Oman’s ambitious targets to expand local green hydrogen production could support key credit metrics, such as GDP, fiscal revenue and the balance of payments, over the long term against the backdrop of the global energy transition, although uncertainty around potential outcomes remains high at this early stage of the sector’s development, according to Fitch Ratings.
The government aims to raise renewable energy-based hydrogen production to at least one million metric tonnes (mt)/year by 2030, rising to at least 3.25 million mt by 2040 and 7.5 million mt by 2050.
Local state-owned enterprise (SOE) Hydrogen Oman (Hydrom) has signed six investment agreements, worth over $38 billion, with partners this year, but Fitch believes the hydrogen strategy will not involve large-scale SOE investments or associated sovereign contingent liabilities, with Hydrom only providing prepared plots and another SOE, OQ Alternative Energy, only taking relatively modest minority stakes in selected projects.
Most projects focus on producing and exporting either hydrogen – in the form of ammonia – or steel.
According to Fitch, the main impact of the green hydrogen development plan in the near term is likely to be on investment, external metrics and employment.
The significant inflows of foreign direct investment would boost GDP, but the lift would be counterbalanced by rising imports for project delivery.
The top ratings agency estimates that in-country value-added requirements for these investments will support existing GDP and ancillary sectors.
The projects’ exports would support Oman’s current account balance, but this will be partly offset by external debt repayment and dividend payments to parent companies, stated the top ratings agency.
The sector’s activity would also boost GDP and employment. A large share of staffing needs would be sourced abroad, but producers will also be subject to employment targets for Omani nationals, it stated.
According to Fitch, Oman’s near-term take from its 15% corporate income tax is likely to be negligible, based on its assumption that most companies in the emergent green hydrogen sector globally will initially have low profitability.
Most of the budget uplift, it stated, would come from the 5% average in-kind royalty on green hydrogen.
Fitch estimates that the royalty on 1 million metric tonne produced at current prices would be equal to about 0.7% of Oman’s GDP this year.
This is a modest figure that is unlikely to reduce significantly the volatility of its fiscal revenues, which remain exposed to hydrocarbon prices, it added.
