As a Calgary-born Explorationist, I have certainly observed ups and downs in the oil patch, from a front row seat. Brace yourself for cliché; this time it’s different!
How is it different this time?
Most of Western Canada’s heavy oil and oil sands travels to the US where it is turned into diesel. Nikola stopped taking orders for H2-powered cargo trucks at $10 billion in truck pre-orders. Nikola is one example of many, and using solar to electrolysis, claim they have achieved H2 at $2.47 US/kg. Diesel equivalence is about $4/kg. So no one should pretend to be surprised as they watch demand destruction for Canadian oil accelerate during the next 5 years.
Nikola can hit these price targets without subsidies for carbonless energy. I’ve heard of larger-scale projects in Australia that claim to achieve H2 at $1.70 AUS/kg using electrolysis. This is before scaling up, and we all know that mass production drives down price. I expect electrolysis to produce carbonless sources of H2 in the $1/kg range within the next few years. It’s simple Alberta; diversify and adapt, or be uncompetitive. The niche and path for oil products that aren’t simply burnt (like asphalt, lubricants, plastics, rubber) is not big enough for all our Canadian production.
My perspective has been from within exploration and production companies, mainly large ones, and as a reserves evaluator, and as a research analyst building financial models and picking stock price targets for various issuers in oil.
I’ll share an example from my career; in 2005 the natural gas price was high and I was trying to explain American examples of horizontal drilling and the implications for Canada within the Montney to a company I was working for. The same year, I was hired by Burlington Resources. Through attrition (3 layers of management quit above me) after a major oil player purchased Burlington Resources, I found myself running the shale gas exploration team for a while. Extremely lucrative opportunities abounded for horizontal drilling in many formations, with massive acreage positions wide open in the best areas, but decision-makers had a hard time connecting the dots and shifting the CapEx, with a high-level stated preference to be “fast followers”. Well, that’s how most execs in Calgary preserve their positions. No hard calls. Nobody moves, nobody gets hurt.
As an Albertan I would very much like to see Calgary’s oil exec’s make some hard calls right now. Not tentative calls; not dipping a toe in to test the water. This is an existential challenge and bold action is required if future global energy relevance is to be a possible outcome.
How? What bold steps are needed?
Jonathan Wilkinson, our new Federal Environment Minister, has a mandate that 10% of cars sold in Canada need to be zero emissions by 2025. He also knows about the “last mile problem” wherein there isn’t enough grid capacity at the community level for much of this 10% to be full battery electric vehicles. Minister Wilkinson is aware that H2 is the quickest, easiest and best solution for meeting his mandate.
In the foreground, oil companies have now truly realized that access to large-scale new capital requires diminishing carbon intensity per barrel. A lot of our oil is steamed out of the ground by energy from natural gas combustion, or pumped using power from carbon-emitting sources. Hydrogen can be used in various ways to make steam and electricity.
Alberta has some of the lowest cost H2 production in the world already. Near Edmonton. Part of the reason for this is low natural gas cost, and no emissions capture.
Let’s be leaders where we can in the global energy movement that is growing; clean hydrogen. Canada can leverage its resources and expertise toward clean hydrogen exports and make a fortune on this clear opportunity. “Fast Follower” is a losing strategy, and I want to see Alberta companies be bold to thrive rather than shrinking to global irrelevance. Australia is shipping liquid hydrogen to Japan while Albertans are still fighting to sell more hydrocarbons by ship! The game has changed. Adapt your strategy! Quickly!
There are several ways to make emissions free hydrogen economically:
Solar, wind, geothermal, and hydroelectric are inexpensive and emissions free. We are already doing these in Western Canada for cost-competitive electricity. Adding electrolysers to these emissions-free projects is a good approach, but doesn’t leverage of our resource industry as much as steam-reforming methods of hydrogen production. The two paths for steam reforming are traditional Steam Methane Reforming (SMR) with carbon capture and storage, and Proton’s method of in situ steam reforming using unswept petroleum as fuel, using the ground as the reaction vessel, and leaving everything except H2 in the ground. These can both be emissions free and done fairly quickly at extremely large scale. Pyrolysis is also a potentially viable option for making hydrogen, but creates a huge waste stream of carbon black for which the markets at large scale are untested.
To leverage our existing projects; workforce, roads, pipes, turbines, powerlines, rigs, trades, geophysics databases, etc., the fastest large scale path to clean H2 for Alberta is steam-reforming reactions by one of the aforementioned methods. Companies who remain focussed on selling heavy oil to American refineries will get hungrier, and weaker through time.
The H2 opportunity is especially sweet for Canadian energy companies that already have a retail footprint (gas stations). An obvious necessity for Jonathan Wilkinson to meet his mandate for zero emissions vehicle sales is to make sure there are enough hydrogen fueling stations. Companies can wait to see this legislated then scramble at the last minute to comply, potentially meanwhile being eclipsed by new entrant competitors, or they can leverage their past investments to become hydrogen leaders. If you are a high-level Canadian energy executive, I am directly challenging you to bold action toward hydrogen. As an Albertan I am tired of watching “fast-followers” fumble. The game has clearly changed again and I want to see you succeed.
So; Canadian licence deals for Proton’s method are half price for the next 3 weeks. If you have sufficient signing authority to act on this, please feel welcome to contact me. If you know an executive in Canadian oil and gas, please forward this article to them.