China and the Middle East, though relatively new entrants compared with the European Union and the United States, are poised to grow their green hydrogen sectors. Middle Eastern countries have abundant renewable energy resources and capital to invest in the industry. China, meanwhile, has taken the lead on electrolyser deployment, controlling 50 per cent of global capacity at the end of last year, according to the International Energy Agency. Electrolysers are industrial devices used to separate the hydrogen and oxygen in water molecules.
The global shift towards this renewable energy source sets the stage for increased cross-border trade and international cooperation. Industry experts predict that the race for a strong grip on the green hydrogen economy will not only transform economic ties between nations but also impact geopolitical dominance.
“While individual countries face unique challenges and opportunities, the nascent dynamics among them could spur a green race for industrial leadership, impacting international relations,” said Nicola De Blasio, a senior fellow at Harvard Kennedy School’s Belfer Center, who leads research on energy technology innovation and the transition to a low-carbon economy.
Competition in green hydrogen-based industries could lead to market tensions between importers and upgraders of green hydrogen, potentially resulting in trade barriers or conflicts, he said. Upgraders refers to countries that possess the resources for green hydrogen production and can enhance their position in the value chain through related economic activities.
Hydrogen, while not a direct energy source, can be used as a carrier to store, transport and deliver energy generated from other sources. Green hydrogen – made using energy from renewable sources – is gaining recognition as a solution for decarbonising high-emission sectors like transport and manufacturing. These sectors collectively account for more than one-third of global energy consumption.
The green hydrogen market is forecast to surpass the liquid natural gas trade in value by 2030 and reach more than US$1.4 trillion a year by 2050, according to a Deloitte report released last year. Global trade, supported by diversified transport infrastructure, is key to unlocking the full potential of the market, the report said.
The demand for green hydrogen is projected to significantly increase in the medium term, potentially displacing the equivalent of 10.4 billion barrels of oil, or 37 per cent of current global oil production, by 2050, according to an estimate by global consultants Strategy&, which is a unit of PwC.
In this race for green industrialisation, a few countries like China, Canada and the US are likely to emerge as front runners, De Blasio said.
These nations can capitalise on locating their industrial facilities close to low-cost green hydrogen production, enabling them to exert greater control over supply chains and minimise hydrogen transport costs. As a result, these countries could reap the most extensive benefits and become “geopolitical and market winners in the global race for green industrialisation, market share, and opportunities for job creation”.
The European Union, driven by a need to reduce reliance on Russian gas amid the Ukraine war, has come up with long-term hydrogen strategies, according to Stephen Tsui, an equity research analyst at JPMorgan. The EU has made some technological advances to increase output and aims to produce 20 million tonnes of renewable hydrogen by the end of the decade. The euro zone also wants to quadruple hydrogen use by 2030.
However, it is not just developed nations that harbour ambitions in this space. India, Brazil, Chile, Egypt and many African nations blessed with abundant renewable energy resources are eager to participate in the value chain and produce green hydrogen for export.
Four factors will determine a nation’s competitiveness in the green hydrogen race – renewable energy resources, manufacturing capabilities, electricity ecosystem and cost of capital, according to global consultants Alvarez & Marsal.
Middle Eastern countries, in particular, are diversifying their oil-dependent economies through green technology.
The UAE has approved a hydrogen strategy with the goal of becoming one of the world’s top green producers of the commodity. By 2031, the UAE plans to produce 1.4 million tonnes of green hydrogen per year, increasing to 15 million tonnes by 2050, according to Saudi Arabia-based Gulf Research Center.
Oman aims to achieve a production capacity of at least 1 million tonnes of renewable hydrogen per year by 2030, which is set to increase to 3.75 million tonnes by 2040 and 8.5 million tonnes by 2050, according to the IEA’s analysis of the global project pipeline. Oman is on a promising trajectory to become the sixth-largest global exporter of hydrogen by 2030, and the largest exporter in the Middle East, according to the IEA.
Other Gulf nations like Saudi Arabia and Kuwait have also embraced hydrogen strategies and large-scale energy development plans.
“We always say that the Middle East is a very blessed place,” said Cliff Zhang, co-founder of Hong Kong-based alternative investment firm Templewater. “When we were in the era of fossil fuel, they had oil and natural gas. Now, when we are moving into clean energy, they have so much solar and wind energy resources.”
Zhang, who is also the chairman and CEO of Fujian-based Wisdom Motor, is optimistic about the development prospects of the Middle East’s hydrogen market.
Although the Middle East has a cost advantage in green hydrogen production, the transport of the commodity and availability of enabling infrastructure remain a challenge, not to mention the initial capital outlay, according to Wang Kai, general manager at Jiangsu Guofu Hydrogen, a Hong Kong listing candidate and maker of specialised equipment to produce, store and transport hydrogen.
“The US and China are the two countries that have overall advantages in the chain,” said Wang. “In terms of technological development, the US is leading, but China is catching up.”
While less than 0.1 per cent of China’s hydrogen comes from renewables, China aims to make green hydrogen a significant part of its energy consumption by 2035, according to a medium and long-term plan released in 2022.
China might be able to move faster than other countries because of its capabilities and resources, according to De Blasio. However, he expects the West to provide stiffer competition than in their previous rivalry in solar and wind, as “many Western countries are striving to reduce their dependence on China”.
For example, efforts are being made to reduce reliance on lithium, which China currently dominates, he said.
This legislation focuses on fostering clean energy technologies, with green hydrogen taking centre-stage as the “big enabler of net-zero emissions”.
The cost of producing green hydrogen is expected to come down to about US$2 to US$3 per kg by 2050 as the IRA kick-starts the US hydrogen economy, compared with US$4.5 to US$12 per kg currently, according to Japanese investment bank Nomura.
Research firm Sanford Bernstein has a more optimistic forecast. It expects a production cost of US$2.4 per kg by 2030 and US$1.6 by 2050.
Governments will play a crucial role in the early stages of hydrogen development, enacting regulations and providing subsidies to propel the industry forward, said Jenhao Han, the managing director for Asia at Hy24, a Paris-based global investment firm that focuses exclusively on the clean hydrogen industry.
But there are concerns whether the industry’s development will proceed according to plans.
“When something new like hydrogen comes along, we first look at the technology, the engineering, the physics of it,” said Grant Hauber, strategic energy finance adviser for Asia at the Institute for Energy Economics and Financial Analysis.
But dozens of countries are doing it the other way round, he noted. “They’ve set the policy, and now they’re working their way backwards to figure out how the technology is going to do it.”
While some countries have taken the lead, the race has only just started.
“It’s like the race of the tortoise and the hare,” said Fleming of Natixis. “We’re talking about something like that in the hydrogen ecosystem. It’s a long race.”