Alberta's hydrogen strategy – economic boon or blimp?

On October 6, 2020, the Government of Alberta released its Natural Gas Vision and Strategy (the Natural Gas Strategy or the Strategy), which, true to its name, outlines the strategy to channel Alberta's natural gas resources towards new economic development opportunities. The Strategy identifies five pillars of growth: petrochemicals, plastics recycling, intra-province industry demand, liquefied natural gas, and hydrogen. In this article, we focus on the final pillar—hydrogen—and briefly discuss the knowns, the unknowns, and the path ahead.

The global energy industry is in the early stages of a significant shift that will take place over the coming decades. This shift, acknowledged as one of the premises underlying the Natural Gas Strategy, is driven by the global community's desire to decarbonise our energy chain and mitigate the worst effects of climate change.

While electrification and the deployment of renewable electrical generation has attracted significant attention over the past few years, hydrogen is another alternative to fossil fuels that is uniquely suited to assist in the energy transformation. It is a versatile and clean-burning energy "carrier" that can be used for energy storage, transportation, heating, and as a fuel for transportation and industrial processes. Despite its versatility, however, the "hydrogen economy" remains in its early stages and its success will depend on a multitude of factors, including widespread commercial adoption, further technological progress, and the build-out of infrastructure.

The hydrogen rainbow

Although hydrogen is the most abundant element in the universe, there is not enough naturally occurring pure hydrogen on Earth to support our demand. Therefore, we must produce hydrogen in order to use it. Once produced, hydrogen is relatively clean-burning, but its production process is not always so clean. As a result, carbon-intensive hydrogen production may simply displace emissions from the point of combustion to the point of production. If hydrogen is going to play a key role in the transformation to a less carbon-intensive energy system, it will be important to decarbonise production methods.

Hydrogen is currently classified with reference to its production method and relative associated emissions. Grey hydrogen is produced from fossil fuels and while it is the least expensive to produce, grey hydrogen production methods have significant greenhouse gas (GHG) emissions associated with them. Blue hydrogen is also produced from fossil fuels, but carbon capture and sequestration (CCS) is relied on to limit the associated emissions. Another way to reduce emissions without relying on storage is to capture emissions generated in the production of hydrogen and use them in other industrial processes, such as making concrete and cement. Finally, green hydrogen is produced by breaking water molecules down into their constituent elements—oxygen and hydrogen—through electrolysis. While any source of electricity can be used for this process, the resulting hydrogen is only considered green if the electricity source is also green (for example, solar, wind, or hydro).

Approximately 96% of global hydrogen production is currently grey hydrogen. If hydrogen demand continues to grow, there will be a significant role for both blue and green hydrogen to play. This is the opportunity the Strategy identifies: using Alberta's natural gas resources and experience with CCS to produce low-emission blue hydrogen for local use or export to other domestic and international markets.

Is there a market?

Despite having the resources and technological ability to create a hydrogen industry in Alberta, this industry can only grow if there is a market. Domestically, the Alberta Transition Accelerator projects in its White Paper that hydrogen could be the energy carrier for 27% of Canada's energy demand by 2050, which translates to approximately 64 kT of hydrogen per day. The power needed to meet this demand with green hydrogen would require the construction of 66,000 wind turbines, 30 large nuclear plants equivalent to Ontario's Bruce Station, or 195 new hydro reservoirs the size of British Columbia's planned Site C. The logistical and regulatory challenges associated with such an undertaking would be immense. Blue hydrogen produced in western Canada, on the other hand, does not face the same challenges, but would consume natural gas volumes equal to approximately 72% of Canada's total natural gas production in 2018.

Internationally, Germany, South Korea, and Japan have all announced hydrogen strategies that include importing hydrogen. By 2040, these countries could require as much as 22.2 kT of hydrogen per day. The Strategy also notes that estimates for the potential size of the global hydrogen market range as high as US$2.5 trillion per year.

Beyond these projections, it is not yet possible to predict the size of a future global hydrogen market. Many other countries and regions (such as the European Union) are in the process of developing hydrogen strategies of their own. Given the desire to reduce both GHG emissions and reliance on fossil fuels, countries that choose to increase the role of hydrogen in their energy systems may prefer green hydrogen over blue hydrogen, or to rely on locally-sourced hydrogen, whether blue or green. While blue hydrogen is currently less expensive to produce than green hydrogen, future cost reductions in green hydrogen production may cause it to out-compete blue hydrogen.

The road ahead for Alberta's hydrogen economy

In the Natural Gas Strategy, the Government of Alberta establishes an 11-point action plan to develop a hydrogen industry. In the short-term, the Government intends to begin building partnerships with key stakeholders to determine deployment pathways and commercial, technological, and policy gaps. The federal government is expected to release a national strategy this fall and will be an important partner going forward. Looking to 2023, the Strategy outlines a number of more concrete steps, including developing a "Hydrogen Roadmap", working to align policy across the western provinces, ensuring an efficient regulatory and legislative framework that accommodates hydrogen deployment, and exploring joint federal/provincial funding initiatives to advance pilot projects. Long-term, the Province has indicated that it will work with other governments to ensure a country-wide hydrogen transmission network, and will try to attract a "hydrogen for energy export project" to Alberta.

On first read, Alberta's hydrogen strategy is primarily a plan to develop a strategy. But, a number of important pieces to the hydrogen puzzle are already in place:

• Alberta already has the technical expertise to produce blue (and green) hydrogen.
• In 2010, the Carbon Capture and Storage Statutes Amendment Act, 2010 received royal assent. The Government of Alberta subsequently implemented the Carbon Sequestration Tenure Regulation. Together, these enactments clarify the ownership of pore space throughout Alberta and provide for the disposition of pore space for the purposes of sequestration. Thus, the framework for an expansion of large scale CCS—a necessary component of blue hydrogen production—is already in place. Shell Canada's Quest Project is an example of a CCS project that is already operating in Alberta.
• Alberta already has dedicated infrastructure in place that is similar to what would be required for the expansion of a hydrogen industry, including Air Products' Heartland Hydrogen pipeline and the Alberta Carbon Trunk Line.
• While hydrogen may embrittle pipeline infrastructure that is not purpose built to carry hydrogen, limited amounts of hydrogen can be mixed with natural gas and transported via existing pipelines. Alberta currently has an extensive gas pipeline network that could facilitate the growth of local demand in the short- to medium-term and which may be repurposed in the future. ATCO, for example, has announced the development of a hydrogen blending project in Fort Saskatchewan that will blend as much as 5% hydrogen by volume into a section of Fort Saskatchewan's existing gas distribution network.
• Alberta's TIER regulation and the forthcoming federal Clean Fuel Standard may provide regulatory and economic incentives to the development of hydrogen infrastructure in the Province.
• Alberta's electricity sector is deregulated and may be well-suited to accommodate privately funded pilot projects for hydrogen fuelled electricity generation projects.

As such, Alberta is well-positioned to lead the growth of this new industry. Challenges, however, remain. Robust hydrogen transportation networks and export facilities will need to be established. Depending on the nature of the project, this build-out of infrastructure may require lengthy regulatory review and approval processes.

At a higher level, the emissions intensity of hydrogen production will likely become an important factor in the size of the market for blue hydrogen. To that end, a transparent monitoring, verification, and certification process will need to be in place to give potential customers certainty that the hydrogen they are purchasing will reduce GHG emissions. Similar certification processes may also need to be implemented to guarantee hydrogen purity, which may be important depending on its ultimate use. Fortunately, Alberta already has some experience with validation, verification, and assurance programs, such as those used in connection with the generation of emission offsets under the TIER regulation. However, ensuring that these certification protocols are widely accepted will likely require interjurisdictional cooperation and agreement.

In light of these challenges, it is appropriate that the Alberta Government's hydrogen plans outlined in the Natural Gas Strategy are cautious, focusing on policy development and alignment as a first step rather than an afterthought. The early consideration of these issues may help align hydrogen policy between different Canadian jurisdictions and mitigate the regulatory uncertainty so often seen in current infrastructure development. In this way, the Strategy may ultimately facilitate the development of a harmonized legal and regulatory framework, attracting investment and enabling the development of a green industry that will significantly contribute to the prosperity of Alberta and Canada.