Hydrogen: A Geopolitical Game-changer for Future European Energy Security?
By Soyoung Oh and Amy Myers Jaffe
Rising tensions between the North Atlantic Treaty Organization (NATO) and Russia over Russian troop buildups on the Ukraine border have raised the specter of an energy crisis in Europe. Cyberattacks this week on key European oil distribution hubs have temporarily contributed to the supply crunch. European Russia supplies about 40 percent of Europe’s natural gas imports. Any reduction in Russian supplies, if it were to result from an escalation of conflict with Russia, could boost already expensive energy prices on the continent even more substantially. This new geopolitical context is likely to influence Europe’s calculus going forward, with a high likelihood that a lasting distaste for heavy reliance on Russian gas will give even further impetus to plans to rapidly diversify to cleaner energy sources such as offshore wind and hydrogen. That begs the question: Have Russia’s recent actions hurt its own chances to be a major participant in Europe’s energy transition?
Prior to the current conflict, Gazprom, the Russian oil and gas company that anchors natural gas exports to Europe, had been unveiling plans to become a major hydrogen supplier in Europe. With its interests in developing technologies like steam methane reforming (SMR) with carbon capture, utilization and storage (CCUS) and methane pyrolysis, Gazprom had floated the idea of building a hydrogen production facility in northern Germany or exporting a 10% hydrogen-methane blend via Nord Stream 1 and 2 pipelines to Germany.
Gazprom’s strategy is part of a broader Russia’s goal of achieving a 20% share of the global hydrogen market by 2030. In October 2021, Gazprom signed an agreement with the Russian government to accelerate the advancement of a natural gas-based hydrogen industry. Arguably, hydrogen could play a large role in Russia’s pledge for its economy to reach a net-zero target by 2060. Russia is also looking to produce hydrogen using nuclear power. Russia currently produces about 6 million metric tons (MT) of hydrogen annually. It aims to increase exports from 2 million mt/year by 2035 to as much as 50 million mt/year of hydrogen by 2050, the equivalent of 160 billion cubic meters of natural gas per year, in essence replacing its current volume of natural gas exports to Europe.
All this could leave Europe in a quandary. On the one hand, Europe has favored policies that would encourage Russia to decarbonize. Russia is a major emitter, ranking fourth in the world behind China, the United States, and India. But the EU must now decide how far it would be willing to go in relying on Russia for clean energy. That could affect Gazprom’s plans for blue or turquoise hydrogen which was already going to find strong competition from domestic European sources and imports from the Middle East and North Africa. As of October 2021, IRENA notes that there are already more than 30 countries worldwide that are developing hydrogen strategies.
While Gazprom’s plans for hydrogen are focused initially on Germany and Central Europe, other European countries have similar aspirations to serve as a hub for hydrogen trade on the continent. Gazprom might be disadvantaged, for example, if the European Union favors green hydrogen (hydrogen produced from renewable energy) over hydrogen produced from natural gas. Green hydrogen is a key element in the European Green Deal and will receive support from Brussels and major European governments. Italian companies have floated the idea that Italy should seek to serve as a green energy hub in Europe, potentially by importing hydrogen produced in North Africa from solar power, and the Italian government is considering backing a project to build large scale electrolyzers to produce green hydrogen in the country. Meanwhile, Denmark is building an artificial island that will be a hub for producing green hydrogen based from offshore wind turbines in the North Sea. Germany, France, the Netherlands are also making significant funding for hydrogen projects, while key European players collectively launched ‘HyDeal Ambition’ in 2021 to deliver green hydrogen at $1.70/kilograms by 2030. Multinational oil companies like Shell are also involved in similar ventures. Shell is planning to produce green hydrogen with electricity from several offshore wind farms (Hollandse Kust Noord and NortH2 project) in the northern Netherlands in the coming years.
In the Middle East, Saudi Arabia and the United Arab Emirate (UAE) are also seeking ways to develop blue and green hydrogen tapping existing expertise on industrial-scale production and export supply chains, as part of their response to the energy transition. Saudi Arabia aims to be the top global supplier of hydrogen, and has set hydrogen production targets of 2.9 million tons per year by 2030 and 4 million tons per year by 2035. Its national oil company, Saudi Aramco, is already exporting hydrogen in the form of blue ammonia. The company transported 40 tons of blue ammonia to Japan in 2020. Riyadh-based ACWA Power and US firm Air Products have committed to a $5 billion green hydrogen project in Saudi Arabia. The UAE is targeting to reach 25% of the global hydrogen market by 2030 with several hydrogen projects already underway. Abu Dhabi National Oil Co. currently produces 300,000 mt/year.
The United States, one of the world’s largest consumers and producers of hydrogen, is also keen on leading in the global hydrogen market. As part of the Bipartisan Infrastructure Law, $8 billion is allocated to finance four regional clean hydrogen hubs. The bill also includes $1.5 billion for electrolyzer and clean hydrogen manufacturing. Strengthening the hydrogen production could supplement or even someday replace the U.S. exports of liquefied natural gas (LNG). As Europe’s winter energy crisis is already being ameliorated by a flood of U.S. LNG that was redirected from other markets to Europe in December and January, it might bode well for American firms who are thinking to export hydrogen to Europe in the future. Australia, another major LNG exporter to date, is also mapping its potential to become a major hydrogen producer, tapping offshore wind resources combined with electrolyzers.
With so many nations stepping up to the plate to be hydrogen exporters, the pace of “hydrogen diplomacy” is picking up. Japan is approaching hydrogen much the way it did oil and gas to become the world’s first “hydrogen society” since 2017, entertaining government to government discussions. South Korea held talks with Norway on hydrogen in 2019. Morocco, Oman, and Chile are also in the running as possible suppliers to Europe while Germany has signed a cooperation agreement with Morocco on methanol production from hydrogen.
All this means that any geopolitical crisis surrounding Russian natural gas exports could set Russia backward in its pursuit of a global hydrogen role. In the long run, Europe’s demand for hydrogen will be material to Gazprom’s hydrogen aspirations, and the success of Russia’s hydrogen strategies will ultimately depend on how its European clients are positioning themselves in the emerging hydrogen market either as consumers of blue or turquoise hydrogen from Russia or as producers and importers of green hydrogen from elsewhere. The more unreliable a supplier Russia seems today for natural gas, the less likely European capitals will be to seek clean hydrogen imports in a manner that considers Moscow’s interests.
Ahead of the Glasgow climate meeting, Western leaders made an effort to engage the Kremlin on climate issues, hoping that discussion of bilateral and multilateral cooperation towards a constructive transition for Russia’s energy economy would ease overall tensions. But unfortunately, that approach has yet to bear fruit to the detriment of all concerned. ∎
Soyoung Oh is an Assistant Researcher at the Climate Policy Lab.
Amy Myers Jaffe is the Managing Director at Climate Policy Lab and a research professor at The Fletcher School, Tufts University.
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