The Scramble for Mediterranean Hydrogen: Energy or Geopolitics?

Hydrogen has drawn great enthusiasm in both the public and private sector, particularly in the aftermath of the COVID-19 health and economic crisis. Governments and companies have announced numerous ambitious hydrogen plans. Hydrogen is indeed considered to be a useful tool to achieve both national climate targets (especially in hard-to-abate sectors) and a key driver for the economic recovery.

 

The global clean energy transition would result in a new geopolitical map. As new cleaner energy sources are deployed, old players such as oil producing countries could see their geopolitical influence shrink, while new players will emerge. However, the energy transition also entails a quest for technological mastery. Thus, countries are strongly considering ways to become technology makers in key sectors rather than being technology takers: hydrogen fully embodies this dual quest for know-how. It is often seen as the ‘new oil’, capable of redrawing the geopolitical map. However, it will be difficult to see similar geopolitical consequences. Hydrogen is an energy vector, meaning that it is a conversion business rather than an extraction one. Such condition would probably make hydrogen more similar to regional gas markets. In this sense, the Mediterranean may become one of the main hotspots for the hydrogen economy due to the complementary nature between the EU’s green and technological ambitions and the great natural resource potential across the Middle East and North Africa.

 

The EU expresses one of the strongest political commitments to lead in hydrogen. as it considers it a key element in its pursuit of climate neutrality by 2050 and, at the same time, a sector to enhance its technological leadership in, carried by its painful experience in solar PV manufacturing, which was developed in Europe at high costs only to be eventually moved to China. In July 2020, the EU launched its Hydrogen Strategy, which envisages hydrogen covering 13-14% of Europe’s energy mix by 2050¹. To create a hydrogen economy, the EU Strategy is ready to roll out significant investments. At the European level, the EU prioritizes investments in green hydrogen (up to €180-470 billion by 2050) rather than for blue hydrogen (€3-18 billion), which is relegated to an intermediate target alone. At the national level, governments announced over $30 billions in hydrogen investments by 2030, only in the second half of 2020. Among European countries, Germany is the most committed to take the lead in hydrogen technology, announcing a €7 billion investment plan in domestic production of green hydrogen.

 

If the Green Deal will make the EU less reliant on fossil fuels imports, it will not eliminate its energy interdependence to meet its climate targets. Indeed, e EU countries may not be able to produce all their renewable energy domestically due to the continent’s limited size and high population density. Thus, it may need to turn to hydrogen imports from other regions. Moreover, in the medium term, the EU may need to import blue hydrogen due to competitive costs compared to green hydrogen. For example, Germany allocated €2 of its €9 billion hydrogen investment plan for overseas production.

 

The MENA region is potentially well positioned to seize this opportunity. It could produce and export both green and blue hydrogen at a competitive cost, given its great potential in renewable– particularly solar – as well as its large natural gas reserves and CCS potential. Regarding green hydrogen, MENA countries could produce cheap electricity, which is the key factor in the production of green hydrogen, due to their optimal renewable potential.

 

A European industry alliance launched a plan to develop 2x40 GW of electrolysers by 2030 (40 GW in Europe and 40 GW in Southern and Eastern neighboring countries). The idea to import clean energy from the southern shore of the Mediterranean is not new in Europe. It was initially launched back in 2009 under the Desertec project; with hydrogen adding new momentum to the idea. In supporting and investing in clean energy projects in the region, the EU could seize the opportunity to incentivize other countries to pursue decarbonization while enhancing its geopolitical projection in a key region, which is witnessing growing influence from other countries, including China and Russia.

 

Moreover, hydrogen represents an opportunity for MENA countries to renovate their geopolitical influence in the low-carbon future. As energy transition poses an existential challenge to the current business model of oil-exporting countries, some of them are moving to find alternatives and adapt to the changing energy landscape. For such reasons, both oil-rich and oil-poor MENA countries have increasingly been working on their hydrogen ambitions, considering both blue and green hydrogen projects. Among them, four countries in particular have announced major hydrogen plans: three of them are oil exporters in the Gulf (Saudi Arabia, the UAE, and Oman) and one is a net importer in North Africa (Morocco).

 

Morocco does not hold significant hydrocarbon reserves, but it is commonly seen as the leading hydrogen player in North Africa. It set an ambitious renewable target of 52% of installed electricity capacity – corresponding to around 11 GW – by 2030. The aim is to use its great solar and wind potential² in order to develop hydrogen. Morocco strongly supports the development of renewables and hydrogen as potential ways to decarbonize its energy mix, lessen its high import dependency, and emerge as a powerful player in the clean energy arena. Morocco plans to devote two-thirds of its green hydrogen to exports. In June 2020, Germany signed a memorandum of understanding with Morocco for the development of the hydrogen projects.

 

Moreover, other two North African countries (Algeria and Libya) could attempt to supply hydrogen to Europe; in particular blue hydrogen in the short- and medium-term thanks to the existing gas infrastructure linking them to Europe. Currently, four pipelines connect the two shores: three from Algeria and one from Libya. The current infrastructure motivates Italy to become a “hydrogen bridge” between the two Mediterranean shores, benefiting also from its strategic position in the Mediterranean. Italy is willing to receive cheap hydrogen produced in low-cost RES countries in North Africa. SNAM affirms that Italy could import hydrogen produced from solar energy in North Africa at a cost 10-15% lower than domestic production. However, both Algeria and Libya are experiencing major domestic social unrest, albeit at a different extent. Until the sociopolitical situation doesn’t improve, such a major transformation which requires great political commitment and support as well as massive investments both from domestic and foreign entities appears unlikely.

 

In the Gulf, Saudi Arabia is working on both local production and export opportunities. In July 2020, it announced a $5 billion green hydrogen and green ammonia plant in Neom city, which should go online in 2025. The project, built by Air Products, Saudi ACWA, and Neom, will be powered by over 4 GW of renewable power from solar and wind energy. Moreover, Saudi Arabia sent the world’s first ever blue ammonia shipment to Japan in September 2020. Despite the limited volume of the shipment (40 tons of blue ammonia), it certainly certified the Saudi commitment to seize the opportunity in the ongoing energy transition and not cede a leadership to other players such as Australia, Chile and China. In the United Arab Emirates, three state-run entities formed the Abu Dhabi Hydrogen Alliance to position the fossil fuel-rich emirate as a major exporter of green and blue hydrogen. Despite its green potential, the UAE also seeks to leverage its significant gas reserves to become a global key player in blue hydrogen. Oman announced the construction of a green hydrogen plant at the Duqm port, where a large export-focused refinery and petrochemicals facility are being developed. The state-owned Petroleum Development Oman is also looking to attract investments from Asian countries, notably Japan, suggesting that a portion of future output would likely be destined for exports to Asia.

 

The MENA countries may target different export markets and products solutions. North African countries may direct their hydrogen exports mostly to Europe due to their vicinity and existing infrastructure. However, the European preference for green hydrogen may discourage blue hydrogen exporters. Gulf oil-rich countries may be able to export green hydrogen to Europe and the blue one to Asian countries, which could accept the latter more easily – as Japan announced.

 

Lastly, oil-producing countries in the MENA region are looking for new sources of revenue for their socioeconomic model. However, exporting hydrogen may not produce enough revenues for governments. For such reasons, these countries might decide to use renewable energy and hydrogen domestically for the production and export of intermediate and final carbon-intensive products, thereby creating more value.

 

Nevertheless, the MENA countries’ hydrogen ambitions may encounter some challenges, including water scarcity, limited renewable capacity, economic restrictions. MENA countries suffer from serious water scarcity, which may penalize green hydrogen projects. Today’s technology uses 9 liters of water for producing 1 kg of hydrogen. To overcome it, countries could supply water through energy-intensive desalination plants – normally powered by fossil fuels. Moreover, MENA countries will need to dramatically increase their renewable energy capacity if they wish to become major green hydrogen players, which requires massive political and financial effort. Such effort may be reduced by the negative economic and financial consequences of the COVID-19 pandemic and low oil prices, which have severely damanged these regional economies.

 

In conclusion, hydrogen is an opportunity for both shores of the Mediterranean which might drive them even closer. The EU could enlarge its climate diplomacy in a key region whilst satisfying its needs for clean energy required to reach carbon neutrality. For their part, MENA countries could seize this opportunity to position themselves in the new geopolitical map and find alternative revenue sources for their socioeconomic model. However, in order to do so, they will need to address environmental, energy and economic challenges.