Muscat – Oman’s ambitious targets to expand local green hydrogen production could support the country’s key credit metrics, such as GDP, fiscal revenue, and the balance of payments, over the long term amid the global energy transition, Fitch Ratings said.

The sultanate’s government aims to raise green hydrogen production to at least 1mn metric tonnes per year by 2030, rising to at least 3.25mn metric tonnes by 2040 and 7.5mn metric tonnes by 2050.

‘Local state-owned enterprise (SOE) Hydrogen Oman (Hydrom) signed six investment agreements, worth over $38bn, with partners in 2023. However, we believe the hydrogen strategy will not involve large-scale SOE investments or associated sovereign contingent liabilities. Hydrom will only provide prepared plots, and another SOE, OQ Alternative Energy, will only take relatively modest minority stakes in selected projects,’ Fitch noted.

According to Fitch, the main impact of Oman’s 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 impact would be counterbalanced by rising imports for project delivery. We estimate the royalty on 1mn metric tonnes produced at current prices would be equivalent to about 0.7% of Oman’s GDP in 2023. This is a modest figure that is unlikely to reduce significantly the volatility of its fiscal revenues, which remain exposed to hydrocarbon prices,’ the rating agency said.

Fitch stated in September 2023, at the time of its upgrade of Oman’s rating to ‘BB+’ from ‘BB’ with a stable outlook, that the growth of the non-oil economy, notably improving non-oil fiscal revenues and reducing social spending pressures on the government, could lead to positive rating action.

In the longer term, Fitch said Oman’s success in the development of a green hydrogen sector would help to reduce somewhat its high dependence on fossil fuels and its exposure to the global energy transition.

‘Fiscal and export revenues from green hydrogen may still be susceptible to global energy-price cycles, but if Oman is able to develop an export base for green steel, this could diversify its exports,’ Fitch noted.

Fitch believes Oman has potential to compete in green hydrogen production, reflecting its low renewable-energy costs, available export infrastructure through Hydrom and the under-utilised Port of Duqm, and a clear, relatively low tax framework.

‘However, the [hydrogen] sector’s long-term viability will depend on a number of factors, including the speed and scale of global adoption of green hydrogen, carbon prices (particularly in Europe), and the emergence of competitors,’ Fitch added.