The fossil-fuel price shock unleashed by the conflict in the Middle East has presented the green hydrogen sector with an unexpected opportunity to kickstart its growth.

Surging crude and natural gas prices, and the bottleneck in the Strait of Hormuz, serve as a reminder to governments and investors of the compelling narrative that underpinned the case for green hydrogen when it first emerged as a serious option about five years ago: that the global energy map could be redrawn as regions with abundant wind and solar, such as Australia and Latin America, become the next generation of major energy exporters in the form of green molecules.

The industry certainly needs a lift. The number of projects hitting FID remains far lower than expected when multiple governments set ambitious 2030 targets for the buildout of electrolytic production capacity, forming a key plank of their decarbonisation strategies. How committed will governments be to hydrogen in the wake of this latest fossil-fuel price shock?

The key issue undermining the sector is a lack of firm demand from industrial buyers at current costs. Surging fossil-fuel costs should help in that regard by eroding the relative cost advantage of grey and blue hydrogen.

Renewed jitters over fossil fuel security of supply should also convince some potential buyers to take another look at hydrogen. One of the sectors where green hydrogen has started to gain some traction is fertilisers. Disruptions to fertiliser feedstocks sourced from the Middle East, and surging prices, will not harm green hydrogen’s prospects in this huge global industry.

It is important to remember that this is the second fossil-fuel price shock in four years, with Europe still recovering to a certain extent from the gas crisis sparked by Russia’s invasion of Ukraine in 2022. The loss of Russian pipeline gas subsequently triggered a rapid expansion of LNG import infrastructure, especially in import-reliant Germany, with the new terminals theoretically also equipped to take hydrogen and its derivatives.

However, that European gas crisis did not really move the dial on green hydrogen investment. The latest oil and gas price shock might. “When an oil price shock arrives, investment in renewables, [electric vehicles], and energy storage tends to follow,” said consultancy Wood Mackenzie. In Europe, which is experiencing spiking gas prices for the second time in four years, the arguments for renewables, nuclear, transmission and demand response “are becoming even harder to ignore”.

Stable jurisdictions

The green hydrogen industry has been quick to seize the moment. Intercontinental Energy, developer of some of the world’s largest green hydrogen and ammonia projects in Australia, pointed out that the recent turmoil in the Middle East means diversifying energy supply is becoming increasingly important for import-dependent economies.

“Green fuels produced in stable jurisdictions such as Australia could play a significant role in strengthening energy security while accelerating decarbonisation,” said Alex Tancock, Intercontinental CEO. “Projects of this scale are designed to produce renewable fuels such as green ammonia at volumes intended for global export, creating the foundations of a new energy trade system built on renewable resources rather than fossil fuels.”

Regardless of events in the Middle East, InterContinental looks to be proving this concept. Its landmark Western Green Energy Hub project has recently secured enough green ammonia offtake interest from Japanese and Korean customers to support its first phase coming online in 2033, which would be followed by subsequent phases until the full planned capacity of 28mt/yr is reached by 2050. “The last three months have been transformational,” said Tancock.