The world’s top crude oil exporter, Saudi Aramco, is betting big on natural gas to reduce dependence on oil for power generation and free up more crude for exports. As part of its ambitious gas development program, the world’s largest oil firm has also bet on producing hydrogen from natural gas with carbon capture, the so-called blue hydrogen.
But the technology for blue hydrogen is so expensive that Aramco doesn’t intend to make a final investment decision on such large projects in Saudi Arabia until it has secured off-take deals for the blue hydrogen.
The problem for Aramco is that there aren’t many potential customers for the future blue hydrogen, according to the firm’s President and CEO Amin Nasser.
“It is very difficult to identify any off-take agreement in Europe” for blue hydrogen, Nasser said on a call with analysts this week, as carried by Bloomberg.
According to Aramco’s top executive, blue hydrogen could cost the equivalent of around $250 a barrel of oil if produced with existing technology.
“It’s a lot of capital and you need customers. So we will not sanction a project without securing an off-take agreement,” Nasser added.
Aramco’s Blue Hydrogen Plans
Blue hydrogen and blue ammonia are part of Aramco’s strategy to supply low-carbon energy sources.
Back in September 2020, Aramco and the Institute of Energy Economics, Japan, in partnership with SABIC, successfully demonstrated the production and the world’s first shipment of blue ammonia from Saudi Arabia to Japan. Forty tons of high-grade blue ammonia were sent to Japan for use in zero-carbon power generation. Related: Shale Steals The Show As Oil & Gas Spending Surges
“The use of hydrogen is expected to grow in the global energy system, and this world’s first demonstration represents an exciting opportunity for Aramco to showcase the potential of hydrocarbons as a reliable and affordable source of low-carbon hydrogen and ammonia,” said Ahmad O. Al-Khowaiter, Aramco’s Chief Technology Officer at the time.
Unlike the most widely produced grey hydrogen from natural gas through steam reforming, blue hydrogen uses natural gas and involves capturing and storing the carbon generated from the steam reforming through industrial carbon capture and storage.
So blue hydrogen is believed to be more environmentally friendly than grey hydrogen.
“Hydrogen has the potential to become a tradable commodity, which opens commercial opportunities for our business over the medium- to long-term,” Aramco said last year in its first-ever Sustainability Report.
“We are seeing interest from potential customers for blue hydrogen. Our Company has a promising role to play, utilizing our own hydrocarbons, infrastructure, and technology,” the Saudi oil giant said.
However, blue hydrogen is not in the plans for Europe to move to more renewable energy and replace natural gas.
The energy crisis and the surge in gas prices last year have prompted Europe to look to support green hydrogen, the hydrogen produced via electrolysis with electricity from renewables, and to produce it domestically, to develop the green energy economy and reduce dependence on foreign energy sources.
Natural Gas Production Boost
Aramco is betting on boosting its natural gas production and plans to develop Jafurah, the largest non-associated gas field in Saudi Arabia.
At the end of 2021, Aramco awarded $10 billion worth of subsurface and EPC contracts for the Jafurah field development and said it expects more than $100 billion in total overall lifecycle investment at Jafurah.
Production at the field is expected to reach up to two billion standard cubic feet per day (scfd) of sales gas, 418 million scfd of ethane, and around 630,000 barrels per day of gas liquids and condensates by 2030, according to Aramco.
The Saudi firm could now prioritize LNG exports from its growing gas production instead of blue hydrogen, which struggles to obtain deals with customers in Europe, Japan, or South Korea.
Aramco is already in talks with investors for pipelines at the Jafurah development, Nasser said at the conference call, as cited by Bloomberg.
But even if Aramco doesn’t decide to export liquefied natural gas from Saudi Arabia, the oil giant could invest in LNG export facilities outside the Kingdom, including in Australia and the United States.
“We have started discussions with our partners globally on LNG opportunities,” Nasser said.
Earlier this year, Bloomberg reported that Aramco is interested in investing in an LNG export facility outside Saudi Arabia and is in early talks with developers aiming to secure a stake in a project in the United States or Asia.
Going into LNG trading could be another lucrative business for the Saudi oil giant, considering that LNG demand is only set to grow in the coming years as Europe ditches Russian gas and Asia looks to use more natural gas instead of coal.
The significantly higher LNG demand in Europe is set to intensify competition with Asia in the short term and to dominate LNG trade in the longer term, Shell said in its annual LNG outlook in February.
European countries, including the UK, saw their LNG imports jump by 60% last year to 121 million tons, Shell, the world’s largest LNG trader, said as it issued a bullish outlook on the fuel through 2040.
The supermajor warned that another supply-demand gap could be looming in the late 2020s without new investment in additional supply.
By Tsvetana Paraskova for Oilprice.com
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