Air Products’ staggering $1.7 billion quarterly loss, driven primarily by a $2.3 billion write-down on abandoned hydrogen projects, serves as a stark wake-up call for an industry grappling with the chasm between ambition and economic reality. This retreat, including the cancellation of a green liquid hydrogen plant in New York and a sustainable aviation fuel (SAF) project in California under new CEO Eduardo F. Menezes, starkly contrasts the Hydrogen Council’s 2024 report touting over 1,500 announced global hydrogen projects representing $680 billion in potential investment through 2030, with a record $75 billion reaching Final Investment Decision (FID).
This dissonance is not isolated. A wave of project delays and cancellations globally signals a significant market correction. Shell abandoned a low-carbon hydrogen plant in Norway, citing insufficient demand. Equinor halted a key hydrogen pipeline to Germany over customer and regulatory uncertainties. In Australia, BP shelved its A$1 billion H2Kwinana green hydrogen and SAF hub, Origin Energy exited a New South Wales hub, and the Queensland government withdrew funding from the $12.5 billion CQ-H2 project, prompting questions about the viability of the nation’s proclaimed $200 billion pipeline. Even Saudi Arabia’s flagship $8.4 billion NEOM project, one of the few to achieve financial close, faces delays, while numerous other Gulf state mega-projects remain conceptual. Analysts estimate a critical vulnerability: only about 12% of proposed projects globally have firm offtake agreements, leaving financiers deeply wary.
The Core Challenge: Uncompetitive Economics
The fundamental barrier remains cost. Green hydrogen production, requiring 45-60 kWh of renewable electricity per kilogram, is inherently expensive. At $50/MWh power (achievable in favourable regions), electricity alone costs ~$2.50/kg. Adding electrolyser capital costs, O&M, and balance-of-plant expenses pushes total production costs typically into the $4-8/kg range in 2025. This stands in jarring contrast to established “grey” hydrogen from natural gas, often produced for $1-2/kg. The result is a persistent 3-5x cost premium for green hydrogen that the market alone cannot bridge.
This economic gulf is exacerbated by weak carbon pricing. The EU ETS, trading at €70-90/ton CO₂, adds only ~$0.80-$1.00/kg to grey hydrogen costs (due to ~9 kg CO₂ emitted per kg H₂), insufficient to close the gap with green alternatives. Most major hydrogen markets lack any effective carbon price, leaving the “green premium” reliant solely on subsidies or voluntary corporate commitments. Furthermore, critical demand sectors like aviation face their own hurdles; the EU’s SAF mandate (2% by 2025, 6% by 2030) is already under pressure from airlines citing costs 3-5x conventional jet fuel and limited supply, directly impacting potential hydrogen-derived e-fuel demand.
Policy Volatility and Demand Uncertainty Compound Risks
Regulatory landscapes remain precarious. The UK scrapping its hydrogen heating trial and EU nations delaying hydrogen blending into gas grids exemplify shifting policy sands. In the US, while the Inflation Reduction Act’s $3/kg production tax credit provides significant support, the future trajectory of hydrogen hubs and political backing under changing administrations introduces uncertainty. This volatility directly impacts investor confidence for capital-intensive, long-term projects. The lack of robust, long-term mandates or guaranteed demand signals – evident in the minuscule portion of projects with firm offtake – creates a chicken-and-egg scenario: scale is needed to reduce costs, but costs must fall to attract scale without massive, sustained subsidies.
Separating Viable Projects from Wishful Thinking
The current wave of cancellations represents a necessary market correction, shifting focus from hype to fundamental viability. Projects likely to survive and advance must demonstrably clear high hurdles:
- Secured Offtake is Paramount: Bankability hinges on binding agreements with creditworthy buyers or captive use (e.g., a chemical company producing green hydrogen for its own ammonia synthesis). The “build it and they will come” model is defunct. Vertically integrated models, like fertilizer producers securing their own supply, offer more resilience.
- Ultra-Low-Cost Renewable Energy is Non-Negotiable: Given that electricity constitutes the largest cost input, projects must be sited in regions with exceptional, consistent solar/wind resources, yielding very low levelized costs of energy (consistently below $20-$30/MWh). Proximity to generation or grid infrastructure to minimize balancing/connection costs is critical.
- Industrial Hub Integration Reduces Costs: Locating production near concentrated demand (e.g., refineries, steel plants, chemical complexes) minimizes the prohibitively expensive challenges of hydrogen transport and storage. Clustering enables shared infrastructure and streamlines logistics. Projects reliant on long-distance shipping or complex conversion (e.g., to ammonia for export) face significantly higher delivered costs.
- Phased Scaling and Proven Execution Mitigate Risk: While scale drives cost reduction, “gigaproject” ambitions amplify execution risk. A phased, modular approach starting at a commercially viable scale with proven technology, managed by experienced industrial players, offers a more prudent path than unproven moonshots.
- Explicit Reliance on Robust Policy Support: Given the current economics, viable projects must be structured to leverage available subsidies, tax credits, or grants. Jurisdictions with stable, long-term policy frameworks and clear demand mandates are essential. Projects banking solely on unsubsidized competitiveness in the near term are highly vulnerable.
A Leaner, More Focused Future
The $680 billion global pipeline, while indicative of ambition, is increasingly viewed as aspirational. Analysts like Rystad Energy and BloombergNEF project significant attrition, with delays and cancellations likely affecting a substantial portion of projects, especially those lacking the stringent criteria above. The Hydrogen Council’s own acknowledgement of “natural attrition” signals an acceptance that the initial hype is giving way to harsh economic scrutiny. The era of hydrogen development defined by disciplined execution, rigorous economic validation, and a focus on truly hard-to-abate sectors has definitively begun. Success hinges not on the volume of announcements, but on the ability to deliver cost-competitive molecules to committed buyers within supportive policy frameworks. The Air Products write-down is less an epitaph and more a stark lesson in the imperative of fundamentals over fantasy.
