What Is Green Hydrogen? The Middle East's Next Export, Explained

Green hydrogen occupies an unusual position in energy debates: simultaneously overhyped as a universal solution and underrated in the specific places it genuinely matters. Understanding which is which requires understanding how it is actually made.

The process, simply

Run an electric current through water and it separates into hydrogen and oxygen. That is electrolysis, and it has been understood for two centuries.

What makes hydrogen "green" is not the chemistry but the electricity. Power the electrolyser with solar or wind and the only outputs are hydrogen, oxygen and water vapour. Power it with coal and you have produced something considerably worse for the climate than burning the coal directly.

So green hydrogen is best understood as a way of storing and transporting renewable electricity in chemical form — one that can be shipped, stored for months and fed into industrial processes that electricity cannot serve directly.

The colours, briefly

• Grey — from natural gas by steam methane reforming, with the carbon dioxide released. Most hydrogen produced today is grey.
• Blue — the same process with carbon capture attached. Lower emissions, dependent on capture rates and on managing methane leakage upstream.
• Green — electrolysis powered by renewable electricity.

Other colours circulate in industry literature, but these three carry the substance of the debate.

The three electrolyser technologies

Alkaline is the mature, lowest-capital-cost option, proven at industrial scale for decades. It responds comparatively slowly to changes in power input, which matters when running on variable renewables.

Proton exchange membrane (PEM) costs more, partly because it uses precious metal catalysts, but ramps quickly and handles variable input well. That flexibility suits solar and wind directly.

Solid oxide operates at high temperature and offers the highest efficiency, especially where waste heat is available. It is the least commercially mature of the three.

The choice is a genuine engineering trade-off between capital cost, efficiency and flexibility — not a settled question.

Why electricity cost decides everything

A real electrolysis system consumes roughly 50 to 55 kilowatt-hours of electricity per kilogram of hydrogen produced. Hydrogen's own energy content is around 33 kilowatt-hours per kilogram, which tells you the process is meaningfully lossy before anything else happens.

The consequence is blunt: electricity is by far the largest component of production cost. Halve the electricity price and you move green hydrogen economics more than any plausible improvement in electrolyser capital cost.

This is exactly why the Gulf is central to the global conversation. The region produces some of the world's cheapest renewable electricity, for reasons we cover in why Gulf solar is so cheap. Cheap electricity is the precondition, and the Gulf has it.

There is a complication, though. Electrolysers are capital-intensive, so they want to run at high utilisation — while the cheapest solar electricity is available only during daylight. Running an expensive machine for eight hours a day raises the cost per kilogram. Solving this means combining solar with wind, adding storage, or accepting lower utilisation. Every serious project confronts this trade-off.

Ammonia: the shipping workaround

Hydrogen is the smallest molecule there is, which makes it awkward. At ambient conditions it has very low energy density by volume. Liquefying it requires cooling to around minus 253 degrees Celsius — technically possible, expensive and energy-hungry at export scale.

So most export projects convert hydrogen into ammonia, combining it with nitrogen through the Haber-Bosch process. Ammonia liquefies under far milder conditions, and the world already has ships, terminals and handling expertise for it, because it has been traded for fertiliser for a century.

The trade-off is energy. Conversion to ammonia costs energy; converting back to hydrogen at the destination costs more. For that reason, the strongest projects target buyers who want the ammonia itself — fertiliser producers, or power stations co-firing it — rather than those who intend to crack it back into hydrogen.

Where hydrogen genuinely makes sense

The honest case is narrower than the enthusiasm suggests, and stronger within that range:

• Fertiliser production, which already consumes vast quantities of hydrogen, today almost entirely grey. Substituting green hydrogen decarbonises an existing industry with no new demand required.
• Steel, where hydrogen can replace coking coal in direct reduction — one of the few credible routes to low-carbon primary steel.
• Refining, another large existing consumer of grey hydrogen.
• Shipping and aviation fuels, where energy density requirements make batteries impractical.
• Long-duration energy storage, for seasonal balancing that batteries cannot economically provide.

Where it makes less sense: passenger cars, where battery electric vehicles use energy several times more efficiently; and domestic heating, where heat pumps do the same job with far less energy input.

The honest state of the market

Announced project pipelines vastly exceed what has reached financial close. Several high-profile international projects have been delayed, downsized or cancelled.

The reason is usually the same: demand. Producing green hydrogen is an engineering problem with known solutions. Selling it at a price that covers the cost, to buyers with binding long-term contracts, is a commercial problem that remains substantially unsolved. Green hydrogen competes against grey hydrogen that is cheaper today, and the gap closes only with carbon pricing, regulation or subsidy. The colour taxonomy behind that comparison is explained in green, blue and grey hydrogen.

The projects most likely to proceed share one feature: a creditworthy offtaker with a signed agreement. Everything else is a press release. We track which is which on the policy and markets desk.

The bottom line

Green hydrogen is a genuine solution to a specific set of problems — heavy industry and long-distance transport — and a poor answer to several others. Its economics hinge on cheap renewable electricity, which the Gulf has in abundance, and on firm demand, which the world still largely does not.

Follow the projects that actually close

The gap between announced hydrogen capacity and financed hydrogen capacity is the most important number in the sector.

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Developers, technology providers and offtakers in hydrogen: explore partnership with Arcnex Energy.