Basic description The Port of SOHAR is a deep-sea port located in Oman, handling almost 60 million tonnes (Mt) of ship-to-ship cargo, containers, dry bulk and liquid bulk each year. The economic freezone where the port is located covers a total 4,500 hectares area which is under development, with close to 500 hectares already leased. It is attracting various projects of renewable electricity, green hydrogen production and industrial goods produced from green hydrogen. The port and the freezone are managed by a joint venture between the Port of Rotterdam and the Sultanate of Oman. An example of project is the development of a 35-megawatt (MW) electrolyser capacity combined with a solar power plant by mid-2024. This will be led by a partnership between Hydrogen Rise, Jindal Shadeed Iron & Steel and Sohar Port and Freezone. The produced hydrogen could then partially substitute the natural gas used in the 1.8 Mt per year capacity direct reduction iron (DRI) plant located in SOHAR. The parties will then explore further development of a 10 times larger electrolyser capacity of 350 MW. The development plan of SOHAR Port and Freezone includes a 3.5 gigawatt (GW) capacity solar power plant to supply electricity to the industrial companies operating in the region. The objective is to make turn the current port into a hub for low-cost hydrogen, replacing fossil fuel hydrocarbons, and produce green ammonia and green steel.

If the development of all the activities along the value chain at scale requires more land than what is available, another model that may be possible is the renewable electricity generation and green hydrogen in the middle of Oman and transfer this to the SOHAR port and Freezone with hydrogen pipelines  for producing green ammonia and green steel.

Project rationale

In SOHAR, the main rationale for a green industry transition is to provide a better stability and competitiveness for companies. In the context of the global energy crisis in 2022, green ammonia is becoming cheaper than fossil fuel-based ammonia in many countries, especially considering the high potential for wind and solar electricity production in Oman. Renewable electricity costs have sharply decreased in the last decade by as much as 80%, and analysis suggests that electrolysers will follow a similar learning curve in the next decade.

Another reason is that liquefied natural Gas (LNG) will still play a major role in the foreseeable future. As more LNG infrastructure is being considered in the Port of SOHAR, several actors plan to reserve the available natural gas as much as possible for LNG trade, especially as LNG can be sold on the international market with a significant premium compared to the domestic natural gas market. Thus, they rather plan to convert domestic usages of natural gas (such as steelmaking and aluminium plants) to green hydrogen.

The access to low-cost green hydrogen in Oman could justify the development of green ammonia synthesis plants.  However, rather than exporting green hydrogen or green ammonia, vertically integrating the downstream part of the value chain, and produce for instance urea or steel, could enhance the local value added and improve the economic viability of the projects. In this context, the domestic steel industry positions a first mover. However, some existing industrial plants in Oman, e.g. in the chemical sector, face higher technical challenges to convert their existing process and may continue relying on fossil fuels in the near future.

The development of green hydrogen production could also be used to decarbonise the mobility applications across the zone such as lorries, cranes, terminal tractors or container transporters. The use of green hydrogen in the port would bring additional benefits and externalities, such as the reduction of air pollution, that could justify the higher operating costs compared to diesel.

Overall, the rational for Oman corresponds to its target to diversify its economic revenues and reduce its dependency to the oil-and-gas sector as a main source of income, as outlined in its Vision 2040 document.

Governance

At national level, the government of Oman has taken several initiatives to coordinate initiatives on green hydrogen. In 2021, it has brought together 13 public sector and private sector institutions to set up a national alliance called Hy-Fly in order to develop a hydrogen supply chain towards the development of clean fuels. In 2022, Oman has communicated plans to create a national energy company dedicated to green hydrogen projects, called the Hydrogen Development Oman (HDO). It is foreseen that this company would be a subsidiary of Energy Development Oman (EDO), a state-owned company under the control of the Ministry of Energy and Minerals.

At project level, SOHAR Freezone provides the opportunity for companies to establish renewable energy plants for self consumption. The Port of SOHAR is involved in most of the hydrogen projects, leasing the land, including access to all utilities and feedstock (e.g. electricity, natural gas, hydrogen, water), and providing access to facilities to store and ship ammonia. Although the Port of SOHAR is exploring the option to be a minority shareholder in project, the governance for the future projects is expected to mainly rely on the private sector and the national companies.

Business Model

The business model of the first projects developed in Oman relies on export markets for customers that are ready to pay for a green premium, or for which the green goods are already competitive. Indeed, as Oman has access to large volumes of cheap natural gas, the viability for local consumption remains uncertain beyond the current crisis. For green steel as a first mover, such as Jindal’s project, a global market is emerging, boosted by initiatives such as SteelZero or the Industrial Deep Decarbonisation Initiative, hinting that the company can find customers. In particular, European companies have expressed interest for green steel imports, and East Asia companies for green ammonia imports.

The Port of SOHAR is also collaborating with the Port of Rotterdam to identify cost-competitive solutions for the adoption of hydrogen as an alternative to natural gas, such as deep-sea vessels fuelled by zero-emission green hydrogen or green ammonia.

Enabling market conditions and de-riskinginvestment

The special laws regarding taxes in the economic freezone, such as the corporate tax relief for 25 years can help attract project developers. Yet, beyond the fiscal measures, a major enabler identified with the first projects is the integration of projects in an inclusive approach covering the entire value chain, possibly even bringing together off-takers to bring a sufficient demand. This cross-cutting approach can be supported by government measures such as implementing a one-stop shop for licenses as it is well established in Port of SOHAR.

Financing

For the early applications identified in Oman, the financing can be ensured through traditional finance, as long as the green hydrogen and green hydrogen derivatives manage to secure offtake contracts. Institutional investors like pension funds are showing interest, as well as the national public funding agencies. However, limited capital flows of green or sustainable finance have been observed so far in the region.

Establishing environmental, social, and governance (ESG) metrics and developing the disclosure of sustainability reporting could foster channelling international sustainable finance into future green hydrogen projects in Oman. Indeed, there is an increasing pressure from finance institutions to prove that their investments meet stringent ESG criteria, while avoiding greenwashing.