Hydrogen industry faces long, dark night of the soul

HOPES that hydrogen will fuel the green transition have sunk in the face of political headwinds and rising costs.

Wood Mackenzie’s 2025 Hydrogen Conference was told tax breaks for hydrogen production in the US have been slashed, while the delay of the International Maritime Organization Net-Zero Framework has worsened the outlook for hydrogen as marine fuel, to the chagrin of producers.

“Capital allocation into the sector from companies has fallen quite significantly,” said WoodMac vice-president of hydrogen and ammonia research Murray Douglas.

Douglas said rapid growth in energy demand to run AI data centres was pushing up gas prices, which would lead to more gas-fired power generation to meet demand.

This drove up power prices and in turn the cost of making green hydrogen.

“That’s not something specific to the US; that is happening everywhere,” Douglas said.

But the energy consultant predicted delay in demand, not its structural decline.

“We think those structural drivers are still there,” Douglas said. “They will come back over the long term, but everything is getting pushed out more and more.”

WoodMac tracked 73 green hydrogen projects — where hydrogen is split from water in an electrolyser — that had reached final investment decision this year. Only 10 were above 100MW of electrolyser capacity.

“We’re still not seeing those very large projects break through,” Douglas said.

Even post-FID hydrogen capacity, from China and the US was struggling to find buyers, he added.

The cost gap between fossil and green hydrogen is expected to narrow, particularly from China’s massive projects, but costs of bio- and e-methane, and methanol are still too high.

Chevron New Energies commercial and sales general manager Robert Nunmaker said “significant policy headwinds” had challenged the case for low-carbon hydrogen.

“We’ve just lost wind in our sail,” he said. “There’s just not much happening right now that’s supporting.”

Nunmaker, a 21-year Chevron veteran, said he spent the past two years trying to push governments around the world for supportive policies.

“It just feels like you’re constantly running into a brick wall,” he told the conference.

Lack of carbon taxes in the US meant demand for low-carbon products there was “basically zero”, so Chevron had planned to export all its green output to the EU, South Korea or Japan.

But South Korea recently cancelled the second round of its hydrogen power generation auction, and industry is waiting for signals of political support for clean ammonia in Japan.

Nunmaker acknowledged China’s green hydrogen industry had the advantages of cheaper land, labour and policy support. The cost of making costlier “green” hydrogen had fallen faster than expected.

Chevron is making the “blue” sort, made from gas with carbon capture.

But he added that Japanese customers had indicated they were reluctant to “go all in on China”, alluding to geopolitical tensions.

This gave US Gulf Coast producers of blue hydrogen a “fighting chance” of competing with China, he said.

“But make no mistake about it: it’s going to be very challenging.”