Russia plans to leverage its large natural gas reserves, existing infrastructure, and cooperation with foreign partners to take a major stake in the global hydrogen market.
Targeting 20% of market share by 2030, Russia is set to ramp up production over the next five years.
S&P Global Platts Analytics forecasts Russian hydrogen production at 3.4 million mt in ammonia and 2.7 million mt in refining in 2021. It expects these volumes to increase to 3.8 million mt and 3.1 million mt, respectively, by 2025.
Russia's export plans include shipments of 2 million mt/year by 2035, and 15 million-50 million mt/year by 2050. The end-goal of 50 million mt/year would be equivalent to around 160 Bcm/year of natural gas.
"This would in essence replace all natural gas exports from Russia to Europe today with hydrogen," Platts Analytics said.
In August, the Russian government approved a roadmap for hydrogen development, which is becoming an increasingly important government priority. At the Russian Energy Week in mid-October, President Vladimir Putin said that hydrogen and ammonia will become increasingly important in global energy markets.
"Russia has the scientific, resource, and logistics capabilities to take a significant share in these promising markets," he said. Russian Prime Minister Mikhail Mishustin said in mid-October that Russia will spend over Rb9 billion, equivalent to around $127 million, to develop technology for the production, storage and transportation of hydrogen over the next three years.
Russia plans to produce hydrogen from nuclear and renewable sources, but with Russia's vast gas reserves, analysts expect natural gas to play the biggest role in hydrogen production.
"Russia sees hydrogen as a partial substitute for hydrocarbons in terms of what it can offer to market," Vladimir Drebentsov, chief advisor to the director general of the Russian Energy Agency (RosEnergo), said Oct. 26, during a Chatham House webinar on Russia's approach to climate change.
During a government meeting on hydrogen in mid-October, Russian Deputy Prime Minister Alexander Novak said that hydrogen should be integrated into Russia's energy and low-carbon development strategies, as once a global hydrogen market emerges, it will compete with hydrocarbons markets.
These plans are being developed at a time when production prices for blue hydrogen continue to be lower than green in Europe.
Production prices for hydrogen produced from gas with carbon capture and storage, including capital expenditures and carbon, averaged Eur2.932/ kg in January to October 2021, according to Platts assessments.
The cost assessment for hydrogen produced from renewables using electrolysis was higher at Eur6.904/kg during the same period.
"In Platts' models, SMR with CCS generally uses a lower-cost input [natural gas] than electrolysis hydrogen [grid electricity], leading to lower production costs for blue hydrogen than green hydrogen," Brian Murphy, Platts senior analyst, hydrogen and low carbon fuels, said.
Russia is targeting Europe and Asia as key export markets. It plans to create at least three hydrogen clusters – in the northwest for European exports, the east for Asian supplies, and the Arctic for domestic consumption and potential exports.
Russia's hydrogen export plans to some extent depend on how hydrogen demand develops among European customers for blue hydrogen, as they may prioritize green hydrogen in light of EU climate legislation.
"With its vast gas reserves, Russia has a large potential for blue hydrogen [with carbon capture, utilization and storage], but export potential for blue hydrogen will realistically depend on whether other countries treat it as sufficiently environmentally friendly," said Elena Anankina, senior director (analytics), Ratings and Infrastructure, S&P Global Ratings.
Russia is investing in ways to reduce the carbon impact of blue hydrogen, including carbon capture and the use of pyrolysis in production, as well as shipping gas for hydrogen production to facilities with good access to power generated from renewables.
The Russian energy ministry argues that with carbon capture, up to 90% of emissions from gas-based hydrogen can be eliminated. Anankina added that there is some potential for low-carbon hydrogen projects in Russia, including in the Murmansk region, using wind and nuclear power.
Russian domestic consumption is less sensitive to concerns over carbon emissions, with projects including hydrogen buses and power generation using a hydrogen and methane mix.
Hydrogen is also becoming a key element in talks on future cooperation with foreign partners, including partners in Asia, Western Europe, the Middle East and Australia.
Russia and Germany have signed a deal on potential cooperation on sustainable energy, including hydrogen.
Officials from western companies with long-standing involvement in the Russian energy sector have also expressed interest in joining hydrogen projects in Russia, including BP and TotalEnergies.
Meanwhile, Japan has announced that it will work with Russia's Rosneft and Novatek on lower carbon projects, including hydrogen and ammonia, as well as CCS.
Russian officials have also held talks with their counterparts from the UAE and Saudi Arabia on hydrogen cooperation.
These plans will develop in the context of existing energy cooperation, with factors including climate legislation, sanctions, and the OPEC+ crude production agreement likely to affect the success and long-term viability of these projects.
A version of this piece appeared in the December edition of Insight Magazine. Download the full magazine here.