Rising concerns over energy security following disruptions to energy flows in the Middle East are renewing interest in low-carbon hydrogen despite its higher costs, Wood Mackenzie said Tuesday.
Hydrogen had lost momentum in recent years as many proposed applications faced competition from cheaper or cleaner technologies, but threats to Gulf energy exports have shifted attention back toward supply security.
Before the Iran war, about 20% of global liquefied natural gas exports, 25% of internationally traded ammonia, and 37% of global urea shipments moved through the Strait of Hormuz, according to Wood Mackenzie.
Disruptions to traffic through the strait pushed liquefied natural gas, ammonia, and urea prices sharply higher, and many of those markets remain above pre-war levels despite some recent declines.
Hydrogen discussions now focus more on strengthening energy security than on reducing greenhouse gas emissions, because the fuel can replace oil and gas directly or indirectly through products such as ammonia and methanol.
Industries including refining and fertilizers could also benefit from alternative hydrogen supplies because they currently rely heavily on hydrogen produced from natural gas, the consultancy said.
Wood Mackenzie noted that the Trump administration has largely rejected climate-focused energy policies, although US Agriculture Secretary Brooke Rollins recently highlighted progress at CF Industries' Blue Point low-carbon ammonia project in Louisiana.
The project will produce blue ammonia from natural gas while capturing carbon dioxide emissions, supporting development of a broader low-carbon ammonia market, according to Wood Mackenzie.
China identified hydrogen as a strategic priority in its 15th Five-Year Plan and now holds more than half of the global green hydrogen capacity that has reached a final investment decision.
Other regions continue advancing hydrogen investments, including India and the European Union, while AM Green and Uniper signed the world's largest green ammonia offtake agreement in January.
At Wood Mackenzie's annual Hydrogen Conference last week, discussions focused heavily on energy security, with new analysis showing the Middle East conflict has altered the economics of low-carbon hydrogen supply chains in Europe.
Conventional grey ammonia now costs about $800 per ton to produce at current European benchmark TTF gas prices of roughly $17 per million British thermal units, while delivered low-carbon ammonia costs range from $700 to $1,100 per ton, Wood Mackenzie Head of Hydrogen Research Murray Douglas said.
Although some low-cost hydrogen projects could compete with conventional ammonia, most are not yet operational, and lower European gas prices following a reopening of the Strait of Hormuz could weaken their competitiveness, Douglas added.
Douglas said hydrogen could strengthen Europe's energy security by diversifying supply chains, but government support will remain essential because low-carbon hydrogen is unlikely to compete with hydrocarbons without subsidies for at least the next 15 to 20 years.
While some vessels, including tankers, continue to transit the Strait of Hormuz, traffic remains well below pre-war levels, with Wood Mackenzie VesselTracker data showing only about 30 transits on the busiest day last week compared with roughly 170 before the conflict.
Risks to shipping in the region remain elevated, Wood Mackenzie said, citing a tanker fire reported off the coast of Oman on Monday by the UK Maritime Trade Operations Center that prompted the evacuation of the vessel's crew.