# Hydrogen and Natural gas

Steam reforming of natural gas makes most of the world's hydrogen, using 290 bcm of gas in 2024, so gas sets grey hydrogen's cost; carbon capture and electrolysis are the routes away from unabated gas, both still dearer.

Source page: https://www.materialinsights.org/links/hydrogen-and-natural-gas/

[Hydrogen](https://www.materialinsights.org/chemicals/hydrogen/) (chemical) and [Natural gas](https://www.materialinsights.org/energy/natural_gas/) (energy): 4 relationships.

## How they are linked

### 1. Steam methane reforming

*Physical flow · Strong · Natural gas to hydrogen*

Most hydrogen is made by reforming methane with steam, which uses natural gas both as the hydrogen source and as fuel for the heat.

- **290 bcm** natural gas used to make hydrogen, 2024
- **about 76%** energy efficiency of gas reforming, LHV basis
- **almost 100 Mt** world hydrogen demand, 2024

At 76% efficiency, roughly a quarter of the gas energy is lost in the process. Coal, about 90 Mt of it in 2024, is the other main feed; in the US, gas is used almost exclusively for on-purpose hydrogen.

Sources: [Bayern Innovativ](https://www.bayern-innovativ.de/en/detail/global-hydrogen-demand-on-the-rise); [IEA](https://iea.blob.core.windows.net/assets/15673ab3-a86a-4434-bff4-490bb42d3563/GlobalHydrogenReview2025AssumptionsAnnex.pdf); [IEA](https://www.iea.org/reports/global-hydrogen-review-2025/demand); [US Energy Information Administration](https://www.eia.gov/todayinenergy/detail.php?id=24612)

### 2. Price link: feedstock

*Cost and price · Weak · Gas cost drives grey hydrogen cost, but traded prices barely show it*

Gas is the main variable cost of grey hydrogen, yet most hydrogen is made and used on site or under long contracts, so there is little traded price to follow gas.

- **0.05** monthly change correlation
- **-0.00** 12-month change correlation
- **-0.02** fitted elasticity

The merchant index shows no link with European gas because contracts and US gas prices matter more. In cost terms the tie is strong: the IEA notes that falling gas prices widened the cost gap between gas-based and renewable hydrogen.

Sources: [Material Insights (World Bank, FRED, IMF data)](https://www.materialinsights.org/chemicals/hydrogen/correlation/); [IEA](https://www.iea.org/news/low-emissions-hydrogen-projects-are-set-to-grow-strongly-despite-wave-of-cancellations-and-persistent-challenges)

### 3. Blue hydrogen with carbon capture

*Transition · Rising · Gas stays the feed if CO2 is captured*

Adding carbon capture to gas reforming cuts emissions while keeping natural gas as the feed, at the cost of more gas and capital per kilogram.

- **95%** CO2 capture rate assumed for reforming with CCUS
- **720 to 1,420 USD/kW** capital cost, plain reforming against reforming with CCUS
- **69%** efficiency with CCUS, against 76% without

Capture roughly doubles capital cost and lowers efficiency, so blue hydrogen uses more gas per kilogram. CO2 storage costs vary, about $14 per tonne in the US against $47 in Europe in 2024, which favours gas-rich regions with storage.

Sources: [IEA](https://iea.blob.core.windows.net/assets/15673ab3-a86a-4434-bff4-490bb42d3563/GlobalHydrogenReview2025AssumptionsAnnex.pdf)

### 4. Electrolysis competes with gas

*Substitution · Weak · Green hydrogen could displace gas reforming*

Hydrogen from renewable electricity needs no gas, but it still costs about two to four times as much as unabated gas-based hydrogen.

- **just under $4 per kg** renewable hydrogen in areas with abundant renewables, 2024
- **less than 1%** low-emissions share of hydrogen use, 2024
- **Rs 397/kg (about $4.6)** IOCL Panipat green hydrogen award, May 2025, against about $2.1 for grey

Lower gas prices widened the cost gap recently, and the IEA cut its 2030 outlook for low-emissions supply from announced projects to 37 Mt a year, from 49 Mt a year earlier. India's first refinery tender cleared at about $4.6 per kg, roughly twice JMK Research's $2.1 per kg average for grey hydrogen.

Sources: [Bayern Innovativ](https://www.bayern-innovativ.de/en/detail/global-hydrogen-demand-on-the-rise); [IEA](https://www.iea.org/reports/global-hydrogen-review-2025/demand); [JMK Research](https://jmkresearch.com/iocl-concludes-indias-first-green-h2-end-user-offtake-auction-at-us4-6-per-kg/); [IEA](https://www.iea.org/news/low-emissions-hydrogen-projects-are-set-to-grow-strongly-despite-wave-of-cancellations-and-persistent-challenges)

## For investors

### Key learnings

1. Natural gas makes most of the world's hydrogen, using 290 bcm in 2024, so gas prices set the cost of grey hydrogen.
2. Green hydrogen, at about $4 to 4.6 per kg, still costs about twice as much as grey hydrogen at about $2.1 per kg in India, and lower gas prices have recently widened the gap.
3. Blue hydrogen keeps gas in the chain but roughly doubles capital cost and depends on cheap CO2 storage.

### What to track

- **Henry Hub, TTF and Indian LNG import prices**: Set the cost of grey hydrogen in each region (Daily · CME, ICE, PPAC)
- **Green hydrogen tender prices**: Show how fast the gap with grey hydrogen is closing (Per tender · SECI, oil companies)
- **Final investment decisions on CCUS hydrogen**: Show whether blue hydrogen is scaling (Annually · IEA Global Hydrogen Review)

## For policymakers

### Key learnings

1. Grey hydrogen is made from gas, so hydrogen for Indian refineries and fertiliser plants carries gas price risk.
2. Green hydrogen tenders such as IOCL Panipat at Rs 397 per kg reveal the subsidy or mandate needed to displace gas.
3. Blue hydrogen depends on CO2 storage costs, assumed at about $14 a tonne in the US against $47 in Europe in 2024, so it suits places with cheap storage.

### What to track

- **LNG import volumes and prices**: The gas cost behind grey hydrogen (Monthly · PPAC)
- **Green hydrogen production and offtake under the National Green Hydrogen Mission**: Progress towards replacing gas-based hydrogen (Quarterly · MNRE)

## India

India's first refinery green hydrogen award, 10,000 t a year at IOCL Panipat, cleared at Rs 397 per kg in 2025, about twice the cost of gas-based grey hydrogen.

## Sources

1. [Global hydrogen demand on the rise (reporting IEA Global Hydrogen Review 2025)](https://www.bayern-innovativ.de/en/detail/global-hydrogen-demand-on-the-rise), Bayern Innovativ (2025)
2. [Global Hydrogen Review 2025: Assumptions Annex](https://iea.blob.core.windows.net/assets/15673ab3-a86a-4434-bff4-490bb42d3563/GlobalHydrogenReview2025AssumptionsAnnex.pdf), IEA (2025)
3. [Global Hydrogen Review 2025: Demand](https://www.iea.org/reports/global-hydrogen-review-2025/demand), IEA (2025)
4. [IOCL concludes India's first green H2 end-user offtake auction at US$4.6 per kg](https://jmkresearch.com/iocl-concludes-indias-first-green-h2-end-user-offtake-auction-at-us4-6-per-kg/), JMK Research (2025)
5. [Price correlation, Material Insights](https://www.materialinsights.org/chemicals/hydrogen/correlation/), Material Insights (World Bank, FRED, IMF data)
6. [Hydrogen for refineries is increasingly provided by industrial suppliers](https://www.eia.gov/todayinenergy/detail.php?id=24612), US Energy Information Administration (2016)
7. [Low-emissions hydrogen projects are set to grow strongly despite wave of cancellations and persistent challenges](https://www.iea.org/news/low-emissions-hydrogen-projects-are-set-to-grow-strongly-despite-wave-of-cancellations-and-persistent-challenges), IEA (2025)