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Home Home - Analysis
hydrogen

The Kingdom’s Green Paradox: How Saudi Arabia Plans to Sell Hydrogen While Burning More Oil

Arnes BiogradlijaBy Arnes Biogradlija03/09/20254 Mins Read
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Saudi Arabia targets 1.2 million tons of green hydrogen production and 10% of global demand by 2030, yet renewable energy currently generates just 1% of the kingdom’s electricity, while oil exports represent 82% of total exports. This stark contradiction highlights the central tension in Saudi Arabia’s energy transition strategy, where climate ambitions compete directly with economic fundamentals that generated 73% of government revenues in 2024.

The Middle East green hydrogen market was estimated at USD 168.4 million in 2024 and is projected to reach USD 1,254.8 million by 2033, growing at a CAGR of 22.8%, positioning the region for significant expansion. However, the Sudair solar facility’s 1.6 GW capacity represents a fraction of what’s needed to achieve hydrogen leadership ambitions, particularly when compared to the 97 GW of oil and gas plants in operation along with a pipeline of more than 8 GW of fossil plants under construction as of August 2024.

NEOM Project Tests Industrial-Scale Viability

The NEOM hydrogen project anchors Saudi Arabia’s production strategy with a 2.2 gigawatt electrolyzer designed to produce hydrogen continuously, relying entirely on solar and wind energy. This facility represents a 4 GW green hydrogen facility, reflecting the country’s commitments to sustainability and technological innovation, yet its commercial viability depends on achieving cost parity with conventional hydrogen production methods.

Current market dynamics suggest challenges ahead. The kingdom’s National Renewable Energy Program (NREP) targets 27.3 gigawatts (GW) of renewable energy capacity by 2024, and 58.7 GW by 2030, but actual deployment lags significantly behind these ambitious timelines. The Sudair project’s 3.2 million panels generating enough electricity for 185,000 households demonstrates technical capability while highlighting the massive scaling required.

Economic Diversification vs Revenue Dependencies

Saudi Arabia’s hydrogen strategy intersects with broader economic diversification efforts, where oil revenues constituted 73 percent of total government revenues, and oil exports represented over 82 percent of total exports in recent data. This economic structure creates fundamental conflicts between short-term revenue requirements and long-term energy transition goals.

The kingdom’s updated Paris climate pledge more than doubles its emissions reduction target to 278 million tonnes of CO2 equivalent through massive installations of renewable power and hydrogen production. However, achieving these targets while maintaining current economic structures requires unprecedented coordination between fossil fuel revenues and renewable energy investments.

Research indicates that the interaction between renewable energy consumption and international oil prices has a negative and statistically significant impact on CO2 emissions, emphasizing the potential for Saudi Arabia to reduce carbon emissions by prioritizing renewable energy projects. This relationship suggests environmental benefits could align with economic diversification objectives under favorable market conditions.

Market Reality Challenges Production Timelines

Energy production hubs aim to produce around 5 GW of hydrogen by 2025, yet achieving global leadership requires addressing fundamental infrastructure gaps. The contrast between renewable energy ambitions and current fossil fuel dominance raises questions about implementation feasibility within proposed timelines.

German partnerships and supply contracts signed in July 2024 provide potential export markets for Saudi hydrogen production. However, global hydrogen trade remains limited, and transportation costs could undermine competitive advantages. The kingdom’s geographic position offers logistics benefits for European and Asian markets, though infrastructure development costs remain substantial.

Technical challenges include integrating intermittent solar and wind generation with continuous hydrogen production requirements. Battery storage and grid flexibility become critical for maintaining production consistency, adding complexity and costs to overall project economics.

Strategic Hedging Against Energy Transition

Saudi Arabia’s dual approach—expanding renewable capacity while maintaining fossil fuel production—represents strategic hedging against uncertain energy transition timelines. The kingdom can position itself for hydrogen leadership while preserving oil revenue streams that fund the transition itself.

This strategy faces external pressures as global climate policies accelerate fossil fuel demand reduction. The success of Saudi Arabia’s hydrogen ambitions ultimately depends on achieving cost competitiveness, securing international partnerships, and managing the economic transition from oil-dependent revenues to diversified energy exports.

The Sudair solar facility and NEOM hydrogen project demonstrate technical capability and strategic vision, yet scaling these initiatives to achieve global market leadership requires unprecedented coordination between economic policy, infrastructure development, and international market dynamics. Success would establish Saudi Arabia as a renewable energy superpower, while failure could strand significant investments in an increasingly competitive global hydrogen market.

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