Saudi Arabia and China will find common interests in another business-hydrogen
(Beijing) Beijing held the Saudi Arabia-China Investment Conference on Dec 12th which was jointly hosted by Ministry of Investment of Saudi Arabia and Ministry of Commerce of China. The aim of the conference is to promote bilateral investment activities under the Kingdom’s “Vision 2030” initiative and China’s “Belt and Road” initiative.
On the conference, Saudi Arabia's investment minister called for further facilitation on green transition collaborations with China, a number of topics are highlighted, including renewable energy, financial investment, and mining.
Photo: Saudi Arabia’s Minister of Investment Khalid al-Falih and China’s commerce vice-minister Li Fei at the China-Saudi Investment Conference in Beijing on Tuesday.
The Gulf state is striving to catch up on the global wave of clean energy transition, which provides China, a leader in the global new energy sector, an opportunity to grow investment and involvement in the region's renewables development and beyond, Khalid al-Falih told the China-Saudi Investment Conference.
"We invite Chinese companies to participate in the green transition supply chain ... in addition to investments, whether it is [foreign direct investment] or in our capital, in the Kingdom of Saudi Arabia, there is significant project workload that requires participation from China's project execution, project management companies," said Falih.
China has been Saudi Arabia's top trading partner for a decade, while the Kingdom has been China's largest trading partner in the Middle East since 2001.
Bilateral trade exceeded more than US$116 billion in 2022, up by over 30 per cent from the previous year, according to official data.
Meanwhile, Saudi Arabia has long been China's largest oil supplier, with shipments of 87.5 million metric tonnes (641 million barrels) last year.
Based on our knowledge and analysis, we believe hydrogen will soon become an investment hotspot for the Kingdom and China to deepen economic collaboration.
The Kingdom is considering green hydrogen production as a potential solution to diversify its energy mix. It has set a target to achieve 4 million tonnes of hydrogen production by 2030 in Saudi Green Initiative 2021.
Saudi Arabia also has great resources potential to develop low carbon hydrogen which has one of the highest solar energy potentials in the world. Most parts of the country have a high level of solar irradiation, particularly in the central and northern regions of the country. Some cities in these regions with high solar irradiation levels that can be used for green hydrogen production include: Riyadh: 2200 kWh/m2, Tabuk: 2500 kWh/m2, Hail: 2500 kWh/m2, Qurayyat: 2600 kWh/m2, and Sakakah: 2700 kWh/m2. These cities have the potential to produce significant amounts of solar energy for green hydrogen production, which can help the country reduce its carbon emissions and dependence on fossil fuels.
However, several major challenges exist to expedite capacity building of green hydrogen production, including high CAPEX mainly induced by electrolyser, hydrogen storge system, and engineering, while Chinese companies would provide attractive solutions. Combining with their strength in solar sector, Chinese companies could amplify the competitiveness in green hydrogen production projects.
According to a report by Bloomberg in Sep 2022, Chinese alkaline electrolysis system costs about $343 per kw, compared with $1,200 per kw in the West, or 72% lower. While based on my tracking of latest tender of China’s green hydrogen projects, the price of a typical 1000Nm3/hr (5MW) electrolyser system stood steadily at Rmb 7.5 million, or $209/kw, decreasing further from 2022 level.
Although many experts may argue that Chinese electrolysers aren’t as efficient as those made in Western countries, they are improving gradually, especially for durability, which is crucial to green hydrogen developers. Several pivotal projects have been established and dozens are under construction in China, which provide precious opportunities for Chinese electrolyser producers and contractors to accumulate experience and improve technology.
In 2023, we see the Kingdom and China have achieved two milestones for their cooperation in hydrogen field: one is Envision Energy, a Chinese wind turbine producer which ranks No.4 globally, will supply 1.7GW of wind turbines to the Neom green hydrogen mega-plant in Saudi Arabia. Another is that ACWA Power and PowerChina announced on Nov 28th they will jointly develop Uzbekistan’s first green hydrogen plant, which also the first of its kind in Central Asia. ACWA Power the Kingdom’s dominant developer, investor and operator of power, desalinated water and green hydrogen plants with 77 assets in operation, construction or advance development across 12 countries. It is noticeable that ACWA Power RenewCo, ACWA Power’s renewable energy platform that currently owns a number of its existing renewable energy projects, introduced China’s state-owned Silk Road Fund as a partner and a 49% shareholder in 2020.
See our previous report:
ACWA Power, PowerChina break ground on first green hydrogen plant in Uzbekistan (substack.com)
Looking forward, I believe the jointly development of green hydrogen projects by the Kingdom and China would surge from 2024 as the collaboration business models (particularly the finance arrangement) are discussed and determined, as well as the technical feasibility and reliability to be proved by newly built hydrogen production plant in China.
Saudi Arabia has the potential to become a major player in the global green hydrogen market, as it possesses abundant renewable resources such as solar and wind energy, and is currently one of the largest producers of conventional hydrogen. As the world continues to move towards decarbonization, green hydrogen is becoming increasingly important, as it is a sustainable and environmentally-friendly alternative to traditional hydrogen production methods. However, Saudi Arabia also faces significant challenges in its transition towards green hydrogen production, including high production costs, lack of infrastructure, and limited visibility of hydrogen utilization. The country will need to address these challenges by investing in research and development, incentivizing private investment in renewable energy projects, and establishing partnerships with international companies with expertise in green hydrogen production. By collaborating with Chinese companies, the Kingdom’s emerging hydrogen industry could get access to most affordable hydrogen equipment and engineering services to implement its national hydrogen plan and decarbonize and diversify its economy, while Chinese companies could find a gate to the market of Kingdom and neighboring countries. The competition of China’s domestic market is so intense that driving all players’ profitability to the ground, the export market may actually bring large chunk of benefit to these Chinese companies.