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    Russia in "no rush to part with hydrocarbons," says energy minister


Russia's internal energy policies are decidedly conservative.

by: Joseph Murphy

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Russia in "no rush to part with hydrocarbons," says energy minister

Russia does not need "to rush to part with hydrocarbons" in light of the global shift towards carbon neutral energy, the country's energy minister Nikolay Shulginov said on May 14, calling for development of "traditional" energy sources to continue.

Shulginov, who was appointed energy minister after the departure of his long-serving predecessor Alexander Novak, made the comment days before the International Energy Agency (IEA) published a new report that concluded that no further investment in oil and gas production was needed as the world strives towards net-zero emissions by 2050. Russia's own energy policy is decidedly more conservative, with gas, oil and coal expected to account for 84% of its primary energy demand in 2040, versus 89% now.

"One cannot ignore the energy transition," the minister said in an interview with the ministry's Energy Policy magazine. "But one must understand that by 2035, neither Europe nor the US will completely get rid of hydrocarbons and traditional energy resources will continue to play a significant role."

He also pointed to the surge in oil and gas demand last winter as a result of low temperatures, noting that wind and solar energy alone could not be relied upon in such conditions without adequate storage systems. Traditional, baseload power generation, such as gas-fuelled plants, is therefore needed, he said.

While it envisages limited changes to its own energy mix, Russia is aspiring to become a leading exporter of hydrogen. It wants to account for a 20-25% share of global hydrogen trade by 2025, targeting markets in both Europe and Asia. President Vladimir Putin and others have also talked up the CO2 absorption potential of Russia's forests. These forests could generate carbon certificates that Russian and international companies could use to offset their emissions.

"Hydrogen production can be developed using either natural gas or nuclear energy. In this regard, Russia has many opportunities for development," Shulginov said. "The main thing is that we must not stand still, we must develop new technologies. We are faced with an ambitious task – occupying 20% of the market – and it is not negotiable."

The minister said it was difficult to foresee what price blue and green hydrogen would sell at in the future, as the market for the fuel does not yet exist. 

The Yamal question

The energy ministry is deciding how best to commercialise the many undeveloped, large gas fields on the Yamal Peninsula. Gazprom wants to use them to supplement piped supplies to Europe as well as expand piped shipments to China via the planned Power of Siberia 2 pipeline running through Mongolia. Novatek, on the other hand, wants to underpin further liquefaction projects.

Gazprom has held rights to the 7.3-trillion m3 Tambey field cluster on Yamal since 2008 but is yet to move ahead with development. It has repeatedly spurned proposals by Novatek to form a partnership to use their gas for LNG exports. According to the Moscow-based Kommersant newspaper, however, Novatek CEO and major shareholder Leonid Mikhelson convinced Putin in a meeting in April that liquefaction was the best course.

The Tambey fields contain so-called wet gas with large quantities of ethane, which is far easier to separate through liquefaction than through processing for pipeline use. Sibur, also part-owned by Mikhelson, has proposed using this ethane to produce petrochemicals.

"Several scenarios are currently being considered," Shulginov explained. "The priority options look like the development of gas chemicals, as well as the possibility of using the resource base to enter new markets, that is, through LNG production."

The minister also dismissed the idea of serious competition between Russian piped gas and Russian LNG overseas as "rather far-fetched." Gazprom has a monopoly over piped gas exports in Russia, but has complained of competition in European markets with supplies from Novatek's Yamal LNG plant driving down prices.

"Of course there is competition in the global pipe gas and LNG market, this cannot be denied. But first and foremost this is competition between Russian gas and the LNG of the US and Qatar," Shulginov said. "Not all European countries are connected to our gas pipelines, so it is good that, for example, Spain has the opportunity to purchase Russian LNG. In addition, the mobility of LNG supplies allows Novatek to quickly reorient supplies to Asia when prices there sharply rise."

The head of the energy committee of the State Duma, Russia's lower house of parliament, Pavel Zavalny, went as far as to propose extra taxes or sales restrictions at Yamal LNG to prevent the losses to the budget he said were caused by competition between Russian supplies.