The Middle East could be key to realizing Japan's hydrogen ambitions.

Japan has committed not only to decarbonization by 2050, but also to the use of hydrogen and the development of a "hydrogen society" in order to achieve this goal.

Japan is unable in the near term to produce green hydrogen at scale. Thus, green hydrogen supply is likely to be treated in a similar fashion to hydrocarbon supply, which means that, at least for the foreseeable future, Japan may have to rely on clean hydrogen imported from abroad.

The Middle East is a potential powerhouse for green and blue hydrogen production. It has abundant natural resources and well established trade routes. Japan would bring to any strategic partnership a commitment to increase demand for hydrogen and a willingness to make a significant investment in carrier vessels for imports and to use its public financial institutions to provide financing for all elements of the supply chain.

A "hydrogen society"

Japan has recently announced its intention to build the world's first full-scale hydrogen supply chain by around 2030. This future, free from fossil-fuel dependence, is referred to as the "hydrogen society."

Had the 2020 Tokyo Olympics and Paralympics gone ahead as planned, the first flames of this society would have been visible in the Olympic cauldron and relay torches lit by hydrogen fuel.

Japan's Suiso Frontier, the first ship in the world designed to carry hydrogen, is set to start carrying hydrogen from Australia to Japan later this year.

Additional transportation capacity is in the pipeline, with Kawasaki aiming to build 80 more hydrogen carriers to import nine million tons of hydrogen a year by 2050, after building two commercial-scale ships to import 225,000 tonnes by 2030.

Japan is already a leading player in hydrogen technology. The Fukushima Hydrogen Energy Research Field — the world's largest facility for producing hydrogen derived from renewable energy — went into operation on March 7, 2020.

The project is supported by the Ministry of Economy, Trade and Industry (METI) and the New Energy and Industrial Technology Development Organization (NEDO). It sits on a 180,000-square-meter site and uses 20 megawatts of electricity from solar and the grid to conduct electrolysis of water in a renewable energy-powered 10-megawatt hydrogen production unit. It has the capacity to produce and store up to 1,200 Nm3 (normal meter cubed) of hydrogen per hour, a measure of gas flow. The output is transported currently mainly to users in the Fukushima prefecture and the Tokyo metropolitan area in hydrogen tube trailers and hydrogen bundles to be used to power stationary hydrogen fuel-cell systems and to provide for fuel-cell cars and buses.

In order to maintain its global lead in hydrogen technology, and to truly leverage the benefits of the hydrogen application, Japan will need to overcome its geographic limitations and its current limited ability to produce green hydrogen on a large scale. This will be done through investment in and development of an international hydrogen supply chain. According to 'the Strategic Road Map for Hydrogen and Fuel Cells' published in March 2019 by METI, the government's efforts to establish the global hydrogen supply chain include enhancing government-level relationships with countries with rich renewable resources, such as countries in the Middle East.

Japan is currently heavily dependent on hydrocarbons shipped mainly from the Middle East and Australia to meet its energy demand. Mountains occupy approximately 80% of the Japanese land mass, making sites suited to onshore solar and wind installations rare. The deep waters surrounding Japan's islands are unsuitable for fixed foundation offshore wind and the technology for floating offshore wind, which would be ideal for Japan, is still at an early stage.

While the Japanese government had hoped that nuclear power would lead the energy transition, the 2011 great east Japan earthquake and resulting tsunami and the Fukushima nuclear disaster led to the widespread suspension of operating nuclear power plants which — for the most part — have yet to be restarted.

Ideal strategic partner?

Japan already depends on the Middle East for a large proportion of its crude oil imports, and core sea trading routes linking Japan and Europe pass through the region. The wide open spaces in the Middle East and location astride international trade routes make it an ideal green and blue hydrogen producer.

A number of pilot projects and memoranda of understanding have been signed in the past few months, demonstrating the appetite among private parties and governments for developing a clean hydrogen supply chain in the region. Other countries outside the Middle East who are competing for similar roles include Australia and Chile.

The MENA Hydrogen Alliance launched recently to accelerate the development of value chains for green molecules in the region and bring together private- and public-sector players with those in academia. The Alliance includes Dii Desert Energy, ACWA Power, Neom, Thyssenkrupp, Masdar, MAN Energy Solutions, MASEN and Fraunhofer among its members.

Beyond small pilot projects and MOUs, a number of large-scale projects are also being developed. The most ambitious is in Saudi Arabia, where a consortium of ACWA Power, Air Products & Chemicals and Neom plans to build the world's largest green hydrogen-based ammonia plant to be powered by wind and solar electricity, which should produce 650 tons of green hydrogen daily for export to global markets.

METI signed a memorandum of cooperation in January 2021 with the Abu Dhabi National Oil Company (ADNOC) to encourage bilateral cooperation in the fields of fuel ammonia and carbon recycling, focusing on the demonstration of technology and expansion of the market.

While the green hydrogen supply chain is being developed, blue hydrogen will be key to Japan's energy transition.

Masakazu Toyoda, chairman and CEO of the Institute of Energy Economics, Japan (IEEJ), says that 10% of power in Japan can be generated by 30 million tons of blue ammonia, and he expressed an intention to move from co-firing blue ammonia in existing power stations to single firing with 100% blue ammonia by 2050.

Japan received the world's first shipment of blue ammonia in 2020 from Saudi Arabia. The pilot project undertaken by Saudi Aramco, the IEEJ, partnered by SABIC and supported by METI, involved a full value chain, spanning the conversion of hydrocarbons into hydrogen and then to ammonia, and capture of the carbon dioxide by-product. After transport to Japan, ammonia was burned in thermal power stations without releasing carbon emissions.

Saudi Aramco said in February 2021 that its hydrogen business will be world scale by 2030 and that Japan and South Korea will likely be where the first hydrogen trading markets will begin at the end of the 2020s or early 2030s.

Japan's largest refiner, ENEOS Corporation, said on March 25, 2021 that it signed an MOU with Saudi Aramco to consider development of a CO2-free hydrogen and ammonia supply chain as it accelerates efforts to develop hydrogen production, transport and sales businesses. Under the MOU, the two companies will conduct a feasibility study looking at means of hydrogen production and transport options. Upon completion of the feasibility study, ENEOS will review the possibility of establishing hydrogen networks that will entail importing the product to Japan and supplying hydrogen to power stations and other industries from its refineries.

The Middle East will be an essential source of blue hydrogen for Japan. The United Arab Emirates aims to become one of the lowest-cost and largest producers of blue hydrogen created from natural gas, according to Sultan Al Jaber, chief executive officer of ADNOC. ADNOC intends to capitalize on the emerging global market for hydrogen by leveraging its existing infrastructure and partnership base as well as Abu Dhabi's vast reserves of natural gas.

While supply-chain development is currently limited to pilot projects and MOUs, the success of the Saudi Aramco ammonia initiative demonstrates that a full value chain is achievable, and the commitments made by both private and public players in Japan and the Middle East are a strong indication that both regions view this partnership as a mutually beneficial endeavor that will create real opportunities for a viable hydrogen economy.

Japanese financial support

Financing electrolyzers, ships and other equipment needed for green hydrogen and for blue hydrogen carbon-capture technology will remain challenging in the near term.

Technology risks associated with the limited track records of electrolyzers at scale and hydrogen carriers, combined with the fact that green hydrogen costs too much to make currently compared to the gas with which it competes, and evolving but potentially unpredictable regulatory regimes, pose challenges to accessing finance.

Financing from public finance institutions such as Japan Bank for International Cooperation (JBIC) and Nippon Export and Investment Insurance (NEXI) will be crucial to attract private capital.

JBIC has expressed its intention to support the development of Japan's hydrogen society by providing long-term funding to supplement private-sector funds. Under a January 2020 cabinet order, the sectors eligible for funding from JBIC were expanded to include support through export loans and overseas investment loans in projects involving the production, transportation, supply and use of hydrogen in developed countries.

JBIC has recently added hydrogen as an "important resource," which allows it to finance the acquisition of interests in, and the development and importing of, hydrogen.

The European Bank for Reconstruction and Development and NEXI have signed an MOU to combine their expertise in green financing. NEXI has also launched a loan insurance product for green innovation that can be applied by Japanese companies for financing projects in the field of environmental protection and climate-change prevention.