Produced by Vivek Warrier
In the first in a series of podcasts exploring the new energy economy, emerging trends and technologies transforming the energy industry, Vivek Warrier hosts a discussion with three special guests: the honourable Doug Schweitzer, Alberta Provincial Minister of Jobs, Economy, and Innovation, Bob Myles, Executive Vice President, Corporate Development of the ATCO Group, and Kenryo Mizutani, Senior Researcher in the Vancouver office of the Japan Oil and Gas and Metals National Corporation (JOGMEC).
Transcript
This is Business Law Talks, the Bennett Jones podcast series that sits at the intersection of law and policy. Join our lawyers and advisors as they examine today's most complex issues, to help guide companies doing business in Canada.
Vivek Warrier:Welcome to Business Law Talks. My name is Vivek Warrier, I'm co-head of the National Energy Industry Team at Bennett Jones. And this is the first in a series of podcasts that we are doing, exploring the new energy economy, emerging trends and technologies that are transforming the energy industry as we know it.
I'm very thrilled today to have three special guests, the honourable Doug Schweitzer, Alberta Provincial Minister Jobs, Economy, and Innovation, Bob Myles, Executive Vice President, Corporate Development of the ATCO Group, a pioneering organization that's been at the forefront of innovation in the energy infrastructure space for decades, and Kenryo Mizutani, Senior Researcher in the Vancouver office of the Japan Oil and Gas and Metals National Corporation, otherwise known as JOGMEC, who while fulfilling this important role with JOGMEC, managed to find some time to earn his Canadian law degree and complete his articles here with us at Bennett Jones.
Welcome gentlemen. We've gathered this fantastic group together today, to have a conversation about hydrogen, in particular, what the opportunities and challenges are to the development of a hydrogen industry here in Alberta, both to meet domestic demand and ultimately, to capture export markets around the globe. But to start off, I thought I'd just throw it out there to you, gentlemen. It seems like you cannot turn a page, whether it's on the internet or on a newspaper, without bumping into another pronouncement regarding hydrogen and its adoption as a fuel of the future. What do you suppose, and I'll just throw this out to all of you, what do you suppose is driving this primarily?
Bob Myles:I'll jump in. To me, one of the big drivers today, from the last decade or two with regards to hydrogen is really the drive towards decarbonization and the global intent on net zero. And I think that's one of the big changes today that we're seeing from pervious call it attempts, at driving a hydrogen economy.
That's a lot of the discussion we're having within our organization is, why are things different today? And I think that's a lot of what we're seeing. As you indicated earlier, our organization is global. And when we're talking to our peers in different parts of the world, we're starting to see a very consistent message around the need for hydrogen to meet the global net zero commitment.
Vivek Warrier:And we've certainly seen that, I think, from the Canadian government's hydrogen strategy, which suggests that by 2050, 30% of all energy consumption should be hydrogen-based in Canada. Ken, I expect you're seeing something similar on the Japanese side?
Kenryo Mizutani:Yes. On the Japanese side, we recently, last year, we announced the Net-Zero 2050. That's Prime Minister Suga's initiative in decarbonizing Japan. And part of that, it's a comprehensive program with a lot of components. But one of the key component is sort of a CCS and ammonia fuel and hydrogen. And it is different this time around.
And as mentioned, it's also different in Japan. We've had peaks in interests of hydrogen in the past. But this time around, there's a lot more push because of the decarbonization efforts that's happening globally.
Vivek Warrier:So it really goes to energy transition at the end of the day, which isn't surprising. Your earlier iterations of hydrogenmania, if you want to call it, that we saw maybe a decade ago were really around fuel cells in the transportation sector.
Now, it seems to be driven very much by usage as an end use fuel. Does that play a role, Minister, in the Alberta government strategizing around the inherited advantages I think we have in Alberta when it comes to hydrogen?
Doug Schweitzer:I think the biggest thing, and I think both Bob and Ken commented on this, there's a market for this opportunity. We're seeing an immense amount of capital being raised around the world that wants to capitalize on hydrogen. They want to have this as a part of their energy mix. You're seeing rail companies, you're seeing long haul trucking companies, you're seeing a whole bunch of investment going on right now into research and development.
Same thing when it comes to pipeline infrastructure and carbon capture opportunities. So we want to make sure we position Alberta. I think we're the best jurisdiction in all of Canada, arguably all of North America to capitalize on this opportunity. And again, this is where the market is going. We've got a big drive on ESG pressures. Companies have plans that are out there. We're supportive of these companies' plans on ESG and net-zero commitments those companies have made.
And again, how do we get that framework in place? And right now, with the discussion going on across Canada with the recent federal budget as well, it's a prime time for this exact discussion that we're having right now, to make sure we get the policy framework right, to get the billions of dollars that are being raised here in Alberta.
Vivek Warrier:That's an excellent point. I think I mentioned inherited advantages, and I think Bob, this is something you can probably speak to. We've got the rocks, first of all. I am continuously told that for carbon capture and sequestration to make blue hydrogen work, this is about as uniquely well-placed jurisdiction as can be found on earth.
But on top of that, I would've thought the technical expertise in terms of moving a gaseous compound like hydrogen from when it's extracted from natural gas, for example, to market, that's an expertise that's in abundance in Alberta for sure.
Bob Myles:Yeah, I totally agree. And when you think about it, I'm sure I think we have all those things. But if you think about the whole value chain, right back from abundant resources with our natural gas, and taking our natural gas, the expertise we've developed with regards to our oil and gas sector and our petrochemical sector, those skillsets are very transferable into the hydrogen sector as well.
And then all of the reservoirs that we have for carbon capture, it really positioned us. I agree with the comment about I think we're in the strongest position in North America. But I would even say in some of my conversations with the Asian market, I think we're very well-positioned globally as well. And finally, if you take a look at our natural gas infrastructure, we're very well-positioned to start converting our natural gas infrastructure into a hydrogen infrastructure.
Start with blending and then progress from blending into hopefully, by 2050, we're having conversations around a 100% hydrogen-distribution systems. And we don't want to get too far ahead of ourselves, but I think we're very well-positioned as a province for sure to capitalize on all of those opportunities.
Vivek Warrier:And Bob coming back to you, I think my understanding is ATCO has a pilot project well underway in terms of experimenting or understanding better how the blending might work on a pipeline level, which I think is partly funded by the Alberta government as well, or it's a collaboration between the two of you. Do you want to tell us a little bit about that?
Bob Myles:Sure. Sure. I'll start with even saying what we have already operational in Australia. In Australia, we've been working with hydrogen and in Australia, we're looking at green hydrogen. And I know we keep using these colours all the time, but in Australia, we're taking renewable power and using electrolyzer to generate hydrogen. Blending the hydrogen into the distribution system, but also using it for fuel cells in transportation.
And we've taken that knowledge that we've developed there and are now using it here in Alberta, in Fort Saskatchewan. We are in partnerships with the government and looking at blending hydrogen in Fort Saskatchewan. It's under construction now. So hopefully, when we sit around a year from now, we'll be fully operational. That's our plan, but that's the first step into the blending into distribution system.
I think there's a lot of people that have concerns around putting hydrogen into a distribution system when we're not used to doing that. But if you look at other jurisdictions, whether it's the UK or even in Australia, there's places where we're already doing that and we've proven it out, we, the industry. And I think we just need to get more comfortable with it here in Alberta.
Vivek Warrier:Fair enough. Minister, coming back to you, that collaborative model, is that one of the ways that the government is thinking about attracting investment into this nascent space in Alberta? Or is there a legislative framework in the works, other things you guys are thinking about?
Doug Schweitzer:Well, and that's one of the reasons why when I mentioned in the beginning, the next 90 days are really critical. Between now and the summer months as the federal government consults, we're engaging as well. We want to make sure we have that alignment between what we're doing provincially and what the federal government as well is putting on the table from its most recent budget. That's key from the financing piece of it, making sure we have the right modeling in place for Alberta for the future. But one other point, too, to Bob's point is around our power market is also unique.
So not only can we take advantage of natural gas and the opportunities for leveraging natural gas to get the hydrogen, we also have a uniquely positioned private sector driven energy market. So you're starting to see a significant amount of investment just this last week. Amazon launched a big solar farm. You've got Shell, RBC, because of how we position ourselves on the renewables file. That also has applications that could be explored longer term on the energy, as well as on the hydrogen file as well.
Vivek Warrier:Yeah, absolutely. I just want to take a step back because we've been throwing some terms around, particularly blue hydrogen and green hydrogen. And I think most of our listeners will surely understand and have some background in what those mean. But just to capture that, the immediate hydrogen opportunity in Alberta, as everybody on this discussion knows is blue hydrogen, where we would through steam-methane reformation, pull hydrogen out of natural gas.
Hopefully, I got that term right. And then sequester any carbon emissions produced by that process in the ground. And in, as I mentioned, geological formations that really in Alberta, we have some of the best rocks for this in the world, as opposed to I think, Bob, you had mentioned green hydrogen, which is hydrogen derived directly from a renewable power project. As I understand it, currently, there's a significant price delta between those two.
Blue hydrogen being much cheaper to produce. But over time, one would expect that that price delta will narrow. Do you have a sense, Bob, Ken, or Minister Schweitzer, what that window of opportunity looks like for Alberta? I think my understanding is we can be champions in both blue hydrogen and green hydrogen. But at the end of the day, the blue hydrogen strikes me as a time-limited opportunity that we need to pounce on.
Kenryo Mizutani:That's a good point. I was just looking at an IEA study just before this call. And as you said, currently, the cheapest option is gray high hydrogen, followed by blue hydrogen. And then right now, the gray hydrogen, I think it's over 90% of the global hydrogen production. And the electrolysis, the green hydrogen is still quite expensive, but we're looking at a pretty big delta.
But looking at the study, IEA seems to think that by 2050, that delta is going to narrow. At the same time, from a foreign investor perspective, I think the hydrogen economy has to start somewhere. And Bob, as you said, I think Alberta has the necessary geology and the infrastructure. But I think something else the foreign investors are also looking at is the legal framework with respect to the transparency of the carbon intensity or the carbon credits, the carbon offset.
And I think Alberta already has the existing legal framework to build on, to move away from the colour coding to more transparent. Not on what the hydrogen is made of, but what the life cycle assessment of the produced ammonia or hydrogen is.
Doug Schweitzer:And just to build on Ken's point there, from a government perspective when we're looking at this file, obviously we want to make sure we position ourselves to capture investment into the province. We're really looking at it through that lens. How do you strategically position this natural asset that we have in our natural gas, the reservoirs we have, the rocks, plus the intellectual horsepower we have in Alberta?
We have the engineers here. We've got the geologists. We have that right intellectual horsepower and the infrastructure. So, what's the next layer for us? And that's why Minister Nally, we've announced our natural gas strategy. And also with the federal government talking about that, make sure we have the blue hydrogen leveraging the natural gas. So them coming to the table with the carbon capture piece and getting some of the infrastructure built out is critical.
That's why when talking about that 90 days, the people that aren't as familiar with the Canadian budget cycle, it's been two years. So right now, we're working on that right now with the federal government, making sure that we have the right framework there, because that's a key piece of it to get the blue. And I think we have to build that infrastructure and get blue done. Then let that technology over the next 20, 25 years, catch up and we'll look at lots of different other colours of hydrogen long-term.
Vivek Warrier:That's an interesting point, Minister. And Bob, I'll turn to you on that one. The CCS is a critical component of this because at the end of the day, our end use customers will want as low carbon emitting a product as possible. Has CCS technology gotten to the point where we can be price competitive in developing blue hydrogen, even with that additional requirement layered on?
Bob Myles:Yeah. Absolutely, we can. One of the things we're trying to really do is, and I think Ken was touching on this, is trying to get away from the colours, because there's this view that gray is worse than blue, that's worse than green. And at the end of the day, it's really the carbon intensity that matters and how much CO2 you're capturing. And when you look at blue hydrogen or green hydrogen, they're both capturing similar amounts of CO2.
Now, when you go to different jurisdictions, some people have different views of what blue means. And so we're trying to get away from the colours, because it just gets too confusing. But one of the things also that we've done is taken a look at the global demand for hydrogen over the next 30 years, because just speaking for our organization, what we don't want to do is go out and make a big investment and then find out that in 10 years, we're going to convert everything to green hydrogen and we'll have a bunch of stranded assets.
So when you look at the global demand, we believe, and when we speak to other priorities, I think there's a lot of support on this, that there's sufficient demand for hydrogen globally, that we're going to need both blue and green to meet the global demand. And I think that's what's really important for us as a country, because even within our country, in different provinces, other provinces may be more driven for green hydrogen.
And of course, we in Alberta are driven more for blue. But to me, we got to look at this as Canadians and say, it doesn't matter whether it's blue or green. It's the low carbon intensive hydrogen that matters, and that we can participate globally. I think that's the way we need to get our minds around that, which is a little bit different than I think the way a lot of us have been thinking over the last few years.
Vivek Warrier:Fair enough. And I think that's worth unpacking because I think one of the things, Minister, surely that we have to be thinking about is, as has been the case with other commodities that Alberta produces, they can be characterized unfairly in a certain way. And it suggests to me that we need to be from a policy perspective, out in front of this, explaining to the world the value that the low-carbon intensity Alberta hydrogen can bring to the table.
Doug Schweitzer:Completely agreed with it. I think that's an excellent point. When you take a look at where we are right now and where we ultimately want to get to, hydrogen is being one of those key elements of our energy matrix. So taking a look at that, where do we want to get and how do we get there? You have to use natural gas to build it out now. There's capital around the world that wants to be deployed. The opportunity is right now, and having that public communication and making sure that we sell the Alberta narrative.
It's important for all of us on this call, or on the Zoom call, people that are participating as well, helping to sell that narrative of how important it is to be a first mover, how important it is for us to build out this infrastructure, make sure we have the right framework for our pipes, making sure that we have the right framework for investment to make sure that it can happen economically, but also to build that out.
So you can get the building blocks. It's all about building blocks. Alberta has the best building blocks right now to go. And how do we build from there to make sure that we have the long-term opportunity?
Vivek Warrier:Kenryo, from a perception standpoint, through your role at JOGMEC, have you had a view or line of sight on how Alberta as a supplier is seen in East Asia amongst other places?
Kenryo Mizutani:Sure. Thanks, Vivek. Well, from the Japanese perspective, because Japan is an energy importer, the Japanese energy strategy has always been based on two pillars, diversification of the supply sources and stability of supply. And when we talk about Canada, Canada has been a good partner to Japan in terms of energy. My company, as well as our private Japanese counterparts, we've been investing in all aspects of Canadian natural resources, not just oil and gas.
And I think there's already an established relationship. And I think the perception of Canada and Alberta in particular, is quite positive. And just from the industry perspective as well, as well as from the Japanese government perspective, I think it's fair to say that Alberta has four key components to make it, I guess, a natural partner. One is the geology, especially for blue, hydrogen and CCS. That's critical.
The other one is the abundance of natural feedstock, so natural gas. The third one, which is very important, energy infrastructure, as well as the talented human capital we have in this province. And last but not least, the fourth point is the legal structure. As we discuss more about carbon intensity, I think the legal structure in terms of CCS or carbon markets, I think is already existent here in Alberta.
Vivek Warrier:That's a great point. So as we've mentioned earlier, there's certain inherent advantages that we have here, including a legal framework that by and large, already captures how you would deal with a product such as this. And so to reach those markets, ultimately, like Japan, that'll require the development of export infrastructure, which I think everybody on this call would acknowledge that we've had some difficulty within Canada recently.
What do you think might be different about the path to build, for example, linear infrastructure, to get hydrogen to export markets? Is that something that ATCO has been thinking about at all, Bob?
Bob Myles:Oh yeah, we've been thinking a lot about it. I would say the first thing you need to do is determine what the demand is, because depending on the demand, it means you go with different products. So for the smaller quantities of hydrogen, you want to ship ammonia and not hydrogen. And the other thing you have with hydrogen in the shorter term is that in order to ship hydrogen, you need to liquefy it and you need ships to be able to transport it.
And that technology doesn't exist today. The infrastructure is not there. So in the shorter term, it's really ammonia. With ammonia, you ship it by rail, and there's concerns about the toxicity of ammonia and the safety concerns with that. So we have to do some work on that. We, as an industry, we have to get our minds around how we ship ammonia, but I think there's a great opportunity. With the other comments that have been made around the Asian market is there's a great demand. And I think if we wait, we may miss the opportunity.
So we need to get out in front of this. And not to go on about it, but I just have flashbacks to 10 years ago with LNG and how LNG was a great opportunity for Canada. And I think we all know that we probably were a little bit late with regards to LNG. We can't have the same thing happen with hydrogen. And I think we really need to come together as industry, as government, and really work on this would be my comments on that.
Doug Schweitzer:And then just building on what Bob made, that point, that last point in particular, Vivek, is that if we take a look at the lessons learned from the LNG discussions that went on, the different projects that were proposed, which obviously we have the successful one that's there, but how do we make sure we have that narrative? It has to be between BC government, Alberta, the federal government. They have to have discussions with indigenous communities, the people.
Safety concerns, making sure you get the public comfortable. This is a big part of a clean narrative for energy. So I do think that there's a huge communication effort and lessons learned not just on LNG, as well lessons learned on Northern Gateway, lessons learned on Keystone XL. Learn from all of these experiences that we've had, when we've tried to develop significant nation building infrastructure for that longer term, and right now is the time to start with that communication.
Kenryo Mizutani:And just to throw a few points on top of the comments from the two gentlemen, I think on the demand side, for example, Japan is seriously moving towards hydrogen and ammonia. On both fronts, actually, on both ammonia fuel and hydrogen. Just to throw some figures out, in terms of hydrogen, Japan is expected to import by 2030, about three million tons of hydrogen, which the figure is only going to increase by 2050, by 20 million tons.
In terms of ammonia, we're looking at three million tons by 2030, 30 million tons by 2050. And to get these shipments to the tidal coast, to Asia Pacific, one of the key things I suppose, from the Asian investors is the tidal access. For example, JOGMEC right now, has a memorandum of understanding on natural resources with the Alberta government.
And we're looking to expand it and extend this collaboration into new energy spheres in the coming years. That's something we're looking really forward with the Canadian government, as well as the Alberta government, and with the BC government, because we want the tidal access so that the products can reach the coast.
Vivek Warrier:Right. And always yeah, BC will play a critical role. But in your discussions, Minister Schweitzer, with your BC counterparts, I would expect that there's a different tone to those discussions when we're talking about a low carbon intensity fuel such as hydrogen?
Doug Schweitzer:You know what? It's similar to LNG. British Columbia has been very open to LNG as well. So again, I think as you take a look at some of these greener energy sources and their transmission and transportation, I think that it's an easier conversation to explain, particularly British Columbia. Bit of a different political environment than Alberta, particularly in the Lower Mainland. So again, it's easier to explain.
But again, it's that dialogue. And you can't take anything for granted. This is the one thing that I've learned just in politics, and I've been watching the last 10 years unfold, we can't take anything for granted. The opportunities right now, people are aware of it. There's resources for it. So we have to make sure we win the narrative, make sure people understand it with clarity what we're trying to accomplish.
And we seem to have willing partners at the federal level, on pretty much every political party at the federal level, a major political party at least, as well as partnering governments at the provincial level. So it's encouraging right now, but again, we can't take this for granted. We have to build those partnerships at the local level, indigenous communities. And it's a really urgent, and we have to make sure we really put that legwork in right now.
Vivek Warrier:Well, it's encouraging, I think, to hear that about different levels of government. It's also very encouraging to hear from you, Minister, that this government in Alberta is very much on top of the opportunity, and is aware of some of the constraints that we've encountered in the past. The LNG analogy is an excellent one, but with other types of nation building infrastructure, as you discussed, I just want to turn to perhaps a couple of final questions.
But I think everyone is in violent agreement in this discussion about the importance of development of a hydrogen industry in Alberta and the steps that we need to take to do that. But in terms of more granularly, is there something, Bob, that you would be specifically looking for from the government, or from the minister in terms of specific steps, concrete steps that you think could really galvanize this emerging industry?
Bob Myles:Sure, Vivek. We talked about export, I guess recently. But when I think of the other sectors, other opportunities for hydrogen, I really see it, and I think the government, the provincial government is also looking at it the same way as that there's the utility sector, there's an industrial sector and there's a transportation sector.
And when we look at each one of those sectors, I think there's different structures we need to establish in order to be successful with hydrogen in each one of those. And when we look at each one of those, in particular for utilities, we really need to create call it the policies, to allow hydrogen to blend into the natural gas system. So there's a lot of work going on. We need to work together with government to get that resolved.
When we look at probably, both industrial and transportation, we still have to get call it the rules and regulations, around the carbon tax finalized. And because carbon tax is really going to drive the conversion for industrials from, as we said earlier, from gray to blue hydrogen, and on the transportation sector, it's really going to drive the conversion from diesel to the hydrogen fuel cells. But we need to get clarity around, and even the federal government's policy on carbon tax.
What are we in Alberta going to do with that? I know, Minister, you and your peers in government are looking at that as we speak. And so those are the things that we just need to get some clarity. But I think the worst thing that can happen as we, as industry all fight amongst ourselves and we end up killing the opportunity because we can't work together. And that would be embarrassing in my mind, so we have to avoid that.
Vivek Warrier:Fair enough. And I'll turn the question around, over to you, Minister. Is there something from industry that you are looking for buy-in, in respect of that will allow you to grease the wheels, so to speak, within the framework of government to make this all happen?
Doug Schweitzer:Well, and I think to Bob's point around clarity, around the carbon tax, clarity around the pipe capacity and how much hydrogen we're going to allow in the pipes at the early stages, all of that feedback is critical right now. So as people are watching this, if you've got ideas, suggestions, right now is the time to help submit those. Minister Nally is our point person on natural gas and the hydrogen strategy. I work with him closely on this file, but we want to get that feedback literally like now. So there's urgency on our end to make sure we get this policy framework correct.
And on the carbon tax piece as well, that's another area, too. We want to hear from Albertans as to what strategy they would like to do. Obviously, right now, we have the federal design that the carbon tax is on place for Albertans, and want to hear from them as to whether or not they want us to design our own in Alberta, or whether or not they want us to leave the existing structure in place. It'll be helpful as well to get industry's feedback on that point, as it relates to hydrogen in particular, given the nature of this discussion.
Vivek Warrier:And as I understand it though, ultimately, as Bob, you alluded to it, that however that tax is constructed, whether there's a made-in-Alberta solution, or we are relying on the federal regime, that'll be a key driver of transition to hydrogen as a fuel. I think that's the point, essentially, Bob, you made.
Bob Myles:Yeah, exactly.
Vivek Warrier:Excellent. Well, gentlemen, as I had mentioned at the outset, I don't want to take up your entire day, but I thought I'd throw it open for any final thoughts. If there's a question that I haven't asked or an issue I haven't raised, please jump in now.
Doug Schweitzer:Again, just to appreciate the opportunity to chat about this. I learned a lot from Ken and Bob. I just appreciate your insight into this industry and the opportunity here. And again, to people that watch this, reach out, engage, talk to us about your suggestions. We want to see this be successful for Alberta.
Bob Myles:I would agree. Thanks for the invite.
Kenryo Mizutani:Thank you, Vivek. Thank you for the invite.
Vivek Warrier:Absolutely fascinating discussion. I learned a ton and I'm also coming away from it very, very excited about the possibilities for a really dynamic hydrogen industry in Alberta.
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