Hydrogen has emerged as a pivotal component in Southeast Europe’s energy strategy, linking energy security, industrial decarbonization, and European integration. While national policies and pilot initiatives have positioned hydrogen as a key solution for integrating renewable energy and reducing carbon emissions, recent shifts in gas ownership and pricing have eroded the economic foundation of many hydrogen initiatives. This evolving landscape raises critical questions about the feasibility of hydrogen projects in the region, emphasizing the importance of fuel economics alongside technological readiness.
The underlying assumptions that once supported hydrogen strategies—namely, a return to stable natural gas prices—are no longer valid. The volatility of gas prices, increasingly tied to global liquefied natural gas (LNG) markets, necessitates a reassessment of investment strategies, particularly concerning blue hydrogen production.
Southeast Europe entered the hydrogen discourse later than its Western counterparts but with considerable political support. The region’s existing gas infrastructure, concentrated industrial demand in sectors like fertilizers and chemicals, alongside significant renewable energy potential from solar and wind sources, initially made hydrogen an attractive extension of current systems rather than a disruptive alternative.
Blue hydrogen, derived from natural gas with carbon capture technology, was seen as a transitional solution due to its lower capital intensity and compatibility with existing infrastructure. Cost models prior to recent crises projected natural gas prices between €15–20/MWh and carbon costs under €50 per tonne. Under these conditions, blue hydrogen was estimated to cost between €1.8–2.2 per kilogram, making it competitive against grey hydrogen alternatives.
However, the structural changes in gas pricing following Russia’s exit from the energy market have significantly altered these projections. Current expectations for forward gas prices in Southeast Europe range from €30–45/MWh for the late 2020s, with winter price spikes pushing costs even higher. As feedstock gas becomes more expensive—estimated at €35–40/MWh—the cost of blue hydrogen production is projected to rise to between €3.0–3.5 per kilogram before considering additional carbon capture expenses.
This shift undermines blue hydrogen’s competitive edge against green hydrogen imports anticipated by the early 2030s and makes it less favorable compared to electrification options across various industrial applications. For developers reliant on thin margins, such volatility poses existential risks; financing models falter while securing offtake agreements becomes increasingly challenging without government backing.
The financial implications extend beyond operational viability; they introduce stranded capital risks associated with significant upfront investments in electrolysis systems, carbon capture technologies, and hydrogen-ready pipelines. In Southeast Europe, typical capital expenditures for electrolysers range from €900 to €1,200 per kilowatt while additional costs for reforming and capture technologies can escalate into hundreds of millions at the project level.
Under stable pricing scenarios, these investments could be amortized over extended operational lifespans; however, fluctuating gas prices lengthen payback periods substantially and increase utilization risks. Consequently, projects may require subsidies or guaranteed contracts at administratively set prices to remain viable.
This situation presents a fiscal dilemma for governments; supporting hydrogen development amid uncertain pricing necessitates long-term financial commitments that may exceed political cycles. Without adequate backing, many projects risk stagnation.
Interestingly, the repricing of gas has paradoxically enhanced green hydrogen’s relative competitiveness. Although still capital-intensive, green hydrogen production is primarily influenced by electricity costs rather than fuel price volatility. As renewable energy generation becomes more affordable—currently around €35–45/MWh in favorable areas—green hydrogen production costs are projected between €2.8–3.5 per kilogram based on varying capacity factors and financing conditions.
Looking ahead to 2030, green hydrogen could be produced at even lower costs—between €2.5–3.0 per kilogram—if sourced from southern Mediterranean or domestic renewable energy hubs. This positions green hydrogen as potentially cheaper than its blue counterpart under current market conditions.
For industrial players such as fertilizer manufacturers and steel producers who assess hydrogen based on reliability and cost efficiency, rising production costs associated with transitioning from grey to blue hydrogen could increase ammonia production expenses by 20–30%, thereby diminishing competitiveness against imports without protective measures or carbon contracts-for-difference in place.
The timing of infrastructure development also plays a critical role; rapid deployment is often assumed but rarely realized due to regulatory uncertainties that lead investors to hesitate amid volatile pricing signals for both gas and power markets. This creates a cyclical dependency where infrastructure cannot be financed without established demand while demand remains stymied without necessary infrastructure.
Supporting hydrogen initiatives amidst fluctuating gas prices requires careful policy trade-offs; funds allocated towards making blue hydrogen feasible detract from investments in grid enhancements or other efficiency measures aimed at reducing direct gas exposure. From a fiscal standpoint, maintaining current support levels could necessitate ongoing public funding ranging from €1.0–1.5 per kilogram for an extended period—potentially burdening national budgets significantly if aimed at producing 100,000 tonnes annually.
As Southeast Europe navigates this complex landscape through 2030 and beyond, it is likely that blue hydrogen will remain confined largely to pilot projects unless there is substantial state intervention or a decrease in gas prices occurs structurally over time. Conversely, green hydrogen may progress more steadily on firmer economic foundations tied closely to export opportunities or specific industrial demands.
The current state of play underscores that while ambitions surrounding hydrogen remain high within policy circles across Southeast Europe, actual deployment will need careful calibration against economic realities—a transition marked not just by speed but strategic sequencing amidst evolving market conditions.
