Oman’s green hydrogen projects to support GDP growth, Fitch says

Main effect of development plan in near term to be on investment and employment

A liquefied hydrogen ship at Sultan Qaboos Port in Oman. Oman News Agency
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Oman’s aim to expand domestic green hydrogen production could support its gross domestic product, fiscal revenue and the balance of payments over the long term amid the global energy transition, according to Fitch Ratings.

The main effect of the green hydrogen development plan in the near term is likely to be on investment and employment, the rating agency said in a report on Thursday.

While significant inflows of foreign direct investment would boost the country’s economic growth, the effects would be offset by an increase in imports for project completion, Fitch said.

But in-country value-added requirements for the investments would support existing GDP and ancillary sectors, it added.

Oman, the largest non-Opec oil producer in the Middle East, aims to produce at least a million tonnes of renewable hydrogen a year by 2030 before increasing the capacity to 3.75 million tonnes by 2040 and 8.5 million tonnes by 2050.

Last year, Oman set up a company, Hydrogen Oman (Hydrom), to oversee the development of projects in the country. It signed six investment agreements worth more than $38 billion in 2023.

“We believe the hydrogen strategy will not involve large-scale state-owned enterprise investments or associated sovereign contingent liabilities, with Hydrom only providing prepared plots,” Fitch said.

Another state-owned entity, OQ Alternative Energy, is only taking “modest” minority stakes in some projects, the agency noted.

Most projects focus on producing and exporting hydrogen in the form of ammonia or steel.

The exports would support Oman’s current account balance, but this will be partly offset by external debt repayment and dividend payments to parent companies, Fitch said.

Hydrogen, which can be produced from renewable energy and natural gas, is expected to become a critical fuel as economies and industries transition to a low-carbon world.

It comes in various forms, including blue, green and grey. Blue and grey hydrogen are produced from natural gas, while green is derived from splitting water molecules through electrolysis.

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

Oman is not expected to generate much revenue from the hydrogen sector as a result of its newly introduced corporate income tax, Fitch said. It added that most of the budget uplift would come from the 5 per cent average in-kind royalty on green hydrogen.

The agency has estimated the royalty on one million tonnes of green hydrogen produced at current prices would be equivalent to about 0.7 per cent of Oman’s 2023 GDP.

“This is a modest figure that is unlikely to reduce significantly the volatility of its fiscal revenue, which remains exposed to hydrocarbon prices,” it said.

In the longer term, Oman's success in the development of a green hydrogen sector would help to reduce its reliance on fossil fuels.

Fiscal and export revenue from green hydrogen may still be "susceptible" to global energy-price cycles, but if Oman is able to develop an export base for green steel, this could diversify its exports, Fitch said.

“The sector’s long-term viability will depend on a number of factors, including the speed and scale of global adoption of green hydrogen, carbon prices and the emergence of competitors,” the rating agency said.

Updated: December 23, 2023, 4:00 AM