The global hydrogen bet, explained

Hydrogen has been described as the Swiss Army knife of the energy transition: a fuel that can store energy from renewable sources, decarbonise industrial processes that cannot easily be electrified, and be exported across oceans as a liquid or chemical carrier. Governments across Europe, Asia, and Australia have committed tens of billions of dollars to developing hydrogen industries. The technology is real. The economics, so far, are not.

What hydrogen is and why colour coding matters

Hydrogen is a gas that releases energy when it combines with oxygen, producing only water as a by-product. It is already produced and used at large scale in oil refining and ammonia manufacturing. The problem is how it is made. The dominant production method uses natural gas in a process called steam methane reforming, which produces significant carbon dioxide as a by-product. Hydrogen produced this way is called grey hydrogen. If the carbon dioxide is captured and stored underground, it becomes blue hydrogen. Hydrogen produced by splitting water using renewable electricity in an electrolyser is called green hydrogen, and it is the form that the energy transition requires.

Green hydrogen is currently several times more expensive to produce than grey hydrogen. Bringing that cost down requires cheap renewable electricity, cheaper electrolysers produced at scale, and the infrastructure to move the gas to where it is needed. All three of those conditions are works in progress simultaneously.

The infrastructure challenge

Hydrogen is the lightest element, which makes it physically awkward to handle. It must either be compressed to very high pressures, cooled to cryogenic temperatures to become liquid, or converted into a hydrogen carrier chemical such as ammonia, which can be handled with existing infrastructure. Each conversion step involves energy losses. Shipping liquid hydrogen across oceans requires specialised tankers that do not yet exist at scale. Blending hydrogen into existing natural gas pipelines is possible up to certain concentrations, but higher concentrations require pipeline material upgrades because hydrogen embrittles steel over time.

These infrastructure requirements mean green hydrogen is not simply a drop-in replacement for existing energy systems. It requires substantial parallel investment in entirely new supply chains before it can function at meaningful scale.

Where the bet is being placed

Japan and South Korea, resource-poor economies heavily dependent on energy imports, have made large national commitments to hydrogen as a future import fuel. The European Union is targeting green hydrogen to decarbonise its steel, chemical, and heavy transport sectors. The Middle East and North Africa, with abundant solar and wind resources, are positioning to become green hydrogen exporters. Australia, with very large renewable energy potential and an existing energy export industry, has made green hydrogen a centrepiece of its industrial strategy, positioning for both domestic use and export to Asian markets.

What it means for Australia

Australia's green hydrogen strategy targets the export market, particularly Japan and Korea, both long-term customers for Australian LNG. If green hydrogen can be produced and exported at competitive cost, it could provide a long-term successor to the liquefied natural gas export industry as those markets decarbonise. The Northern Territory, the Pilbara, and parts of South Australia have large-scale renewable energy projects with hydrogen production components. Whether those projects advance from pilot to commercial scale depends on cost reduction in electrolysers and continued policy support from importing countries. The timeline is measured in decades, not years.

The bottom line

Green hydrogen is technically viable and strategically important, but it faces compounding cost and infrastructure challenges that have consistently pushed commercial timelines further out. The countries betting on it are making a long-dated wager on the pace of cost reduction and policy continuity.

This article was compiled by AI and screened before publishing. See our editorial standards.