How Russia will maintain its energy stranglehold on Europe — Quartz

On January 13, the US Senate voted against the slaps sanctions against Nord Stream 2, a gas pipeline intended to transport Russian natural gas to Germany. The pipeline, which has been built but not yet opened, featured prominently in this week’s edition stalled strategic talks between Russia, the United States and NATO. While few countries outside of Russia are keen on the arrival of Nord Stream 2, there is no clear alternative to supply the continent with crucial gas. This week offered a glimpse of how Russia will use energy policy to flex its geopolitical muscle even as Europe reduces its dependence on fossil fuels.

For Europe, Nord Stream 2 is a potential solution to soaring gas and electricity prices. For Russia, it’s a hugely lucrative cash cow that will tighten the country’s already strong grip on Europe as a major gas supplier. But if the US Congress imposed sanctions this week, it would likely have doomed the NATO talks, driving a premature wedge between German and US officials just as Russia appears poised to invade Ukraine.

The gas crisis in Europe has several causes, including rising demand in Asia and the recent lackluster performance of renewables. But Russia has strategically made the situation worse by cutting gas deliveries throughout 2021, said Kristine Berzina, senior researcher at the US German Marshall Fund. That put President Vladimir Putin in a strong position for the talks, she said.

The situation can only get worse. The gas demand is should fall in Europe over the next decade as countries tackle climate change and develop renewable energy, according to the International Energy Agency. But a growing share of this demand will be met by imports, mainly from Russia. Meanwhile, an unlikely replacement for fossil fuels in vehicles and industrial plants – green hydrogen – looks likely to give Russia even more political clout over Europe.

Hydrogen will rewrite energy geopolitics

Hydrogen is becoming the fuel of the future. As one of the few liquid fuels with a low carbon punch (2.6 times more energy per kilogram than natural gas), the decarbonization strategies of companies and countries propose it as a replacement for fossil fuels for the steel, cement and heavy transport sectors.

For the moment, hydrogen produced from renewable energies (known as green hydrogen) is still more than twice as expensive as conventional fuels. But as costs come down, it is ready to shake the balance of geopolitical forces related to energy.

“The energy flow map of 2050 will be very different from what it is today,” said Juergen Peterseim, alternative fuels initiative manager at PricewaterhouseCoopers Germany. “Some of the workbenches [fossil fuel] the players have very good potential to remain exporters of energy for green molecules.

Today, almost all hydrogen is produced from natural gas (blue hydrogen) and is produced close to where it is consumed. Once the price of green hydrogen production drops significantly, which could take years or decades, depending on who you ask – this can displace a lot of blue’s demand. Until then, as more factories and vehicles adopt hydrogen-compatible technology, both varieties will be in the mix for global commerce.

The high cost of transporting hydrogen, by ship or pipeline, and the declining cost of electrolyser technology to produce it locally will somewhat limit the potential of hydrogen as a commodity to be traded at scale. world,” said Peterseim. Most overseas export facilities currently under construction plan to work around this problem by first convert it to denser ammonia.

Either way, a strong network for the global hydrogen trade will eventually emerge. By 2050, a third of the green hydrogen produced globally could be for export, a higher proportion than natural gas today, according to a January 15 report. report by the International Renewable Energy Agency. Hydrogen could account for roughly the same share of global energy trade as coal today, according to IRENA’s plans.

Most exports will be destined for Europe and Asia, where there are countries with high climate aspirations, active industrial sectors and limited renewable energy resources. Japan is trying to import blue hydrogen from Saudi Arabia and australia green hydrogen; a shipbuilding subsidiary of Hyundai Heavy Industries in South Korea said this week it will have massive ships ready to transport hydrogen to this country by 2025.

Energy incumbents are already maneuvering to dominate the future global hydrogen trade, which could follow many of the same paths currently used by liquefied natural gas. Saudi Arabia, Australia, the United States, and Russia have all established fossil fuel industries, extensive energy export infrastructure, and strong gas and renewable resources. Coal-dependent countries like China could increase their energy independence by becoming major producers and consumers of domestic hydrogen.

New entrants are eyeing hydrogen export opportunities, including Egypt, Morocco, Chile and Namibia. But these are at a disadvantage compared to more experienced competitors, says Peterseim, because they have to build their export infrastructure from scratch. Geographically smaller oil and gas exporters that lack the space to build large renewable farms, such as Indonesia and Malaysia, may also be ill-equipped to switch to green hydrogen production and lose their geopolitical influence.

Europe will import a large part of its hydrogen

Europe, which faces high demand for industrial energy and space constraints for renewable energies, should be the target. Green hydrogen can represent 2025% (pdf) of total energy demand by 2050, and while investment is slowly increasing in domestic production capacity, most European countries are likely to be net importers, according to PwC. This is good news for Russia, especially because European markets will be cheaper to reach by pipeline than, say, by Australian tanker. Russia’s stated goal is to control a fifth of the global hydrogen market by 2030, according to the IRENA report, which is higher than its current share of the gas market. Some German politicians have already discussed possibly repurposing Nord Stream 2 itself as a hydrogen pipeline.

It remains to be seen whether the bet on hydrogen will pay off. Skeptics question the cost and practicality of carbon capture for blue hydrogen. Chris Jackson, the former chairman of the UK Hydrogen and Fuel Cell Association, left his industry group, calling blue hydrogen “costly distraction.“And green hydrogen still has a long way to go before it is cost competitive. Whitney Herndon, who leads US energy research at the Rhodium Group, says green hydrogen will be too expensive to replace fossil fuels unless governments impose net-zero emissions mandates, stimulate demand and create economies of scale to lower prices.

It’s time to start building the infrastructure for the hydrogen economy

But the world can’t necessarily wait if it wants to achieve the deep emissions cuts envisioned by the Paris Agreement. The infrastructure to kick-start the new hydrogen economy must start rolling in now if nations are to achieve net zero emissions by 2050.

“If you want to develop a hydrogen business, everything has to be built from scratch,” Peterseim said. And because major infrastructure projects like pipelines and import/export terminals take many years to build, he said, developers will have to start working on them without waiting for hydrogen to become competitive in in terms of costs, which complicates the task for financiers.

Yet, he said, “this decade is absolutely pivotal. If we don’t start soon with infrastructure, we won’t have the volumes of hydrogen we need to decarbonize,” in line with the goals of the Paris Agreement.

Mary I. Bruner