How the GCC can become a force in global green hydrogen: The green ammonia supply chain

Executive summary

The rapid shift to green hydrogen presents Gulf Cooperation Council (GCC)¹ countries with an opportunity to play a leading role in this new industry. Green hydrogen could become a major and versatile power source of the decarbonized future. The GCC holds significant advantages in the production of green hydrogen, due to abundant, low-cost solar energy. However, green hydrogen entails significant transportation costs to supply large export markets in Europe and East Asia. For that reason, the green hydrogen market will be won in the supply chain. The best way for GCC producers to supply large export markets is to use renewable energy to convert green hydrogen to green ammonia (NH3 , an effective hydrogen-carrying compound). GCC producers would then “crack” the ammonia at the export destination to extract the hydrogen for end use.

The green hydrogen economy is challenging, and will entail a new ecosystem with unique requirements and many unsettled elements. Although technically proven, green ammonia production is not yet operating at industrial levels; however, with several large-scale demonstrator projects currently under way, commercialization is imminent. At the other end of the supply chain, ammonia “cracking” technology still requires further development to extract high-purity hydrogen cost effectively at the volumes required.

To succeed, GCC countries must focus on policy imperatives over the next three to five years, in areas such as developing a national strategy; establishing the business case; launching pilot projects; and creating a supportive policy, regulatory, and investment framework. Longer term, GCC producers will have four strategic priorities to achieve scale advantages at all stages of the green ammonia value chain, encompassing production, conversion, transportation, reconversion through cracking, and delivery.

Download the study

¹ The GCC countries are Bahrain, Kuwait, Oman, Qatar, Saudi Arabia, and the United Arab Emirates.

A critical component of the decarbonization agenda

The market for green hydrogen is moving swiftly from what seemed like a future hypothetical to an extremely promising reality in which the GCC could play a leading role. Hydrogen is abundant, environmentally sustainable, energy-dense, and when produced through renewable energy is “green” — making it a critical part of the decarbonization agenda. Rapid scale and technology improvements mean that green hydrogen production costs are expected to fall sharply in the next decade, with cheaper renewable energy making an important contribution. Based on these trends, green hydrogen will likely reach a turning point in terms of adoption around 2030. By 2050, global green hydrogen demand is expected to reach over 530 million tons, equivalent to around 7 percent of global primary energy consumption.² This would displace 10 billion barrels of oil equivalent per year, around 37 percent of current global oil production.

At the same time, the applications for green hydrogen are growing far beyond existing uses such as feedstock for industrial processes. Over the long term, green hydrogen will become a major and versatile power source of the decarbonized future, whether powering passenger vehicles, industrial processes, or commercial transport. The transition will likely be led initially by transport applications in high-utilization and larger vehicle categories in which the total cost of ownership compared to vehicles running on hydrocarbons looks most compelling (see “The economics of hydrogen fuel cell electric vehicles”). Hydrogen-blending solutions in building heat and power also hold potential. Moreover, a full switchover from natural gas would unlock significant demand in areas such as industrial energy, industrial feedstock, and power system applications.

² Dr. Yahya Anouti, Dr. Shihab Elborai, Dr.Raed Kombargi, and Ramzi Hage, “The dawn of green hydrogen: Maintaining the GCC’s edge in a decarbonized world,” Strategy&, 2020.

The economics of hydrogen fuel cell electric vehicles

Green hydrogen is triggering a fundamental shake-up in the transportation industry through the emergence of hydrogen fuel cell electric vehicles (FCEVs) — rivalling traditional internal combustion engine vehicles (ICEVs) and battery-powered electric vehicles (BEVs).

Generally speaking, FCEV technology has cost advantages over BEV technology for vehicle categories that have high utilization, require longer daily driving distances, or that are typically larger and heavier in size — such as trucks and buses, taxi fleets, and even forklifts. The combination of limited driving range, lengthy battery recharging time, and the extra weight, size, and complexity of the BEV battery pack for larger, heavier vehicles results in superior FCEV economics in these categories. In Germany, for example, FCEVs in the truck category are already more competitive than BEVs in terms of their total cost of ownership, and will be 30 percent more cost effective by 2030.

The market for passenger cars is equally promising, with FCEVs forecasted to surpass ICEVs by 2029 in terms of their total cost of ownership. Toyota is planning production of around 200,000 FCEV vehicles per year by 2025 and is targeting in excess of 500,000 units per year by 2030, with Hyundai aiming for 110,000 per year by 2025.³ These commitments will dramatically reduce FCEV costs, due to mass-market adoption. There are questions as to whether FCEVs or BEVs ultimately will dominate the passenger vehicle market. However, it is already clear that the era of ICEVs is ending.

³ Sichao Kan, “South Korea’s Hydrogen Strategy and Industrial Perspectives,” Éditio Énergie, Ifri; Kyunghee Park, “Hyundai Hydrogen Chief on why the company bet on fuel cells,” Bloomberg, June 9, 2020; Mark Kane, “Hyundai Strategy 2025: 670,000 BEVs/FCEVs Annually By 2025,” insideevs, December 5, 2019.

Download PDF How the GCC can become a force in global green hydrogen: The green ammonia supply chain

Conclusion

Although many countries have ambitious plans for green hydrogen, the GCC states have unique advantages that could allow them to lead the hydrogen economy. They also have an incentive to move away from fossil fuels. By seizing the green hydrogen opportunity, GCC countries can lay the foundation for economic growth in a decarbonized world and ensure their continued influence in the energy market.