Hydrogen Production in Ukraine: Escape From Energy Dependency and a New Source of Revenue After Nord Stream Two

On June 19, Ukrainian Foreign Minister Dmytro Kuleba, speaking at the Antalya Diplomacy Forum, in Antalya, Turkey, underscored that the use of alternative energy sources will have strategic meaning for Ukraine, helping the country to effectively address both current and future energy security challenges (Mfa.gov.ua, June 19). He also underscored that since the European Union “has indicated Ukraine as a priority supplier of ‘green’ hydrogen to the EU market […] Ukraine is now actively working on ways to develop its [hydrogen] exports” (Ukranews.com, June 19).

Indeed, although hydrogen—frequently dubbed “the oil of the future”—still has not generated the creation of a global commodity market, the time is ripe for Ukraine to begin working on the means to optimize the production of this resource, saturate its domestic market, as well as calculate future export routes. These tasks come with a particular urgency given the upcoming launch of the Nord Stream Two natural gas pipeline project as well as the EU’s initiatives in the realm of de-carbonization (the European Green Deal and the Carbon Border Tax) that could, although in different ways, pose challenges to Ukraine’s economy (see EDM, February 24, June 24, July 21).

As noted by one of Ukraine’s top renewable energy experts, correspondent-member of the National Academy of Sciences of Ukraine Stepan Kudrya, Ukraine has vast but, for now, largely unexplored potential in the production of hydrogen (Kosatka.media, February 10, 2020). Some of the first applied research into the use of renewable and green energy in Ukraine began in the 1980s, at the Kyiv Polytechnic Institute and the Chernihiv-based “Desna” polygon. Following the collapse of the Soviet Union and resulting economic crisis, those promising initiatives were halted, however, and interest only reemerged after 2019. In 2020, the then–acting minister of energy and environmental protection, Olha Buslavets, stated that since “Ukraine has set ambitious climate- and de-carbonization-related goals […] the use of ‘green’ hydrogen should be seen as one of the main instruments helping it to advance to achieving these plans. The Ministry [of Energy] is already working on a hydrogen-related road map” (Ukranews.com, November 12, 2020). These opinions—Ukraine’s great potential and bright prospects with regard to the development of hydrogen-related potential—are shared by virtually all domestic energy experts, including Leonid Unigovsky, the head of Naftogasbudinformatika and one of the country’s top practitioners in the realm of renewable energy. Specifically, he stated that some practical results could be achieved by 2025–2030, adding that Ukraine and Norway could become key suppliers of hydrogen to Europe, due to their competitive advantages in this field. However, the specialist underscored that to be able to advance in this direction, Ukraine will first need to address several fundamental problems that include, among others, hermetically sealing the pipeline system (given the specificities and distinctive characteristics of hydrogen as a commodity) as well as some complex technological solutions related to hydrogen production and refining (UNIAN, February 13, 2020).

Nonetheless, from a technical point of view, Kudrya argued that Ukraine is now capable of manufacturing up to 70 percent—in fact, this number could be increased to 100 percent—of the equipment indispensable for hydrogen generation. He asserted that Ukraine’s current industrial potential—specifically, the Yuzhny Machine-Building Plant (Yuzhmash) and 22 other factories that are part of the domestic defense-Industrial complex—is already sufficient for the task (Kosatka.media, February 10, 2020).

Leading Russian experts do not share their Ukrainian counterparts’ optimism. For instance, Stanislav Mitrakhovych (a researcher with the Financial University Under the Government of the Russian Federation as well as the National Energy Security Fund), admitted that, theoretically, Ukraine does have a potential in this area; but he pointed out that the production of green hydrogen is an extremely costly enterprise, which Ukraine is unlikely to be able to carry out on its own. At the same time, the expert claimed that Kyiv should not count on the monetary compensation promised by its foreign partners for the launch of Nord Stream Two, since this money will not be enough to cover the associated expenditures needed to build up a nascent hydrogen energy sector. Furthermore, in order to transport hydrogen, Ukraine would have to completely modernize its pipeline network or, if necessary, build new lines; either task will entail large expenses, and it is not at all evident that Kyiv would be able to find investors to defray those costs (RIA Novosti, July 26). Pessimistic as this forecast may be, Ukraine has already started working on some projects with foreign partners—though for now limited in scope and yet to be formally confirmed. For instance, Germany’s Siemens Energy and Ukrainian energy holding DTEK agreed to launch limited production of hydrogen fuel (to be used for steel manufacturing) in Mariupol, on the basis of a metallurgical combine belonging to the Metinvest group (Greendeal.org.ua, March 23). And alternatively, some Ukrainian analysts have argued that, instead of massive investments in pipeline networks, Ukraine could try to emulate Japanese companies that have been successfully transporting liquefied hydrogen by sea (Greendeal.org.ua, June 10).

For now, a large-scale hydrogen-related project most capable of transforming Ukraine into a major exporter is likely the Blue Danube project, created under the European Union’s “Hydrogen for Climate Action” initiative (Energyindustryreview.com, December 10, 2020). The project gathers nine EU (Austria, Bulgaria, Croatia, Czechia, Germany, Hungary, Romania, Slovakia, Slovenia) and five non-EU countries (Bosnia and Herzegovina, Moldova, Montenegro, Serbia, Ukraine); it will connect the Danube with the Rhine River and the Black Sea, thereby creating a trans-European supply chain for green hydrogen. Upon its completion, green hydrogen—generated on a large scale with the use of wind and solar energy—will be transported to countries in Southeastern Europe. For Ukraine (the Chernivetska, Ivano-Frankiviska, Zakarpatska and Odessa oblasts expect to participate), this could be a unique opportunity to use its natural resources (solar and wind energy) and geographic location to start producing hydrogen on an industrial scale and export this potentially ever-more-valuable resource to the EU.