Alberta Releases Hydrogen Strategy
On October 6, 2020, Alberta released the Natural Gas Vision and Strategy which lays out a plan for Alberta to become a global supplier of clean, responsibly sourced natural gas and related products, including hydrogen and petrochemicals. The strategy is a key part of the government’s plan to recover from a period of unprecedented economic adversity.
Key Growth Areas
The report identified the following key growth areas:
Alberta Industry Demand;
Liquefied Natural Gas (LNG); and
For the purpose of this post, we will focus on Hydrogen.
Hydrogen as an energy source is back in fashion due to its potential to support the transition to a decarbonized energy system which will be necessary to meet the emission reduction goals of the Paris Agreement. Hydrogen is a versatile fuel that can be produced from many sources and act as an energy carrier. Hydrogen fuel cells do not produce emissions, only electrical power, water and heat.
Canada and 72 other countries have committed to net-zero greenhouse gas (‘GHG”) emissions by 2050. Many argue that achieving net zero is virtually impossible without hydrogen. It has been projected that hydrogen will be the energy carrier for approximately 27 percent of Canada’s energy demand by 2050. Since half of Canada’s GHG emissions are associated with the end-use combustion of fuels like gasoline, diesel, natural gas and kerosene (jet fuel), achieving the net-zero target will require the replacement of these carbon-based fuels with energy carriers that produce no emissions at end use. In order to achieve net zero, the following high emitting sectors have been identified as sectors that will benefit from the use of hydrogen: heavy freight (road and rail), off-road vehicles, shipping, planes, space heating in cold climates, and heavy industries (e.g. steelmaking).
Alberta’s strategy includes large-scale hydrogen production with carbon capture, utilization and storage (“CCUS”) and deployment in various commercial applications across the provincial economy by 2030. The intention is to have exports of hydrogen and hydrogen-derived products to jurisdictions across Canada, North America, and globally in place by 2040.
Alberta’s strategy is driven by the following:
Global demand for hydrogen is projected to increase at least tenfold in the coming decades. It has been estimated that clean hydrogen could meet up to nearly a quarter of the world’s energy demand by 2050.
The Hydrogen Council estimates that by 2050, the global hydrogen sector could generate US$2.5 trillion per year and create 30 million jobs.
Alberta has several advantages in the production of “blue” hydrogen, which is made with ultra-low emissions by upgrading natural gas. The carbon by-product generated from this process can then be captured and permanently sequestered underground or used for another purpose.
The three colours of hydrogen
Hydrogen can be sourced from techniques that can be broadly categorized by three colours. Hydrogen can play a role in decarbonizing Canada’s energy systems.
Grey hydrogen is derived from fossil fuels (primarily natural gas); it is currently the main method of production, and most of the produced hydrogen is consumed at the same location (eg. at an oil refinery or gas processing facility).
Blue hydrogen is also derived from fossil fuels, but includes any number of carbon capture, storage and sequestration technologies to reduce carbon emissions by up to 90%.
Green hydrogen is derived from water using electrolysis, an electricity-powered process that breaks down water into its constituent hydrogen and oxygen molecules. The electricity used must be from renewable (eg. wind or solar) or nuclear sources in order to be considered truly green.
In terms of climate benefits, not all hydrogen is created equal as can be seen above. Blue and green hydrogen are commonly referred to as “clean” hydrogen. Green hydrogen does not produce any carbon emissions and is therefore considered to be the cleanest. However, as detailed below, at the moment the cost of producing green hydrogen is significantly higher than the cost of producing blue hydrogen. Alberta’s strategy is primarily focused on blue hydrogen.
The federal government of Canada has committed to having a comprehensive hydrogen strategy, which signals the federal government’s intention to pursue hydrogen fuel as a key component of Canada’s goal to reach net zero greenhouse gas emissions by 2050. Canada’s hydrogen strategy is anticipated to be released in the fall of 2020.
Canada is fortunate to be among the world’s lowest cost producers of zero or low-carbon hydrogen. According to a report from Alberta's Transition Accelerator, provinces with ample low-carbon electricity (e.g. from hydropower, nuclear or renewables), electrolysis of water can produce ‘green’ hydrogen for $2.50 to $5.00/kg H2 ($18 to $35/GJhhv H2) and in provinces with low-cost natural gas and the geology suitable for permanently sequestering the byproduct CO2, ‘blue’ hydrogen can be produced at a price of $1.50 to $2.0/kg H2 ($10 to $14/GJhhv H2). It is anticipated that by 2030 green hydrogen will be cost-competitive as a result of declining costs of renewables and the scaling up of hydrogen production.
Hydrogen fuel technologies are not new, though renewed attention is growing both nationally and on an international stage. Already, 18 economies comprising more than 75% of global GDP are developing and rolling out hydrogen strategies. Several countries, including Germany and South Korea, have dedicated large funds to national hydrogen strategies. On June 3, 2020 Germany released a stimulus package of 9 million euros ($13.7 billion) for the ramp-up of hydrogen technologies. There is a growing overseas market for hydrogen as countries roll out their hydrogen strategies. For example, in the past year:
Japan announced it aims to establish commercial supply chains that will procure 300 kt H2/yr (822 t H2/day) by 2030;
South Korea has projected a national demand of 5.26 Mt H2/yr (14.4 kt H2/day) by 2040; and
Germany recently announced a national demand for about 2.5 Mt H2/yr (7.0 kt H2/day) by 2030.
If Canada is to compete on the global stage and succeed in the growing of a hydrogen economy, it must utilize its natural competitive advantages and focus on a cohesive long-term plan to produce, use, and export the world’s cleanest cost-competitive hydrogen and its related technologies. Canada is well-positioned to develop domestic hydrogen supply chains thereby reducing GHG emissions nationally, while also capitalizing on international export opportunities. McCarthy Tétrault will continue to follow the global hydrogen market and will be closely monitoring developments of a federal hydrogen strategy.
For further information on this emerging industry or if you have questions about the impact of COVID-19 on your business, please contact your McCarthy Tétrault trusted advisor or one of the authors.