We've covered why the BE-4 uses methane as fuel; what I want to know is, why did Blue Origin go with hydrogen for the BE-3? Liquid hydrogen is notoriously hard to work with; it seems like an odd choice for a new company's engine. It also doesn't seem like BO is taking advantage of hydrogen's biggest advantage, its great performance as an upper-stage fuel. So why'd they go with hydrogen instead of kerosene for the New Shepard's engine?
Blue Origin (BO) chosed LH2 for BE-3 rocket engine because of the performance.
"Performance drove the decision to use hydrogen fuel in the BE-3,"
said Rob Meyerson in an interview in 2013, president and program manager in BO.
Looking in to perspective, BO had ambitions for space exploration and they would not stop the development only with a suborbital rocket. They had in plan also orbital rockets. We should combine step by step some elements to come in a conclusion. BE-3 engine was planned that it would serve for a suborbital and orbital rocket, for a booster stage and upper stage not only for BO future rockets but also for gonverment and commercial launch systems. Since LH2 has a lot of advantages in an upper stage then they would need an LH2 rocket engine. They also had plans for reusability of their suborbital booster, doing tests how to land a booster returning from space. And also had plans to send turists in to space. New Shepard would serve to test landing a booster returned from space and also make a trip for turists in to space. BE-3 was announced to have a thrust of 440 kN. In this way it would be ok as an upper stage for BO orbital rocket and also would give enough power for a suborbital rocket like New Shepard. The better performance LH2 engine would give more chances making more easy for New Shepard booster to land safely and sending turists in space with a reused booster making their trip a low cost trip. To land a booster stage is needed a considerable amount of fuel, so a high performance engine gives more room for the success. They could use one type of engine in two projects.
In the same interview Meyerson says that in their orbital rocket (didn't have a name at that time) they were planing to use in all stages the BE-3 LH2 engine. The same philosophy as in Falcon 9 (using Merlin 1D) which reduces the cost and not having two programs for two differnt types of rocket engines (LH2 and RP-1). Again in their orbital rocket they would have better performance and better chances for reusability with a LH2 BE-3 engine.
BO a company with ambitions also had considered Methane engine (BE-4) for an orbital rocket and they started project in 2011. They hadn't decided yet at that time what type of engine would use.
“We have ideas. Some things are in development for other engines that we're developing, but we're not ready to discuss those today. Those would provide other options and other architectures,” said Meyerson.
Let say that depending on the success of BE-4 they would decide to chose a LH2 or Methane engine for the 1st stage of orbital rocket. Now they have announced New Glenn using BE-4 Methane engine.
If they would build an RP-1 engine for New Shepard, an LH2 engine for their orbital rocket upper stage since were focused in performance (high performance of LH2 and advantages at the link of called2voyage comment), including the ambitions to make also a Methane engine with its advantages would make a more complicated situation and costly for BO with three different rocket engine projects. Something else for BE-3 engine was that to make things easier for a LH2 engine, they decided for their BE-3 to have a design based on the combustion “tap-off” engine cycle. It has a high Isp, it is simpler then pre burning staged combustion and is well suited to human spaceflight.
BO won experience step by step learning with some small engines, and yes they had made before an engine using RP-1 (Kerosene) as fuel. BE-1 using peroxide, BE-2 using kerosene+peroxide, BE-3 using LH2/LOX, BE-4 using LCH4/LOX. We can't judge why they chosed to build their third generation engine using LH2 or for their fourth using Methane (LCH4). They had right knoweleges and technology. If they feel that they can do then they should try. BO has made gradually their developments and projects, by learning step by step to be successful.
It appears that Blue Origin's New Glenn 3-stage rocket will be using a variant of the hydrogen-fueled BE-3 for its upper stage engine, which makes a great deal of sense -- enough that we can assume it was the plan from the beginning. Hydrogen is a better choice for upper stage than for boosters, and generally harder to engineer than a methane engine. Having proven out their hydrogen engine in a rocket that, being a suborbital test bed, didn't need maximum performance, they can now put it to better use.