Two major players in Alberta’s oil and gas industry announced a new hydrogen project recently. There was much rejoicing from people who think it’s a great step forward. The details say otherwise.
Suncor is one of the last remaining oil and gas majors in Alberta’s oil sands. It’s a vertically integrated oil and gas company, with extraction, refineries, and the Petro-Canada downstream retail outlets, having acquired Canada’s national oil and gas company in 2009. Its 2019 revenues of $38.4 billion plummeted to a $24.7 billion in 2020, the lowest since before the acquisition. ATCO is a group of companies with several divisions including structures and logistics, utilities, energy infrastructure, retail energy, transportation, and commercial real estate. ATCO’s yellow-striped temporary structures are a fixture on western Canadian construction and extraction sites.
These are both companies with long histories in Alberta and in Canada. This isn’t a story of them being bad companies, but merely doing what all fossil fuel-oriented companies are trying to do in this rapidly transforming world, stay relevant, keep operating and maximize the transfer of public money to their shareholders.
Full disclosure: I assisted Suncor with an IT transformation that was part of their jobless recovery strategy a few years ago upon returning from my global roles with the major technology company I used to work for, and was headhunted by ATCO for the position of Director of Innovation for their energy infrastructure division, but wasn’t considered a good fit.
So what’s the project? Well, to start with, it’s not really a project, it’s a “potential project” per the press releases. There is no commitment on their part to build anything, merely to do some joint early-stage engineering and discussions. As a result, all of the numbers associated with this effort are at best speculative, and there are rather large outstanding questions.
Its intended site is near Fort Saskatchewan, Alberta, about 30 kilometers north east of Edmonton, Alberta’s capital. The target production of hydrogen is more than 300,000 tonnes a year. For our purposes, we’ll use the round number.
This isn’t green hydrogen. The project would use steam reformation to strip hydrogen from natural gas. As pointed out in previous articles on the challenges of fossil-fuel sourced hydrogen, that produces 8-12 times the mass of CO2 as of created hydrogen. For our purposes, we’ll assume that they are going to only produce 8 times the mass, although this is unlikely.
The creation of 300,000 tons of hydrogen will create a minimum of 2.4 million tons of CO2 annually. The intent is to make this “blue hydrogen” with carbon capture and sequestration. While it is possible to capture all flue emissions of CO2, that’s not typically what happens. As the Pembina Institute reports, the typical range is 80% to 90% of emissions captured. The Suncor and ATCO press releases are silent on both the 2.4+ million tons of CO2 created and the reality that at least 240,000 tons of it, 80% of the mass of created hydrogen, will never be captured or sequestered. Let’s assume that they capture 2.1 million tons of CO2 annually.
It’s worth asking a question about this. What would the natural gas emit if it were simply burned? It takes 4.5 normal cubic meters of natural gas to produce a kilogram of hydrogen, per an NREL report. A little math tells us the 300,000 tons of hydrogen will require 1,350,000,000 cubic meters of gas. A cubic meter of natural gas, when burned, produces 1.86 kilograms of CO2, so that natural gas would produce about 2.5 million tons of CO2, slightly more than the best possible case for the hydrogen process. Of course, just leaving the natural gas in the ground saves that 2.4 to 2.5 million tons of CO2 entirely. Let’s consider this a wash.
What do they intend to do with the CO2? Well, in theory they are going to bury the 80% to 90% that they manage to sequester. The hydrogen site is being built in the vicinity of the one carbon capture and sequestration program running in the province of Alberta, the Quest facility just outside of Fort Saskatchewan. That CCS facility takes CO2 captured from the existing hydrogen creation at the Shell Scotford Upgrader and sequesters it, about a million tons a year.
It was built and is operated with federal and provincial money, $865 million CAD of it, or about US$710 million. They claim that if it were built today, it would cost about 30% less. Once again, let’s assume that these numbers are correct, giving them the benefit of the doubt. That means about US$500 million to build a facility that captures a million tons a year. In turn that means that capture more than double that per year would cost about US$1.1 billion or $1.3 billion CAD to build the facility. As a note, the Quest facility is running out of capacity, so it’s not like they are going to expand it. This is part of the problem with millions and billions of tons of CO2: we don’t have nearly enough places to shove it.
As a note, Paul Martin, whose article on hydrogen in CleanTechnica is very worth reading, cites a total cost of $1.3 billion for Quest plus $50 million per year operations, so once again I’m being as generous to Suncor and ATCO as it is possible to be. For those interested in a broad discussion of hydrogen between Paul Martin and myself, we recorded one with the Project Save the World team yesterday.
Just as with Quest, Suncor and ATCO are not offering to pay for this themselves.
“… could be operational as early as 2028, provided that it has the required regulatory and fiscal support to render it economic”
The regulatory support is guaranteed. It’s in Alberta and the regulatory structures there are optimized to giving the oil and gas industry whatever they need. The fiscal support is unfortunately likely. Canada’s federal government has committed $1.5 billion to its hydrogen strategy, and has a history of giving far too much money to Canada’s fossil fuel industry. In addition to the $2.5-$3.5 billion in annual fossil fuel subsidies that Canada hasn’t eliminated since committing to do so in 2009, Canada also provided a billion CAD for orphaned well cleanup in Alberta, part of $18 billion in support for Canada’s oil and gas sector during COVID-19. And Alberta has been throwing money at the oil and gas industry, which has responded by shedding jobs, closing up shop and leaving the province.
Yes, Suncor and ATCO are looking for almost $1.3 billion for this effort, and have a good chance of getting it. This press release about their early efforts is part of their lobbying push.
But the hydrogen must be being used for something good, right? After all, it’s hydrogen, so by definition it’s green. Well, no.
As I pointed out recently, 55% of all hydrogen manufactured today is used in petroleum refineries, and that’s exactly what the majority of this hydrogen is intended for, the Suncor Edmonton Refinery 30 kilometers away, which I have the odd pleasure of clear memories of, having spent a few weeks fixing a troubled project for a client whose head offices were across the road from it over a decade ago now. Fun fact: that client actually employed the ice road truckers made semi-famous by the reality tv show.
“65% of the output would be used in refining processes and cogeneration of steam and electricity at the Suncor Edmonton Refinery, reducing refinery emissions by 60%.”
As pointed out earlier, just burning the natural gas would have the same CO2 emissions as in theory burning hydrogen here, so that’s an odd claim to make. Given the laws of thermodynamics, it’s unlikely to be a wash. The claim of reducing refinery emissions is a suspect. And hydrogen doesn’t burn in the same generation systems as natural gas without substantial engineering, so there are undoubtedly significant dollars that are going to be asked of the federal and provincial governments to make the refinery less polluting.
As a note, all of the refinery emissions are separate from the roughly 70 million tons of CO2 emitted from SAGD extraction and initial processing I estimated recently. This brand new 2.4 million tons of CO2 is on top of that.
Of course, this is all in aid of an industry that’s in its death throes. When Equinor is projecting peak oil by 2027-2028, Goldman Sachs is projecting 2026, the most expensive oil on the planet will be off the market first. And that includes Alberta’s oil sands. This attempt to make it slightly less high carbon will simply make it more expensive, even with federal and provincial billions thrown at it. It’s a waste of money and no taxpayer dollars should be considered for it.
Imagine US$1.1 billion going to wind and solar in the province instead. It could build an 800 MW wind farm that would produce about 2.6 TWh of electricity a year, nicely dropping Alberta’s grid emissions. Similar results would occur with solar. But this just means more oil and gas emissions.
It’s worth asking what the other 35% of the hydrogen would be used for.
“… approximately 20% of the output could be used in the Alberta natural gas distribution system, also further reducing emissions.”
That sounds good, doesn’t it? Well, no. The amount projected for hydrogen injection into natural gas lines is only 0.06% of the annual amount of natural gas extracted in Alberta. That’s so far from material that it’s not even a rounding error.
As for the other 15%, I suspect various greenwashing efforts like hydrogen fueling stations for cars and trucks with the hope of chasing the failed dream of fuel cell road transportation.
With some luck, the federal government will resist lobbying efforts to throw billions more at the fossil fuel industry in Canada, and instead support actual green hydrogen initiatives like Quebec’s. But the history of Canada’s recent decades is billions for oil and gas, and scraps for the rest.