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Saudi Arabia's future city Neom plans hydrogen-based ecosystem

Highlights

574 MW gas-fired power plant being phased out

Saudi Aramco, SABIC, Maaden could get involved

'Various scenarios' of 15-30 GW of installed renewables capacity

Dubai — Saudi Arabia's future Neom city will require a "multiple" of the 4 GW of renewable energy planned in the $5 billion joint venture with Air Products as hydrogen will provide the basis for clean feedstock used in the production of fertilizers, chemicals and oil derivatives, according to Peter Terium, the former CEO of Germany's RWE who is now Neom's head of energy.

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Export potential for the 1.2 million mt of ammonia to be produced from hydrogen in the Air Products-ACWA Power-Neom joint venture runs from Japan to Korea, Florida and California, along with parts of Europe, Terium told S&P Global Platts. Saudi Arabia's industrial giants from Aramco to SABIC and Maaden could get involved in using hydrogen from Neom to produce clean fuels, fertilizers and petrochemicals, he said.

"With SABIC, we already have an MOU for development of clean chemicals, and with Aramco I can only say watch the press in the next few weeks," he said. "With a company like Aramco, there is a superb potential for cooperation. And if we go beyond that, there is SABIC petrochemicals, a large player on a global scale, and in the fertilizer industry, Maaden, one of the top five fertilizer companies, that will eventually need to tap into clean feedstock. All of that is an ecosystem I would say is unlike any others in the world."

Capacity installed and projects in development (GW)

Operational
In development
Wind
Total Middle East North Africa
3.3
4.3
Iran
0.3
0.3
Israel
0.0
0.6
Jordan
0.4
0.1
Lebanon
0.0
0.2
Oman
0.0
0.1
Saudi Arabia
0.0
0.4
Algeria
0.0
0.1
Egypt
1.4
1.0
Morocco
1.2
1.5
Solar PV
Total Middle East North Africa
7.5
10.9
Bahrain
0.0
0.1
Iran
0.4
0.4
Iraq
0.2
0.7
Israel
1.2
0.7
Jordan
1.2
0.4
Lebanon
0.1
0.1
Oman
0.0
1.3
Qatar
0.0
0.8
Saudi Arabia
0.3
0.2
United Arab Emirates
1.8
3.9
Algeria
0.4
0.1
Egypt
1.6
1.2
Morocco
0.2
0.9

Sources: IRENA, S&P Global Platts Analytics, S&P Global Market Intelligence

Neom is part of Saudi crown prince Mohammed bin Salman's flagship Vision 2030 project, intended to diversify the economy away from oil. The kingdom has been slow to develop renewables, with operational solar PV capacity at 0.3 GW compared with 1.8 GW in UAE and 1.6 GW in Egypt, according to Platts Analytics. The UAE has pressed ahead with solar projects, achieving record low electricity costs in Dubai and Abu Dhabi.

"What we have is an advantage, we can step in at a price level where the technology for solar PV and wind is bottoming out, there are still some further gains to be had, but now prices are at a level where renewable electricity is so competitive that you can use it to convert to hydrogen," Terium said. "There are a lot of industrial processes that cannot be electrified, steel, aluminum, chemicals, they use hydrogen not only as an energy carrier but also as a catalyst in the chemical process. And green hydrogen can exactly fill that hole."

JV with Air Products

The Air Products JV announced in July 2020 will develop 4 GW of renewable energy, though the renewables breakdown is not being released for competitive reasons, Terium said. That JV is on track to begin production in 2025, when Neom should also be up and running, he said. Most of the new activities will be developed around the deep sea Duba port in Neom.

Neom itself only has a few gas wells and a gas processing plant which is used for local consumption in a gas-fired power plant with a capacity of 574 MW. Neom has decided to phase out the gas-fired power plant because burning natural gas does not fit in with Neom's 100% renewables and zero carbon policy, he said. "But we might go a step further because it doesn't make sense for this smaller gas field, Mydian, which has a few gas wells, to continue to exploit hydrocarbons and export them. That's not really consistent with the Neom philosophy. But a decision has not been made."

Outside of the JV, Neom will need a "multiple" of the 4 GW of renewable energy output in the next five to 10 years, which will be developed by Neom and Saudi Arabia's Renewable Energy Project Development Office, according to Terium.

"I would expect we will go out toward the end of this year with a more concrete tender plan or at least first steps of the tenderings we will do because Neom would prefer to go the tender approach" rather than by private deals, he said.

"The 4 GW is just the start," he said. "Neom includes a city, commercial activity and further industrial activity whose energy needs will be significantly more than 4 GW. It depends on what the growth pattern is, the population growth, and how successful we are in attracting advanced industries. We have various scenarios that go all the way from 15 GW to 30 GW of installed capacity, but those are not yet proven scenarios that we can build on."

Following the completion of the detailed engineering, an investment decision to go ahead with the Air Products JV will be made "shortly," Terium said.

Air Products has also agreed to spend another $2 billion on infrastructure on the receiving end for hydrogen filling and distribution facilities, he said. Hydrogen cannot easily be transported, except for via a few pipelines, so the only way it can be transported at an acceptable cost is to convert it into ammonia, ship it as ammonia and then convert it back to hydrogen at the receiving end. "That is the strategy that Air Products has developed," he said.