Deep Dive: Hydrogen & E-Fuels — What's Working, What Isn't, and What's Next

Hydrogen and e-fuels—synthetic fuels produced using hydrogen—have attracted extraordinary attention and investment as potential solutions for hard-to-electrify sectors. The narrative is compelling: use renewable electricity to produce green hydrogen, then either use hydrogen directly or synthesize it into liquid fuels for shipping, aviation, and heavy industry. Yet five years into the current hydrogen hype cycle, a clearer picture is emerging of where hydrogen value propositions work, where they don't, and where the technology and economics are genuinely advancing. This analysis focuses particularly on ammonia as a shipping fuel—the application closest to commercial reality—while examining the broader hydrogen and e-fuels landscape.

Why This Matters

Hydrogen addresses a genuine gap in decarbonization pathways. Some sectors—long-haul shipping, aviation, steelmaking, chemical feedstocks—cannot be directly electrified with current or foreseeable technology. These sectors represent approximately 15-20% of global greenhouse gas emissions. Without viable solutions for these applications, net-zero emissions remains impossible.

The scale of investment reflects this strategic importance. Global hydrogen project announcements exceed $700 billion in cumulative investment intentions, with over 1,000 projects announced as of late 2024. Government support programs—including the U.S. Inflation Reduction Act's production tax credit of up to $3/kg for clean hydrogen, the EU's hydrogen strategy targeting 10 million tonnes of domestic green hydrogen production by 2030, and comparable programs in Japan, Korea, Australia, and elsewhere—have created powerful incentives.

Yet project announcements vastly exceed final investment decisions (FIDs). The gap between hydrogen aspiration and commercial reality reflects genuine economic and technical challenges that must be confronted honestly. For engineers, investors, and policymakers, understanding which applications are progressing versus stalling is essential for resource allocation.

What's Working

Green Ammonia for Shipping: The First Commercial-Scale Application

Among hydrogen and e-fuel applications, green ammonia for maritime shipping is closest to commercial deployment at scale. The pathway makes sense: ammonia can be produced from green hydrogen, is liquid at moderate conditions (easier to store than hydrogen), and can power ships through direct combustion or fuel cell conversion.

The case for ammonia as marine fuel:

• Energy density approximately 50% of conventional marine fuel (acceptable given large ship fuel tank capacity)
• Can be stored as liquid at ambient temperature under moderate pressure or at -33°C at atmospheric pressure
• Existing ammonia infrastructure (production, storage, transport) from fertilizer industry can be leveraged
• Ammonia-fueled engines are in development by major marine engine manufacturers (MAN, Wärtsilä)

Progress to date:

• Yara Clean Ammonia has announced projects for green ammonia production at scale, including expansions in Norway and planned facilities in Australia
• EXMAR and partners have developed ammonia-ready vessel designs
• Maersk has ordered methanol-fueled vessels but is evaluating ammonia for later fleet segments
• Multiple ammonia bunkering facilities are under development in Singapore, Rotterdam, and Antwerp

Challenges being addressed:

• Toxicity: Ammonia is acutely toxic, requiring careful handling procedures. Solutions include double-walled fuel tanks, enhanced ventilation, and crew training. Regulators are developing safety frameworks (IMO interim guidelines published 2024).
• NOx emissions: Ammonia combustion can produce NOx. Catalytic reduction and combustion optimization address this, with major engine developers demonstrating compliance.
• Efficiency penalty: Ammonia fuel systems are less efficient than conventional fuel, increasing fuel consumption and cost.

Why it's working: Shipping faces binding regulatory pressure (IMO's 2023 strategy targeting net-zero by 2050), limited alternatives for deep-sea vessels, and concentrated industry players capable of coordinating transitions. Ammonia's compatibility with existing infrastructure and engine development progress create a plausible near-term pathway.

Hydrogen for Industrial Feedstock Replacement

Hydrogen is already used at massive scale (~95 million tonnes annually) as industrial feedstock—primarily for ammonia production (fertilizers) and petroleum refining. Replacing "grey" hydrogen (from natural gas without carbon capture) with "green" hydrogen (from electrolysis powered by renewables) or "blue" hydrogen (from natural gas with carbon capture) represents a substantial decarbonization opportunity that doesn't require new end-use applications.

Progress to date:

• Fertilizer producers (Yara, CF Industries, Nutrien) have announced green ammonia projects
• Refineries are increasingly evaluating green hydrogen for processing, driven by low-carbon fuel standards
• Chemical companies (BASF, Linde, Air Liquide) are developing green hydrogen supplies for existing processes

Why it's working: These applications don't require new technology for hydrogen use—the end processes already consume hydrogen. The challenge is solely production cost and scale. As green hydrogen costs decline toward $2-3/kg (from current $4-8/kg in most locations), feedstock replacement becomes economic in regions with strong renewable resources.

Hydrogen for Steel: The Most Promising Heavy Industry Application

Steel production, responsible for approximately 7% of global CO2 emissions, represents one of hydrogen's most compelling applications. Traditional steelmaking uses coal-derived coke as both fuel and chemical reductant. Hydrogen can substitute as the reductant in direct reduced iron (DRI) processes, with water rather than CO2 as the byproduct.

Progress to date:

• HYBRIT (SSAB/LKAB/Vattenfall joint venture in Sweden) has produced fossil-free steel using hydrogen and is scaling to commercial production
• ArcelorMittal is developing hydrogen-DRI facilities in Germany, Belgium, and Spain
• ThyssenKrupp is converting blast furnaces for hydrogen injection and developing new hydrogen-DRI capacity
• Cleveland-Cliffs and U.S. Steel are developing hydrogen-ready DRI facilities in the U.S.

Key enablers:

• Strong carbon price in Europe (EU ETS above €80/tonne) makes hydrogen-steel increasingly competitive
• Customer demand for green steel creates willingness to pay premium prices
• DRI technology is mature; the innovation is the hydrogen supply, not the process
• Steel industry concentration means a manageable number of decision-makers

Why it's working: The combination of mature process technology, regulatory pressure, customer demand, and project announcements from major steel producers indicates genuine momentum—not just aspirational announcements.

What Isn't Working

Hydrogen for Light-Duty Transportation

The vision of hydrogen fuel cell vehicles (FCVs) as a mass-market solution for passenger cars has largely failed, despite decades of investment by Toyota, Hyundai, Honda, and others.

The challenge:

• Battery electric vehicles (BEVs) have won the passenger car competition. BEVs offer lower total cost of ownership, better efficiency (batteries are ~85% efficient; hydrogen fuel cells plus production/compression are ~30-40%), and rapidly expanding charging infrastructure.
• Hydrogen fueling infrastructure remains minimal: fewer than 100 public hydrogen stations in the entire United States, mostly in California.
• FCV sales are negligible: Toyota Mirai and Hyundai Nexo sell in the low thousands annually globally.

What manufacturers are doing: Toyota and Hyundai maintain FCV development but have pivoted messaging toward commercial vehicles (trucks, buses) where hydrogen's faster refueling advantage is more relevant. BMW and others have shifted focus to BEVs.

Lesson: Hydrogen lost to batteries in applications where batteries work. For passenger vehicles—with daily driving ranges under 300 miles and overnight charging opportunity—BEVs' efficiency advantage and infrastructure network effects proved decisive.

Hydrogen for Building Heating

Despite promotion by gas utilities, hydrogen for residential and commercial building heating faces fundamental challenges:

The efficiency problem: Using renewable electricity to produce hydrogen (60-70% efficient), compress/transport it, then burn it for heat (~90% efficient) yields about 50-60% end-use efficiency. Using the same electricity in a heat pump yields 200-400% efficiency (moving 2-4 units of heat per unit of electricity). Hydrogen heating requires 3-7x more renewable electricity for the same heating output.

The infrastructure problem: Existing gas networks cannot safely transport more than ~20% hydrogen blend without modifications. Full hydrogen conversion requires pipeline replacement, new appliances, and massive infrastructure investment.

What's happening: The UK government initially supported hydrogen heating pilots but has scaled back ambitions following analysis showing heat pumps as the more cost-effective pathway. European utilities have faced increasing pushback against hydrogen heating narratives.

Lesson: Don't use hydrogen where electricity works better. Buildings can be electrified with proven, efficient technology. Hydrogen should be reserved for applications where electrification is not viable.

Synthetic E-Fuels for Road Transport

Synthetic fuels (e-fuels) produced from green hydrogen and captured CO2 have been promoted as a pathway to decarbonize existing internal combustion vehicles. The economics are prohibitive:

Cost structure: Current e-fuel production costs exceed $5-10 per liter—far above conventional fuel prices and uncompetitive with electric alternatives. Even optimistic projections suggest costs of $2-3 per liter at scale, still significantly above conventional fuels.

Efficiency losses: E-fuel production chain (electricity → hydrogen → synthesis → fuel → combustion) yields approximately 10-15% overall efficiency. Electric vehicles achieve 70-80% efficiency from the same electricity.

Where e-fuels might work: Niche applications—vintage vehicles, motorsports, aviation (see below)—where electrification is impossible and customers will pay premium prices. Not for mass-market transportation.

What's Next: Emerging Applications

Sustainable Aviation Fuel (SAF) and E-Kerosene

Aviation represents the most promising potential market for synthetic e-fuels, given that electrification of long-haul flight remains distant and biomass-based SAF faces feedstock constraints.

Current status:

• Multiple e-kerosene projects announced (HIF Global in Chile, Norsk e-Fuel in Norway, Infinium in the U.S.)
• Regulatory mandates emerging: EU ReFuelEU requires 2% SAF by 2025, rising to 70% by 2050 with e-fuel sub-mandates
• Airlines increasingly contracting for SAF/e-fuel supply

Challenges remaining:

• Cost: Current e-kerosene costs 5-10x conventional jet fuel
• Scale: Global announced capacity remains tiny relative to aviation fuel demand
• Carbon capture: Sustainable CO2 source required for synthesis; direct air capture remains expensive

Trajectory: E-kerosene for aviation is likely to remain a small, premium market through 2030 but could scale significantly through the 2030s as costs decline and mandates strengthen. The sector warrants serious attention.

Green Ammonia and Methanol for Shipping: The Fuel Race

Beyond ammonia, green methanol is emerging as an alternative shipping fuel, with significant vessel orders (particularly from Maersk) creating demand:

Ammonia advantages: Higher energy density than methanol, existing production infrastructure, simpler synthesis (just hydrogen + nitrogen)

Methanol advantages: Less toxic, easier handling, existing vessel designs and bunkering infrastructure, can use "bio" pathway (from biomass) as well as "e" pathway (from hydrogen + CO2)

Likely outcome: Both fuels will see deployment, with market segments emerging based on vessel type, route, and regional infrastructure. Neither has "won" yet, but both are progressing toward commercial deployment.

Real-World Examples

1. NEOM Green Hydrogen/Ammonia Project (Saudi Arabia)

The NEOM project represents the largest announced green hydrogen project globally:

• $8.4 billion investment by NEOM, ACWA Power, and Air Products
• 4 GW of dedicated wind and solar capacity
• 1.2 million tonnes/year of green ammonia production
• First production targeted for 2026

The project demonstrates that utility-scale green hydrogen is achievable where renewable resources are excellent. However, it also illustrates the challenge: even at this scale, production represents a small fraction of global ammonia demand.

2. HYBRIT Fossil-Free Steel (Sweden)

The HYBRIT project has achieved what no other has—producing steel using hydrogen as the reductant at commercial scale:

• First trial delivery of fossil-free steel to Volvo in 2021
• Demonstration plant operating and producing steel for customer evaluation
• Commercial-scale facility (1.3 million tonnes/year capacity) under development

HYBRIT demonstrates technical viability. Commercial viability depends on green hydrogen costs and willingness of customers to pay green premiums (current estimates suggest 20-30% premium required).

3. Shipping Fleet Orders: Maersk and Others

Major shipping companies have placed significant vessel orders using alternative fuels:

• Maersk: 25 methanol-powered container ships ordered, with first vessels operational in 2024
• CMA CGM: LNG-powered vessels with ammonia-ready designs under consideration
• Multiple orders for ammonia-ready or ammonia-capable vessels across the industry

These orders create guaranteed demand for green fuels and signal industry commitment to transition.

Action Checklist

• Prioritize hydrogen applications where electrification is not viable (heavy industry, shipping, aviation, feedstocks)
• Avoid hydrogen narratives for applications where electricity works better (passenger vehicles, building heating)
• For ammonia shipping fuel: monitor engine development, bunkering infrastructure, and safety framework evolution
• For steel/industrial applications: assess carbon pricing and customer willingness to pay green premiums in your market
• For e-fuels/SAF: track regulatory mandates and production project progress; consider offtake agreements for supply security
• Evaluate hydrogen project economics using realistic cost assumptions; be skeptical of projections without detailed basis

Frequently Asked Questions

Q: When will green hydrogen be cost-competitive with grey hydrogen?

A: Depends on location. In regions with excellent renewable resources (Middle East, Chile, Australia), green hydrogen may reach cost parity with grey hydrogen (~$1.50-2/kg) by 2030. In regions with expensive electricity or limited renewables, parity may take until 2035-2040. The IRA production tax credit of $3/kg makes green hydrogen competitive immediately in the U.S. for qualifying projects.

Q: Should our company invest in hydrogen fuel cell vehicles?

A: For passenger vehicles, probably not—BEVs have won. For heavy trucks, buses, and specialized commercial vehicles, hydrogen fuel cells remain worth evaluating, particularly for applications with high daily mileage, fast refueling requirements, or duty cycles where BEV battery weight is problematic. Monitor infrastructure development in your operating regions.

Q: Is ammonia or methanol the better shipping fuel?

A: Both have viable pathways. Ammonia offers higher energy density and doesn't require carbon capture for production, but faces toxicity challenges. Methanol is easier to handle and has existing infrastructure but requires sustainable CO2 sources. The shipping industry is hedging, with major players ordering vessels capable of both. Regional fuel availability may ultimately determine which dominates in specific trade lanes.

Sources

• International Energy Agency. (2024). Global Hydrogen Review 2024. Paris: IEA.
• BloombergNEF. (2024). Hydrogen Economy Outlook. Available at: https://about.bnef.com/
• International Maritime Organization. (2024). Interim Guidelines for the Safety of Ships Using Ammonia as Fuel. IMO.
• HYBRIT. (2024). Progress Report: Fossil-Free Steel Production. Available at: https://www.hybritdevelopment.se/
• European Commission. (2024). ReFuelEU Aviation: Implementation Guide. Available at: https://ec.europa.eu/
• Hydrogen Council. (2024). Hydrogen Insights 2024. Available at: https://hydrogencouncil.com/
• IRENA. (2024). Green Hydrogen Cost Reduction: Scaling up Electrolyzers. Abu Dhabi: IRENA.