BP Halts Duqm Green Hydrogen Project in Oman

Strategic Pivot in Duqm

BP p.l.c. has pulled the plug on the Duqm Green Hydrogen Project in Oman, backing away from what was once one of its crown-jewel renewable ventures. This wasn’t a snap decision—it followed a deep-dive market review that concluded large-scale green hydrogen production wouldn’t meet BP’s cost-of-capital hurdles under today’s conditions. Less than a week later, on December 8, the company repurchased 1,611,008 ordinary shares. Those two moves together speak volumes: BP is shifting from long-term infrastructure bets to delivering more immediate value for shareholders as it recalibrates its energy transition strategy.

Technical Barriers and Cost Drivers

At the heart of Duqm was electrolysis—using renewable power to split water into hydrogen and oxygen. In theory, it’s a neat match for clean hydrogen production. In reality, scaling that up to multi-gigawatt levels throws up some hefty roadblocks:

• Capital Intensity: Those massive electrolyser stacks, plus balance-of-plant equipment, compression gear and safety infrastructure, can eat up over 60% of total project costs.
• Renewable Power Requirements: Duqm enjoys blazing sun and steady winds, but hooking them into a reliable, cost-competitive grid often means ponying up for expensive storage or backup generation.
• Water Sourcing: Electrolysis demands ultra-pure water. In arid regions like Duqm, you’re looking at desalination and treatment plants—hello, extra CAPEX and ongoing O&M bills.
• Transport and Storage: Compressing or liquefying hydrogen isn’t like loading up a diesel tanker. You need dedicated pipelines or port terminals, adding another layer of investment.
• Operational Expenditure: Catalysts wear out, membranes degrade, and early deployments tend to surprise you with maintenance needs—driving up OPEX.

All those technical realities, coupled with choppy commodity prices and shifting policy frameworks, have kept the levelized cost of hydrogen beyond what’s needed to go toe-to-toe with traditional fuels.

Financial Maneuvering and Shareholder Focus

By rerouting funds from Duqm into a share buyback, BP essentially told investors, “We can generate better returns from our current assets than from unproven green hydrogen projects right now.” Scooping up over 1.6 million shares is a tried-and-true way to boost earnings per share and give the stock a lift—especially when big-ticket, long-lead-time ventures look shaky. For shareholders, the message is clear: BP will pursue low-carbon growth where the math works, but it won’t sink capital into tech that hasn’t proven itself at scale.

Ripple Effects Across the Chain

BP’s Duqm exit sends shockwaves far beyond its own balance sheet. Here’s who’s got some hard thinking to do:

• Omani Economic Diversification: Hydrogen exports were supposed to be a linchpin in Oman’s plan to wean itself off oil and gas. With BP stepping aside, government bodies and local energy firms are scrambling for new partners and fresh investment blueprints.
• Investor Sentiment: Banks, VCs and bondholders are tightening their grip—insisting on rock-solid offtake deals, government guarantees or heftier risk premiums before funding hydrogen ventures.
• Supply Chain Adjustments: Manufacturers of electrolysers, compressors and related gear might hit pause or rejig order books, prompting them to revisit production targets and staffing plans.
• Local Workforce: Jobs in construction, plant operations and support services could be delayed or rerouted to other projects, leaving workers in limbo.
• Renewable Infrastructure: Solar parks or wind farms slated to feed Duqm’s hydrogen facility may get scaled back or mothballed until fresh offtakers emerge.
• Energy Transition Pace: Ambitions for gigawatt-scale sustainable energy rollouts are hitting the brakes, with the industry pivoting toward smaller, modular pilots.

Policy and Market Outlook

BP’s move underscores that policy incentives and risk-sharing mechanisms still lag behind the zeal for green hydrogen. Some governments offer tax credits, grants or contracts-for-difference to sweeten the deal, but matching those incentives with private-sector risk tolerance remains tricky. In Oman, expect authorities to revisit power tariffs or even underwrite part of the hydrogen risk via joint ventures. Globally, everyone’s watching to see whether hydrogen can stand up to quicker, more straightforward decarbonization plays—like direct electrification of heavy industry or swapping in cleaner-burning fuels.

Industry bodies such as the Hydrogen Council are pushing for standardized offtake frameworks and certification schemes to shore up market confidence. Without clear demand signals and bankable contracts, developers will keep running uphill on financing, especially in markets without established hydrogen infrastructure.

On the plus side, there’s growing momentum behind smaller, phased rollouts that can scale as costs drop. Blended finance—mixing public grants with private equity and debt—is picking up steam, as are multi-technology hubs that pair hydrogen with ammonia, methanol or carbon capture to spread out revenue streams.

Looking Ahead

BP’s withdrawal from Duqm isn’t a hard stop for green hydrogen; it’s a reminder that commercial maturity comes in fits and starts. Companies and governments will need to hone project economics, lock in clearer policy support and forge strategic partnerships to de-risk future bets. As electrolysis tech improves and hydrogen infrastructure expands, we could well see a comeback of large-scale projects. For now, though, the sector is hitting pause on grand ambitions and doubling down on pragmatic, step-by-step deployments.

About BP p.l.c.

BP p.l.c. is one of the world’s largest energy companies, headquartered in London. While oil and gas remain its core business, BP is ramping up investments in sustainable energy, green hydrogen and other low-carbon technologies to chart its next chapter.