Aramco sees major hydrogen market forming amid historic

pressure test for Big Oil

cnbc.com/2021/06/28/aramco-sees-major-hydrogen-market-forming-amid-pressure-for-big-oil.html

28 juin 2021

Key Points

Saudi state oil producer Aramco sees an “inflection point” in the market for hydrogen and expects
exports to ramp up after 2030.
“We see a real market forming,” Aramco Chief Technology Officer Ahmad Al Khowaiter told CNBC.
Aramco is under pressure to address the climate challenge, while still supplying a huge portion of
the world’s growing energy needs and advancing Saudi Arabia’s economic transformation plan.

Saudi Arabia’s oil giant Aramco is stepping up efforts to promote initiatives in hydrogen technology and
investments to reduce carbon emissions, after a harrowing investor smackdown for Big Oil.

“Hydrogen is real,” Aramco Chief Technology Officer Ahmad Al Khowaiter told CNBC in an interview
Sunday, after a day of presentations from Aramco executives and industry partners to highlight the oil
giant’s hydrogen initiatives.

“Today we’re showing that the technologies for the use of hydrogen are mature and commercially
available… and we see this kind of as an inflection point in the market for hydrogen,” Al Khowaiter said.

Aramco, the world’s largest oil company, didn’t detail any new hydrogen investment plans at the event.
Instead, executives outlined their vision for a lower carbon future where hydrogen can be deployed at
scale before the end of the decade.

“We see a real market forming,” Al Khowaiter said. “This is an opportunity for us to supply a new market,
a growing market, and a sustainable market, because it is a decarbonized energy product.”

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Experts in the energy field see hydrogen as a major potential gamechanger. The U.S. Department of
Energy says hydrogen “can deliver or store a tremendous amount of energy” and “can be used in fuel
cells to generate electricity, or power and heat.”

Described by the International Energy Agency (IEA) as a “versatile energy carrier,” hydrogen is deployed
for a wide range of uses and in sectors like industry and transport. Currently, however, the vast majority
of hydrogen generation is based on fossil fuels, and cleaner hydrogen produced from renewables is more
expensive to produce.

Aramco sees that changing in the coming years.

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 We want policymakers to actually recognize that this is a solution that needs that alignment and
push going forward.

Ahmad Al Khowaiter

Saudi Aramco chief technology officer

The hydrogen push comes after Big Oil was hit with a climate triple punch last month. Activist investors
successfully campaigned to join the board of Exxon, rebellious shareholders at Chevron pushed through
plans to cut emissions, and a Dutch court ordered Royal Dutch Shell to cut its pollution by nearly half by
the end of 2030.

The tumult at three of the world’s largest publicly listed energy companies has challenged Aramco to
show it can address the climate challenge, while still supplying a huge portion of the world’s growing
energy needs and advancing Saudi Arabia’s economic transformation plan.

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“We have the lowest-emission hydrocarbons,” Al Khowaiter said. “We have an ability to capture CO2 and
therefore supply hydrogen reliably at reasonable cost, without the CO2,” he added, while suggesting
investments in hydrogen would be announced when Aramco can make deals with prospective buyers.

Indeed, the oil produced by Aramco in Saudi Arabia has one of the lowest carbon intensity ratings among
major international producers, according to S&P Global Platts – and that’s thanks largely to its ease of
access to reserves and low gas flaring during production.

“Those investment decisions take several years of capital investment and then construction, and finally,
start up,” he said. “So we’re talking a five to seven year timeframe before a large global world scale
project could be on the ground running.”

Hydrogen Rainbow
Hydrogen is seen as a key source of fuel for a sustainable energy future, as it emits no greenhouse
gasses when burned. However, not all hydrogen is created equal and its adoption faces various
challenges - including the logistics of transportation, the cost of production, and various regulatory
hurdles.

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A hydrogen-powered vehicle, operated by Saudi Aramco, on display at the Air Products New Technology
Center in Dhahran, Saudi Arabia, on Sunday, June 27, 2021.

Maya Siddiqui | Bloomberg | Getty Images

According to the IEA most hydrogen is produced industrially from natural gas, which still generates
significant carbon emissions. This is known as “grey” hydrogen. The cleanest and most expensive form is
“green” hydrogen, which is generated by renewable energy sources that don’t produce carbon emissions
at all.

Aramco is focusing on what’s known as “blue” hydrogen - a production method that uses natural gas, but
one in which emissions are captured and stored or reused. Aramco believes demand for “blue” hydrogen
will grow significantly in the coming decades, owing to its lower cost of production. The IEA estimates
global hydrogen demand will reach 18 million barrels of oil equivalent by 2050.

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“We want policymakers to actually recognize that this is a solution that needs that alignment and push
going forward,” Al Khowaiter said.

Still, recent language from Saudi Arabia’s top energy official suggests fossil fuels will continue to
dominate Aramco’s portfolio. The energy ministers of Russia and Saudi Arabia in early June rejected calls

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by the IAE to end spending on oil and gas development, calling the agency’s plan of net-zero emissions
by 2050 “unrealistic.”

And major market players are already calling significant investment opportunities in the hydrogen sphere.
Bank of America predicts that hydrogen will take 25% of all oil demand by 2050.

Investment bank Berenberg sees six key stocks to buy in the green hydrogen space to cash in on the
growing sector, particularly given the Biden administration’s recent announcement of plans to reduce
green hydrogen’s production costs by 80%. Morgan Stanley also recently spotlighted two hydrogen stock
picks that it says can “beat the hype” surrounding the nascent technology.

Transport focus
Representatives from automakers Hyundai and Toyota also joined the event to outline hydrogen’s role in
the future of transportation, which is directly intertwined with Aramco’s oil business. More than 50% of oil
that is produced globally goes into the transportation sector alone.

A number of countries have already outlined plans to decarbonize road transport, including the United
States which is targeting 15 percent zero emissions vehicles by 2025.

China is targeting 20 percent new energy vehicles by 2025, while France and the United Kingdom expect
to see no new internal combustion engine cars by 2040 and 2050 respectively.

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Hyundai Motor working on affordability of hydrogen powered vehicles

—CNBC’s Sam Meredith and Anmar Frangoul contributed to this report.

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