Cop28 climate summit accelerates hydrogen deals

Deals in the hydrogen sector gathered pace on the sidelines of the Cop28 climate conference in Dubai as companies raced to boost the production of the fuel, seen as key to reducing emissions in sectors such as shipping and steel manufacturing.

Several companies announced plans to set up hydrogen projects or boost the international trade of low-carbon fuel as industries worldwide look to reduce their reliance on fossil fuels.

Most of the announcements have been centred around the UAE and the Middle East and North Africa region, which has the potential to be a global hydrogen hub, Javier Cavada, president and chief executive of Mitsubishi Power Emea, told The National.

“We can see the Emirates [and] Saudi Arabia positioning themselves. They are looking at … renewables production and [the] hydrogen value chain,” he said.

That includes the production and export of hydrogen as well as blending the fuel with other elements, he added.

Early on at Cop28, Abu Dhabi’s clean energy company Masdar and Spain’s Iberdrola signed a €15 billion ($16.35 billion) partnership to evaluate the development of offshore wind and green hydrogen projects in key markets including Germany, the UK and the US.

Masdar also signed an initial agreement with Austrian energy company OMV to explore the production of green hydrogen for the decarbonisation of industrial processes in OMV’s refineries.

On Thursday, Masdar and hydrogen fund manager Hy24 announced the signing of a development and investment framework agreement to foster large-scale green hydrogen projects.

The companies will focus on projects in key regional hubs across Europe, the Americas, Asia Pacific and the Mena region.

Meanwhile, Adnoc, which aims to achieve net-zero emissions by 2045, teamed up with Japan’s Mitsubishi Heavy Industries, the parent company of Mitsubishi Power, to explore potential opportunities in green hydrogen and ammonia value chains.

Hydrogen, which can be produced using both renewable energy and natural gas, is expected to be a critical fuel of the future, particularly in hard-to-abate sectors.

Its ability to efficiently store energy makes it appealing for renewable energy sources such as wind and solar, both of which are naturally intermittent.

“Hydrogen is ticking all the boxes,” Mr Cavada said.

The Mena region has the infrastructure and engineering capabilities as well as the “most developed” supply chain on the planet, he said.

French investment bank Natixis estimates investment in hydrogen will exceed $300 billion by 2030.

In a June report, the International Energy Agency said Oman was on track to become one of the largest producers of hydrogen in the world by 2030.

The country has the benefit of ample renewable energy sources and vast tracts of available land, the agency said.

Meanwhile, the UAE, the Arab world’s second-largest economy, aims to achieve hydrogen production of 1.4 million tonnes annually by 2031 and plans to increase output to 15 million tonnes a year by 2050.

The country is planning to develop at least two hydrogen production hubs, or oases, by 2031.

More than 70 per cent of the country’s hydrogen production will be green, Suhail Al Mazrouei, Minister of Energy and Infrastructure, said at the UN summit.

“Hydrogen for us in the UAE is definitely one of the solutions … we will help other nations as well in exporting hydrogen, primarily green hydrogen,” he said.

At Cop28, more than 30 countries, representing about 80 per cent of the future global market in hydrogen, signed a declaration of intent, under which, states agreed to endorse a global certification standard for hydrogen and to recognise existing certification schemes.

The countries also signed a public-private action statement on hydrogen, which will focus on accelerating permissions for hydrogen projects and creating more demand for the commodity.

For hydrogen projects to be financially viable is not “easy” due to the absence of a trading mechanism, Mr Cavada said.

After being produced, a certification system enables end users and governments to determine the source and quality of the hydrogen.

However, current certification systems are not suitable for cross-border trade due to gaps in design, standards, and labelling, leading to insufficient information.

Hydrogen plans

Earlier this month, India's ReNew, a subsidiary of New York-listed ReNew Energy Global, said it was exploring green hydrogen projects in markets such as Egypt as part of diversifying its operations internationally.

The company, which is backed by investors including the Canada Pension Plan Investment Board and the Abu Dhabi Investment Authority, plans to develop most of its green hydrogen projects in India, ReNew’s chief executive Sumant Sinha told The National.

Meanwhile, Sharjah National Oil Corporation, the emirate’s sole gas supplier, is exploring green hydrogen and carbon capture projects amid efforts to reach net-zero emissions by 2032, Hatem Al Mosa, its chief executive told The National last week.

Mercer, the investment consulting arm of US services company Marsh & McLennan, expects its wealth division to at least double its assets under management (AUM) in the Middle East as wealth in the region continues to grow despite economic headwinds, a company official said.

Mercer Wealth, which globally has $160 billion in AUM, plans to boost its AUM in the region to $2-$3bn in the next 2-3 years from the present $1bn, said Yasir AbuShaban, a Dubai-based principal with Mercer Wealth.

“Within the next two to three years, we are looking at reaching $2 to $3 billion as a conservative estimate and we do see an opportunity to do so,” said Mr AbuShaban.

Mercer does not directly make investments, but allocates clients’ money they have discretion to, to professional asset managers. They also provide advice to clients.

“We have buying power. We can negotiate on their (client’s) behalf with asset managers to provide them lower fees than they otherwise would have to get on their own,” he added.

Mercer Wealth’s clients include sovereign wealth funds, family offices, and insurance companies among others.

From its office in Dubai, Mercer also looks after Africa, India and Turkey, where they also see opportunity for growth.

Wealth creation in Middle East and Africa (MEA) grew 8.5 per cent to $8.1 trillion last year from $7.5tn in 2015, higher than last year’s global average of 6 per cent and the second-highest growth in a region after Asia-Pacific which grew 9.9 per cent, according to consultancy Boston Consulting Group (BCG). In the region, where wealth grew just 1.9 per cent in 2015 compared with 2014, a pickup in oil prices has helped in wealth generation.

BCG is forecasting MEA wealth will rise to $12tn by 2021, growing at an annual average of 8 per cent.

Drivers of wealth generation in the region will be split evenly between new wealth creation and growth of performance of existing assets, according to BCG.

Another general trend in the region is clients’ looking for a comprehensive approach to investing, according to Mr AbuShaban.

“Institutional investors or some of the families are seeing a slowdown in the available capital they have to invest and in that sense they are looking at optimizing the way they manage their portfolios and making sure they are not investing haphazardly and different parts of their investment are working together,” said Mr AbuShaban.

Some clients also have a higher appetite for risk, given the low interest-rate environment that does not provide enough yield for some institutional investors. These clients are keen to invest in illiquid assets, such as private equity and infrastructure.

“What we have seen is a desire for higher returns in what has been a low-return environment specifically in various fixed income or bonds,” he said.

“In this environment, we have seen a de facto increase in the risk that clients are taking in things like illiquid investments, private equity investments, infrastructure and private debt, those kind of investments were higher illiquidity results in incrementally higher returns.”

The Abu Dhabi Investment Authority, one of the largest sovereign wealth funds, said in its 2016 report that has gradually increased its exposure in direct private equity and private credit transactions, mainly in Asian markets and especially in China and India. The authority’s private equity department focused on structured equities owing to “their defensive characteristics.”

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