieve its goal of producing 1 million tonnes of green hydrogen annually by 2030.

The reality of the race to capture the global hydrogen market is not limited to the Middle East alone. Many countries, including Chile, South Africa, Namibia, Morocco and Australia, can produce low-carbon hydrogen on a large scale. The US Inflation Reduction Act is expected to have a vital role in influencing global energy systems, as it provides $369 billion in financing for climate and energy affairs over the next decade and is based on more than $110 billion in funding provided for in the Infrastructure and Jobs Investment Act, which it was approved in late 2021. The US Inflation Act, combined with its production tax credit of $3 per kilogram of hydrogen, will enhance the competitiveness of US hydrogen, which is a fundamental step for the sector.

Although the scale of low-carbon hydrogen initiatives has accelerated at an unprecedented rate, only five per cent of projects are under construction or for which a final investment decision has been made.

Despite the availability of potentials and future opportunities, the development process of the hydrogen sector faces a set of challenges that must be overcome, which therefore requires the necessity of taking joint measures in coordination between the concerned authorities to reduce the risks of projects and work to enable the low-carbon hydrogen sector.

Specifically through: government agencies and regulatory authorities, lenders, developers, producers, technology service providers, and infrastructure service companies. Finally, low-carbon fuels, including low-carbon hydrogen and its derivatives, will play a key role in eliminating carbon emissions. However, its approval will be limited to specific use cases in which renewable electrical energy is not sufficient. The next decade will witness significant achievements in the low-carbon hydrogen sector development.