Oman’s green hydrogen projects to aid GDP growth

Oman’s aim to expand domestic green hydrogen production could support its gross domestic product, fiscal revenue and the balance of payments over the long term amid the global energy transition, according to Fitch Ratings.

The main effect of the green hydrogen development plan in the near term is likely to be on investment and employment, the rating agency said.

While significant inflows of foreign direct investment would boost the country’s economic growth, the effects would be offset by an increase in imports for project completion, Fitch said. But in-country value-added requirements for the investments would support existing GDP and ancillary sectors, it added.

Oman, the largest non-Opec oil producer in the Middle East, aims to produce at least a million tonnes of renewable hydrogen a year by 2030 before increasing the capacity to 3.75 million tonnes by 2040 and 8.5 million tonnes by 2050.

Last year, it set up a company, Hydrogen Oman (Hydrom), to oversee the development of projects in the country. It signed six investment agreements worth more than $38 billion this year. “We believe the hydrogen strategy will not involve large-scale state-owned enterprise investments or associated sovereign contingent liabilities, with Hydrom only providing prepared plots,” Fitch said.

Another state-owned entity, OQ Alternative Energy, is only taking “modest” minority stakes in some projects, the agency said.

Most projects focus on producing and exporting hydrogen in the form of ammonia or steel.

The exports would support Oman’s current account balance, but this will be partly offset by external debt repayment and dividend payments to parent companies, Fitch said. Oman is not expected to generate much revenue from the hydrogen sector due to its newly introduced corporate income tax, Fitch said. It added that most of the budget uplift would come from the 5 per cent average in-kind royalty on green hydrogen.

The agency has estimated the royalty on one million tonnes of green hydrogen produced at current prices would be equal to about 0.7 per cent of Oman’s 2023 GDP.

“This is a modest figure that is unlikely to reduce significantly the volatility of its fiscal revenue, which remains exposed to hydrocarbon prices,” it said.