Why Canada’s Hydrogen Strategy Is Not All Gas

Canada’s latest policy on hydrogen, combined with a rethink by Canadian oil companies on new products, would mean that the oil sands are not the enemy.

Image Courtesy: openpr.com

Even as the Government of Canada released its latest policy on hydrogen, it also made a point of signalling their invitation for private investment. They clearly seem to regard hydrogen as the bridge technology to the longer term “net-zero by 2050” goal. Therefore, it is really interesting to be able to infer and explain the thought process behind this approach.

The Pandemic May Result in an Earlier Than Anticipated Peak in Oil Demand

Oil companies all over the world are expecting oil demand to plateau much earlier than 2030, the year forecasted by the International Energy Agency (IEA). In September 2020, UK oil and gas company, BP, warned that oil demand could peak during the early 2020s due to disruptions caused by the COVID-19 pandemic, as well as the world’s increasing transition towards cleaner fuels.

Even Mark Little, the CEO of Canada’s Suncor, admitted that “the temporary economic lockdown triggered by the 2020 pandemic is giving us a glimpse into a not-too-distant future where the transformation of our energy system could disrupt demand on a similar scale.”

At the same time, governments and environmental groups are pressuring these oil companies to cut their overall emissions — especially by reducing the emissions that are produced during the oil extraction process — and play their part in ensuring the success of the Paris Climate Agreement.

So far, companies like Suncor have only committed to reducing their emissions intensity- a measure of emissions per unit of energy. That’s not the same as reducing total emissions. In fact, companies often increase total emissions while decreasing emissions intensity, making it more difficult to keep the global temperature increase below 2 degrees Celsius.

So, what does all of this mean for the Canadian oil and gas sector? Well, it clearly shows that the federal government and oil companies must advance the transition away from the production of oil, and towards the production of clean products.

In fact, this can be carried out through the implementation of a two-pronged strategy:

  1. Oil and gas companies can begin to specialize in the production of clean energy — specifically hydrogen.
  2. These companies can also start using the bitumen in the oil sands to produce non-combustion products, such as asphalt.

This strategy will not only help the country meet its environmental goals, but it will also ensure that Canadian oil companies are avoiding the long-term losses which may occur due to an even slower oil market.

Why Hydrogen?

Canada has committed to achieving net-zero emissions by 2050, and is therefore looking to invest in sources of cleaner power. When people think of “clean energy”, the first thing that often comes to mind is “electricity generated from wind [or] solar [power]… [that] would power vehicles and almost everything else.” However, many experts believe that making an aggressive transition toward these sources of energy “just isn’t possible by 2050.” That’s why we need a transition fuel.

That transition fuel is hydrogen.

Why Hydrogen is a Viable Option

Hydrogen, as a fuel, is a light, storable and clean form of energy which can be used “to generate electricity and [to] power vehicles. It produces water — not carbon — when burned.”

According to the International Energy Agency, hydrogen is achieving “unprecedented momentum” around the world, and could make a “make a significant contribution to clean-energy transitions if it’s adopted in sectors where it is almost completely absent today, such as transport, buildings and power generation.”

Ottawa recently released its own national hydrogen strategy that lays the foundation for the establishment of a $50-billion sector that would create 350,000 jobs, as well as the development of “a countrywide network of hydrogen fueling stations by 2050.”

Various applications of hydrogen have already been identified in Canada. For example, Ballard Power Systems Inc., which is located in British Columbia, now makes US$100 million in annual revenue “by selling [hydrogen] fuel cell stacks in use in several thousand buses, trucks and warehouse forklifts around the world.”

“Not All Hydrogen is Created Equal” — The Pembina Institute

The federal government’s hydrogen strategy focuses on the production of blue hydrogen — hydrogen that’s derived from natural gas and results in carbon emissions which are trapped using carbon capture and sequestration (CCS) technologies (see image to the left).

Even though blue hydrogen is a lot more sustainable than the grey hydrogen which is commonly used today, some environmental and non-profit groups, including Environmental Defence Canada, are not pleased with the plan. They argue that hydrogen derived from natural gas will lead to subsidies for the oil and gas sector, and believe that the strategy is too dependent on the “‘unproven technology’ of CCS.”

They would like the government to put more emphasis on the use of green hydrogen, which is usually produced by performing electrolysis and is currently quite a costly process (see image above).

On the other hand, the federal strategy discusses how “blue hydrogen is Canada’s cheapest and most easily accessible option for the short-term, given it has the lowest-cost production of large-scale, clean hydrogen based on today’s technologies and commodity costs.”

Alberta’s energy minister, Sonya Savage, also said in a statement that the province has plenty of experience with carbon capture and storage, and therefore has “the tools… to produce clean hydrogen right now and for decades to come.”

A Win-Win Hydrogen Solution Exists

In this entire debate between the environmental groups and governments, both parties seem to have forgotten that Canadian scientists have already developed a cost-effective green hydrogen solution. This solution will allow Canadian oil companies to expand their portfolio into the clean energy industry and cut down on emissions, all while continuing their use of the oil sands.

Specifically, in 2019, engineers from Alberta’s Schulich School of Engineering discovered “a method capable of extracting hydrogen from… oilsands deposits.”

The process involves injecting oxygen into the oil fields to liberate H2. According to Grant Strem, CEO of Proton Technologies (the company which holds the patent for this process), “‘the only product of this process is hydrogen, meaning that the technology is effectively pollution and emission free. All the other gases remain in the ground because they cannot go through the hydrogen filter and up to the surface.’” Furthermore, the process is also cheap, even with existing infrastructure, because hydrogen production would only cost 10–50 cents per kilo.

Proton Technologies has already begun large-scale field testing for their process in Saskatchewan. Therefore, the federal government should emphasize the use of Proton Technologies’ method in their hydrogen strategy, so that the oil and gas sector can work towards the production of green hydrogen for the long term. Furthermore, large Canadian oil companies, like Suncor, should look into obtaining licensing for this technology.

Alternative, Growing Markets for Oil Companies

Hydrogen isn’t the only alternative product for which the oil sands can come in handy. In order to reduce their emissions and expand into other growing markets, Canadian oil companies can also begin to specialize in the production of non-combustion products, such as asphalt.

This is possible due to the fact that Alberta’s oil sands are bitumen heavy, and Canadian researchers have identified ways to make better use of it. Hence allowing the province to turn the poor image of “dirty oil” on its head.

The demand for asphalt is expected to grow all the way to 220 million tonnes per day by 2050, with a shortage of up to 133 million tonnes per day. Alberta oil companies are well positioned to take advantage of this market opportunity.

Unlike the crude oils of many other countries, Canada’s bitumen “contains up to 50% of asphalt binder”, meaning that the country has the ability to satisfy demand by extracting relatively little bitumen. Furthermore, “unlike conventional and shale oil used to make asphalt, 80% of emissions in bitumen production are from natural gas combustion, making carbon capture and storage (CCS) viable”.

Specializing in this area will also help oil companies reduce their scope 3 emissions ( the indirect emissions which occur in a company’s value chain), which are often not even measured and/or accounted for on their CSR reports.

Alberta Innovates, which is the province’s largest research and innovation agency, has conducted a lot of research to find alternative, cleaner uses of bitumen through their Bitumen Beyond Combustion initiative. Therefore, oil companies should consider partnering with Alberta Innovates. This will allow them to have the support of the experts behind this research, and efficiently develop the core competencies required to apply this knowledge in the market.

An Opportunity to Lead by Example and Capture Market Growth

Canadian oil companies haven’t yet implemented strategies that involve allocating the majority of their oil sands use to producing products other than gasoline and diesel. However, even if a couple of large companies begin to do so, they’ll be leading by example.

In fact, by following the recommendations described above, oil companies would actually be creating shared value. Not only would they be eliminating a large portion of the environmental harm that they create, they’d also be setting themselves up to financially benefit from emerging markets with great prospects.

For example, the hydrogen generation market value is expected to cross $160 billion USD by 2026, with a 6% CAGR (Compound Annual Growth Rate).

Therefore, by transitioning away from the production of oil, and diversifying into the production of clean products such as hydrogen and asphalt, oil companies would not only be doing environmental good, they’d also be capturing market growth.

iBBA Candidate, Schulich School of Business | Member, Toronto-St. Paul’s Constituency Youth Council | Writes about various topics, including public policy.