Letter from Moscow: Russia reluctantly explores hydrogen
If the EU, its major customer, is looking at displacing natural gas with H2, the resource-rich producer must also try to get in on the act
Russia’s oil and gas industry was among the observers that expected, or at least hoped, that Europe would respond to the Covid-19 pandemic by putting its decarbonisation plans on hold to focus on near-term economic recovery. Instead, the continent’s energy transition ambitions have only picked up pace.
Governments and businesses alike are doubling down on commitments to the Paris Agreement. To gauge the threat this poses to oil and the transition’s long-term impact on prices, one need only look at the billions of dollars that the world’s largest producers have written off on their balance sheets.
Russia’s own Paris goals are so modest that it has already almost met them. This is because its baseline for emissions is 1990, the year before the Soviet Union’s collapse, when they were at a record high.
Stranded asset risk
While Russia’s extensively drilled Volga-Urals and Western Siberian basins are in decline, its Arctic regions hold seemingly immeasurable volumes of hydrocarbons, with large discoveries being announced regularly. But the shift away from fossil fuels may mean most of this potential mineral wealth remains in the ground.
$175bn – Gazprom estimate of Europe’s hydrogen market
The European Commission last month unveiled its multi-decade hydrogen strategy. This is expected to open the floodgates for investment in the fuel’s production, transport and consumption.
The plan will involve gradually feeding more hydrogen into Europe’s pipeline systems at the expense of gas. It is no surprise that Russia—the continent’s top gas supplier—views this development with alarm.
In order to keep Europe hooked on Russian energy, Moscow will need to become a hydrogen supplier. The fact that it already has the pipeline infrastructure to deliver hydrogen to Europe is an obvious advantage. But it will need to act fast.
The Commission prioritises green hydrogen, separated from water using clean energy-powered electrolysers, as the end goal. It sees fossil fuel-based hydrogen, when its emissions are abated, only as a steppingstone to achieve near-term cuts to emissions and develop a market ready for when green hydrogen is sufficiently cheap.
Blue, turquoise and yellow
But Russia, endowed with the world’s largest gas reserves, is naturally best-suited for producing gas-derived blue and turquoise hydrogen. The former involves the use of steam reforming, whereby hydrogen is separated from gas, and carbon dioxide from the process is stored. The later entails methane pyrolysis, where gas is run through molten metal and solid carbon is produced as a useful byproduct.
The country is also looking to harness its vast fleet of nuclear power reactors to produce so-called yellow hydrogen. Like green hydrogen, yellow hydrogen is produced via electrolysers, but they are powered by nuclear rather than renewable energy.
The EU’s position on yellow hydrogen is not particularly clear. But, from the production side, storing baseload nuclear energy supply in the form of hydrogen makes far less sense than storing intermittent renewable power.
Rather than an opportunity, the would-be hydrogen revolution in Europe seems a lot more like a threat from Moscow’s position
Russia’s greatest potential is in gas-based hydrogen. But as the EU moves towards green hydrogen, Russia has only a limited window for establishing large-scale supply and capturing a share of the market. The window will become smaller if Brussels adopts an even tougher stance against fossil fuels, which in today’s changing political climate is quite possible.
As its only modest progress in renewables shows, Russia has so far lagged behind in the energy transition. And it could take considerable time for the country to establish effective regulation to encourage hydrogen production.
It may also struggle to make the technological advances necessary to deploy methods such as methane pyrolysis and carbon capture on a large scale. Having a politically powerful, and somewhat conservative-thinking, oil industry does not help matters.
State-controlled gas heavyweight Gazprom estimated in 2018 that a potential $175bn annual market for hydrogen was up for grabs in Europe. But Russia may fail to get a slice of this market. Rather than an opportunity, the would-be hydrogen revolution in Europe seems a lot more like a threat from Moscow’s position.