OPINION: Russian oil and gas producers and authorities appear to see little economic sense in the unfolding transition from hydrocarbons to renewable sources of energy.


Gain valuable insight into the global oil and gas industry's energy transition from ACCELERATE, the free weekly newsletter from Upstream and Recharge. Sign up here today.

Last week's St Petersburg International Economic Forum did, however, see domestic and international operators acknowledge the risk of rising global temperatures to Russia's northern regions.

President Vladimir Putin warned at the event that global warming threatens to melt the permafrost on which much oil and gas infrastructure — not to mention whole towns — is built.

The president has instructed the government to work out the necessary legislative amendments by July next year to embrace stricter requirements for corporations to tackle carbon dioxide and methane emissions.

However, he failed to mention any major subsidies or tax incentives to promote investments in wind, solar or hydrogen projects.

Moreover, Putin and oil company executives have reiterated that Russia will keep growing production of natural gas, which is seen as cleaner fuel than oil and as feedstock for producing hydrogen.

Hydrogen from gas preferred

Russian companies tend to favour blue hydrogen — produced using natural gas, with carbon dioxide captured and stored — according to Alexander Dyukov, chairman of Russian state-controlled oil producer Gazprom Neft.

There were rumblings of discontent at the forum over the perceived bias of European authorities towards green hydrogen — produced by electrolysis, with power from renewable sources — over blue.

Although many Russian companies are researching technical aspects of increasing hydrogen production at existing facilities and building new dedicated facilities, there was a palpable sense of concern at the forum about the lack of transportation options and demand.

“If demand is not there," said Vladimir Yevtushenkov, chairman of Moscow-based conglomerate Sistema, then the current enthusiasm to embrace hydrogen production initiatives "may quickly wane".

Sechin's criticism

Rosneft chief executive Igor Sechin, meanwhile, bemoaned the lack of fresh investment in fossil fuels — something he sees as placing the stability of long-term oil supply in danger.

“The oil and gas industry is creating much value [for the global economy], however, it is not receiving investments in return. The world risks facing the sharp deficit of oil and gas," said the head of Russia's largest oil producer.

European state-backed investments in renewables grew fivefold in the last decade, but the generation of power from these projects rose by just 3.5 times, Sechin claimed, pointing to what he sees as poor returns from such projects compared with oil and gas greenfield projects.

Banks stay away

For a transition to cleaner forms of energy to be effective — in Russia or elsewhere — the backing of financial institutions is key.

Oleg Sysuyev, head of Russia's largest private bank, Alfa Bank, told the forum that none of the country's lenders are prepared as yet to bankroll renewable and decarbonisation projects. This is because the payback is seen over too long a period compared with oil and gas projects.

Although Russia has voiced its readiness to support any new global climate deal, the country's political and business leaders must alter their approach and outlook if any meaningful progress in the energy transition is to be made.

Right now, the catalyst for such sweeping changes appears absent.

(This is an Upstream opinion article.)