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Oil & Gas

Global Energy Perspective 2023: Hydrogen

outlook
January 10, 2024 | Article

Despite some uncertainties across scenarios, global

clean hydrogen demand is projected to grow
significantly to 2050, but infrastructure scale-up and
technology advancements are needed to meet
projected demand.

T
he Global Energy Perspective 2023 models the outlook for
demand and supply of energy commodities across a 1.5°C
pathway, aligned with the Paris Agreement, and four bottom-up energy
transition scenarios. These energy transition scenarios examine
outcomes ranging from warming of 1.6°C to 2.9°C by 2100 (scenario
descriptions outlined below in sidebar “About the Global Energy
Perspective 2023”). These wide-ranging scenarios sketch a range of
outcomes based on varying underlying assumptions—for example,
about the pace of technological progress and the level of policy
enforcement. The scenarios are shaped by more than 400 drivers
across sectors, technologies, policies, costs, and fuels, and serve as a
fact base to inform decision makers on the challenges to be overcome
to enable the energy transition. In this article, we explore how hydrogen
could contribute to decarbonizing the energy system, uncertainties
around hydrogen’s future role, and what it would take to set up a global
hydrogen economy by 2050.
Clean hydrogen demand is projected to increase to

between 125 and 585 Mtpa by 2050

Hydrogen demand today is largely supplied by fossil fuel-based steam methane

reforming and driven by fertilizer production and refining. These industries are
expected to lead the uptake of blue and green hydrogen until 2030 in the slower
scenarios, as they switch their hydrogen-based operations to clean hydrogen. In
parallel, “new” emerging applications—for instance in steel, in the production of
synthetic fuels, and in heavy road transport—may begin to emerge in the faster
scenarios.

Nearly all hydrogen consumed today is grey hydrogen (approximately 90 million tons
[1] per annum [Mtpa]). However, demand for grey hydrogen is projected to decline as
demand for clean hydrogen rises and costs of the green molecules eventually become
more competitive. [ 2 ] By 2050, clean hydrogen demand could account for up to 73 to
100 percent (125 to 585 Mtpa) of total hydrogen demand, with only between less than 1
and 50 Mtpa of demand being met by grey hydrogen, depending on the scenario.

After 2025, nearly all new hydrogen production coming online is expected to be clean
hydrogen. This coincides with the start of the expected phaseout of grey hydrogen,
driven by the growing cost competitiveness of clean hydrogen and commitments to
decarbonize. Until 2030, clean hydrogen uptake is projected to be driven by existing
applications switching from grey to blue and green hydrogen, but between 2030 and
2040 the uptake of hydrogen in new applications without existing demand is expected
to drive the increase in clean hydrogen demand.

After 2040, private and public sector commitments are projected to drive the uptake of
clean hydrogen and hydrogen-based fuels in emerging applications in the Further
Acceleration and Achieved Commitments scenarios. Potential mechanisms that would
be required to support demand growth of hydrogen and hydrogen derivatives in these
applications include the implementation of, or increase in, CO2 pricing, quotas on
sustainable fuels in aviation, or CO2-reduction targets in maritime transportation. On
the other hand, in the Current Trajectory and Fading Momentum scenarios, hydrogen
uptake is projected to be driven by a continuation of the current cost decline and the
underlying growth in some of the fertilizer and chemicals markets that use hydrogen
today, with limited new policy support.

Some geographies, such as the European Union and United Kingdom, are expected to
fully phase out grey hydrogen by 2050 in all scenarios except Fading Momentum. Grey
hydrogen will likely play a larger role in the Fading Momentum scenario than in the
faster energy transition scenarios, due to slower uptake of clean hydrogen in new
sectors. In these sectors, uptake of clean hydrogen is projected to be limited until
2050.

Industry is projected to drive the majority of clean

hydrogen uptake until 2030, followed by a wider

uptake in new applications by 2050

Applications with existing demand will likely account for the majority of clean hydrogen
demand throughout the 2020s, potentially driving the increase in clean hydrogen’s
share of total hydrogen demand from less than 1 percent today to around 30 percent
by 2030 in the Further Acceleration scenario.

By 2040, clean hydrogen could play a larger role in new applications—especially in

mobility, which is expected to be the largest “newcomer” for clean hydrogen demand
by 2040 in the Further Acceleration scenario. Applications could range from fuel cell
electric vehicles in long-haul, heavy-duty trucking to synthetic kerosene in aviation.
The second largest newcomer is expected to be hydrogen used in (mainly industrial)
heating, displacing natural gas. Combined, clean hydrogen uptake in existing
applications and emerging applications could drive clean hydrogen’s share of total
demand to 75 percent by 2040.

By 2050, in the Further Acceleration scenario, mobility applications are projected to

remain the largest drivers for clean hydrogen uptake, with road transport accounting
for around 80 Mtpa and aviation around 50 Mtpa, with the remaining 15 Mtpa coming
from maritime. Existing industrial applications and heating are projected to drive
further clean hydrogen uptake, potentially resulting in clean hydrogen accounting for
95 percent of total hydrogen demand in 2050.

However, uncertainties around demand growth remain. For example, power could drive
an additional demand upside of between 60 and 70 Mtpa by 2050, on top of the
projected demand in the Further Acceleration scenario. This could happen if hydrogen-
fueled turbines or stationary fuel cells prove more competitive or have more public
support than alternative technologies for the last-mile decarbonization of the energy
system, such as long-duration energy storage technologies and carbon capture,
utilization, and storage (CCUS).

In the Fading Momentum scenario, the already existing end use of hydrogen in fertilizer
production is expected to drive consumption far beyond 2030 corresponding with the
lower total growth.

The only sector that is not projected to see an increase in total hydrogen demand in
2050 compared to today is refining, with demand expected to peak in the late 2020s
or early 2030s, depending on the scenario, driven by lower oil demand across
scenarios.
Uptake in new applications depends on operating

environment, infrastructure development, and

relative competitiveness

Going forward, the decarbonization agendas of governments and companies are

expected to drive hydrogen uptake in new applications, as well as the decarbonization
of existing grey hydrogen applications. However, in most regions, there is significant
uncertainty around projected hydrogen uptake in these new applications across
scenarios.
The uncertainty surrounding hydrogen demand in emerging applications stems from a
combination of factors, including lack of clarity in government support, the
development of enabling infrastructure, and evolving competitive dynamics with other
decarbonization technologies. For example, hydrogen’s role in decarbonizing aviation
could depend on government support, as well as market dynamics and competition.
First, sustainable aviation fuel (SAF) quotas are needed across geographies to drive a
switch from fossil fuel-based kerosene to clean alternatives. Second, hydrogen-based
synthetic fuels would have to prove competitive with the main SAF alternatives, for
instance biokerosene, either based on costs or constraints in the availability of
feedstock necessary to produce biokerosene.

Similarly, there is uncertainty about the switch from grey to clean hydrogen. Active
mandates, such as CO2 prices and subsidies, will likely be needed to facilitate the
decarbonization of existing hydrogen demand, as the switch will likely not be attractive
based on economics alone.

Infrastructure scale-up and technology

advancements could be critical

In key sectors, the timely deployment of infrastructure across the whole supply chain is
projected to be needed to meet clean hydrogen demand.

Several key enablers—mostly physical infrastructure—would have to be rolled out by

2050 to facilitate the future hydrogen economy. In the Achieved Commitments
scenario, over 163,000 refueling stations for trucks would be needed globally,
alongside a network of more than 40,000 kilometers of hydrogen pipelines in Europe
alone.

Technological advancements may also be needed to ensure the uptake of hydrogen in

sectors where hydrogen technology is not yet mature, such as the further development
of fuel cells for heavy-duty vehicles and marine vessels.

Coordination between government and the private sector may be needed to ensure
the required infrastructure is in place to meet hydrogen demand at the pace necessary
to meet decarbonization commitments and with an attractive business case.

The extent of the growth and advancement necessary to establish a hydrogen

economy is not without precedent—historical adoption of natural gas in the European
Union since the 1960s and 70s shows that it is possible to rapidly change an
established energy system if the necessary competitiveness and support are in place.
Asia is projected to remain the region with the

largest hydrogen demand to 2050

Despite uncertainties in regional and sectoral demand, Asia is projected to remain the
biggest hydrogen consumer across scenarios, largely driven by the demand from
chemicals that already exist today, and, to a lesser extent, the transport, iron, and steel
sectors in China and India. In Japan and South Korea, a significant share of hydrogen
demand is expected to come from electricity generation as ammonia and hydrogen are
blended in existing coal and gas plants, respectively. As Asia will likely not produce
enough hydrogen to meet its growing demand, the region might rely on imports from
Oceania or the Middle East, for instance.

In Europe and the United States, the chemicals sector is projected to remain a
significant driver of hydrogen demand, but new applications in sectors including steel
and production of synthetic fuels for aviation, maritime, and heavy road transport are
also expected to contribute significantly to demand growth.
Green hydrogen production is projected to be

spread across regions, while blue hydrogen

production is geography-specific
By 2050, green hydrogen is expected to dominate the global supply mix, with a share
of between 50 and 65 percent across scenarios, as cost reductions in renewables and
electrolyzers make this production route more cost competitive. Blue hydrogen is
projected to account for the next largest share of supply, at between 20 and 35
percent.

The ratio of blue to green hydrogen production is expected to differ significantly by

region, driven mainly by cost factor developments. Blue hydrogen production is
projected to be concentrated in regions with cost-competitive natural gas and CCUS,
such as the Middle East and North America. By 2050, blue hydrogen production could
require as much as around 500 billion cubic meters of natural gas (between 10 and 15
percent of global natural gas demand in the Further Acceleration scenario), and
capacity to capture and store 750 to 1,000 megatons of CO2.

Green hydrogen production is projected to have a higher share in regions with

abundant and cost-competitive renewable resources, such as Australia and Iberia. The
production of green hydrogen could potentially be constrained by a lack of renewable
power. Globally, approximately a quarter of renewable electricity generation (around
14,000 terawatt-hours) could be required to produce the green hydrogen needed by
2050 in the Further Acceleration scenario. Further potential bottlenecks to be tackled
to achieve strong green hydrogen uptake include large-scale investments and
deployment of at-scale manufacturing of electrolyzers, with cost competitiveness
being strongly dependent on the latter.
Clean hydrogen cost competitiveness is projected to

vary between regions

Clean hydrogen production costs are expected to drop significantly by 2030–50, with
large differences across regions under the scenarios explored. Cost differentials
among regions could drive an increased mismatch between supply and demand
centers and thus lead to the development of major hydrogen and hydrogen-derivatives
export hubs.

Regions with cost-competitive natural gas resources and CCUS, such as the Middle
East, Norway, and the United States, are expected to have the highest cost
competitiveness and could potentially account for 30 percent of exports at production
costs of below $1.5/kg by 2050.
Regions with access to low-cost renewable power, such as Australia or North Africa,
could make up an additional 60 percent of exports at production costs of between
$1.5/kg and $2/kg.

The growing hydrogen trade could enable uptake in countries that have strong
decarbonization ambitions but lack the necessary energy resources for clean hydrogen
production, such as parts of Europe, as well as Japan and South Korea.
A global hydrogen trade could emerge to connect

demand centers with resource-rich export hubs

Major hydrogen trade flows are expected to evolve to connect export hubs with
favorable renewable power or natural gas resources to two main demand regions: Asia
and Europe.

Europe could meet most of its demand from within the region, importing from
countries with low gas prices or abundant hydro and solar power, such as Iberia and
the Nordics. The remainder could be sourced from the Middle East, North Africa, and
North America. Asia could source hydrogen from countries and regions like Australia,
Latin America, the Middle East, and North America.

Regions with favorable routes to market—either by producing and shipping as

derivatives or building a strategic network of hydrogen pipelines toward off-takers,
potentially re-using existing natural gas infrastructure—may also emerge as production
hubs.

While major trade flows in Europe will likely depend heavily on pipelines, shipping
could prove critical to enable overseas trade. Hydrogen shipping could be expedited
by converting hydrogen to synfuels (such as ammonia or methanol) at export hubs.
Liquid hydrogen shipment could be one way to enable the global hydrogen trade after
2030, potentially increasing to approximately 20 Mtpa traded in 2050 in the faster
scenarios.

Although this projected ramp-up of the global hydrogen trade is ambitious, it does
have historical precedent—similar growth was observed in the first 25 years of LNG
development.
Hydrogen is a versatile energy carrier that has the potential to play a
significant role in decarbonizing the energy system. Hydrogen-based
technologies and fuels can provide low-carbon alternatives across
sectors. However, as of now, there is still a wide range of possible
hydrogen pathways up to 2050 both in terms of hydrogen demand and
supply, leading to uncertainty for organizations looking to enter the
hydrogen market or to scale their operations.

Government and private sector support is projected to heavily affect

hydrogen uptake. At the same time, future technological developments
of alternatives (for instance, high-temperature electric furnaces, long-
duration energy storage, and availability of biobased feedstock) could
also create competition in some of the new applications for hydrogen
and hydrogen-based fuels. Hydrogen companies may benefit from
closely monitoring signposts on policies, the development of hydrogen-
enabling infrastructure, and the cost-competitiveness of hydrogen-
based technologies compared to other low-carbon alternatives as they
chart their way forward.

To request access to the data and analytics related to our Hydrogen

outlook, or to speak to our team, please contact us .

ABOUT THE AUTHOR(S)

Chiara Gulli is a solution manager in McKinsey’s Amsterdam office;

Bernd Heid is a senior partner in the New York office, where Maurits
Waardenburg is a partner; Jesse Noffsinger is a partner in the Seattle
office; and Maurits Waardenburg is a partner in the Brussels office.

The authors wish to thank Cristina Blajin, Alison Hightman, Albertine

Potter van Loon, and Ole Rolser for their contributions to this article.

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