Unlike previous shifts, this transition is not merely about replacing one fuel with another, but involves a complete overhaul of the energy system, bringing significant political, technical, environmental, and economic disruptions. At the heart of this transition lies hydrogen, a key player that has long been missing from the clean energy puzzle. The question now is whether hydrogen will exacerbate or alleviate these disruptions and in what ways it will shape the future of global energy.

Hydrogen´s role in this energy transition is poised to be transformative, with the potential to significantly disrupt existing energy value chains. The urgency to address climate change has propelled hydrogen into the spotlight, with many seeing it as a crucial component of the future energy mix.

According to IRENA’s 1.5 °C scenario, clean hydrogen could account for up to 12% of final energy consumption by 2050, with the majority produced using renewable sources and the remainder from natural gas combined with carbon capture and storage.

This shift towards hydrogen is expected to further regionalize energy relations, as the cost of renewable energy continues to fall while the expense of transporting hydrogen remains high. As a result, energy trade is likely to become more localized, with countries possessing abundant low-cost renewable energy emerging as key producers of green hydrogen. This will have significant geopolitical and geo-economic implications, potentially creating new power nodes in regions that can combine renewable resources with the capacity to export hydrogen to large demand centers.

Now, let´s explore the key geopolitical and geo-economic implications of this shift:

1. Competition and Market Dynamics in the Hydrogen Economy

Unlike the oil and gas industries, the hydrogen business is expected to be highly competitive and less profitable. Hydrogen production is fundamentally different from fossil fuel extraction; it is a conversion process that can be performed in many locations, thereby limiting the potential for capturing the kind of economic rents that fossil fuels currently generate. As green hydrogen costs continue to decline, the market will likely see the entry of numerous new players, making it even more competitive. This heightened competition will likely prevent any single entity from dominating the market, which is a departure from the current dynamics of the oil and gas sectors.

2. Evolving Trade Relations and Diplomacy

The rise of hydrogen will also create new patterns of trade and diplomatic relations. Unlike the 20th-century energy relationships based on hydrocarbons, the emerging hydrogen trade is characterized by a growing number of bilateral deals. Over 30 countries and regions have developed hydrogen strategies that include import and export plans, signalling a significant increase in cross-border hydrogen trade.

Countries that have not traditionally engaged in energy trade are now forming bilateral relations focused on hydrogen-related technologies and molecules. This shift in economic ties could also lead to changes in political dynamics, as countries seek to secure their positions in the burgeoning hydrogen market.

Hydrogen diplomacy is becoming an increasingly important aspect of economic diplomacy, with countries like Germany and Japan leading the way. Many potential hydrogen importers are already actively engaged in dedicated hydrogen diplomacy, while exporters are similarly incorporating hydrogen, particularly green hydrogen, into their high-level diplomatic strategies.

3. Economic Diversification for Fossil Fuel Producers

For countries that currently rely on fossil fuel exports, clean hydrogen presents an attractive opportunity to diversify their economies. These nations can leverage their established energy infrastructure, skilled workforce, and existing trade relations to develop new export industries focused on hydrogen.

While blue hydrogen, which is derived from natural gas, seems a natural fit for these countries, many also have significant renewable energy potential that could enable them to transition directly to green hydrogen. Countries like the United Arab Emirates, Australia, Oman, and Saudi Arabia are exploring such dual approaches. However, it is important for fossil fuel producers to continue developing broad-based economic transition strategies, as hydrogen alone will not fully compensate for the expected loss in fossil fuel revenues.

4. Regional Production Potential and Investment Risks

The technical potential for producing green electricity, and consequently green hydrogen, far exceeds estimated global demand. However, the ability to produce large volumes of low-cost green hydrogen varies widely across different regions. Africa, the Americas, the Middle East, and Oceania have the highest technical potential, but realizing this potential depends on a range of factors, including existing infrastructure, the current energy mix, the cost of capital, and access to necessary technologies. Additionally, soft factors such as government support, the investment climate and political stability will play crucial roles in determining whether this potential can be realized.

Despite higher project finance costs in countries with higher risk profiles, investment in green hydrogen is still likely to flow into these regions, provided the revenue potential is sufficient. This dynamic mirrors the upstream oil and gas sectors, where investment often occurs despite significant country risks. However, there are limits to this trend, as countries experiencing turmoil may struggle to attract investment due to the immense risks involved in doing business in such environments.

5. Technological Leadership and Competitive Advantage

The 2020s are expected to witness a significant race for technology leadership in the hydrogen sector, as costs are likely to fall sharply with learning and the scaling-up of necessary infrastructure. The geopolitics of clean hydrogen will likely evolve in several stages, with green hydrogen projected to compete with blue hydrogen on cost by the end of this decade. This competition is expected to materialize sooner in countries like China, Brazil, and India, where low-cost electrolysers, cheap renewables, and relatively high gas prices create favourable conditions for green hydrogen. However, the widespread adoption of green hydrogen will depend heavily on predictable demand, especially in sectors where alternative solutions are not viable.

6. Impacts on Global Trade and Infrastructure

As green hydrogen becomes more cost-competitive, cross-border trading is expected to increase significantly in the 2030s. According to various decarbonization scenarios, demand for hydrogen is anticipated to rise sharply from 2035 onwards. IRENA forecasts that by 2050, two-thirds of green hydrogen production will be used locally, with the remaining one-third traded across borders. Pipelines, including those adapted from natural gas pipelines, are expected to facilitate half of this trade, while the other half will likely be transported via ships in the form of hydrogen derivatives like ammonia.

In the coming years and decades, manufacturing equipment for hydrogen production presents a significant opportunity to capture value within the hydrogen value chain. The bulk of the investment will be needed for renewable power, but the market potential for electrolysers and fuel cells alone is estimated to be between USD 50-60 billion and USD 21-25 billion, respectively, by the middle of the century. China, Europe, and Japan currently have a strong lead in producing and selling electrolysers, but the market is still in its infancy, and innovation and emerging technologies could change the competitive landscape.

7. Energy Independence, Material Security and Resilience

Hydrogen offers substantial benefits for energy independence and resilience by reducing import dependence, mitigating price volatility, and enhancing the flexibility and resilience of energy systems. These benefits are primarily associated with green hydrogen, as blue hydrogen is more likely to perpetuate existing patterns of gas market dependencies and price volatilities. Furthermore, the expected cost reductions in green hydrogen could render investments in fossil fuel-based hydrogen supply chains uncompetitive, leading to stranded assets.

The growing demand for raw materials essential to hydrogen and renewable energy technologies is likely to draw more attention to material security. While the geological supplies for most minerals and metals are currently sufficient, the rapid increase in demand, coupled with the long lead times for mining and refining projects, could create tight markets. Even minor shifts in supply or demand can lead to significant price fluctuations, which could, in turn, affect hydrogen supply chains and the overall cost of hydrogen production equipment.

8. Governance, Standards, and Geopolitical Competition

Despite the potential for supply shortages in the early years of hydrogen trade, it is unlikely that hydrogen trade flows will become weaponized or cartelized. Hydrogen can be produced from a wide variety of primary energy sources in many locations worldwide, making it a manufactured product rather than a raw material like oil or gas. This diversity in production sources and the manufactured nature of hydrogen reduce the likelihood that it could be easily manipulated for geopolitical purposes.

The success of clean hydrogen markets will depend significantly on the establishment of coherent and transparent rules, standards, and governance structures. These frameworks are essential for facilitating the deployment of hydrogen across countries, regions, and sectors. While standards are intended to improve the quality, safety, and interoperability of hydrogen technologies, divergent standards could slow progress, lead to market fragmentation, and create regulatory competition and trade barriers. As a result, setting standards for hydrogen trade could become an arena for geopolitical competition or international cooperation.

9. Long-Term Investment Strategies and Future Energy Landscapes

Transparency in pricing and emissions measurement will be critical to the rapid evolution of the global hydrogen market. The currencies and pricing mechanisms that dominate the emerging market are likely to have significant geopolitical implications. For example, the European Union, which is expected to be a major importer of hydrogen, is seeking to denominate its future hydrogen imports in euros. Additionally, carbon pricing may be necessary to make green hydrogen competitive with grey hydrogen and, ultimately, with fossil fuels. In this context, hydrogen could become part of a broader set of carbon trade dynamics.

Investment decisions in hydrogen infrastructure should be made with a long-term perspective, considering the likely shifts in the geography of a decarbonized economy. As the energy landscape evolves, the locations of renewable hydrogen production are expected to differ significantly from today’s oil and gas fields. While some existing infrastructure could be repurposed for hydrogen, the technical challenges and economic costs associated with such repurposing should be carefully considered from the outset.

10. Global Energy Equity and Development

Helping developing countries deploy hydrogen technologies early on could improve energy security for all while preventing a widening decarbonization divide. A diverse and widespread hydrogen market would reduce supply chain risks and enhance global energy security. Ensuring access to technology, training, capacity building, and affordable finance will be crucial for realizing hydrogen’s full potential to decarbonize the global energy system and contribute to global stability and equity. Establishing hydrogen trade relations could also open new possibilities for developing local hydrogen value chains, stimulating green industries, and creating jobs in countries with abundant renewable resources.

Global efforts should focus on applications where hydrogen offers the most immediate advantages and enables economies of scale, particularly in the coming years. Prioritizing high-demand applications for which hydrogen is the best—or perhaps the only—alternative is more likely to be cost-effective and less susceptible to the risks associated with nascent markets. Supporting the transition to green hydrogen in industrial applications where hydrogen is already in use, such as ammonia and steel production, could provide the necessary scale and stability to launch the global hydrogen market.

The development of hydrogen will have complex effects on sustainable development. While it could provide economic opportunities and contribute to environmental sustainability, large-scale hydrogen deployment also carries risks that need to be carefully managed. This includes understanding the global threats and vulnerabilities associated with the new hydrogen economy and addressing potential social, environmental, and economic impacts. To fully realize hydrogen´s potential as a key component of the future energy mix, it is crucial to balance the opportunities it presents with the challenges it poses.