Ammar Al Balushi, Research Associate at Wood Mackenzie
Oman pushes forward with its low-carbon hydrogen strategy, reaffirming its commitment to become a market leader despite rising global headwinds. The country targets 1-1.5 Mt/a green hydrogen production by 2030, one of the most aggressive state-level goals worldwide. While many economic blocs and countries leverage legacy subsidisation mechanisms like tax credits and production subsidies, Oman took a unique approach. A royal decree created Hydrom, launching a series of land auctions to provide concession zones for international developers. This strategy has already yielded results: two land auctions have led to the announcement of eight projects, totalling 1.4Mtpa production.
Optimism and hope initially engulfed market participants in 2022, but the industry's mood has since shifted. Building out low-carbon hydrogen portfolios revealed sobering costs and challenges as the industry matured. Players have scaled back ambitions and slowed announcements in response. Oman, however, has maintained its targets and even announced further auctions to spur more project commitments.
Oman maintains optimism around green hydrogen while the global market scales back, primarily due to its early-established, strong and versatile policies. The country attracts foreign investment through its commitment to hydrogen rather than pursuing targets off national energy companies' balance sheets. This approach keeps exposure to market sentiment low while developing an environment that supports projects with higher commercial and risk constraints. Hydrom's inception as an orchestrator emphasised hydrogen's importance to foreign investors and fostered Omani hydrogen diplomacy. Furthermore, Hydrom decoupled hydrogen from other Omani industries, allowing the organization to adapt to market conditions with versatility.
Only one project has taken FID in the Omani hydrogen industry, despite early wins. The industry faces a global challenge: insufficient demand for green hydrogen projects. Green hydrogen costs exceed initial expectations, driving up US$/kg prices. As a result, offtakers struggle to justify paying the premium associated with green hydrogen.
Hydrom now focuses on the demand side of the equation. In its latest land auction, the company scaled down the targeted capacity size. Initial projects awarded projects had capacities far exceeding current green hydrogen demand. Smaller-scale projects, more suited to market needs, have achieved FIDs more successfully. Hydrom also explores domestic contracts-for-difference auctions in Oman. These auctions aim to guarantee developers attractive returns on their projects while ensuring the Omani market can absorb green hydrogen.
Oman needs 0.9 Mtpa or around 15% of the global post-FID capacity to take FID in the next two years to achieve its targets. This significant amount of capacity must start construction for Oman to produce at least 1 Mtpa of green hydrogen by 2030. Hydrom quickly adjusted its auction design to accelerate FIDs from its third auction. These adjustments included reducing targeted project sizes to match demand, adding revenue streams from electricity sales and extending bid submission timelines.
Recent changes to land auction mechanisms will impact on the pace towards FID set by project developers. However, Oman and Hydrom could take additional steps to see more immediate results. Blue ammonia presents a significant opportunity for Oman to join the GCC in blue ammonia leadership alongside the US Gulf Coast. Oman's gas resources and favorable market conditions make blue ammonia a readily achievable goal for the Omani industry. Blue ammonia demand has risen, particularly in Northeast Asia and Europe. Northeast Asian countries view blue ammonia as a decarbonization tool for the power industry. European traditional sectors are shifting away from carbon-intensive domestic production towards low-carbon imports. Consequently, blue ammonia projects have been the quickest to take FID globally. Shifting focus to blue ammonia could unlock FID capacity in Oman, capitalizing on the country's potential and meeting growing international demand.
Extending the domestic CFD mechanism could provide a quick win. Larger global offtake compared to moderate domestic demand could help projects awarded in the first two land auctions reach FID for their full capacities. Oman could gain commercially by becoming an aggregator between domestic production and global demand. The long-term rise in conventional fuel costs in Europe could make a low-cost aggregator profitable.
As the hydrogen economy continues to evolve, Oman's success will depend on its ability to balance its long-term vision with short-term market realities. By leveraging its natural resources, strategic location, and adaptive policies, Oman has the potential to play a significant role in the global transition to low-carbon energy. However, the country must remain flexible and open to adjusting its strategies as the market develops to ensure the realization of its hydrogen ambitions.
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