The fast-changing energy need of Asian oil importers is prompting Middle Eastern oil producers to accelerate their hydrogen efforts to ensure they can supply both oil and hydrogen to their biggest customers, a strategic push to prevent losing out a part of their future business to potential exporters like Australia.
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With Asia accounting for more than 80% of Middle East's overall crude exports, top oil producers are not only looking for opportunities to send in trial shipments of ammonia to Asia, they are also looking at signing cooperation deals with clearly one intention -- if any Asian customer needs both oil and hydrogen in the future, they want to be ready to supply both.
"Middle Eastern oil producing countries like Saudi Arabia are rich in renewable and natural gas resources. With the growing demand for hydrogen in the long run, these countries are well positioned among most cost-effective producers of hydrogen to benefit from the growing green business in terms of both production and trade," said Kang Wu, head of global macro demand and Asia analytics at S&P Global Platts.
Asia's stake in Middle East crude exports rose 2.6 percentage points from 2019 levels to 83.9% in 2020, according to Platts Analytics.
Asia has recently witnessed a series of developments that highlights the strategic push by the Middle Eastern producers to have an early mover advantage in the hydrogen sector in Asia.
Cooperation deals start flowing
Earlier this month, Hyundai Heavy Industries Holdings signed an agreement with Saudi Aramco on blue hydrogen and ammonia projects. As part of the deal, Hyundai Oilbank will import LPG from Aramco to convert into blue hydrogen. The agreement also calls for Aramco to provide Hyundai Oilbank blue ammonia.
Even ADNOC said this month that it was exploring opportunities to work with South Korea's GS Energy on blue hydrogen and carrier fuel export such as blue ammonia.
Japan's Ministry of Economy, Trade and Industry struck the first fuel ammonia cooperation deal with ADNOC in January as Tokyo intends to develop its supply chain of blue ammonia possibly in the Middle East by the late 2020s. Last year, Saudi Arabia shipped its maiden blue ammonia cargo to Japan, paving the way forward for the further use of hydrogen in the energy system.
And in Southeast Asia, Malaysia's state-run Petronas has also recently signed an agreement with Abu Dhabi-based clean energy company Masdar to collaborate in the renewables and hydrogen space in Asia and the Middle East.
"Middle East hydrocarbons' producers have no option but to follow the money as this narrative continues to develop," said Peter Godfrey, managing director for Asia Pacific at The Energy Institute.
"The perceived existential threat that it may present to Middle East oil and gas producers today will rapidly turn into substantial opportunity for tomorrow. The low-cost hydrocarbons' producers have an inbuilt advantage to become the leaders in the development of net-zero solutions which I am sure they will capitalize on," he added.
The cost factor
On the oil segment, as Middle Eastern oil producers are already facing intense competition from North American and African supplies in key Asian markets, analysts said that the region's cost-effective production would be an advantage.
"I believe that the Middle East could be reliable second source of hydrogen for the Asia-Pacific market. It would be good for Asian consuming countries not having to rely upon only Australia," said Edgare Kerkwijk, board member of the Asia-Pacific Hydrogen Association.
Not just blue hydrogen, Aramco also has ambitions to make it big in green hydrogen too. Saudi Arabia's planned zero-carbon city Neom in July formed a joint venture with Air Products and ACWA Power to create a $5 billion green hydrogen project, the world's largest. It is expected to produce about 1.2 million mt/year of ammonia by 2025.
"At this moment, the Middle Eastern should be more price competitive than Australia as it has seen very low prices for renewable energy. For oil and gas producers in the Middle East this is also a way to diversify their income from the declining oil and gas sector," Kerkwijk added.
Australia aims to sharply reduce production costs to supply green hydrogen at $2/kg in the future, but analysts say multiple hurdles in its path may take several years to overcome. The slogan of Australia's policymakers -- "H2 at $2" -- is seen by clean energy analysts as an ambitious target, although not impossible.
Platts Analytics expects 2021 global pure hydrogen demand to increase 4.2% on the year to 74.1 million mt.
Looking ahead, Platts Analytics anticipates pure hydrogen demand to approach 79 million mt by 2025 on the back of increased refinery runs, a greater call on ammonia and rising demand for hydrogen in alternative sectors.