BILLIONS: Saudi Public Investment Fund Bets on Green Hydrogen

Posted on 03/02/2023

The International Energy Agency (IEA) believes that globally 520 million tonnes of hydrogen will be needed to achieve net-zero targets by 2050. A lot of equipment and electrolysers will be needed for such an undertaking. Hydrogen electrolysers are devices that use electricity to split water into hydrogen and oxygen.

On March 1, 2023, Marubeni Corporation signed a Memorandum of Understanding (MoU) with Saudi Arabia’s Public Investment Fund (PIF) to set out a framework for the development of a clean hydrogen project in Saudi Arabia. Under the framework of this MoU, Marubeni and PIF will initially conduct a feasibility study for producing clean hydrogen in Saudi Arabia, with the aim to supply clean hydrogen to both domestic and international markets. Green hydrogen is produced with an electrolyzer using electricity generated from renewable energy. It is extracted from water which is decomposed into hydrogen and oxygen in the electrolyzer. Blue and grey hydrogen are produced from natural gas. PIF is playing a critical role in advancing Saudi Arabia’s economic transformation as well as diversification, and is actively developing projects which will help the country achieve its net-zero GHG emissions target by 2060.

Marubeni is a developer and operator of international independent power producer (IPP) and infrastructure works program (IWP), and has ownership interests in four projects in Saudi Arabia. It will proceed with this Project together with PIF utilizing the knowledge it has acquired through its business development and operations in Saudi Arabia. In February 2022, Marubeni set forth the company’s Green Strategy in its Mid-Term Management Strategy “GC2024”.

Saudi Arabian utility developer ACWA Power, which is partly owned by PIF, is developing a green hydrogen-based ammonia production plant in Saudi Arabia’s smart city NEOM. In late February 2023, ACWA Power signed financing agreements for a total investment of US$ 8.5 billion for the NEOM Green Hydrogen Project (NGHP), which is expected to be commissioned in 2026.

The investment funded by a combination of long-term debt and equity was agreed with NEOM Green Hydrogen Company (NGHC), a joint venture between ACWA Power, Air Products and Chemicals, Inc., and NEOM Company, with ACWA Power holding a 33.3% equity stake, the utility said in a statement on Riyadh’s Tadawul exchange.

The total financing consists of US$ 5.852 billion senior debt and US$ 475 million of mezzanine debt facilities, both arranged on a non-recourse project finance basis, as follows: US$ 1.5 billion from National Development Fund (NDF) on behalf of National Infrastructure Fund (NIF). US$ 1.25 billion is coming in the form of Saudi riyal-denominated financing from Saudi Industrial Development Fund (SIDF). The balance is from a consortium of financiers, structured as a combination of long term uncovered tranches and a Euler Hermes covered tranche. The financiers include First Abu Dhabi Bank, HSBC, Standard Chartered Bank, Mitsubishi UFJ Financial Group, BNP Paribas, Abu Dhabi Commercial Bank, Natixis, Saudi British Bank, Sumitomo Mitsui Banking Corporation, Saudi National Bank, KfW, Riyad Bank, Norinchukin Bank, Mizuho Bank, Banque Saudi Fransi, Alinma Bank, APICORP, JP Morgan, DZ Bank, Korea Development Bank, and Credit Agricole.

NGHP comprises the end-to-end set up and operation of a multi-billion-dollar green hydrogen and green ammonia facility in the NEOM region of Saudi Arabia, under a 30-year green ammonia offtake contract with Air Products. In 2020, ACWA Power signed a US$ 5 billion agreement with U.S.-based Air Products and NEOM to construct a green hydrogen-based ammonia production center in the city of NEOM. In 2022, ACWA Power partnered with Air Products and Oman’s OQ energy company to create a multibillion-dollar green hydrogen-based ammonia production unit in Oman’s Salalah Free Zone.

In January 19, 2023, Air Products announced the financial close and transfer of the second group of assets for the US$ 12 billion gasification and power joint venture with Saudi Aramco, ACWA Power, and Air Products Qudra in the Jazan Economic City, Saudi Arabia. The first phase was completed on October 27, 2021 for US$ 7 billion, and the second phase was completed for US$ 4.15 billion on January 19, 2023. The joint venture’s purchase of this second group of assets at Jazan follows the successful asset acquisition and project financing transactions for the first group of assets completed in late October 2021. Some minor final commissioning items are expected to be completed later this calendar year. On October 27, 2021, Air Products made an initial investment of US$ 1.6 billion in Jazan Integrated Gasification and Power Company (JIGPC). The US$ 1.6 billion investment from Air Products, which includes approximately US$ 130 million from the non-controlling partner, is primarily in the form of shareholder loans that qualify as in-substance common stock in the joint venture. Approximately 40% of the JV’s capital structure consists of member contributions, and the remaining 60% consists of non-recourse project financing. The joint venture serves Saudi Aramco’s Jazan Refinery, a megaproject to process 400,000 barrels per day of the crude oil to produce main products such as ultra-light sulfur diesel, gasoline, and other products. Saudi Aramco, via its subsidiary Saudi Aramco Power Company, has a 20% ownership share in the JV; Air Products 46%; ACWA Power 25%; and Air Products Qudra (a 51/49 JV between Air Products and Qudra Energy) nine percent in the JV. Air Products’ total ownership position is 50.6% through 46% direct ownership and 4.6% through Air Products Qudra.

In 2022, PIF signed an MoU with Korea’s POSCO and Samsung C&T on the development of an export-oriented green hydrogen project. PIF acquired a 38% stake in POSCO E&C in 2015, which is one of the affiliates of POSCO. POSCO is the world’s sixth largest steel producer. On December 7, 2022, POSCO said they would invest US$ 28 billion in green hydrogen and US$ 12 billion in “green” steel with local Australian partners by 2040.

Ajlan & Bros for Trading
In January 2023, Marubeni Corporation, together with Ajlan & Bros for Trading (Ajlan & Bros Holding Group) and United District Energy International LLC, agreed to enter into the district cooling business in Saudi Arabia and entered into a joint venture agreement on January 19, 2023. District cooling is a plant system that supplies chilled water produced by a central plant to multiple buildings through pipelines. By consolidating the cooling facilities and increasing their capacity, it is possible to improve the efficiency of energy use and achieve better usage of floor area compared to having such facilities in individual buildings.

In November 2022, Gasvalpo, a Chilean gas distribution and retail company in which Marubeni has a majority stake, began a pilot project which runs producing green hydrogen, injecting it into a natural gas grid, and distributing it to customers. The project is located in Coquimbo Province in Chile, where the site is located.

POSCO Holdings will cooperate with Samsung Engineering, Lotte Chemical, Malaysian Sarawak Economic Development Corporation Energy, and Malaysian Sarawak Energy for Green Hydrogen Business for Sarawak’s green H2 business. On September 7, POSCO Holdings signed an MoU about cooperation on supplying hydroelectric-based renewable power for the Malaysia Sarawak H2biscus Green Hydrogen Project with Samsung Engineering, Lotte Chemical, Sarawak Economic Development Corporation Energy, and Malaysian Sarawak Energy. The green hydrogen produced from the Sarawak project will amount to 200,000 tons. Except for 7,000 tons used in Malaysia, the rest of the H2 will be moved to South Korea in the form of ammonia.

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