Russia in the global hydrogen market

In any discussion about renewable energy, the debate usually concerns the development of hydrogen technologies. There are three main sources for the production of hydrogen: 18% is produced by processing coal; 4% is “green hydrogen” that comes from renewable sources, mostly by electrolysis of water. The dominant source of hydrogen — 78% of the world’s hydrogen production — is natural gas and oil.


For obvious reasons, Russian resource extraction companies prioritize the production of hydrogen from petroleum commodities in developing their own corporate hydrogen strategies. The following two facts play a key role here:

First, the basic element of the new European energy policy is the Green New Deal adopted by the European Commission. It focuses on renewable energy and decarbonized gases, first of all, hydrogen. Moreover, the Hydrogen Strategy for a Climate Neutral Europe is mostly looking at green hydrogen and envisages a cumulative investment of €180 bln — €470 bln for renewable hydrogen as compared with €3 bln — €18 bln for fossil-derived hydrogen.

Second, the developing extensive global market of exporting and importing hydrogen is becoming a reality of the current energy agenda. Today, pretty much every transnational energy corporation is involved in an area of activity directly related to research programs and applied developments in hydrogen energy, especially after Germany announced its National Hydrogen Strategy, one of the most ambitious European hydrogen strategies which implies that the country will gain a status of a major ‘green’ hydrogen importer in the western market even in case the program’s second stage scheduled for 2024-2030 is successfully implemented. Berlin has also announced plans to launch energy units with the total capacity of up to 5GW for producing green hydrogen by 2030, with additional equal capacities to be commissioned by 2040.

As regards hydrogen exports to Germany, Gazprom and Novatek — whose total share of natural gas imports to the EU was 47.5% in 2019 — are going to face competition from the most prospective hydrogen producing EU regions, particularly Scandinavian countries, the North and Baltic seas areas, and Southern Europe.

Northern Europe’s key specialization is hydropower technologies for producing hydrogen, such as in Scandinavian countries, or through wind power generated at aqua-territorial renewable energy source facilities. Southern/Mediterranean Europe has abundant solar energy; Germany-Morocco Hydrogen Agreement signed in June 2020 provides for constructing Morocco’s first green hydrogen production plant. The project, which is implemented as part of the German-Moroccan Energy Partnership (PAREMA) established in 2012, aims to develop industrial solutions for solar energy conversion with the use of the Power-to-X technology.

Low cost of conversion (about $1.5-3 per 1 kg) remains the key factor in favor of using natural gas to produce hydrogen. A more expensive technology for water electrolysis results in a 2.5-3-fold increase in the cost. Even given the economic attractiveness, the issue of production localization and hydrogen transportation is yet to be resolved. Possible options for Russian natural gas exporting companies in the European hydrogen market include the use of the existing gas pipeline system.

Estimated technical capacities allow for increasing the levels of hydrogen in the methane-hydrogen mixture up to 20% with its further delivery via the gas pipeline infrastructure. A proposal has even been made for utilizing a string of the Nord Stream pipeline and Nord Stream 2, whose construction is underway, solely for exporting hydrogen, or increasing the concentration of hydrogen in the methane-hydrogen mixture up to 70%.

So far, Gazprom considers such option as unfavorable citing the risks of non-observance of long-term contractual commitments as to both natural gas deliveries and the quality of exported gas. Also, it is entirely unclear who will assume the burden of additional investments for adaptive modernization of the gas pipeline infrastructure required for transporting the methane-hydrogen mixture.

A potential solution to the problem could be efforts to produce hydrogen near operating gas compression stations at the consumer’s location. Hydrogen generating capacities near stations will vary depending on the current or forecast demand. This will provide a necessary amount of manufactured hydrogen in European regions in accordance with the specified demand, and will also preserve the specialization of the gas pipeline system, without initiating programs for its modernization or construction of additional pipeline strings.

By Rinat Rezvanov, independent expert on infrastructure systems

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