Hydrogen Value Chain in Kazakhstan: Priorities and Challenges

Hydrogen is a versatile molecule with various applications. It’s currently used in various industrial processes, including steel production, refining, chemicals, and electronics. However, its potential goes beyond that. Hydrogen can play a crucial role in decarbonizing hard-to-abate industries, serving as an energy carrier for industry and mobility, and storing renewable energy for a sustainable future.

By 2050, hydrogen is projected to account for 22% of the world’s final energy demand, with a potential market size of US$2,500 billion. To achieve this, clean hydrogen production must increase significantly, from today’s 90 million metric tons to a staggering 660 million metric tons annually.

The momentum is evident, with approximately 1,000 hydrogen projects announced, reaching investment budget of US$320bn today, and a target of $610bn by 2030. These projects span various sectors, with 53% focused on industry and 18% on transportation. They range from large infrastructure developments to integrated hydrogen economies.

In this context, among those globally announced projects, more than 110 giga-scale projects, over 550 large-scale projects for industrial usage, in excess of 190 transportation projects, and over 90 integrated hydrogen economy investments and infrastructure projects (eg.hydrogen distribution, transportation, conversion, and storage) have been recorded as of June 2023.

Kazakhstan’s Roadmap

President of the Republic approved the country’s decarbonization strategy earlier in 2023, which sets an ambitious carbon neutrality goal by 2060 and identifies key technological transformations needed for the country’s decarbonization. To achieve these transformations, the country will determine and implement effective and targeted policies and programs across the whole of the country’s economy. The government’s commitment to such decarbonization and energy transition deserves applause.

Besides this, the country’s specific hydrogen strategy is under its final stages of development. Hydrogen can play its role as a catalyst for achieving ambitious decarbonization goals, but a Hydrogen economy has intrinsic value beyond that.

In Kazakhstan’s hydrogen strategy, the nation’s unique position, abundant resources, and a forward-thinking approach can set the stage for success for its economy and future competitiveness.

Critical decisions lie ahead, including the establishment of a strong regulatory framework and incentive programs for early developers.

The Four Hydrogen Strategies

To harness the potential of hydrogen effectively, countries are charting their hydrogen strategies according to their specific focuses. These strategies can vary, reflecting diverse priorities, goals, and constraints of each country. For instance:

  • some countries like Korea have positioned themselves as early adopters, which are rapidly advancing their hydrogen technologies, eg.marine carriers, ammonia splitting, and H2 usage for energy generation.
  • as is the case with the European Union and Japan, some countries have a strategic focus on diversification of their energy sources to enhance energy security with hydrogen.
  • as seen in the Middle East, some nations are formulating contingency plans for phasing out fossil fuels, acknowledging the importance of transitioning and exporting cleaner energy is key to continue their nations’ prosperity.
  • as the United States is doing, some countries have prioritised boosting local hydrogen production to invigorate the economy, to increase domestic investments, and to reduce inflation and unemployment rates.

Each of these approaches offers valuable lessons and insights for Kazakhstan as it shapes its own hydrogen strategy, aligning with its unique strengths and challenges. While defining its H2 strategy Kazakhstan may focus on one or several pathways, drawing inspiration from these successful examples worldwide.

Here, based on other other sessions that I have attended during the conferences, I identified four potential paths being considered for Kazakhstan in developing its hydrogen industry. Then, I tried to provide Pros and Cons of these paths from my personal point of view:

1. Large-Scale, Low-Carbon (Blue) Hydrogen for Export Markets:
  • Utilization of subsoil resources: Kazakhstan is very rich in subsoil resources. Using these resources in a sustainable way is crucial for the continuum of Kazakh society’s welfare and further development.
  • Scalability with existing technologies: Today, all technologies (eg. carbon capture, transportation, storage) to produce low-carbon hydrogen exist at large scale.
  • Challenges in transportation: Kazakhstan is the largest landlocked country in the world, substantially limiting the opportunity to transport hydrogen or its derivatives efficiently as all routes need to use multimodal transport through several other countries.
  • Long-Term cost competitiveness: Even if low-carbon hydrogen is considered as the cheapest method for sustainable production in this decade, technology and capacity developments of renewable hydrogen production technologies are expected to catch up with production costs by the end of the decade.
  • Market acceptance: Some export markets (eg. EU) has preference and regulatory obligations to prioritize renewable hydrogen.
  • Securing long-term off-take and price commitments: Potential off-takers may hesitate to commit to fixed off-take and pricing contracts over an extended period for low-carbon hydrogen derivatives, such as ammonia. This hesitation arises as commodity markets and competitive spot prices for these alternatives are gradually developing, mirroring the patterns seen in the fossil-based versions of these molecules.
2. Large-Scale, Renewable (Green) Hydrogen for Export Markets:
  • Abundance of renewable resources: Kazakhstan is rich both in solar and wind renewable resources, with the potential to achieve very high intermittency factors in combination.
  • Challenges in transportation: similar to low-carbon hydrogen, as mentioned above
  • Limited scalability with current technology: Despite both stack sizes and production capacity of electrolyzers are increasing, the production capacity still lags behind the announced size of the projects.
  • Competition with other regions: Electricity cost from wind is higher where Kazakhstan’s renewable production mix is heavier on wind than solar. Solar energy may have a lower intermittency ratio and angled solar intake compared to countries located around the equator belt. Country’s current level of industrialization might be another cost impacting factor.
  • Technological risks: There is an improvement trend in hydrogen production and conversion technologies. Large-scale investment today, without secured back-to-back purchase commitments, may encounter stranded asset risks.
  • Water scarcity and public acceptance: In the western part of the country, where large-scale production is under consideration, water scarcity is already a significant concern. Large-scale projects, whether utilizing resources from the Caspian Sea or underground sources, may potentially face criticism from the public due to these concerns.
3. Moderate Scale, Balancing Local and Export Markets:
  • Fosters the transition to a low-carbon industry: Production prioritizing hard-to-abate sectors such as chemical and metals production, enhanced oil recovery (EOR) in the oil and gas industry, or high-temperature heat for industrial usage would facilitate the transition of the existing industries.
  • Attracts investments: The presence of low-carbon/renewable hydrogen may attract new investments, especially for hard-to-abate sectors that can utilize Kazakhstan’s natural resources (eg. iron ore, subsoil resources), concurrently.
  • Reduces transportation risks: As a fraction of the hydrogen production is redirected for local use, alternative transportation methods, such as rail transportation and the use of barges in the Caspian Sea, could potentially become viable options for the decreased export quantities.
  • Gradual Growth: An appropriately sized investment can be expanded in tandem with technological advancements.
  • Limited sequestration options (for low-carbon H2): Presently, although studies have identified several high-potential sequestration zones, a comprehensive sequestration study and corresponding project have yet to be fully developed.
  • High initial costs (for renewable H2): The cost of renewable hydrogen is still high, primarily due to technology constraints and the cost multipliers associated with renewable intermittency.
  • Reasons to Invest: The reasons to persuade investors are not entirely clear at the moment. Such reasons may include the implementation of a robust carbon taxation system, preemptive measures to address Carbon Border Adjustment Mechanism (CBAM) and sustainability measures to prevent export restrictions, reducing carbon quotas and providing carbon credit allowances for sustainable solutions. Additionally, it requires a transparent and substantial government support, reinforced by substantial subsidies for early developers.
4. Smaller Scale, Renewable Hydrogen for Technology and Frontier Markets:
  • Establishes a pioneering industry in Kazakhstan: Early positioning in tomorrow’s technologies may help Kazakhtan to position itself as a a technology exporter in the future, nurturing a substantial industrial growth within the nation.
  • Cultivates expertise: Early introduction of new technologies will accelerate development of skills, R&D, and growth of human capital in Kazakhstan
  • Aligned with transportation needs: Transportation and travel routes within Kazakhstan are concentrated around a few key cities, facilitating the rapid and efficient development of sustainable mobility projects. These projects can focus on heavy-duty road transportation over long distances, medium-haul aviation, or the swift electrification of railways.
  • garners social support: Publicly visible low-carbon alternatives will be highly appreciated, particularly in light of the high levels of air pollution in major cities.
  • Requires framework and support: Adoption of new technologies highly depends on quick regulatory framework development and strategic support.
  • Addressing the cost gap with fossil fuels until maturity: Similar to other technologies in their initial stages, hydrogen must bridge the cost gap with existing technologies (fossil fuels) through adequate support and subsidy mechanisms.

In Conclusion: A Call for Small-Scale Hydrogen Mobility Projects

Hydrogen give an opportunity to a cleaner a more sustainable future for Kazakhstan. As the nation charts its hydrogen strategy, selecting the correct pathway and nurturing smaller industrial scale pioneering projects as early as possible will be pivotal. These efforts will not only strengthen Kazakhstan’s position on the global stage but also contribute significantly to a greener, more prosperous future for the country and its people.

In my perspective, within this journey, developing small but still industrial-scale hydrogen mobility projects (pilot projects are no longer necessary) is vitally important. By supporting such initiatives, the Kazakh government can lead the nation toward a sustainable future and early position itself as a vital transportation route in the forthcoming Central Asia low-carbon logistics network.

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