Hydrogen: Savior or boondoggle for Russia?
The Russian government’s just-released strategy document for the development of hydrogen as an energy source could be viewed as a turning point in Russia’s energy industry. At the same time, the document carries a familiar message: as the world gradually moves toward decarbonization, Russia is reluctant to lose its status as an energy superpower. With no intention of restricting production of its oil and gas resources, Russia wants to become a dominant global exporter of a new fuel – hydrogen.
Specifically, through the development of this new energy vector, Russia foresees exporting up to 50 million tons of hydrogen by mid-century, bringing an additional $23 billion to $100 billion to the annual budget. More ambitiously, the country intends to take up to 20 percent of the to-be-established global hydrogen market. Although, on paper, this might look like a feasible goal, Russia’s way towards new energy dominance might be bumpy.
A versatile tool
Dubbed by some the Swiss army knife of fuels, hydrogen is unique in many ways. As the universe’s most abundant element, it will never be in short supply. It can transform one form of energy (electrical) into another (chemical), store it for a long time and be transported to where it is needed. Most remarkably, however, it does not emit carbon dioxide when combusted. In fact, it generates only water as a byproduct.
These are just some of the reasons why many of the world’s most progressive signatories of the Paris Agreement on climate change have already adopted their national frameworks for hydrogen development, starting with Japan in 2017 and South Korea, New Zealand, and Australia in 2019. Norway, Germany, and the Netherlands were among the first European nations to publish their own strategies, in 2020. Seconding these efforts, the European Union adopted its hydrogen strategy in July 2020.
Viewing hydrogen as a core element in the consolidation of Europe’s energy sectors, the European Commission declares this fuel to be “essential to support the EU’s commitment to reach carbon neutrality.” With this in mind, it set an ambitious target of 40 gigawatts of electrolyzer capacity (using electrical energy to split water into its component hydrogen and oxygen) within Europe by 2030 to produce “renewable” or “green” hydrogen, which is regarded as the ultimate priority.
At the same time, being aware of the technological and financial constraints associated with such a comprehensive shift in the bloc’s energy industries, the EU recognizes that other cheaper and more available forms of “low-carbon” hydrogen (both domestically produced and imported) will have to play a role “in the short and medium term.”
Opportunities and pitfalls
Since the EU is one of the key export markets for the Russian energy industry, losing such an important partner in the energy transition battle is not viewed as an option by the Kremlin. Although the government’s hydrogen “concept,” as the document is titled, declares a goal of pursuing “green” hydrogen, in the short term, Russia will technically be unable to supply zero-carbon hydrogen to the EU primarily due to the insignificant share of renewables in national power production. At the same time, the short- and medium-term uncertainty around supplies of “low-carbon” hydrogen to Europe creates a window of opportunity for the Russian energy sector, traditionally strong in hydrocarbons and nuclear.
In particular, as the exact definition of suitable types of “low-carbon” hydrogen for the EU is yet to be agreed upon, the potential hydrogen color palette for the European market will probably go beyond green. The future spectrum will likely feature “blue” (fossil fuel-based hydrogen), “purple” (produced by electrolyzers using nuclear power), and “turquoise” (generated by methane pyrolysis).
At the same time, to take full advantage of this potential opportunity, Russia will need to significantly reshape its energy environment. For instance, to fully develop “blue” hydrogen, Gazprom and Novatek – the country’s two natural gas exporters – will need to invest in carbon capture and storage (CCS). Though both already seem to be interested, no significant large-scale CCS projects have yet been launched in Russia. Then there is the matter of delivering this form of hydrogen over large distances to the end users – a dilemma that will also need to be solved.
Similarly, with the growing interest in the development of methane pyrolysis, Gazprom has expressed its intention to produce “turquoise” hydrogen potentially close to the end market. With this in mind, the company has already conducted negotiations with such international partners as Germany. While this will dramatically reduce the generation costs, it is still not clear whether the EU will be willing to countenance the use of Russian methane to produce hydrogen fuel on its territory and, more importantly, when this technology will be finally commercialized.
Another giant Russian energy company, the nuclear monopoly Rosatom, has declared its intent to develop “purple” hydrogen. Rosatom already has floated ambitious plans to invest in renewables, and will likely look into developing zero-carbon hydrogen as well. Here, however, the same uncertainty of long-distance transportation appears to be a stumbling block.
Conceptual difficulties
Although the Russian hydrogen strategy is the most recent and detailed publicly available document on the Kremlin’s thinking on hydrogen, it is far from dramatically changing the rules of the game in the country’s energy sector. In fact, just like many other similar documents that are supposed to drive the development of the Russian energy industry, it appears to be reactive rather than pro-active, as it was adopted more than a year after the country’s key energy partners formulated their own hydrogen strategies.
More importantly, however, the concept is clearly export-oriented and does not mention significant steps for developing large-scale domestic hydrogen demand that would not be related to export activities. Here, lack of strong internal demand for hydrogen among the country’s own industries, businesses, and population is a factor that can make Russia’s hydrogen industry particularly vulnerable to external factors such as changes in hydrogen type preferences in the target markets.
For instance, with the rapid buildup of the EU’s “green” hydrogen potential, Russian “low-carbon” hydrogen may ultimately find itself pushed out of the European market. Alternatively, in even closer perspective, the European carbon border tax could potentially minimize the cost advantage of the various colors of Russian hydrogen fuel. As a result, the country’s newly built hydrogen sector may prove unable to fully serve its purpose and generate the expected revenues.
Finally, even with no significant upheavals on the future global hydrogen market, the new Russian hydrogen concept may remain a paper tiger if the country does not build up its export potential as planned. Here, given the current desperate need for foreign technologies across many segments of Russia’s energy sector, reaching the declared targets on its own is unlikely to be feasible. This appears to be even more doubtful in the adverse environment of international sanctions, when large-scale cross-border cooperation in most fields is constantly challenged.
bneGREEN: Russia drafts hydrogen development plan
Russia is eyeing the hydrogen business as a future replacement for its doomed oil and gas business
By bne IntelliNews August 27, 2021
Russia plans to emerge as an exporter of hydrogen within the space of a few years and supply as much as 12mn tonnes per year (tpy) of the fuel by 2035, under a draft development plan approved in August.
The country is eager to carve out a role for itself in the energy transition taking shape in Europe and Asia, and sees an opportunity for converting some of its vast natural gas reserves into low-carbon hydrogen. Deputy Prime Minister Alexander Novak estimated in June that Russia could occupy a 20% share of the global hydrogen market.
Its development plan gives wildly contrasting projections for exactly how much hydrogen Russia will be shipping overseas, however. In a low-case scenario, the country could be exporting only 2mn tpy of hydrogen by 2035, rising to 15mn tpy in 2050. In contrast, the high-end scenario puts supply at 12mn tpy by 2035 and 50mn tpy by 2050.
In July, the government formed a working group of companies, research institutes and federal agencies to develop hydrogen technologies, production and trade. Among its members are state nuclear firm Rosatom, oil and gas producers Rosneft, Gazprom, Gazprom Neft and Novatek, petrochemicals firm Sibur, vehicle manufacturer Kamaz, investment group Sistema and state tech groups Rostec and Rusnano. It is chaired by Novak, Russia’s former energy minister who now oversees energy policy from the prime minister’s office.
The development plan envisages three stages for the scaling-up of Russian hydrogen. The first stage, spanning from 2021 to 2024, will aim to establish pilot clusters for hydrogen production and implement pilot projects to export up to 200,000 tpy by 2024. The clusters are expected to be established in north-west and south-west Russia, the Far East and the Arctic.
The second stage will run from 2025 until 2035, and will see the first commercial hydrogen projects come online. It will also focus on the widespread adoption of hydrogen technologies in various sectors of the domestic economy, from petrochemistry to housing and utilities. The third stage, lasting until 2050, could see a significant upscaling on Russia’s hydrogen strategy, assuming a significant expansion in demand for the fuel globally, as some forecasters predict.
Russia envisages producing a wide variety of different hydrogen types, although its primary focus will be blue and turquoise hydrogen, derived from natural gas.
Gazprom is advocating for turquoise hydrogen, produced from a technique known as methane pyrolysis. The little-used process also produces solid carbon as a by-product, which has useful applications in industry and does not have to be placed in storage like CO2. Other oil and gas companies are looking at blue hydrogen, also produced from natural gas via reforming, but requiring carbon capture and storage (CCS) to make it clean.
Russia also has green hydrogen ambitions, although the country’s wind and solar sectors are still at a nascent stage of development and would have to be upscaled. And even then, it would make more sense for renewables to be used to decarbonise the Russian power grid rather than for producing hydrogen.
Yellow hydrogen is another option. Like green hydrogen, it is produced from water via electrolysis. But unlike the case with green, the electrolysers used to produce yellow are powered by nuclear energy.
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