Speaking to CNBC in June, Ahmad Khowaiter, chief technology officer at Saudi Aramco, insisted that “hydrogen is real” and that “we see a real market forming.” The emphasis on the reality of hydrogen was revealing. Amid a race between the United Arab Emirates and Saudi Arabia to announce ever more ambitious hydrogen production initiatives, analysts, industry leaders, and even potential consumers seem unconvinced that a hydrogen economy will ever happen.

Nonetheless, there is rising interest among advanced economies in developing a hydrogen supply chain, and hydrogen is set to be among the UAE’s and Saudi Arabia’s energy exports by 2030. However, it is unlikely that it will comprise a significant portion of energy export revenue by that point, and it will comprise an even smaller part of export profits. The potential significance of hydrogen is more comparable to that of the petrochemical polymer industry than it is to oil or even liquefied natural gas exports.

In the Emirati-Saudi hydrogen race, Saudi Arabia fired the starting gun in July 2020. The Saudi government issued a press release announcing that Saudi Arabia’s ACWA Power and U.S. chemical giant Air Products will build a 5 gigawatt hydrogen plant slated to come online in 2025. In January, Sultan Ahmed Al Jaber, chief executive officer of the Abu Dhabi National Oil Company, claimed that an undisclosed portion of the UAE’s $122 billion oil and gas investment plan was earmarked for hydrogen development. This statement of intent was followed by the signing of a cooperation agreement with the government of Japan, committing both partners to explore the potential for a UAE-Japan hydrogen supply chain to be completed by 2030. In June, Saudi Arabia hosted a joint press conference with Hyundai, Toyota, and Aramco. Finally, in early July, two state-owned companies in Abu Dhabi announced a plan to build a hydrogen plant, powered by a 2 GW solar array.

In all, between the UAE and Saudi Arabia, two, relatively small-scale plants are under construction and a flurry of agreements have been signed, all of which have potential but do not constitute concrete commitments to trade hydrogen. This is a lot of activity considering that hydrogen was essentially nowhere just a year ago, but realistically, these are still small commitments. However, it is still noteworthy that Saudi and Emirati policymakers are committing billions of dollars to developing production capacity for a fuel for which there is almost no existing commercial demand.

The reason why is that hydrogen has a strong theoretical role in transitioning the global economy to a carbon-neutral model. For the most part, this energy transition will be accomplished using renewable electricity (such as wind or solar power) and batteries that can store that energy, for example the battery in an electric car. However, there are certain sectors of the economy for which batteries will not work, such as shipping, aviation, and steel production. Energy analysts refer to these sectors as “the final 15%” of global energy demand. According to Freight Wave, a 120,000-ton container ship carries 11,000 tons of fuel in the form of heavy fuel oil. Burning fuel oil releases a lot of carbon. However, to replace the fuel oil with rechargeable batteries would increase the weight of fuel in the ship from 11,000 tons to 80,000 tons. This is because batteries (even the most advanced, prototype designs) store much less energy per kilogram than fuel oil. In fact, batteries are so heavy relative to the energy they store that a battery-powered cargo ship would not have much weight capacity left for cargo. To decarbonize shipping, a much lighter carbon-neutral energy source than batteries is necessary. Hydrogen promises a solution: It carries even more energy per kilogram than fuel oil but releases only water vapor when burned. This is why there is such interest in hydrogen, despite the lack of demand, as it is currently the only viable carbon-neutral energy source that could work for the final 15%.

Furthermore, the UAE and Saudi Arabia have definite comparative advantages as bases for hydrogen production. Hydrogen is hard to find on earth in its pure form and therefore has to be refined from some hydrogen-bearing compound, such as water or natural gas. The latter is plentiful in the Gulf. Qatar, with its large gas export industry, is already a leader in the gray hydrogen sector in which steam is used to crack methane into carbon dioxide and hydrogen. Unfortunately, this is an extremely polluting process – not only is carbon dioxide a byproduct of the cracking process but additional gas is burned to create the steam. Burning gray hydrogen is about as polluting as just burning natural gas.

However, there may still be a carbon-neutral hydrogen use for the region’s huge natural gas reserves. The UAE-Japan deal plans to develop blue hydrogen, which involves the same process as gray hydrogen but with the addition of as yet untested carbon capture technology. If it could be made to work, blue hydrogen would play to a lot of existing strengths in the UAE and Saudi Arabia, including their natural gas reserves as well as petrochemical knowhow and refining infrastructure. So far Qatar has not appeared interested in pursuing blue hydrogen production, but this is likely a case of waiting for other producers to demonstrate that carbon capture technology works.

But the real dream of the hydrogen economy rests on the other common hydrogen-bearing compound: water. Extraction of hydrogen from water is done by electrolysis; when this electrolysis is powered by renewable energy, it is described as green hydrogen. Both of the planned hydrogen plants in the UAE and Saudi Arabia are green hydrogen projects.

Although it does not provide a use for the region’s hydrocarbon reserves like blue hydrogen does, green hydrogen also plays to certain inherent strengths of the two countries. First, both enjoy some of the highest levels of solar potential in the world. Second, both have vast tracts of empty and low value land on which to build the sprawling solar farms needed to power the electrolysis process.

This is the compelling theoretical case that is driving the hydrogen hype: the apparent necessity of the fuel in a carbon-neutral economy and inherent comparative advantages for the UAE and Saudi Arabia, both of which are increasingly concerned about how they might fit into a post-oil world.

However, the case for hydrogen still rests on completely theoretical technologies. It is just as likely that the global approach toward the final 15% will be simply to let those sectors pollute and force the rest of the economy to bear the load of saving the planet. In any case, it is unlikely that this notional 15% of energy demand will be filled entirely by hydrogen.

Even then, revenue is not profit, and it is export profits, not revenue, that fund regional governments and drive the political economy of the Gulf. Hydrogen production will always be a difficult and intensive industrial process – much more akin to the petrochemical polymer industry than the oil industry. The latter, exemplified by the Saudi Basic Industries Corporation, has been a huge success in generating employment and revenue. But it has not generated the high level of profits that the oil industry has. There is no plastics cartel to ensure such profits; it is a manufacturing process, not a resource endowment. Hydrogen too is a manufacturing process, and regardless of the inherent natural advantages of the Gulf, it is unlikely to ever generate the level of profits needed to replace oil and sustain the Gulf’s existing economic model.