Nanorod forms of metal oxides are recognized as one of the most remarkable morphologies. Their structure and functionality have driven important advancements in a vast range of electronic devices and applications. In this work, we postulate a novel concept to explain how numerous localized surface states can be engineered into the bandgap of niobium oxide nanorods using tungsten. We discuss their contributions as local state surface charges for the modulation of a Schottky barrier height, the relative dielectric constant and their respective conduction mechanisms. Their effects on hydrogen gas molecule interaction mechanisms are also examined herein. We synthesized niobium tungsten oxide (Nb17W2O25) nanorods via a hydrothermal growth method and evaluated the Schottky barrier height, ideality factor, dielectric constant and trap energy level from the measured I-V versus temperature characteristics in the presence of air and hydrogen to show the validity of our postulations.