At the St. Petersburg International Economic Forum, Anatoly Chubais suggested that Russia "bite its teeth" into the production of hydrogen, since it can be sent to Europe through the already existing pipes for natural gas. The former chairman of the board of Rusnano rightly considers hydrocarbon fuel to be deprived of special prospects in Western markets. But here's the bad luck: physical and technical reasons make the implementation of "hydrogen Russia" extremely undesirable. Let's figure out why.
It is hardly necessary to introduce Anatoly Chubais and explain why his opinion may be important. It was he who to a great extent determined the appearance of Russian privatization and thereby became the father of a huge part of the well-known features of the Russian economy. Economically, we all to a significant extent live in "Chubais's Russia" - although no one chose this. Later, he played an equally important role in transforming the Russian energy industry into what it is today.
As is often the case with those government officials who were once the initiators of the largest and most important new projects for the economy, he is now close to “defining trends” - from Rusnano to Russia's position on global warming and related new technologies. If he says something, there is a significant chance that this is how we will live. Or at least we will try. What does Chubais propose to implement this time?
Top manager's theses are extremely simple. “With hydrocarbons everything is clear - I don’t even want to discuss it, it’s too clear. (I mean that in a strategic perspective they will end, due to their rejection in the West. - Ed.) The main, fantastic, new opportunity for Russia is called hydrogen. What can be done in Russia in terms of hydrogen is geopolitically comparable to what Russia is doing in terms of hydrocarbons”. You just need to replace the export of hydrocarbons with the export of hydrogen - however, this will require restructuring from 100% of Russian businesses,”Chubais concludes.
The logic is simple. Today, more than half of our exports are hydrocarbons. Geopolitically, they are also important: even in the worst case scenario, a major war with the West is ruled out, since it will lead to systemic failures in the Western economy in any development of events on the fronts. It is clear that the Russian elites would like to preserve both the bulk of their exports and a similar factor to exclude a "hot war" between Moscow and NATO.
However, it is obvious that we and our children will live in the world of Greta Thunberg - one where the consumption of hydrocarbons must be reduced at any cost. And it will be shortened. So they need a replacement. Unfortunately, from a technical point of view, hydrogen cannot be it. Although Anatoly Chubais is right when he says that at least 10% of hydrogen can be added to existing Russian gas pipelines without additional modernization. What exactly makes the transformation of Russia into a hydrogen power an undesirable development?
1. Physics is adamant: hydrogen is a poor export commodity
The density of hydrogen at normal pressure is almost eight times lower than that of methane. In a gas pipeline, gases are under pressure, but in any case, we are talking about a huge gap in density. When burned, it gives three "thermal" kilowatt-hours - more than three times less than a cubic meter of methane.
Consequently, pumping it through pipes at the same distance is more than three times more expensive than that of methane. In itself, this may not seem so important: transportation of gas always makes up a small part of its cost.
But the fact is that in the world of Greta Thunberg, such a concept as the carbon footprint is important. As small as it is, the carbon footprint of pumping hydrogen through a gas pipeline is more than three times that of methane. Western experts have repeatedly noted that this is one of the reasons why it must be produced “on the spot” - in the same country where it will be consumed.
Another important point: the West does not need natural gas with 10% hydrogen. Simply because from the point of view of the Western world, the reduction of methane combustion by 10% is not interesting - only its complete replacement with hydrogen is interesting. The reason for this uncompromising position is that a 10% reduction in methane combustion in the EU and the US will drop carbon dioxide emissions so insignificantly that it will not slow down warming by even tenths of a degree.
Recall that half a century ago, Mikhail Budyko predicted an increase in planetary temperature due to anthropogenic CO2 by one degree by 2020 and 2.25 degrees by 2070. His forecast for 2020 has been realized, and the Western world is seriously horrified by the prospects for the implementation of the second of these forecasts. The replacement of 10% methane with hydrogen in such conditions is perceived there as a proposal to treat a dying person with a compress.
And pure hydrogen is unsuitable for use in the Nord Stream and any other methane pipeline - both Russian and Western. The reason is the same: physics. Hydrogen molecules are so small that at high pressure they easily penetrate steel (along the way, embrittling it). Leaking hydrogen is extremely dangerous as this gas creates spectacular fires and explosions.
Is it possible to make hydrogen-friendly gas pipelines? Yes, if they are plastic: such material holds the lightest gas better. But plastic pipes do not withstand the pressure of 120 atmospheres, like the Nord Stream, and this, again, is physics. And at low pressure, it is profitable to pump gas only over short distances - hundreds of kilometers, but not from Russia to the EU.
In general, from the point of view of many European politicians, this is not a minus, but a plus: they think that, having switched to hydrogen, they will cease to be energetically dependent on Russia. Here they are as technically naive as Chubais with the "transition to hydrogen energy". But more on that below.
2. Europe loves "green", not "brown" - which means that the hydrogen transition, most likely, will not happen. Never
The EU aims to switch not just to hydrogen, but to a very specific hydrogen - "green". That is, obtained by the decomposition of water by electrolysis (into oxygen and hydrogen). Russia makes hydrogen by steam reforming of methane - and such hydrogen is called "brown" abroad.
Moreover, even "green" hydrogen will be considered as such only if it is produced from "green" electricity - more specifically, from solar panels or wind turbines. Russia cannot produce it this way. More precisely, it can, but only if it wants to subsidize Europe, which is economically unrealistic.
To obtain a cubic meter of hydrogen by electrolysis, it is necessary to spend about 4.5 kilowatt-hours of electricity, and when burned, it will give up only three kilowatt-hours in terms of heat. Therefore, any estimates of the cost of "green hydrogen" start at 18 cents per cubic meter - even when using super-cheap energy from large hydroelectric power plants, which is already scarce in European Russia. "Thermal" kilowatt-hour from such hydrogen will cost at least six to seven cents.
A cubic meter of methane costs from 10 to 20 cents, but gives 10 "thermal" kilowatt-hours during combustion. One "thermal" kilowatt-hour from natural gas, it turns out, costs three to six times cheaper than from hydrogen.
So, the transition to hydrogen is equivalent to an increase in gas prices by at least three to six times. Let's be realistic: if we try to raise the price of gas so much, few people will need it. It is so much cheaper to use firewood that stoves will become an economically viable alternative to gas boilers. After such an increase, large industry will be forced to move to a place where there is no green hydrogen - or to close.
Can Russia seriously count on the supply of hydrogen to Europe if its "brown" hydrogen is not needed there? No. Can it seriously count on the supply of green hydrogen to the European Union? Extremely unlikely.
Let's put ourselves in the shoes of European politicians. None of them have any idea how many kilowatt-hours are in a cubic meter of hydrogen, or how much they have to spend to get it. Now they are ready to invest billions in such programs only because their experts are telling politicians: in winter, electricity from wind farms and solar power plants will not heat Europe. We need a stable, weather-independent source of fuel, and so far it can only be hydrogen.
Yes, European experts write in their reports for politicians that green hydrogen is prohibitively expensive. But this is written in small print, and not at all on the first page. And everything that is written further in the first and not in large letters, the typical politician never reads.
In other words, European politicians do not understand what is happening, and will only understand it when the first experimental plants of "green hydrogen" appear. Then the business will come to them and explain that it either moves tomorrow with its factories to China, or green hydrogen goes where the ferry cars go - to the museum of technical wonders of the past. Fun, but not very practical.
It is unlikely that European leaders will choose the first option on their own. Economic suicide is rarely committed voluntarily.
All this means that the massive transition to green hydrogen will not take place. By investing in “restructuring 100% of businesses,” as Chubais recommends, we are investing in a future that won't happen.
3. Can't Rosatom make green hydrogen cheaper than using wind turbines and solar panels?
In theory, there is an alternative to the production of hydrogen at SPP and WPP: the decomposition of hydrogen by heat from specially created nuclear reactors. At temperatures above 800 degrees, water itself tends to decompose into hydrogen and oxygen - and in a reactor with a coolant heated to this point, hydrogen can be produced at prices much lower than if it is done by electrolysis. Indeed, in an ordinary nuclear reactor, the bulk of the heat is spent on heating the atmosphere, and only 33 to 39% is spent on generating electricity. If the bulk of the heat is spent on producing hydrogen, it will come out much cheaper than usual. About a couple of times.
Nevertheless, this option is unrealistic. The point is not even that today such reactors are only in projects. This is just not a problem: Rosatom is an advanced enough player to make them a reality.
The trouble is different: this, again, is useless. If we are going to sell hydrogen to Europe, we must take into account the peculiarities of European thinking in the field of ecology. They are simple: carbon dioxide is bad, but the atom is bad. Germany (a key player in the European Union) is not shutting down its nuclear power plants in order to feed the Russian ones for decades later, buying hydrogen from them. In other countries of Western Europe, green sentiment is also gaining strength: now France is planning to reduce the share of nuclear generation in its energy sector.
Russian reactors simply do not fit into all this. Yes, nuclear power is no less safe than wind or solar - but for Europeans it is absolutely irrelevant. The atom is increasingly unacceptable to them ideologically, and no rational arguments can convince them.
Having invested in the creation of fundamentally new reactors for exporting hydrogen to Europe, Russia will most likely remain at a broken trough: they will not buy it in the EU, and Russia does not need it, because even the cheapest hydrogen per unit of energy contained in it is all will be equal to one and a half times more expensive than natural gas. In addition, it is also much more difficult to transport and store.
4. Does Russia need to be a "hydrogen energy power"?
There are also more important questions. Why do we want to replace hydrocarbons with hydrogen? Obviously to save export profits, isn't it? Is it worth it? How does the export of energy carriers compare with the export of something else?
Take the Taiwanese chip export company TSMC. It was founded when the standard of living in Taiwan was comparable to the Soviet one, and with the active participation of the local state. Technologically, Taiwan in the 1980s was also no more advanced than our country. Today TSMC's sales are $ 48 billion a year, and profits are $ 18.5 billion a year. For comparison, Gazprom, similar in age, has sales of $ 85 billion and profits of a couple of billion. And this is despite the fact that TSMC employs only fifty thousand people, and Gazprom - more than 460 thousand.
It turns out that the export of energy gas does not bring a high rate of profit to our companies - it is measured in a few percent, and is much lower than that of exporters of finished and more complex products. Labor productivity in a gas company is also many times lower than that of a manufacturer of complex products.
All this, in general, could be predicted without even looking at the statements of these companies. Manufacturers of complex products, on average, always have a higher rate of return: they have fewer competitors than those who make something simple. Fewer competitors - you can keep prices higher and get higher profits. From an economic point of view, someone who produces something simple will normally be worse off than someone who produces something complex.
One can argue: but if you supply gas, then it is difficult for your buyer to fight with you. Let's face it: everything is not so simple here either. First, entry into an armed conflict with Russia does not depend on Europe at all: it depends on the United States, which, as is typical, does not buy energy resources from us. If Washington wants, there will be a conflict, and the Europeans will participate in it, if it does not want it, there will be no. All of this is not affected by Russian gas. Secondly, we strongly doubt that Europe's dependence on TSMC chips is lower than on Gazprom's gas.
More recently, the global auto industry was in a fever from a temporary shortage of microcircuits: factories in the United States literally stopped because a modern car is impossible without semiconductors. AMD, Apple, Nvidia, Qualcomm - all of them will rise in the same way without TSMC. To fight Taiwan is dangerous even for such an economic superpower as the PRC: a number of industries will grow there as well.
Meanwhile, Europe without Gazprom may well buy LNG from other countries of the world. Yes, it is much more expensive, yes, for this you will have to print money (or borrow), but this is a resolvable issue. There is a lot of gas in the world: it is a simple product, it can be produced even on the Arabian Peninsula. There are few microcircuits in the world, because in order to produce them, many people have to seriously strain their brains for many years in a row. Otherwise, you will not get into this market, management, who loves and knows how to strain their brains, is a rarity in the world, therefore, there are much fewer industries where it is required.
In other words, the idea of a hydrogen superpower is rather dubious both economically and politically.
5. Export of energy carriers on a large scale inevitably slows down the export of the manufacturing industry
Macroeconomics has its own laws. If you export a lot of energy, the real (adjusted for inflation) rate of your currency inevitably becomes higher than if they were not exported.
Residents of Russia know this very well from their own experience. In 2000-2008, the rise in oil prices increased the value of its hydrocarbon exports by almost an order of magnitude. During this time, prices within the country increased by 3, 15 times, and the ruble / dollar rate increased by ~ 10%.
This meant that the prices of Russian goods increased relative to imported ones by about 3.5 times. The competitiveness of local products relative to imported ones fell sharply. The competitiveness of non-primary goods in export markets has also clearly declined. As a result, imports grew by 30% per year - four times faster than the economy, and almost three times faster than the income of the population.
This phenomenon is called "Dutch disease" (or the Groningen effect). This is a very difficult and difficult to treat situation, which can be briefly summed up like this: if you export a lot of energy, you will have to export much less complex goods. Not because you have bad (in terms of price-quality) goods (Dutch goods are definitely not outsiders here), but only because you are exporting energy resources.
It would seem, what's wrong with that? After all, it is much easier to extract oil or gas than to do something in the manufacturing industry: this requires much fewer people, and, most importantly, much fewer sane managers - the main and most scarce resource of any modern economy.
Nevertheless, there are disadvantages to the export of energy resources, and they are enormous. The point is that the manufacturing industry creates a lot of jobs. To make a nuclear reactor, it is not enough to have an enterprise that will produce its vessel. Countless suppliers are needed for everything a reactor needs - fuel rods, pumps, turbines with titanium blades, and so on. The manufacturing industry creates many more jobs than the extractive industry. This is inevitable: after all, it requires more human labor.
That is why, when the Groningen gas field was discovered in Holland, the overall effect on the economy was not very good. The rate of the local guilder immediately soared, and gradually the number of processing industries decreased. There was even more money in the country, but there were far fewer workers in the gas field than in the shrinking rest of the industry - and unemployment rose despite the simultaneous rise in inflation. The service sector continued to grow, but the salary of a waiter was still noticeably lower than that of an industrial worker - and the incomes of the majority of the population during the years of the gas boom did not shine either.
Can Dutch disease be cured without sacrificing energy exports? Oh sure. Just as China has done more than once when the sheer size of its exports tried to push the yuan upward, making Chinese exporters less competitive. At that time, in Beijing, they simply reprinted the yuan and bought dollars with them, preventing the exchange rate of the national currency from strengthening and hitting exporters.
However, this method is not available to us: the leadership of the Russian economic block, for ideological reasons, is not ready to print rubles for any purpose. Therefore, in our case, the Dutch disease is absolutely incurable. Moreover, under any government. All the real opposition forces that exist in our country adhere to the same position as government economists with regard to printing rubles for any purpose. As a result, any political changes in Russia will never improve the position of its manufacturing industries, which suffer from an overvalued national currency.
Ultimately, the Dutch disease still plagues Russia today. In 1999-2019, prices in it increased by 8, 8 times - and the dollar exchange rate only by ~ 2, 5 times. Our manufactured goods are still more than three times less competitive than they were 20 years ago. And no end to this situation is visible, even in perspective. Unless, of course, the good West tries to eliminate the export of Russian hydrocarbons, or at least drops the real prices for them to the 1999 level. Alas, there is little chance of this, because not only he consumes hydrocarbons on this planet, and Western countries are not in a position to seriously influence the PRC.
Let's make a mental experiment: suppose that oil prices have not increased since 1999. What would be the export of the manufacturing industry (and at least grain) if its products in dollars were three times cheaper than today? Obviously, much more - just like the profits of all non-resource exporters.
The presence of oil and gas exports in Russia is a key reason for the weak competitiveness of all other sectors of its industry. So it was, is and will be until the end of our days. Including because our top managers are still thinking about how to maintain the status of an “energy superpower”. Or rather, the status of the world's largest patient with the "Dutch disease".