China and the Middle East are expected to grow their green hydrogen sectors, though they are relatively new entrants compared to the European Union and the United States. Middle Eastern countries have ample renewable energy resources and ample capital to invest in the industry. Meanwhile, China is leading the way in deploying electrolyzers, accounting for 50 percent of global capacity as of the end of last year, according to the International Energy Agency. Electrolyzers are industrial devices that separate the hydrogen and oxygen in water molecules.
This global shift to renewable energy sources sets the stage for increased cross-border trade and international cooperation. Industry experts predict that the race to gain a strong grip on the green hydrogen economy will not only transform economic relations between nations, but also impact geopolitical advantage.
“While each country faces its own challenges and opportunities, new dynamics among countries could spur a green race for industrial leadership and have implications for international relations,” said Nicola de Blasio, a senior fellow at Harvard Kennedy School’s Belfer Center, where she leads research on energy innovation and the transition to a low-carbon economy.
He said competition in the green hydrogen industry could cause market tensions, leading to trade barriers and disputes between green hydrogen importers and upgraders – countries that have the resources for green hydrogen production and can improve their position in the value chain through related economic activities.
Although hydrogen is not a direct energy source, it can be used as a carrier to store, transport and supply energy produced from other sources. Green hydrogen, produced from renewable energy sources, is increasingly being recognized as a solution for decarbonizing high-emission sectors such as transportation and manufacturing, which account for more than a third of global energy consumption.
A Deloitte report published last year estimated that the green hydrogen market is expected to surpass liquefied natural gas trade by 2030 and exceed $1.4 trillion annually by 2050. Global trade supported by a diversified transportation infrastructure is key to unlocking the market’s full potential, the report said.
According to estimates by Strategy&, a global consultancy under PricewaterhouseCoopers, demand for green hydrogen will increase significantly in the medium term and could replace 37% of current global oil production, or the equivalent of 10.4 billion barrels of oil, by 2050.
Mayor de Blasio said a handful of countries, including China, Canada and the United States, are likely to take the lead in this race to green industry.
By locating industrial facilities near low-cost green hydrogen production, these countries will have greater control over the supply chain and minimize hydrogen transportation costs. As a result, these countries will stand to gain the most and become “geopolitical and market winners in the global competition for green industrialization, market share, and job creation opportunities.”
The European Union has laid out a long-term hydrogen strategy out of a need to reduce reliance on Russian natural gas amid the Ukraine war, according to Steven Tsai, an equity research analyst at JPMorgan. The EU has made several technological advances to boost production and aims to produce 20 million tonnes of renewable hydrogen by the end of the decade. The eurozone also wants to quadruple its hydrogen use by 2030.
But it is not only developed countries that have ambitions in this area: India, Brazil, Chile, Egypt and many African countries blessed with abundant renewable energy resources are also keen to join the value chain and produce green hydrogen for export.
According to global consultancy Alvarez & Marsal, four factors will determine a country’s competitiveness in the green hydrogen race: renewable energy resources, manufacturing capacity, electricity ecosystem, and capital costs.
Middle Eastern countries, in particular, are diversifying their oil-dependent economies through green technologies.
The UAE has approved a hydrogen strategy aimed at becoming the world’s leading green hydrogen producer. According to the Saudi Arabia-based Gulf Research Center, the UAE plans to produce 1.4 million tonnes of green hydrogen per year by 2031, increasing this to 15 million tonnes by 2050.
According to an analysis of the IEA’s global project pipeline, Oman aims to achieve an annual production capacity of at least 1 million tonnes of renewable hydrogen by 2030, rising to 3.75 million tonnes by 2040 and 8.5 million tonnes by 2050. According to the IEA, Oman is on a promising trajectory to become the world’s sixth-largest hydrogen exporter and the largest in the Middle East by 2030.
Other Gulf countries, such as Saudi Arabia and Kuwait, have also adopted hydrogen strategies and large-scale energy development plans.
“I always say the Middle East is a very blessed place,” said Cliff Chan, co-founder of Hong Kong-based alternative investment firm Templewater. “In the fossil fuel era, you had oil and natural gas. Now that we’re moving to clean energy, the Middle East has a lot of solar and wind energy resources.”
Zhang, who is also chairman and CEO of Fujian-based Wisdom Motor, is optimistic about the prospects for the development of the Middle East’s hydrogen market.
While the Middle East has cost advantages in producing green hydrogen, transporting the commodity and building the infrastructure to make it possible, not to mention the upfront capital outlay, remains a challenge, according to Wang Kai, general manager of Jiangsu Guofu Hydrogen Co., a specialist hydrogen production, storage and transportation maker hoping to list in Hong Kong.
“The United States and China are the two countries that dominate the entire supply chain,” Wang said. “The United States is leading in terms of technological development, but China is catching up.”
Less than 0.1% of China’s hydrogen comes from renewable energy sources, but according to a mid- to long-term plan released in 2022, China aims to have green hydrogen account for a significant portion of its energy consumption by 2035.
China may be able to move faster than other countries because of its capabilities and resources, de Blasio said, but he expects tougher competition than Western countries have seen in solar and wind power in the past, as “a lot of Western countries are trying to reduce their reliance on China.”
For example, he said there are efforts underway to reduce reliance on lithium, which is currently dominated by China.
The Act focuses on promoting clean energy technologies, with green hydrogen taking centre stage as a “major driver towards net-zero emissions”.
According to Japanese investment bank Nomura, the IRA will jumpstart America’s hydrogen economy, which is expected to reduce the cost of producing green hydrogen from $4.5-12 per kilogram today to around $2-3 per kilogram by 2050.
Research firm Sanford Bernstein is more optimistic, predicting production costs will reach $2.40 per kilogram by 2030 and $1.60 per kilogram by 2050.
Governments will play a key role in the early stages of hydrogen development, setting regulations and offering subsidies to drive the industry forward, said Zhenhao Han, managing director for Asia at Hy24, a Paris-based international investment firm focused on the clean hydrogen industry.
However, there are concerns as to whether the industry’s development will proceed as planned.
“When something new comes along like hydrogen, we look first at the technology, the engineering and the physics,” said Grant Hauber, Asia strategic energy finance adviser at the Institute for Energy Economics and Financial Analysis.
But dozens of countries, he noted, are doing the opposite: “They set the policy and then work backwards to figure out how to make it happen with technology.”
While some countries are leading the way, the race is just beginning.
“It’s a race between the tortoise and the hare,” Natixis’ Fleming said. “We’re talking about the same thing in the hydrogen ecosystem. It’s a long race.”
