In early March 2022, His Majesty Sultan Haitham bin Tarik issued five Royal directives to drive ahead the development of the hydrogen sector in Oman. As well as a new focus on government structures and instructions for studies and information gathering, we at Dentons particularly welcome His Majesty's directive to develop the policy and legal framework, and more detailed regulations, which are essential to support the growth of green hydrogen in Oman.

Oman's natural gas resource has long been a key driver of its economic growth – but now that resource is dwindling. For the current types and quantities of consumption, there may be no more than 10 to 20 years' supply of natural gas left. We need an alternative – and much has already been written about the exciting scope for hydrogen to be that alternative energy.

Oman is world-class for solar irradiation, and wind speed and direction. Together with easy access to seawater, proven desalination capabilities, industrial- and free-zones for manufacturing, well-understood risk allocation for bankable projects and established infrastructure for global exports, Oman is well placed to be a world leader in the production of green hydrogen. The fact that hydrogen can be better than fossil fuels because it offers a storage solution for clean, carbon-free energy, as well as acting directly as fuel and feedstock, only adds to the excitement.

However, foreign companies need certainty before committing their global investment dollars to Oman. Clear governance and regulations help to provide that certainty. The establishment of both a new Directorate General for Clean Energy and Hydrogen at the Ministry of Energy and Minerals, and of a new subsidiary of Energy Development Oman, to be called Hydrogen Development Oman (HDO), are welcome steps.

The next critical steps are to clarify the roles of all government-related parties and their respective areas of responsibility in relation to hydrogen. As Dentons advises foreign investor clients already actively working on their green hydrogen projects in Oman, the numerous different government parties involved along the value chain drives confusion, not clarity. Who can reliably promise land rights for sponsors? When will the Electricity Sector Law be upgraded to facilitate wheeling and corporate PPAs – or even simply to provide a definition of renewables or clean energy? Where can investors set up their electrolyser plants and under whose authority can they develop those industrial processes? What permits may be required to store large quantities of explosive hydrogen gas? And how will Oman be able to certify that its hydrogen molecules are indeed "green" in order to benefit from the anticipated premium in prices?

There is a great deal of excitement around green hydrogen in Oman: lots of investors signing MOUs; carrying out feasibility studies; collecting solar and wind data; and up to US$30 billion worth of investments proposed. How will the government regulate this entirely new sector and how will it extract its rightful share of the economic benefits? Equity stakes in joint ventures via OQ and/or HDO and/or PDO and/or others? Granting licences in return for corporate income tax and possibly also royalties? Can old-school oil sector concessions or production sharing agreements work in this context?

We are very encouraged to hear His Excellency Rumhy, the Minister of Energy and Minerals, say in a recent interview that he is actively looking forward to making mistakes as this new sector is established. We totally support the courage to learn from new mistakes, as well as from the lessons of the oil and gas sector of the past half century in Oman, and indeed from experience in other countries. We share his confidence that Oman will be far better placed in the 2020s to develop green hydrogen than the country was in the 1960s in the early days of oil development, despite the significant risks this new sector faces. 

The major risk being that there is, today, no material global market for hydrogen, never mind for green hydrogen. The EU and Asia have ambitious plans to grow imports rapidly to displace fossil fuels, avoid geo-political supply constraints and support demand growth in areas such as hydrogen fuel cell vehicles. These plans are welcome but will need to translate into the hard-nosed reality of long-term offtake commitments in order to support a project financing model for green hydrogen in Oman. Yet current industrial consumers of hydrogen have business models and pricing that do not support long-term offtake commitments.

Fortunately – both for this business and efforts to save the planet – there are plenty of investors with similar courage who are willing to break the mould and who are taking the approach of "build it and they will come". What does this mean for Oman? While a global market will (must!) develop in parallel with the pragmatic, phased development of green hydrogen production capacity, Oman needs to build in stages. Both in terms of the type of production and where the molecules are used. 

"Grey" hydrogen comes from natural gas and is the vast majority of hydrogen production today. Carbon capture, utilisation and storage (CCUS) techniques to produce "blue" hydrogen/ammonia have already been successfully used here in Oman. Grey and blue hydrogen experience will support the development of the skills, supply chain and awareness needed for the growth of green hydrogen capability. 

Initial lower levels of production (of whatever colour) can be consumed here in Oman, as a welcome displacement of precious natural gas. Facilities may need modifications to handle the different composition and risks associated with hydrogen but, again, these can be built and paid for incrementally. Local demand will support a steady growth of production, leading to greater confidence in all stakeholders along the value chain and the progression towards gigawatt scale projects, which aim to export Omani hydrogen to global markets.

This scalability of investments and the economies of scale are lessons that are waiting to be learned from the fossil fuel industry. Green hydrogen producers need to drive costs down by at least half to compete with current blue hydrogen costs. We are confident this will be achieved (just look at solar power pricing trends in the region over the last few years) and hard-won lessons from oil operators will be deployed into this new industry.

There are, of course, plenty of other obstacles along the path to a successful green hydrogen industry in Oman: technical; safety; operational; logistics; and financial… but all of these risks have been addressed in past energy evolutions, albeit in different forms. Human ingenuity seems to be limitless (it's how we keep missing "peak oil") and that is based on the ability to learn lessons from past and current mistakes. Oman needs to put this experience into the development of the policy, legislative and regulatory framework needed for green hydrogen. We have all seen that clear structures, rules and responsibilities really support the growth of new businesses. The evolution of green hydrogen in Oman is no different; we just need a roadmap to guide us all along that path, and to get past those obstacles.

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We at Dentons Oman are exceptionally well placed to support the government and foreign investor clients to navigate this path to green hydrogen in Oman. Dentons are already involved in numerous hydrogen sector projects in Oman, the GCC and related initiatives globally. As the world's biggest law firm we bring a wealth of experience in energy regulations worldwide. In Oman for 40 years, we have unparalleled understanding of Oman's regulations in the energy sector: whether the 20+ EPSAs in oil and gas that we have advised on; or drafting the Electricity and Related Water Sector Law 20 years ago, and more recently the SAHIM rooftop solar regulations, and the power spot market rules; or the establishment of the regulated structure for natural gas transmission; or advising on the country's largest utility-scale solar PV project. Dentons Oman is ready to support the next phase of Oman's energy economy.