From the Editor: Lost in transition [Gas in Transition]

Russia may have caused irrevocable damage to its natural gas industry by waging war in Ukraine and subsequently cutting gas supply to Europe. But another casualty of Moscow’s decision-making is its export-orientated energy transition strategy.

Prior to the conflict in Ukraine, Russia had been hoping to position itself as a major hydrogen exporter. The government developed a hydrogen strategy in 2020 that envisaged potentially capturing a fifth of the global market for the fuel by 2030, and the country was well-endowed in resources to achieve such a feat.

Russia’s vast natural gas reserves – estimated at 37.4 trillion m3 proven by BP, or 20% of the world’s total – could have underpinned the production of blue hydrogen via steam methane reforming, or via methane pyrolysis – a process Gazprom was researching that produces solid carbon – a valuable commodity in industry – rather than gaseous CO2. In the case of blue hydrogen, Russia’s 4.6bn tonnes of CO2 storage space, according to recent state estimates, could have been used to sequester the CO2 emitted during the process.

Likewise the country could have put its significant and often under-utilised nuclear power capacity to use in producing so-called pink hydrogen via electrolysis. And at a later stage, its significant renewable potential could likewise have been harnessed for developing green hydrogen.

The national hydrogen strategy envisaged establishing three main hubs for exporting this hydrogen – one in the northwest, one in the Arctic and one in the Far East – as well as a fourth, smaller southern hub. The strategy targeted hydrogen markets in both Europe and Asia, but it was the European market that held the most potential. This was not only because of the EU’s own very ambitious hydrogen strategy, which recognised the need for significant hydrogen imports, but also the fact that the pipeline infrastructure was already in place to send Russian hydrogen to Europe.

The more modern of Russia’s export pipelines to Europe, such as the now-defunct Nord Stream, would have been able to flow a mix of natural gas and hydrogen with up to 70% hydrogen content, according to Gazprom. In contrast, reaching Asian markets, with the exception of China, which Gazprom could one day send hydrogen to using the Power of Siberia 1 pipeline, would have required investing in more costly seaborne hydrogen transport infrastructure.

Meanwhile, Russia’s CO2 storage capabilities could have been used to sequester the CO2 from industries in Europe, giving the country a similar role to what Norway is aspiring towards. Hydrogen and carbon capture and storage (CCS) could have also been deployed domestically for Russia’s own hard-to-abate industries such as steel-making, providing sustainable products for an increasingly climate-conscious Europe. Notably, there is now a ban in Europe on all Russian steel, among many other commodities from the country, no matter how cleanly it is produced.

Russia had also been touting the potential for the Taiga and its other vast forests to serve as a massive carbon offset market. Industries could fund forest preservation and reforestation initiatives in return for CO2 offset certificates that cover their own emissions.

Europe is not the only market for Russian energy transition products and services. But prior to the war, it did represent the largest and most accessible market, and right on Russia’s doorstep. In light of atrocities in Ukraine, though, all Russian exports are now viewed as toxic in Europe, no matter their carbon footprint.

Looking east

With Russia shut out of the European decarbonisation market, it is no surprise that government and industry figures have been keen to stress recently the opportunities in Asia. In August, the head of the Russian State Commission on Minerals, Igor Shpurov, noted that Russia’s CO2 sequestering capacity could be offered to Asian countries. In September, the head of the Russian National Hydrogen Union (NHU) Denis Deryushkin, said Russia could be sending hydrogen from the Far East as soon as 2026, naming China and South Korea as destinations for this supply. But he was referring to only a small-scale export project that state-owned Rosatom is developing on Sakhalin Island that will initially turn out only 35,000 tonnes of the fuel annually.

As noted, the Power of Siberia pipeline could blend hydrogen into its flow – in the nearer term blue hydrogen produced from the natural gas fields in Eastern Siberia that feed it. But Gazprom has not disclosed any such plan to do so. The company’s far greater priority right now is ramping up sales of natural gas to China to offset the loss of most of its European market share. Power of Siberia 1 is not expected to reach its full transport capacity of 38bn m3/yr until the second half of the decade, and Gazprom is counting on the yet-to-be-finalised Power of Siberia 2 and potential transit via Central Asia to deliver as much natural gas as it can, as quickly as it can, from fields that used to serve Europe.

China and other Asian countries do present some opportunities for Russia in the energy transition. But the next question is whether the country is really in a position to seize on them. Energy transition projects need capital – something that Russia is finding increasingly hard to attract given its partial pariah status internationally. Even investors in countries that are non-Western aligned are more reluctant now to invest in Russia given the obstacles created by Western sanctions and other added risks associated with fallout from the Ukrainian war. Energy transition projects also need technology, specialised equipment and expertise, and industries such as hydrogen and CCS are heavily dependent on Western companies for these.

One may have doubts about whether these nascent technologies will really take off. But in any case, it looks at this stage very likely that Russia, rather than championing their development, will be on the periphery.