Saudi Arabia and other Gulf countries are struggling to realize their hydrogen (H2) ambitions, which remain largely focused on export markets that have yet to materialize. Instead, they should redesign their policies to recognize the substantial domestic offtake opportunities for low-carbon H2 in key industrial sectors, thereby significantly supporting domestic decarbonization. As the Middle East and North Africa (MENA) region’s largest economy, Saudi Arabia should lead the redesign of the region’s ambitions in this field. 

Global H2 demand and the Gulf’s export focus. Despite notable progress, global demand for low-carbon H2 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 (UAE) are struggling with their low-carbon H2 projects. 

Masdar, the UAE’s flagship clean-energy company, has decided to reallocate capital away from green H2. The company had planned to deploy 6 gigawatts (GW) of renewable power to produce approximately 350,000 tons per year (tpy) 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 metric MMtpy of low-carbon H2 by 2031. 

In Saudi Arabia, the world’s largest green H2 project in NEOM faces demand risk as it struggles to find international buyers for its product. To date, it has secured offtake for approximately one-third of its planned production of up to 1.2 metric MMtpy of green ammonia. 

Domestic H2 market potential in the UAE and Saudi Arabia. Other factors slowing progress toward committed investments in the Gulf’s H2 markets include the lag in renewable energy uptake. A sizeable gap remains between the Middle East and other regions, although Gulf countries appear to be catching up. Last year, the MENA region added almost 15 GW of renewable energy while the project pipeline passed 200 GW. Saudi Arabia now has the region's largest capacity: > 11 GW and moving toward a national target of 200 GW. The Saudi projects will produce electricity at world’s lowest cost: 1.09 cents ($0.0109) per GWh for solar power, and 1.33 cents ($0.0133) per GWh for wind.¹  

While questions remain about Gulf countries’ readiness to support large-scale electrolytic H2 production, which requires accelerated deployment of renewable energy, the recent data shows movement in the right direction.  

In the context of recent progress in renewable energy, the overarching reliance on H2 export markets seems at odds with current ambitions. The UAE’s National Hydrogen Strategy (2023)² states that substantial domestic demand for low-carbon H2 means the country can accelerate ahead of its competition without needing to rely on export markets. With abundant, low-cost renewable energy, it will be poised to succeed.  

Currently, the UAE’s H2 demand is about 0.5 metric MMtpy. This demand consists of conventional gray H2 from fossil fuels without carbon capture, primarily in the refining and chemical industries. As low-carbon H2 is expected to play a significant role in decarbonizing industry and transport, demand is estimated to grow to more than 10 metric MMtpy by 2050. 

Saudi Arabia’s current domestic gray H2 demand stands at about 2.5 metric MMtpy, and is dominated by ammonia, methanol and refining production. Low-carbon H2 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 forecast³ sees the Saudi H2 market reaching nearly 3.2 metric MMtpy by 2034. An earlier IRENA forecast⁴—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 H2 demand market by 2050. 

Requirements for a Saudi Arabian national low-carbon H2 market. Inspired by recent findings from leading Saudi research organizations and the International Energy Agency (IEA), the authors propose three requirements for a national low-carbon H2 market: 

1. Implementing carbon pricing and further energy price reforms 
2. Creating public-procurement-driven sectoral mandates 
3. Accelerating local innovation. 

Carbon pricing. First, local demand for low-carbon H2 needs a carbon pricing mechanism.  

Recent research by scholars at the King Abdullah Petroleum Studies and Research Center (KAPSARC) considers hypothetical carbon prices of $20 and $50 per metric ton (t) of CO2 emitted, added to the prices of energy products (either consumed by particular sectors or the entire economy).⁵ The analysis shows that carbon pricing can 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 (CCS), 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.⁶ To reach parity with conventional technology by 2030, the study estimates that carbon-price levels should range from $440/t of CO2 (reference case) to $209/t of CO2 (with ambitious climate and energy price reforms). By 2060, the price required could drop to $173/t of CO2 and potentially as low as $15/t of CO2 with substantial H2 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 H2 in (among 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 H2. Mandating its use through public procurement could drive domestic demand and support industry scale-up. 

The 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,⁷ with a project pipeline valued at more than $1.7 T.⁸ Green materials like steel are only slightly more expensive than traditional versions. By making these greener materials mandatory in construction, the Saudi government could create demand that supports local producers.  

This aligns with the IEA’s Global Hydrogen Review 2025,⁹ 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 H2 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 H2 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 H2 technologies, and the Research, Development and Innovation Authority (RDI) of Saudi Arabia is a prime example.¹⁰ The collaboration focuses on localizing Stargate’s technologies for H2 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 H2 market that produces high-quality, cost-competitive and innovative H2 equipment and components would drive IP 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 H2 leader in the Gulf region. 

However, Saudi Arabia’s ambition to be a global leader in low-carbon H2 requires a reorientation away from a focus on export markets toward the untapped potential of its vast domestic market. Establishing a national H2 market by implementing the demand measures outlined here could 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 Gulf region. 

The author acknowledges the delicate socio-economic balancing act involved, including managing potential energy price spikes for domestic businesses and consumers, which is likely necessary to ensure uptake and investment in low-carbon H2.  

The difficulty of that balancing act will require Saudi Arabia to take the long view.  

However, the time is now to begin implementing a delicately balanced, Saudi-led strategy that builds domestic demand in the Middle East for low-carbon H2, while seizing export opportunities later when they eventually arise. 

LITERATURE CITED 

1 Dii Desert Energy, “MENA Energy Outlook 2026,” pp. 10–14, online: https://dii-desertenergy.org/publications/ 

2 Fraunhofer Institute for Solar Energy Systems ISE, “National hydrogen strategy of the united Arab Emirates,” 2023, online: Analysis: National Hydrogen Strategy of the United Arab Emirates - Fraunhofer ISE 

3 Chemanalyst, “Saudi Arabia Hydrogen market analysis…” January, 2026, online: Saudi Arabia Hydrogen Market Size, Share, Growth & Forecast 

4 International Renewable Energy Agency (IRENA), “Global hydrogen trade to meet the 1.5°C climate goal: Trade outlook for 2050 and way forward,” July 2022, online: Global Hydrogen Trade Outlook 

5 Hasanov, F. J., H. Aliyeva, M. S. Almozaini and C. A. Bollino, “Evaluating hypothetical carbon pricing for Saudi Arabia using a macroeconometric modeling framework,” Energy Economics, Vol. 145, May 2025, online: Evaluating hypothetical carbon pricing for Saudi Arabia using a macroeconometric modeling framework - ScienceDirect 

6 Nurdiawati, A., F. Tahir, I. N. Zaini and S. G. Al-Ghamdi, “Prospective environmental and economic assessment of green steel production in the Middle East,” Resources, Conservation and Recycling, Vol. 219, June 2025, online: Prospective environmental and economic assessment of green steel production in the Middle East - ScienceDirect 

7 Al Helou, E., “Saudi Arabia: Construction boom fueled by $1.7 trillion project pipeline, Vision 2030,” Middle East Economy, September 2025, online: Saudi Arabia: Construction boom fueled by $1.7 trillion project pipeline, Vision 2030 

8 Furcy, D., “KSA market intelligence: navigating opportunity,” Turner & Townsend, September 2025, online: KSA market intelligence | Turner & Townsend 

9 International Energy Agency (IEA), “Global hydrogen review 2025,” September 2025, online: Global Hydrogen Review 2025 – Analysis - IEA 

10 “Stargate Hydrogen signs landmark MoU with Saudi Arabia’s Research, Development and Innovation Authority (RDI) to accelerate green hydrogen innovation in the Kingdom,” The Baltic Times, September 2025, online: Stargate Hydrogen signs landmark MoU with Saudi Arabia’s Research, Development, and Innovation Authority (RDI) to accelerate green hydrogen innovation in the Kingdom