Saudi Arabia is preparing to invest $10 billion in green hydrogen, a key component of the global energy transition, despite ongoing challenges in the sector. The move comes as several green hydrogen projects face cancellations and delays.
According to Bloomberg, Saudi Arabia’s Public Investment Fund (PIF) will direct at least $10 billion towards green hydrogen, with the potential to increase the investment depending on market demand. However, the path forward is uncertain as some of the region’s other green hydrogen initiatives face setbacks.
For example, the Emirati company Masdar recently announced it would delay its goal of producing 1 million tons of green hydrogen annually, pushing the target from 2030 to 2034. Saeed Ghumran Al Remeithi, CEO of Emsteel Group, a partner in Masdar’s hydrogen venture, acknowledged that the technology is currently too costly. “Green hydrogen is more expensive right now,” he said, adding that greater cooperation with regulators, suppliers, steel producers, and customers is needed to address the issue.
Green hydrogen production is significantly more expensive than hydrogen derived from natural gas, creating a major hurdle for the industry. This high cost has led to changes in plans for other green hydrogen projects. Australian mining magnate Andrew Forrest, for instance, recently abandoned his ambitious plans to transform Fortescue into a green hydrogen powerhouse. Forrest’s company cut 700 jobs and scrapped its target to produce 15 million tons of green hydrogen annually by 2030. A source close to Forrest said the original goal was no longer realistic.
When Forrest first announced his vision, he and other green hydrogen advocates believed the fuel could become a globally traded commodity, similar to oil and gas. The plan was to produce green hydrogen in regions with abundant cheap solar energy, convert it into ammonia, and then ship it worldwide. The Middle East, with its vast solar potential, was seen as a prime location for this type of production.
However, demand for green hydrogen has not materialized as expected. This is exemplified by the decision of German utility Uniper, which last month canceled plans to invest 8 billion euros (around $10 billion) in green hydrogen production. Uniper’s CEO, Michael Lewis, explained that there are currently few major buyers for green hydrogen. “As things stand today, there are hardly any major customers who buy green hydrogen,” he said.
Despite these challenges, Saudi Arabia is pressing ahead with its plans. The country is already in the process of building a green hydrogen plant, which is expected to be completed by the end of 2026. Moreover, Bloomberg reported in October that a group of 23 banks has committed to purchasing the full output of the plant.
The key challenge facing the green hydrogen industry remains its cost. If production costs remain too high and demand remains low, it may be difficult for the technology to become commercially viable. However, if Saudi Arabia has discovered a way to produce green hydrogen at a lower cost, it could be a game-changer for the sector and provide a competitive edge against cheaper, but more environmentally harmful, hydrogen alternatives.
Related Topics:
- Is Hydrogen More Flammable Than Natural Gas?
- Why Are Hydrogen Fuel Cells Not Widely Used?
- What Are the Problems with Green Hydrogen?