Vema Hydrogen finished a pilot project in Quebec extracting hydrogen from iron-rich rock formations 800 meters underground, the company announced this week. The startup claims it can produce hydrogen for less than $1 per kilogram, a price point that could reshape data center site selection if it scales.
The company drills wells into specific geological formations, then injects water, heat, and catalysts to trigger hydrogen release from iron-bearing rock. Vema's first commercial well goes online next year, with each installation capable of producing several tons daily from just 3 square kilometers of land.
"To supply the Quebec local market, which is about 100,000 tons per year, you would need 3 square kilometers, which is nothing," CEO Pierre Levin told TechCrunch.
Vema's December deal with Verne positions it to supply California data centers with 36,000 metric tons of what it calls Engineered Mineral Hydrogen annually by 2028. The timing matters: global data center energy consumption is projected to require an additional 945 TWh by 2030, driven largely by AI workloads. California's strained grid makes baseload alternatives attractive.
The economics are compelling if Vema's cost claims hold. Traditional steam methane reformation produces hydrogen for $0.70 to $1.60 per kilogram but emits CO2. Adding carbon capture pushes costs up 50%. Green hydrogen from electrolyzers costs several times more, though battery storage costs dropped 40-45% in 2024-2025, improving economics for renewable-powered facilities.
The real test is scale. Vema's approach requires specific geology, which limits site options. The hydrogen sector shifted in 2026 toward pragmatic, project-specific offtake agreements after years of speculative builds. Microsoft ran hydrogen fuel cell pilots, and Plug Power deployed infrastructure at select facilities, but neither announced widespread adoption.
History suggests skepticism is warranted. Hydrogen has cycled through industrial hype before, most recently in automotive applications that failed to scale. Some analysts predict an AI data center bubble that would slash energy demand projections.
What Vema has that previous hydrogen plays lacked: a signed 10-year offtake agreement and demonstrated production, not just promises. Whether sub-$1 hydrogen at scale materializes remains the question. If it does, data center operators might start asking their site selection teams about local geology.