Lauerman: Could Canada Miss The Hydrogen Export Bus?

The Trudeau government has great expectations for the export of Canadian-produced clean hydrogen in the more distant future.

When introducing the Feds’ much-delayed and heavily telegraphed strategy on Dec. 16, Natural Resources Minister Seamus O’Regan said its goal is to “position Canada as a global hydrogen leader.”

Unfortunately, Canada is moving at a snail’s pace compared to potential competitors for the best hydrogen import markets of the future, especially Australia, who handed us our lunch on the LNG liquefaction front over the past decade or so, and Saudi Arabia.

If Canada is to avoid playing bridesmaid yet again, the Feds and provinces with grand hydrogen export ambitions such as Alberta and Quebec need to quickly commit serious resources to develop regional hubs, while identifying realistic export market — given the high cost of shipping hydrogen long distances — and lay the foundation for future commercial relations now.

And even then, U.S. West Coast states may be the core, and possibly only, export market for western Canadian hydrogen producers of primarily blue hydrogen in the more distant future and the U.S. Northeast the same for Eastern Canadian producers of green hydrogen, assuming we place a stake in those markets in the near future.

The competitive landscape

In a recent report by Strategy&, part of the PwC network, the future competitive landscape for green hydrogen — used here as a proxy for clean hydrogen — was laid out for major economies around the world based on potential production and domestic consumption. Depending whether these economies scored relatively low or high on these two criteria led them to be placed into one of four categories: Limited potential, Self-sufficient, Importers and Exporters.

As can be seen in the accompanying graphic, several European countries, Japan and South Korea were identified as major potential import markets for hydrogen in the future, while major potential exporters include Arab Persian Gulf countries making up the GCC (Bahrain, Kuwait, Oman, Qatar, Saudi Arabia and UAE), Australia and Canada. For the sake of our analysis, one ‘Self-sufficient’ country could also provide significant niche opportunities for Canada, the U.S., given our transportation advantage compared to potential competitors.

Major markets

On the surface, Japan and South Korea appear high potential markets for western Canadian producers of clean hydrogen and major European countries such as Germany, France, Italy and the U.K. for eastern Canadian producers. Shipping distances from Prince Rupert to Tokyo and Seoul are similar as from Australia, while the same can be said for Montreal to Northern European ports compared to Persian Gulf countries.

However, the European Union (E.U.) has plans to source most, if not all, of its clean hydrogen from domestic producers and neighbouring countries, based on its strategy released in July. The E.U. is targeting construction of 40 GW of electrolyzer capacity in European countries by 2030 and another 40 GW in Ukraine and North Africa, allowing relatively cheap imports by pipeline.

And while energy-poor and land-constrained Japan and South Korea have relatively limited potential to produce clean hydrogen, since 2017 they have both released roadmaps to develop hydrogen economies to counter domestic greenhouse gas (GHG) emissions and produce hydrogen-related technologies and equipment for export. But both countries appear to be eyeing countries with impressive records of ramping up energy production and exports in a timely fashion in recent years, such as Australia and Saudi Arabia.

In January 2020, the trade ministers of Australia and Japan met in Melbourne and signed a joint statement of hydrogen co-operation whereby the two countries agreed the other would be their key trading partner for hydrogen. This agreement builds on the Hydrogen Energy Supply Chain (HESC), a joint world-first pilot project to economically ship blue hydrogen produced from lignite (low quality brown coal) in the southeastern state of Victoria to the port city of Kobe by the end of this year.

The situation is potentially even more dire for South Korea, at least in the shorter term, as the country is planning to source clean hydrogen from a single source as a means to maximize economies of scale and make the fuel economically competitive with fossil fuels as quickly as possible. The Korean Ministry of Trade, Industry and Energy is conducting feasibility studies of six countries to be its overseas hydrogen production base, with the Australia-Korea Business Council recently stating that Australia, Saudi Arabia and the U.S. are three of the six candidates.

Major competitors

In addition, Australia and Saudi Arabia, major competitors for future clean hydrogen markets, are moving way faster than Canada to build their domestic hydrogen industries and secure future business in major importing markets of the future.

On Nov. 18, Saudi Energy Minister Prince Abdulaziz bin Salman said the Kingdom has set its sights on being the largest exporter of hydrogen in the world, after long being the largest exporter of oil, as major countries move to decarbonize their economies. Saudi Arabia has large reserves of natural gas to produce blue hydrogen, and in September the Kingdom shipped the world’s first cargo — converted to ammonia, as shipping raw hydrogen remains a work in progress — to Japan.

At the same time, Saudi Arabia has ‘ambitious’ plans for green hydrogen for both the domestic and international markets, according to Prince Abdulaziz. The arid, hot and flat Kingdom is ideal for mass development of low-cost solar and wind production to power the electrolyzers to produce hydrogen from seawater. Saudi Arabia already has a US$5 billion plan for the world’s largest green hydrogen facility at Neom, the futuristic city presently being built on the Red Sea, with first production scheduled for 2025.

And besides working at the hip with Japan on the potentially massive HESC blue hydrogen project in Victoria, Australia is concurrently working on a massive three-stage green hydrogen project in the west — the first two for export and the third to support domestic production of green steel. In early November, Canberra announced it had awarded ‘major project status’ to the Asian Renewable Energy Hub (AREH), known colloquially as the Kalbarri project.

This move accelerates the development of the 15 GW wind and solar power to produce green hydrogen and ammonia for export to East Asian countries to two years, albeit with the hydrogen simply blended into LNG due to current challenges of shipping volatile hydrogen. The second phase is to scale production up to 26 GW over four to seven years, also for export to East Asian countries, but in tanker ships as compressing and supercooling of hydrogen is mastered.

On Jan. 31, National Energy Resources Australia (NERA) announced plans to spearhead development of 13 regional hydrogen clusters with the goal of further developing hydrogen technology and expertise and, ultimately, a national market for hydrogen to help create a globally competitive hydrogen industry.

U.S. niche?

By a process of elimination that leaves the U.S., no more than a niche market based on Strategy& analysis, as Canada’s most probable significant market for clean hydrogen exports. But to win market share it is imperative our clean hydrogen producers move quickly to foreclose opportunities by potential U.S. competitors in the nascent market in the Northeast and the rising market on the West Coast, especially California, presently the leading North American hydrogen market.

To the credit of French industrial gases giant Air Liquide, Quebec is already beginning to develop a toehold in the U.S. Northeast with its recently commissioned 20 MW proton exchange membrane (PEM) electrolyzer — the world’s largest — to produce green hydrogen at its Becancour hydrogen facility. The company is targeting industrial markets such as steel and cement on both sides of the border with its green hydrogen output.

Producers in Western Canada should take note, and as hydrogen markets in Washington and Oregon develop, and the California market continues to grow, identify early adopters to sell our blue hydrogen output to avoid being boxed out of the market by U.S.-based clean hydrogen producers in the future.

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