Oman’s historic and burgeoning green hydrogen quest is well and truly off the starting blocks.
Since the start of the Round 1 auction process on 6th November 2022, registrations for qualification for the first two green hydrogen blocks in Duqm have been streaming in from prospective bidders from around the world.
Hydrogen Oman LLC (Hydrom), the state-owned company assigned the role of orchestrating the growth and development of the Sultanate’s green hydrogen industry, has confirmed that the initial results from the competitive bidding process have been heartening.
“The public auctions are progressing quite well,” said Dr. Firas Al-Abduwani, Acting Managing Director – Hydrom. “So far (17th November 2022), we have had more than 160 registered parties expressing interest, of which around 30 are renowned bidders. Looking at these figures and where we are in the auction process we have a healthy number to kick off this round.”
Up for grabs in this round – one of two that constitute Phase A of the public auctions programme – is a pair of blocks, each of around 320 sq kilometres, in Duqm, not far from a massive Special Economic Zone (SEZ) in Oman’s Al Wusta Governorate. Awards for these blocks are due to be announced in March 2023.
Oman has earmarked, in all, a total of around 50,000 square kilometres of land, distributed across the country, for green hydrogen projects over the long term. Delineated at this stage into blocks of 320 sq kilometers each, these plots will be awarded to successful bidders against 47-year project and land agreements.
Significantly, investor interest in the Round 1 auctions has been geographically widespread, says Dr Al-Abduwani. “It’s from across the board, and they include the usual suspects – those we expected and are pleased to see participate. We have participants coming from five geographical regions - Europe, Southeast Asia, India, the GCC and the United States.”
The competitive auctioning process itself is subject to a “compressed timeline” – in part to harness a groundswell of investor interest in Oman’s green hydrogen industry, but also to position the Sultanate among the global frontrunners in this emerging sector.
Explaining the accelerated timeline underpinning this competitive process, Dr. Al-Abduwani said: “Bidders in the first round will be running on a very compressed and aggressive timeline to prepare and submit their bids by the set deadline. A process that would typically take around 10 months, end-to-end, is being conducted in a five-month period through to March 2023, more or less. Yes, there is pressure on both sides – on the side of Hydrom as the auctioneer, and on the bidders’ side. Nonetheless all involved so far have been taking it in a very positive and optimistic spirit.”
Based on this timeline, interested bidders have roughly five months – spanning the November – March period for Round 1 – to submit their qualifications as well as their final proposals. No cutoff is stipulated for the submission of qualifications, but any delay would essentially eat into the allotted time for submission of final proposals – part of a rolling process designed to give a degree of flexibility to the bidders, Firas points out.
Proposals received for the acreage on offer will be evaluated against different criteria, such as project concept and feasibility, financial viability or bidders’ credentials.
As the evaluation of offers for Round 1 (Phase A) of the auction programme progresses, Round 2 – covering two to four blocks located in Dhofar Governorate – is being primed to go live for auction in April 2023. Awards are expected before the end of 2023.
Importantly, each block of around 320 sq kilometres is large enough to accommodate a full-fledged project with a capacity to produce around 150,000 to 180,000 metric tonnes per annum of green hydrogen or roughly 1 million metric tonnes per annum of green ammonia in case that is the proposed derivatives over its operational life. This includes the upstream (renewable energy in the form of solar and wind farms), midstream (electrolyzer capacity) and downstream components (conversion of hydrogen into other green molecules). The choice of end-product – whether green hydrogen or its derivatives in the form of green ammonia, methanol, synthetic fuels or even green steel as an example of a hard-to-abate heavy industry – remains at the discretion of the developers.
Eligible to bid are either individual companies with demonstrable capabilities to deliver an end-to-end hydrogen project or a consortium of companies led by a primary lead member. In terms of the equity distribution in a consortium, a certain minimum threshold is specified for primary members, and a lower threshold for secondary members.
“We want to ensure we have the right mix of companies with firm commitments as members of a given consortium. We’ve designed the qualification criteria to deter “develop and flip” participants. We are at a stage where we seek serious bidders who will carry their proposals on award forward into construction and then into operation.”
While acknowledging that auctioning timelines are somewhat accelerated when compared with sector norms, the official conveys that the compressed timeframe is partly in response to burgeoning interest among international investors to explore green hydrogen project opportunities in Oman.
“There are nations that are ahead of us in the project and sector development cycle. Nonetheless Oman is well positioned to be a market leader. Oman began its green hydrogen journey quite early on – in 2019. What Oman lacked back then is a central party to receive the international developers who had been knocking on our doors. With the launch of Hydrom in October, the government provided this nascent industry a systematic approach to grow. We are confident that the developers who have been seeking entry into Oman will now find a simpler and cleaner process. Those who invested early on exploring Oman for green hydrogen will find that Round 1 delivery timelines are achievable.”
For Hydrom, the accelerated timelines also represent an opportunity to demonstrate to the stakeholders, and the private sector in particular, that it can help achieve Oman’s vision to ignite the growth of a new industry around green hydrogen – a sector that will power the nation’s energy transition as well as its future economic growth. A sizable proportion of this new industry’s output will also help fuel the decarbonisation goals of importing countries.
Come April 2023, the first two successful bidders are expected to hit the ground running with their development plans once the awards for Round 1 are announced. Actual implementation is envisioned in three distinct phases, encompassing Development, Construction and Production, according to Dr Al-Abduwani.
“During the development phase, spanning roughly three and a half years, the successful developer will start working on assessing the area’s solar and wind resources, embarking on their feasibility study, assessing permitting and bankability requirements and so on. We have some clear milestones that we expect them to achieve during this period. And one of the key deliverables of Hydrom is to make sure that the timelines are transparently visible to all stakeholders – government and international. Incentives have been incorporated into the process to encourage developers to move through the phases on to production.”
To incentivize the expeditious delivery of the development and construction phases, Hydrom has slashed land fees for the allocated block to just 20% of the stipulated levy during the development phase. The fee is completely waived during the construction phase, ensuring sizable savings for the developer.
With a total of around seven years allotted for the development and construction phases, the first output of green hydrogen or its derivatives from the Round 1 blocks in Duqm is anticipated in 2030. And as successive blocks are awarded and developed, production is projected to rise to between 3.25-3.75 million tonnes per year in 2040 before climbing to a peak of 7.5-8.5 million tonnes per year by 2050.
As for the decision to carve up blocks of 320 sq kilometres apiece, the rationale is simple, says the official. “Blocks based on this size help the project company achieve the economies of scale necessary to be commercially successfully. We’re talking about investments of anywhere between $3– 5 billion to achieve the full potential of a block. These are sizable investments that are suitable for a certain category of players.”
Furthermore, the blocks have been delineated to allow for common infrastructure. Corridors have been earmarked between the blocks for the construction of common infrastructure, such as hydrogen and water pipelines, and electricity overhead lines, he said.
Dr Al-Abduwani shared that project developers have expressed their eagerness to expand beyond the initial blocks they are bidding for. As a baseline Hydrom is designing the blocks to be suitable for expansion of existing blocks or as new standalone blocks. At this stage Hydrom is considering that new expansions would proceed through the ascribed auction process.
“We believe the existing developers will intrinsically have some advantage when they bid for new blocks, as they can put forward projects that can tie into their existing ones. Of course, there's also the prospect that newcomers will come with substantially new and attractive project proposals as well. We have designed the blocks in a way that projects can be expanded or awarded as standalone. One thing we have designed the process to avoid is for parties to come in and take huge blocks of land and sit on it for unacceptably long periods.”
Going forward, however, Hydrom sees the potential for establishing larger blocks of around 1,000 sq km for cluster size projects. These options are being weighed in undeveloped parts of the country and could be offered up for public auction only when they have the basic infrastructure in place.
Hydrom’s role as orchestrator and aggregator of Oman’s new hydrogen industry is set to be unique in the region and perhaps globally as well. Its mandate encompasses market supply and demand assessment, proposing Oman’s green hydrogen phasing, delineating lands, setting up the auction process, running it and awarding lands, orchestrating common infrastructure, oversight of the execution of awarded projects, ensuring in country value maximization, and being the data repository of the sector.
While broad-based, Hydrom’s mandate does not include investment or development of hydrogen projects, according to Dr Al-Abduwani. “We will not be participating with any equity in these projects.”
For now, however, Hydrom’s immediate task is to facilitate investment inflows into Oman’s green energy industry, and enable successful bidders to develop their projects in a timely manner. But going forward, the state-owned entity could also play possible roles, for example, in the local distribution of hydrogen – green or blue – on behalf of producers. Further, a possible role for the company in the financing, development and operation of the common infrastructure is yet to be assessed. Any such decision, however, has to be balanced against Hydrom’s primary role as a neutral industry orchestrator, says Firas.
But one state-owned company that is set to have an equity presence in most, if not all of, the hydrogen projects planned for development over the foreseeable future is OQ Alternative Energy – part of OQ Group. As the government’s designated ‘national champion’, OQ Alternative Energy is entitled to a minimum 20% equity stake representing the government’s back-in rights in all new hydrogen projects when they come into operation.
OQ, says Dr Al-Abduwani, is uniquely placed to assume the role of ‘National Champion’ on behalf of the government. “Today, OQ has a lot of operating experience upstream and downstream of a project, as well as in the operation of gas networks. It also has a stake in a large renewable energy project and is Oman’s designated renewable energy champion. The company has very strong teams focused on clean energy, green molecules, decarbonization and energy efficiency. In addition to these elements, they also have asset ownership, and operations and maintenance experience, particularly with regard to the gas networks. From our perspective, OQ ticks most of the boxes as the national champion.”
BOX: Legacy Initiatives
As for the so-called ‘legacy initiatives – the roughly six-odd green hydrogen projects that were announced before the launch of Hydrom on 23rd October 2022 – they will be mapped against the qualification criteria set out by the government for the development of hydrogen ventures in Oman.
According to Hydrom, the respective consortia comprising legacy initiatives will be given an opportunity to rejig their ventures and bring them into alignment with the new regulatory regime for the hydrogen sector unveiled in October, and to bid for the plots they have been given first dibs opportunity to.