The new energy of the desert: Saudi Green Hydrogen

1938, Dhahran, Saudi Arabia. An arid, desert territory, seemingly poor in valuable resources and inhabited by nomadic population. On March 4, after years of unsuccessful exploration, the American company Standard Oil drilled the first commercial oil well, marking the beginning of a new chapter in Saudi Arabia’s history. At an astonishing pace, Saudi territory became the undisputed leader in the oil market. The country is the largest producer within OPEC and the second largest producer in the world (surpassed only by the United States), and it is estimated to hold around 17% of the world’s oil reserves. It is easy to conclude that oil is a pillar of the Saudi economy. According to data provided by Saudi Ministry of Finance, in the first semester of 2025, oil incomes represented more than 53% of total state revenues. In other words, more than half of Riyad’s incomes still depend on black gold.

Oil thus becomes a double-edged sword: a source of immense wealth and, at the same time, a factor of dependence and vulnerability. Beyond the absolute necessity to diversify its economy, Saudi Arabia must face two further critical challenges: climate change and the resulting binding international climate agreements, as well as growing population with increasingly high consumption levels. For this reason, recent years have witnessed an attempt to make a decisive change of course. Ryad aims to drastically reduce its dependence on oil and shift toward a sustainable and cutting-edge form of energy: green hydrogen. The transition toward hydrogen, it is worth emphasizing, is part of the broader context of Saudi Vision 2030, an ambitious strategy announced in April 2016, designed to outline the guidelines for Saudi development over the next fifteen years. There are three core values: “a vibrant society”, “a thriving economy” e “an ambitious nation”.

Before proceeding, it is useful to clarify a few concepts. There are three types of hydrogen: grey, blue and green hydrogen. Grey hydrogen is produced using fossil fuels and is the most prevalent form of hydrogen on the market. Blue hydrogen, which has a more limited environmental impact, is also produced from fossil fuels, but with a crucial difference: the CO₂ generated during production is captured and stored rather than released into the atmosphere.

Green hydrogen, on the other hand, is the most advanced and sustainable alternative. It involves the use of renewable energy sources (mainly wind and solar) to power the electrolysis process, which in turn leads to the splitting of water molecules into hydrogen and oxygen. It can be used in numerous sectors: transport, steel production, energy storage and ammonia synthesis, to name just a few. Yet grey hydrogen continues to beat its rivals. This is not surprising, as it is easy to produce and sell at very low prices (between €1 and €2 per kilogram, according to PwC estimates), thanks to the use of so-called “cost-effective” fossil fuels. Green hydrogen, by contrast, is still an expensive innovation, with prices ranging from €3 to €8 per kg. in this regard, it is interesting to analyse PWC's estimates for the future of the green hydrogen market. The consulting firm forecasts steady but still limited growth in demand between through 2030, with an acceleration from 2035 onwards. By 2050, global demand for green hydrogen could range between 150 and 500 million metric tonnes per year, depending on the evolution of climate change and the level of technological advancement. It is, without doubt, a sector with enormous potential. Saudi Arabia, moreover, emerges as an ideal producer. The country possesses vast renewable energy resources (primarily solar and wind), hectares of low-cost land, and a flexible and favourable legislation. 

It is now clear that Saudi Arabia aims to become a pioneer in this sector. The well-known and controversial NEOM project stands as compelling evidence of this ambition. As stated in the project’s official description: “NEOM is an audacious dream, a vision of what a new future might look like.” But what exactly is NEOM? It is one of the four “Giga-Projects” promoted under Saudi Vision 2030, large-scale development initiatives worth hundreds of billions of dollars, designed to stimulate Saudi economic growth and deliver benefits to society.Once completed, NEOM will be an economic region in the northwest of the country covering an area of 26,000 km² (roughly the size of Belgium). It will feature futuristic cities and nature reserves, research centers, cutting-edge industrial hubs, and entertainment and leisure zones. What is particularly relevant, however, is that NEOM is designed to be carbon-free, a region entirely powered by renewable energy. The abundant availability of wind and solar power will enable the area to produce large quantities of green hydrogen. Production will take place in Oxagon, NEOM’s industrial hub, which will host one of the largest green hydrogen plants in the world, with the ambition of producing 600 tonnes of hydrogen per day by the end of next year. According to a report by the Italian Ministry of Foreign Affairs, NEOM’s construction works reached 80% completion in the first quarter of 2025.

However, all that glitters is not gold. Bloomberg reports a potential crisis currently unfolding, which could lead to a slowdown, if not an outright downsizing of Saudi Arabia’s futuristic project. The reason is very simple: global demand for green hydrogen is much lower than expected. So far, it appears that only about one third of the hydrogen produced has found a buyer. To date, only a single agreement has been signed, with TotalEnergies, which plans to purchase 70,000 tonnes per year between 2030 and 2045. Hydrogen, it bears repeating, remains a new and relatively immature technology. In the coming years, several critical issues will need to be addressed: cost-efficiency analysis, the potential environmental impact linked to the large volumes of water required for electrolysis, the shortage of skilled workers, and transport networks and infrastructure that, in most cases, remain underdeveloped. Saudi Arabia will have to prove its ability to confront enormous challenges, ranging from climate change to the reconfiguration of global energy markets. Only time will tell whether it will rise to the occasion.

Mondo Internazionale APS - Riproduzione Riservata ® 2025