Author: Derek Michalski, Editor.
This is the first in a series of investigative articles to be published weekly by The Voice of Renewables, examining the state of hydrogen demand in Europe and the sectors that may ultimately determine whether a large-scale market emerges by 2035. The series is based on cross-checked analysis of data and projections from leading institutions including the European Commission, the International Energy Agency, the Clean Hydrogen Partnership and industry modelling bodies such as DNV and BloombergNEF.
PART I — European Hydrogen Market Reality & Baseline
Hydrogen Demand in Europe: A Market Still Defined by Inertia Rather Than Expansion
This is the first in a series of investigative articles to be published weekly by The Voice of Renewables, examining the state of hydrogen demand in Europe and the sectors that may ultimately determine whether a large-scale market emerges by 2035. The series is based on cross-checked analysis of data and projections from leading institutions including the European Commission, the International Energy Agency, the Clean Hydrogen Partnership and industry modelling bodies such as DNV and BloombergNEF.
Hydrogen in Europe today presents a structural contradiction. On the one hand, it is already a mature industrial commodity with established supply chains and significant annual consumption. On the other, it remains almost entirely absent from the new energy economy it is expected to underpin. Current hydrogen demand across the European Union and the United Kingdom is generally estimated at between seven and ten million tonnes per year, depending on system boundaries and accounting methodologies used by institutions such as the European Commission, the International Energy Agency and the European Hydrogen Observatory. The precise figure is less important than its composition, which reveals a system still anchored in legacy industrial use rather than emerging energy applications.
Europe’s Current Hydrogen Demand Base
The overwhelming majority of hydrogen consumed in Europe is used as a feedstock rather than an energy carrier. Oil refining remains the single largest consuming sector, where hydrogen is used in hydrocracking and desulphurisation processes to meet increasingly strict fuel quality standards. Although this demand is substantial, it is not structurally growing. In fact, it is likely to decline over time as transport fuels are displaced by electrification and refinery utilisation rates fall across the continent.
The second major source of demand is ammonia production for fertilisers, which is closely tied to Europe’s food supply chain. This segment is particularly significant because it represents one of the most emissions-intensive uses of hydrogen globally, almost entirely reliant on natural gas-based production. However, the economic conditions required for rapid decarbonisation in this sector remain challenging. High energy prices, global competition from low-cost producers and limited long-term offtake certainty for green ammonia continue to constrain investment in renewable hydrogen substitution.
Chemicals, Steel and Emerging Industrial Uses
A smaller but strategically important portion of demand is found in the chemical and methanol industries, where hydrogen is used both as a feedstock and as an intermediate in synthetic fuel pathways. This sector is increasingly relevant in the context of Power-to-X technologies, yet remains largely pre-commercial at scale. A number of demonstration projects exist across Europe, but these are not yet sufficient to shift the demand curve in any meaningful way.
The steel industry is frequently cited as a future anchor of hydrogen demand, particularly through direct reduced iron processes that replace coal-based blast furnaces. However, despite significant political momentum and several high-profile announcements in Northern Europe, operational deployment remains limited. Most projects are still in development phases and are highly sensitive to electricity prices, infrastructure availability and long-term offtake agreements. As a result, steel decarbonisation via hydrogen remains a medium to long-term prospect rather than a current demand driver.
Transport and Power: The Missing Demand Layer
Outside of industry, hydrogen use in transport and power generation remains marginal. Pilot projects exist in road transport, rail applications and hydrogen blending trials in gas networks, but these do not yet represent meaningful system-level demand. In most European energy models, transport and power only begin to contribute significant hydrogen consumption beyond 2030 under more optimistic decarbonisation scenarios.
Grey Hydrogen Dominance and Supply Structure
The dominant feature of Europe’s hydrogen system today is that it remains overwhelmingly fossil-based. Grey hydrogen, produced through steam methane reforming without carbon capture, accounts for the vast majority of supply, typically estimated at between seventy and eighty-five per cent depending on methodology. Blue hydrogen, which incorporates carbon capture and storage, remains a low single-digit contributor, while renewable hydrogen produced via electrolysis powered by renewable electricity still represents a very small fraction of total production, generally estimated at below five per cent in most current assessments.
This production structure is central to understanding why Europe’s hydrogen transition has been slow despite strong policy ambition. The European Union has established one of the most comprehensive regulatory frameworks for hydrogen anywhere in the world, including binding targets under RED III, delegated acts defining renewable fuels of non-biological origin, and mechanisms such as the European Hydrogen Bank intended to de-risk early investment. However, regulatory ambition has not yet translated into commensurate demand creation.
Why Renewable Hydrogen Uptake Remains Limited
The reason for this lies in a structural mismatch between policy-driven supply expectations and the absence of sufficient demand pull. Renewable hydrogen remains significantly more expensive than conventional grey hydrogen in most European markets, primarily due to high electricity prices, capital-intensive electrolyser deployment and relatively low utilisation rates in early-stage projects. At the same time, infrastructure for transport, storage and cross-border distribution remains fragmented, limiting the ability to form a unified internal hydrogen market.
Perhaps more importantly, there is still a lack of bankable long-term offtake agreements. While a large number of projects have been announced across Spain, Germany, the Netherlands, France and the Nordic region, many remain at early development stages precisely because investors cannot yet rely on stable demand signals. In effect, Europe is attempting to build supply capacity ahead of demand maturity, a strategy that requires either strong regulatory mandates or rapid cost convergence to succeed. Neither condition has yet fully materialised.
Another constraint is regulatory complexity. Although the European Union has created a detailed policy architecture for hydrogen, including certification schemes, carbon pricing mechanisms and sector-specific mandates, the interaction between these systems is not always straightforward. Market participants must navigate overlapping frameworks covering renewable fuel definitions, emissions trading obligations and subsidy eligibility criteria. Rather than simplifying market formation, this has in some cases increased uncertainty in early-stage investment decisions.
Structural Imbalance in the European Hydrogen Market
Competition from direct electrification further limits hydrogen’s near-term demand growth. In sectors where electrification is technically feasible, it is often more efficient and cost-effective than hydrogen-based alternatives. This narrows hydrogen’s economic role primarily to sectors that are difficult to electrify, such as certain industrial processes, long-distance transport fuels and specific chemical pathways. Even within these segments, hydrogen must compete with alternative low-carbon fuels such as biofuels, synthetic methane and ammonia.
Taken together, these factors create what can best be described as a pipeline-rich but demand-constrained market. There is no shortage of announced projects, policy ambition or industrial interest. What is missing is the emergence of consistent, scalable and price-competitive demand that can underpin long-term investment decisions across the value chain.
This imbalance is central to the European hydrogen story. While policy frameworks assume rapid scale-up of renewable hydrogen production, actual consumption patterns remain anchored in legacy industrial systems with limited growth trajectories. As a result, Europe’s hydrogen economy today is defined less by expansion than by transition uncertainty.
The next article in this series will examine the supply side of this equation in detail, focusing on Europe’s rapidly expanding hydrogen production pipeline, the development of electrolyser capacity, and the emerging geography of hydrogen hubs and import strategies across the continent.
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