ANALYSIS | Russia scraps blue hydrogen export plans following Ukraine invasion, with no chance of re-routing to China

Russia is set to slash its low-carbon hydrogen production targets down to 550,000 tonnes a year by 2030 — just over a quarter of its originally announced target for at least two million tonnes by 2035.

“Energy prices inside the country are some of the lowest in the globe — oil products prices are regulated by government, natural gas prices are regulated, so they are both extremely cheap,” says Yury Melnikov, an independent analyst on the UN Economic Commission for Europe's task force on hydrogen. “That creates a huge barrier to use [low-carbon] hydrogen inside the country unless it becomes much less expensive.”

Melnikov adds that although Russia has set a net zero target for 2060, it has prioritised so-called nature-based solutions and forest management to provide carbon offsets over investing in renewables or carbon capture and storage (CCS) technology.

While some companies began initial surveying on CCS development at depleted oil and gas fields prior to the war, “all of these projects were supported by Western and Japanese technology suppliers” and have since stalled or been shelved.

Manufacturers from still-friendly nations such as China — which currently dominates global electrolyser supply — will also be required to localise production in Russia, due to the country’s focus on so-called “technology sovereignty”, Melnikov says.

Russian deputy prime minister Alexander Novak revealed the country would invest 9.3bn roubles ($116.8m) until the end of next year into developing its own hydrogen sector.

“Several Russian companies are already involved in R&D in-house,” Melnikov says, noting that some have even started to work with Chinese partners to progress new technology.

However, much of the research into electrolysers and fuel cells is still at the laboratory level, coming primarily from academic and scientific institutes.

The country may even have a relative head start on such expertise from its historical research and development (R&D) on space flight.

Melnikov points to industrial gases firm Cryogenmash as a major domestic player in hydrogen liquefaction, which in January 2022 was “the first and maybe last” Russian firm to join industry association Hydrogen Council. As of May this year, Cryogenmash is still a member.

One other area where Russia is already progressing R&D is nuclear hydrogen.

Russian gas for China’s hydrogen transition?

Although Russia has had some success in pivoting its energy exports from Europe to China, with negotiations under way for an extra 50 billion cubic metres of gas supply through the proposed Power of Siberia 2 pipeline, direct hydrogen trade between the two allies is not on the table.

While Deryushkin floats the possibility of Russia exporting blue ammonia to China, India and other nations still on friendly terms with Putin, he notes that “buyers in these countries are more interested in ammonia for use in agriculture” rather than to utilise the chemical as a hydrogen carrier or fuel for generating electricity.

“I cannot find any information to suggest China will consider hydrogen imports,” Melnikov says.

“I do not see in foreseeable future any realistic prospects for Russia’s hydrogen exports to China,” concurs Tatiana Mitrova, a research fellow at Columbia University’s Center on Global Energy Policy.

However, Russia’s existing ambition to completely divert natural gas volumes from Europe to China may help the latter switch the main raw material used in hydrogen production from coal to methane — a so-called “black to grey” transition.

China has set a target to start decreasing its coal consumption before 2030. But some analysts are skeptical that it will reduce the use of cheap coal in the near-term, particularly as the nation kicks its economy back into gear after years of Covid shutdowns.

“China’s official rhetoric, certainly before Covid, was saying gas is there to replace coal… but if you look at the statistics, these two processes are ongoing in parallel,” Mitrova says. “Gas imports are increasing and coal consumption is increasing as well, so there are concerns about whether China really wants to decrease coal or increase its energy supplies.”

And even as China increases its natural gas consumption for hydrogen and other energy or industrial uses, Russia may not necessarily find it a ready buyer for a drastic increase in volumes.

“China has a very strict energy security strategy,” Mitrova says, noting that the country requires domestic production to match the level of imports. And when it comes to imports, the Asian nation ensures “more or less even distribution between different suppliers for oil and gas — keeping shares between Russia, Turkmenistan, Myanmar, LNG suppliers from Qatar and so on comparable — so no one supplier has leverage”, she adds.

“I suspect that China, simply for energy security reasons, would not allow Russia to grab 50-60% of its gas imports.”

Chinese president Xi Jinping’s high-profile visit to Moscow in March ended with no movement on a contract for the Power of Siberia 2 pipeline, delivering only cautious statements that the two governments would continue to discuss the project.

And a recent delegation of Russian officials to Beijing last week returned empty-handed, although deputy prime minister Alexander Novak claimed energy supplies to the Asian country would increase by 40% this year.

Part of the holdout is due to Russia’s reluctance to allow Chinese companies to participate in upstream and midstream engineering, procurement and construction, says Mitrova, noting that this clash in energy-security interests had already pushed the contracted price of volumes from the first Power of Siberia pipeline far below those from China’s other piped gas suppliers.

This could mean that Russia, in desperation to sell its fossil fuels to someone but not willing to budge on supply chain control, pushes down the price of gas sold via the Power of Siberia 2 to bargain-basement levels, flooding the Chinese market with cheap natural gas — which could make it more economic to switch hydrogen production from coal gasification to steam methane reforming.