PURE HYDROGEN

Hydrogen energy is rapidly gaining momentum, emerging as a key element of the global energy transition. Currently, the annual global demand for hydrogen stands at approximately 90,000 kilotons, with forecasts predicting a 60% increase by 2030 and a doubling by 2050. Much of this growth is expected to come from the production of "green" hydrogen, generated through electrolysis using renewable energy sources (RES).

The primary consumers of pure hydrogen are anticipated to be the US, Europe, South Korea, and Japan, with the European Union serving as the main import market. In this context, Azerbaijan, with its strategic location between Europe and Asia and its significant renewable energy potential, is well-positioned to play a crucial role in the international hydrogen market.

Potential and Prospects

According to the National Strategic Review on Hydrogen, prepared by the European Bank for Reconstruction and Development (EBRD) in collaboration with Azerbaijan’s Ministry of Energy and Worley Consulting Group Limited, the country is exploring various scenarios for the development of its hydrogen industry.

At present, hydrogen production and consumption in Azerbaijan account for less than 0.5% of global demand. The majority of this is "grey" hydrogen, produced from natural gas and used in oil refining. However, in the medium and long term, the country is considering large-scale production of "green" hydrogen.

Experts believe that the hydrogen economy could become a significant driver of economic growth in Azerbaijan. The net hydrogen economy is expected to at least double, with some projections suggesting an increase of nearly 500%. The development of the low-carbon fuel sector could attract investment, strengthen Azerbaijan’s position in the international energy market, and enable it to capture a larger share of the hydrogen value chain. Most of the hydrogen produced is expected to be exported, with the EU as the primary market.

From an economic perspective, the development of hydrogen technologies will support Azerbaijan’s goals of reducing greenhouse gas emissions. Hydrogen could play a pivotal role in decarbonising industries and transport, including aviation and shipping. Additionally, expanding pure hydrogen production will increase demand for renewable energy, reducing the country’s reliance on hydrocarbons.

Development Scenarios

Azerbaijan’s experience in renewable energy and hydro generation creates opportunities for stable "green" hydrogen production, ensuring its competitiveness.

The National Hydrogen Strategy outlines three potential development scenarios for the industry. Under the balanced scenario, hydrogen production could reach 0.5 million tonnes annually by 2050. The accelerated scenario projects an increase to 1.1 million tonnes by 2050, while the ambitious scenario envisages production of 1.9 million tonnes by 2060, leveraging offshore wind power capacities.

Water requirements vary depending on the scenario. At a ratio of 11 kg H2O/kg H2, daily water demand would be 17,000 cubic metres under the balanced scenario, 40,000 cubic metres under the accelerated scenario, and 80,000 cubic metres under the ambitious scenario.

The key to realising these scenarios lies in developing hydrogen markets and power generation based on long-term contracts, similar to those used in natural gas.

Azerbaijan views hydrogen exports to Europe as a strategic priority. One potential option is utilising the Southern Gas Corridor (SGC) by blending hydrogen with natural gas or repurposing the pipelines entirely. However, technical limitations allow only 2-6% hydrogen to be added without significant infrastructure modifications. Additionally, long-term gas contracts and commercial complexities could complicate this transition, particularly given the positions of major consumers such as Georgia, Türkiye, Italy, and others.

An alternative is constructing a new export pipeline dedicated to transporting pure hydrogen, though this would require substantial investment. Estimates suggest that shipping hydrogen to the EU would increase its cost by €0.8 per kilogramme.

As a strategic transport hub between East and West, Azerbaijan can collaborate with neighbouring countries to export clean hydrogen to Europe. The Green Energy Corridor agreement, signed by Azerbaijan, Georgia, Romania, and Hungary, plays a crucial role in this regard. Potential routes include the Azerbaijan-Central Asia-EU and Azerbaijan-Türkiye-EU corridors.

Cost of Production and Competitiveness

Amid growing demand for clean energy, Azerbaijan possesses several advantages. For instance, the cost of hydrogen production could be comparable to European figures, particularly if Chinese electrolysers are utilised.

If carbon capture and storage technologies are effectively implemented, blue hydrogen emerges as the most economically viable option, with a production cost of €2.87 per kilogramme.

The cost of green hydrogen produced from RES is higher. In a medium-sized plant, it would amount to €4.02 per kilogramme, though optimisation of production processes could reduce this to €3.60. For comparison, the average cost of green hydrogen in the EU is €5.05 per kilogramme.

In any case, Azerbaijan has the potential to become a competitive player in the hydrogen energy market, particularly through partnerships with European countries.

The development of this sector requires significant investment, technological innovation, and international co-operation. As the global market for pure hydrogen and its derivatives expands, new trade routes will emerge, with shipping and pipeline distribution playing a central role.

Drawing on its successful experience in large energy projects, Azerbaijan has strong foundations for establishing green energy corridors and entering the clean hydrogen market. The approaches applied to the development of the SGC are seen as a model for new energy corridors, such as the Caspian-Black Sea and Azerbaijan-Türkiye-Europe routes.

It is worth noting that the EBRD is already exploring potential investment mechanisms to support this strategy. Specifically, the bank is closely monitoring the development of the energy cable project across the Black Sea and the Central Asia-Caspian-Europe energy corridor initiative.

"We have considerable experience working and investing in the countries involved in these projects and are potentially interested in supporting them. However, such large-scale initiatives require careful economic evaluation to confirm their commercial viability and regional benefits. Strong institutional support from both public and private stakeholders is essential. These are complex cross-border projects that demand a co-ordinated approach, a transparent legal and regulatory framework, and a sustainable financial model," said Natalia Muravidze, Head of the EBRD’s Country Office in Azerbaijan.

At this stage, she noted, the bank is monitoring the progress of the projects and consulting with partners to identify potential forms of participation. If the necessary conditions—such as a clear business model, stable regulation, and strong institutional support—are met, the EBRD will consider financial involvement.

The development of hydrogen energy and its derivatives not only contributes to the diversification of Azerbaijan’s economy but also promises to attract significant foreign investment in clean energy technologies, fostering innovation and economic growth. It will also ensure the preservation and transformation of highly skilled jobs created in the oil and gas sector. Thus, investments in hydrogen technologies offer Azerbaijan substantial opportunities for economic growth, attracting international partners, and strengthening its position in the global energy transition.