How to Boost Clean Hydrogen in Saudi Arabia
Source：energy intelligence
Saudi Arabia and other Gulf countries face a challenge in realizing their hydrogen ambitions, which remain largely focused on export markets that have yet to materialize. Another pathway would be to align their policies with the sizeable domestic off-take potential for low-carbon hydrogen across major industrial sectors, in turn boosting their domestic decarbonization efforts. As the Middle East’s largest economy, Saudi Arabia is well positioned to lead the redesign of the region’s ambitions in this field.
Despite notable progress, global demand for low-carbon hydrogen is not yet meeting the ambitions set by governments in recent years. Demand is hindered by the large cost gap with production from unabated fossil fuels, complex regulatory environments and slow infrastructure development.
As a result, Gulf countries such as Saudi Arabia and the United Arab Emirates are facing a challenge with their low-carbon hydrogen projects, which are almost exclusively oriented toward export markets that have yet to materialize at scale.
Masdar, the UAE’s flagship clean-energy company, has decided to reallocate capital away from green hydrogen. Masdar had planned to deploy 6 gigawatts of renewable power to produce approximately 350,000 metric tons of green ammonia. Now funds will be redirected toward renewable power that supports data centers. The decision will delay — perhaps indefinitely — the UAE’s official production target of 1.4 million tons per year of low-carbon hydrogen by 2031.
In Saudi Arabia, the world’s largest green hydrogen project in Neom faces demand risk as it struggles to find international buyers for its product. To date, it has secured off-take for only around one-third of its planned production of up to 1.2 million tons/yr of green ammonia.
Domestic Hydrogen Market Potential
Other factors slowing progress toward committed investments in the Gulf’s hydrogen markets include a lag in renewable energy uptake. Although 2024 marked the largest ever increase in renewable energy capacity worldwide, there remains a sizeable gap between East Asia, the world’s leading region, and the Middle East. East Asia increased its capacity by approximately 421.5 GW, while the Middle East posted a much smaller increase of 3.3 GW (with Saudi Arabia accounting for more than half of that). This raises questions about the Gulf countries’ readiness to support large-scale electrolytic hydrogen production, which requires accelerated deployment of renewable energy.
The overarching reliance on export markets also seems at odds with some current ambitions. The UAE’s National Hydrogen Strategy (2023) states that substantial domestic demand for low-carbon hydrogen means the country can accelerate ahead of the competition in developing projects and does not need to rely on export markets for its product.
Currently, the UAE’s hydrogen demand is about 0.5 million tons/yr. This demand consists of conventional “gray” hydrogen from fossil fuels without carbon capture, primarily in the refining and chemical industries. As low-carbon hydrogen is expected to play a significant role in decarbonizing industry and transport, demand is estimated to grow to more than 10 million tons/yr by 2050.
Saudi Arabia’s current domestic gray hydrogen demand stands at about 2.5 million tons/yr and is dominated by ammonia, methanol and refining production. Low-carbon hydrogen is anticipated to play a significant role in decarbonizing heavy industries such as cement and steel.
As the Kingdom continues to embrace cleaner energy solutions, domestic demand is expected to surge. A moderate-growth forecast sees the Saudi market reaching nearly 3.2 million tons/yr by 2034. An earlier forecast from the International Renewable Energy Agency — more aligned with meeting the 1.5°C climate goal (and its own national net-zero target for 2060) — sees Saudi Arabia becoming the world’s sixth-largest low-carbon hydrogen demand market by 2050.
Requirements for National Market
Inspired by recent findings from leading Saudi research organizations and the International Energy Agency (IEA), we propose three requirements for a national low-carbon hydrogen market: implementing carbon pricing and further energy price reforms; creating public-procurement-driven sectoral mandates; and accelerating local innovation.
Carbon Pricing
First, local demand for low-carbon hydrogen needs a carbon pricing mechanism.
Recent research by scholars at the King Abdullah Petroleum Studies and Research Center considers hypothetical carbon prices of $20 and $50 per ton of CO2 emitted, added to the prices of energy products (either consumed by particular sectors or the entire economy). The analysis shows that carbon pricing could be an effective mechanism for reducing emissions in Saudi Arabia. It also argues that future research should explore the integration of carbon pricing with large-scale renewable energy investments and carbon capture and storage, particularly for hard-to-abate sectors such as petrochemicals and oil refining.
Another recent study co-authored by scholars from the King Abdullah University of Science and Technology (KAUST) expands the analysis by arguing that carbon pricing and energy-subsidy reform are fundamental to making low-carbon steel technologies cost-competitive with conventional natural-gas-based routes in the Middle East. To reach parity with conventional technology by 2030, the study estimates that carbon-price levels should range from $440/ton CO2 (reference case) to $209/ton CO2 (with ambitious climate and energy price reforms). By 2060, the price required could drop to $173/ton CO2 and potentially as low as $15/ton CO2 with substantial hydrogen cost reductions and full energy subsidy reform.
The study also shows that low, subsidized natural gas prices keep fossil-based steel dominant and undermine the competitiveness of low-carbon hydrogen in (amongst others) Saudi Arabia.
Public Procurement
Second, the Kingdom’s main demand sectors (petrochemicals, cement, ammonia and steel) provide a solid foundation for domestic demand for low-carbon hydrogen. Mandating its use through public procurement could drive domestic demand and support industry scale-up.
Riyadh’s Saudi Vision 2030 includes several major construction and infrastructure projects aimed at diversifying the economy and enhancing urban living. As a result, Saudi Arabia’s construction sector is witnessing unprecedented growth, with a project pipeline valued at more than $1.7 trillion. Green materials like steel are only slightly more expensive than traditional versions (this extra cost is called the “green premium”). By making these greener materials mandatory in construction, the Saudi government could create demand that supports the local producers.
This aligns with the IEA’s Global Hydrogen Review 2025, which notes that public procurement is a powerful policy tool to unlock significant demand in the near term. Globally, the public sector accounts for about 25% of global steel demand, but governments are not yet using this opportunity to its full potential. Pushing this purchasing power behind end-use steel products that require low-emissions hydrogen in major Saudi projects could significantly boost domestic demand and support industry scale-up in the near term.
Local Innovation
Thirdly, strengthening initiatives to accelerate hydrogen technology transfer and local innovation is essential for positioning the kingdom as a globally competitive market.
The collaboration between Stargate Hydrogen, a European deep-tech company specializing in green hydrogen technologies, and the Research, Development, and Innovation Authority of Saudi Arabia is a prime example. The collaboration focuses on localizing Stargate’s technologies for hydrogen innovation and deployment in the kingdom, including building partnerships with leading academic institutions such as KAUST to generate domestic intellectual property and collaboration with Saudi manufacturers to develop local production capacity for electrolyzers.
A Saudi national hydrogen market that produces high-quality, cost-competitive and innovative hydrogen equipment and components could drive intellectual property generation and support local talent, attracting international capital investment.
Getting Started
The kingdom’s unique position — combining world-class renewable resources, existing energy infrastructure, strong fiscal capacity and political commitment — makes it the uncontested hydrogen leader in the Gulf region.
However, Saudi Arabia’s ambition to be a global leader in low-carbon hydrogen would benefit from a reorientation away from a focus on export markets toward the untapped potential of its vast domestic market. Establishing a national hydrogen market by implementing the demand measures outlined here will be a game-changer, unlocking substantial domestic demand in the near term and demonstrating the reliability of long-term investment opportunities to foreign investors.
It would also reinforce the Kingdom’s Vision 2030 and its target of net-zero carbon emissions by 2060 — solidifying its leadership in the Middle East.
We acknowledge the delicate socioeconomic balancing act involved, including managing potential energy price spikes for domestic businesses and consumers, likely necessary to ensure uptake and investment in low-carbon hydrogen.
The difficulty of the low-carbon hydrogen balancing act will require Saudi Arabia to take the long view, but the opportunity is there for Riyadh to begin implementing a delicately balanced, Saudi-led strategy that builds domestic demand in the Middle East now, while preparing to seize export opportunities when they eventually arise.