Hydrogen is a potentially transformative source of low or zero-carbon energy that can be incorporated into numerous upstream, midstream, and downstream applications throughout our energy system. While serious industrial application of hydrogen has been contemplated since the 1970s, this uniquely versatile resource has in recent years received much more interest as various jurisdictions devise new energy strategies in the pursuit of a greener economy.
Canada and 72 other countries have committed to achieving net-zero greenhouse gas ("GHG") emissions by 2050. Many argue that net-zero is virtually impossible without hydrogen. It has been projected that hydrogen will supply approximately 27% 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 likely require a transition to energy carriers that produce low or zero GHG emissions at end use.
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 substantial funds to national hydrogen strategies. On June 3, 2020, Germany released a stimulus package of €9 billion (C$13.7 billion) for the ramp-up of hydrogen technologies. In Canada, governments are just starting to turn their attention to this sector with a series of recently published strategies, and the industry itself is in its nascent stages.
THE THREE COLOURS OF HYDROGEN
Hydrogen can be sourced from techniques that can be broadly categorized by three colours.
Accordingly, not all hydrogen is created equal with respect to climate benefits. 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, the current cost of producing green hydrogen is significantly higher than the cost of producing blue hydrogen.
Canada is fortunate to be among the world's lowest cost producers of low or zero-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 can produce 'green' hydrogen for $2.50 to $5.00/kg H2 ($18 to $35/GJhhv H2). 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 electrolyzer technology
What Markets are Being Targeted?
Numerous end-use markets for hydrogen have been identified and are on the rise, including transportation, industrial heating and feedstock, and heating for buildings. One of the key advantages of hydrogen is its potential to penetrate traditionally difficult-to-decarbonize market segments, including heavy trucking, aviation, and chemical and steel production.
The federal government has set targets for zero-emission vehicles to make up 30% of sales of light-duty vehicles by 2030 and 100% by 2040. Zero-emission vehicles include battery electric vehicles, fuel cell electric vehicles, and plug-in hybrids.
Fuel cell electric vehicles can use hydrogen directly as a fuel and British Columbia and Québec have already begun deploying hydrogen fueling infrastructure to support its use. Public transit around the world has begun the shift to fuel cell electric buses, with over 2,000 in operation globally, half of which are powered by Canadian technology.
Fuel cells are also projected to play a vital role in ships, rail, and heavy-duty and medium-duty trucks. The high energy density and fast filling capabilities of fuel cells remove the need for several large batteries and reduce refuelling times. British Columbia-based Ballard Power Systems has been leading hydrogen fuel cell development for over 40 years.
INDUSTRIAL & COMMERCIAL HEATING
Hydrogen can be used for industrial applications where high heat is needed (e.g. metals and chemical production), and hydrogen is garnering attention as a low-carbon heating option for buildings by blending it with natural gas or as a stand-alone alternative.
" A number of operations internationally and domestically are running pilot projects to determine the feasibility of blending hydrogen with natural gas systems. This is especially important where governments have introduced regulations to lower the carbon intensity of fuels. "
As a result, there is real potential for hydrogen to become a major part of the heating fuel mix in Canada, which would require investment in hydrogen pipelines. This could be accomplished through a combination of retrofits to petroleum pipelines and new builds. Enbridge Gas Inc. and Cummins Inc. have recently partnered to develop a project in Markham, Ontario, that will blend renewable hydrogen gas into existing natural gas networks. The hydrogen-blending pilot project is the first of its kind in North America.
REFINING CRUDE OIL
Currently, the largest use of hydrogen around the world is in the refinement of crude oil and the creation of petrochemicals. The majority of hydrogen used in these processes is grey hydrogen that is produced on-site either as a by-product or from dedicated facilities. Using blue or green hydrogen can reduce the carbon intensity of the refining and petrochemical industries. This can be achieved by switching to new green or blue supply sources or by incorporation of CCUS technology into existing facilities.
CCUS technology is rapidly evolving in Canada and internationally and its deployment represents another large opportunity linked with hydrogen development. Alberta's oil and gas sector is a global leader in CCUS with its existing technologies and infrastructure. Two new CCUS projects have recently been developed in Alberta: Shell Canada Energy's Quest CCUS facility and the Alberta Carbon Trunk Line Project, placing Alberta at the forefront of the development and deployment of this technology.
There is a growing overseas market for hydrogen as countries roll out their hydrogen strategies. With worldwide demand for hydrogen increasing, the global market is expected to reach more than C$2.5 trillion by 2050. For example, in the past year:
Industry Challenges - Midstream
The future of hydrogen is not without its challenges. These include the need to make hydrogen cost-competitive with other energy sources so as to attract the massive scale of investment required to produce the desired outcomes, both in terms of GHG reduction and economic benefit.
Blue hydrogen typically requires long distance transmission capacity, given that feedstock is typically located farther away from population centres where it is consumed. While hydrogen can be blended into existing natural gas networks, there is a maximum threshold concentration. A large-scale industry will likely require transmission capacity in the form of new pipelines or the retrofit of existing pipelines. Alternatively, existing natural gas infrastructure could be used to ship natural gas for processing into blue hydrogen elsewhere.
Green hydrogen, which may be deployed on a smaller scale and on localized networks, may be able to rely on truck and tank-based infrastructure, but this too requires the retrofitting of existing systems or the building of new ones to withstand the pressures and temperatures.
A global trading supply chain will also have to account for the advantages and disadvantages of transporting hydrogen in one of three forms (liquid ammonia, liquid organic hydrogen carriers, or proprietary solutions), and there is currently no consensus as to a preferred medium or any significant progress at harmonization between potential supply and demand centres.
Overcoming these challenges will require a coordinated effort by the federal government and provincial governments, as well as internationally. The global LNG industry was able to evolve and grow due to a standardized product and standardized means of transportation and handling.
FEDERAL STRATEGY OVERVIEW
On December 16, 2020, the federal government released its long-awaited Hydrogen Strategy for Canada (the "Strategy"). The Strategy was presented shortly after the tabling of the Canadian Net-Zero Emissions Accountability Act and the federal government's pledge to achieve net-zero emissions by the year 2050.
The Strategy claims that if Canada can properly leverage its competitive advantages in hydrogen production, the country can create more than 350,000 jobs in the sector by 2050 and generate revenues of $50 billion per year. The announcement did not include any new funding over and above the previously released $1.5 billion investment fund for low-carbon fuels announced in early December 2020. The Strategy does reference tax credits and subsidies as potential government-led measures; however, no details were announced with the Strategy. The Strategy targets private sector investment as a major driver of the necessary growth.
At least for the near term and in order to exploit incumbent competitive advantages, the federal government has singled out Canada's vast natural gas reserves, primarily in Alberta, as a main fuel source for blue hydrogen production. The Strategy also acknowledges that Canada has outstanding renewable resources (including existing hydroelectric generation in B.C., Quebec, Manitoba, and Newfoundland) that can be used to generate green hydrogen, and can do so in a distributed (i.e. decentralized) manner.
In this way, the Strategy recognizes the relative strengths of Canada's different regions. For instance, Ontario's nuclear industry has the potential to work synergistically with hydrogen by using off-peak electricity for electrolysis or by using excess steam from nuclear reactors (including the small modular reactors ("SMRs") of the future) to improve electrolyzer efficiency. Alberta has a clear advantage in blue hydrogen production owing to its enormous natural gas reserves and well-established industry expertise and infrastructure. Industrial and natural resource variation could well prove to be a key advantage for Canada, allowing the country to hedge its bets, compared to competitors that may be more limited in resource types and overall production scope.
Layout of the Federal Hydrogen Strategy
The government's plan is broken down into three distinct phases: the near term (next five years), the mid-term (2025-2030), and the long-term (2030-2050). Featuring 32 recommendations across eight pillars, the Strategy has no shortage of ideas for how to transform the Canadian hydrogen industry.
The Strategy's near term plan focuses on providing a solid foundation for developing the Canadian hydrogen economy by planning supply and distribution infrastructure and the introduction of new policy and regulations. After stimulating growth in the near-term, the mid-term will focus on hydrogen utilization in the applications that provide the best value proposition, while technology matures and more end-use applications near commercial readiness. Finally, the long-term will focus on the exploitation of the Canadian hydrogen economy as scale increases and commercial applications continue to develop.
Overall, the federal hydrogen strategy does not promote an industrial policy which favours one technology over another, but rather remains focused on achieving Canada's emission reduction targets. With the recent announcement of the Clean Fuel Standard and the federal carbon pricing the technology that will succeed with be determined on its ability to produce net-zero energy.
The following Canadian provinces have released or indicated they intend to release a provincial hydrogen strategy:
As governments around the world shift toward lowcarbon fuels, it is clear that hydrogen will feature prominently in the coming decades. Hydrogen forms a necessary part of a broader constellation of solutions to the global decarbonization challenge. However, there are many challenges to get there. The industry remains in its infancy, with several unresolved issues such as transportation, storage and cost of production.
Nevertheless, numerous forces are coalescing to make hydrogen a viable player in the Canadian energy economy, including the ongoing implementation of carbon pricing, large-scale strategic planning, and the beginnings of required infrastructure improvements. As a result, hydrogen will have a vital role to play in achieving the dual goals of decarbonization and revitalizing Canada's energy industry.
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