Lauerman: Will Blue Hydrogen Come To Dominate Alberta’s Gas Strategy?

The Kenney government deserves credit for developing a strategy in an attempt to boost markets for natural gas produced in Alberta. The gas industry has long been an important contributor to our economy, and as recently as fifteen years ago, prior to the U.S. Shale Gas Revolution, dominated provincial royalties from non-renewable resources.

Unfortunately, most of the markets identified in Alberta’s Natural Gas Vision and Strategy are based on rear-view mirror thinking. There’s no doubt that petrochemicals have been a great investment over the past half century, but this long-term trend may soon come to an end on environmental grounds, despite an orgy of plastics consumption during our global COVID-19 pandemic. Plastics recycling, one of the five areas highlighted in the strategy, will be ignored here, as it would decrease consumption of gas produced in the province, not increase it.

In addition, substantial increases in consumption of Alberta gas by industrial-users — including the oilsands — and power generators in the province and foreigners via LNG assume natural gas to be the bridging fuel to a low carbon world. But the recent barrage of commitments to carbon-neutrality by major countries and companies, as well as the election of Joe Biden to the presidency of the U.S., appears to negate the bridging fuel assumption, at least based on long-range environmentally-driven scenarios by reputable organizations and companies such as the International Energy Agency (IEA), BP plc and Equinor.

The notable and extremely important exception, both in terms of Alberta’s strategy and natural gas serving as a bridging fuel at least in a less conventional sense, is blue hydrogen.


A major driver for increased natural gas consumption in the Kenney government’s strategy, especially in the shorter term, is the petchems industry. The goal is for Alberta to become a “global top ten producer” of petrochemicals, while diversifying the portfolio of products it manufactures. In the strategy document, the province suggests it could attract more than $30 billion of investment into the industry by 2030.

The Alberta government appears to view petchems a ‘no lose’ proposition, with the expectation of continued strong growth continuing to drive massive investment into the industry all around the world. For example, the IEA estimates global plastics production has increased more than tenfold since 1970, almost 60 per cent more than global GDP, and is projecting this trend to continue through mid-century.

But what the Alberta government fails to realize is the IEA and other forecasting organizations may be wrong, and the global plastics industry could become a victim of its own success. As the amount of plastic waste has soared on land and sea, the global anti-plastics movement has taken off in recent years (see Blue Hydrogen Better Bet For Alberta Than Petchems).

A sign of this rise? A day after the province released its natural gas strategy, the Trudeau government proposed a ban on six single-use plastic items by the end of 2021, while threatening to designate “plastic manufactured items” as “toxic.” Premier Jason Kenney and Bob Masterson, president and CEO of the Chemistry Industry Association of Canada, have both warned these moves by the Feds could severely retard future investment by global companies in Alberta’s petchems industry.

Bridge to nowhere

The energy world has undergone a tectonic shift over the past few months, with one major economy after another joining the European Union (EU) in its commitment to achieve net-zero greenhouse gas (GHG) emissions in the coming decades. In mid-September, Chinese President Xi Jinping shocked the world when he announced his country’s goal of carbon neutrality by 2060.

Under the UN framework of GHG emission reductions, developing countries are permitted to lower their emissions at a slower pace and a later date than developed countries, as the latter have caused the bulk of the present build-up of carbon dioxide (CO2) and other GHGs in the atmosphere. Despite China becoming a budding superpower in recent years, this is due more to its large population size, not a high standard of living, as it remains a middle-income country.

In late October, Japan’s new prime minister Yoshihide Suga, set a 2050 carbon-neutral goal for his country — the same timeframe as the EU adopted in November 2018 — and two days later South Korean President Moon Jae-in followed suit. On Nov. 19, the Trudeau government proposed legislation with the same target and date for Canada.

By all appearances Joe Biden won the U.S. presidential election on Nov. 3, promising to rejoin the Paris Agreement upon assuming office in January — the country left one day after the election under President Donald Trump’s instructions — and with a policy goal of carbon-neutrality for the U.S. by 2050.

As of now, countries accounting for well over half of global GDP and GHG emissions appear serious about combating climate change, with other countries, including important developing ones like India, likely to follow suit sooner rather than later. There are two reasons for this: developing countries will want to avoid carbon tariffs against their goods in the major decarbonizing markets; and their citizens will be emboldened to demand swifter improvements in local air quality.

And as a result, base case scenarios by forecasting organizations such as the IEA suddenly appear obsolete, and environmentally-driven ones much more plausible, with massively different outlooks for natural gas, especially in the more distant future.

For example, global gas consumption sees steady and solid growth under the IEA’s Stated Policies Scenarios (STEPS), increasing almost a third to 5.22 trillion cubic meters (tcm) between 2019 and 2040. In contrast, after peaking modestly higher around 2025, global gas demand declines 12 per cent to 3.55 tcm over the period as a whole under its Sustainable Development Scenario (SDS), with gas consumption in industrial and power sectors especially hard hit in relative terms.

Blue hydrogen

In contrast to the other potential growth markets highlighted in Alberta’s gas strategy, the province’s fledgling blue hydrogen industry will actually benefit from increasing global environmental consciousness in general, and the movement towards carbon-neutrality in particular.

Net-zero emissions require cuts in industries that hydrogen is well suited for, but batteries are not given their low energy density and inability to produce high temperatures. These include heavy-duty trucks and buses, ships and airplanes, and heavy industries such as steel making and cement.

Green hydrogen, produced by breaking hydrogen free from water using electrolysis with renewable energy as the power source, is the preference of many governments, since it is zero emissions — compared to around 90 per cent reductions for blue hydrogen. But the window of opportunity is opening now for blue hydrogen, with the EU and others projecting green hydrogen won’t become economic to produce until sometime in the 2030s.

Despite hoping to lead production of blue hydrogen in Canada in the future, the Kenney government appeared to view blue hydrogen as more of a long-term play in its strategy document. The province indicated plans to develop a hydrogen roadmap no later than 2023, with the goal of exporting hydrogen and hydrogen-derived products across North America and around the world by 2040.

Fortunately, in the short time since releasing its gas strategy, the Alberta government appears to have jumped onto the blue hydrogen bandwagon with both feet. “It has the potential in terms of jobs and royalties to be a game changer for Albertans,” said Associate Minister of Natural Gas Dale Nally on Nov. 16, in conjunction with the release of a report by Alberta’s Industrial Heartland Hydrogen Task Force.

Nally went on to highlight that Alberta is the second cheapest supplier of hydrogen in the world, after Russia, how the province presently has two fully permitted pipelines to move gas to previously proposed LNG export projects that could be repurposed to export hydrogen overseas instead, while estimating domestic and international hydrogen markets could be worth “$100 billion per year or more” in the future.

To conclude, if the Kenney government dials down its emphasis on petchems and markets under threat in a net-zero world — power and industrial consumption in the province and LNG exports — and continues to dial it up for blue hydrogen, Alberta should have a winning strategy for the province’s natural gas industry over the long haul.

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