Azerbaijan is positioning itself as a key player in the global hydrogen economy, leveraging its strategic location and renewable energy resources to develop a clean hydrogen sector.

According to the recently published European Bank for Reconstruction and Development (EBRD) and Ministry of Energy of Azerbaijan National Hydrogen Strategic Outlook, the country currently accounts for less than 0.5% of global hydrogen production and consumption. However, the government has set ambitious targets to increase production and establish itself as a green energy corridor between Europe and Asia.

The Strategic Outlook outlines three hydrogen production scenarios for Azerbaijan. According to the balanced scenario, by 2050, Azerbaijan aims to produce 0.5mn tonnes of hydrogen per year, with a substantial portion allocated for export.

Under the accelerated scenario, if investments in offshore wind and renewable energy scale up rapidly, production could reach 1.1mn tonnes by 2050.

Finally, with the ambitious scenario, by 2060, hydrogen production could increase to 1.9mn tonnes, assuming the full deployment of offshore wind energy and an expanded hydrogen pipeline network.

The government’s approach to hydrogen production is closely linked to its renewable energy expansion plans. Azerbaijan plans to increase its renewable energy capacity to 30% of total installed capacity by 2030. Offshore wind development, solar energy projects, and electrolysis technology will play a key role in achieving this target.

According to the document, Azerbaijan is strategically positioned between major energy markets in Europe and Asia, making it an ideal candidate for hydrogen exports. The country is already a major natural gas supplier through the Southern Gas Corridor (SGC), which could be adapted for hydrogen transport in the long term. However, Azerbaijan's long-term gas contracts, valid until the 2040s, currently limit the possibility of repurposing existing infrastructure for hydrogen exports.

The European Union has emerged as a key market for hydrogen imports, with the REPowerEU plan targeting 10mn tonnes of hydrogen imports by 2030. Azerbaijan could position itself as a supplier by ensuring compliance with EU sustainability standards, particularly the Renewable Fuels of Non-Biological Origin (RFNBO) framework. Meanwhile, Asian markets, including Japan, South Korea, and China, are also increasing their hydrogen demand, providing additional export opportunities.

Outlook states that, despite its strong ambitions, Azerbaijan faces several challenges in scaling up hydrogen production. 

They include carbon capture and storage (CCS). For Azerbaijan to develop blue hydrogen (hydrogen produced from natural gas with carbon capture), it must establish viable CO₂ storage solutions. The country is exploring the potential of storing CO₂ in depleted offshore gas fields in the Caspian Sea, but regulatory and technical challenges remain.

Water resource management is another issue. Green hydrogen production via electrolysis requires large amounts of water, which poses a challenge in a country where 75% of water resources come from outside its borders. Azerbaijan is considering desalination projects to mitigate this issue.

Infrastructure investments would also be required. A dedicated hydrogen pipeline is under discussion, as the existing Southern Gas Corridor is currently unsuitable for hydrogen transport. The construction of new hydrogen infrastructure will require international collaboration and significant foreign investment.

Azerbaijan is actively seeking foreign investment to develop its hydrogen economy. Partnerships with international energy companies such as Masdar, ACWA Power, and Fortescue Future Industries (FFI) are already in place. The government is also working with development banks, including the EBRD, to secure concessional financing for hydrogen projects.

To attract investors, Azerbaijan is implementing policy reforms to incentivise hydrogen production. The government has introduced tax exemptions and financial support mechanisms for renewable energy projects, while also participating in international hydrogen trade discussions.

Azerbaijan’s hydrogen strategy aligns with its broader goal of becoming a regional clean energy hub. By leveraging its renewable resources, existing energy infrastructure, and strategic geographic position, the country has the potential to become a leading exporter of clean hydrogen. However, achieving these goals will require significant infrastructure investments, regulatory reforms, and collaboration with international partners.