The past ten-days has seen a flurry of announcements from Premier Kenney, his Jobs, Economy and Innovation minister Doug Schweitzer, Associate Minister of Natural Gas and Electricity- Dale Nally, and Finance Minister Travis Toews. Kenney, in all these announcements, was centre stage and answering inquiries from the media.
Hydrogen Roadmap
The first announcement on 6 November was the unveiling of a hydrogen strategy. Hydrogen, especially “blue hydrogen,” is now seen as having the potential of an oilsands-like boom.
According to Kenney:
“With a global market estimated to be worth $2.5 trillion a year by 2050, hydrogen could be Alberta’s next great energy opportunity. Alberta has been a global leader in responsible energy production for decades, and now we’re ready to apply that leadership to hydrogen. With Alberta’s Recovery Plan, we are laying the groundwork now to establish Alberta as a source of low-emitting hydrogen that can power Canada and the world for decades to come. This means thousands of good jobs, diversifying our economy and reducing emissions. It’s a win-win-win.”
Hydrogen is touted because “it holds almost unlimited potential to create jobs,” according to Kenney. Kenney emphasized the idea that exporting hydrogen would help other jurisdictions lower emissions while also integrating with Alberta’s existing industrial infrastructure again to lower emissions.
Dale Nally was gushing in his praise for Alberta as being a leader in clean tech and responsible energy development. The claim is that blue hydrogen can be produced abundantly with low carbon emissions and builds on Alberta’s lead in production of hydrogen. The roadmap includes other forms of production as the province is “agnostic” on the colour of hydrogen. A strong regulatory system is promised, The fuel is seen as powering trucks and trains. Existing pipeline systems will assist in moving hydrogen- Alberta’s carbon trunkline. This measure is part of Alberta’s economic diversification and its branded Economic Recovery Plan. A big component in of the 50-page hydrogen roadmap
will be carbon capture a technology, which remains uneconomic.
According to the government, the initial pieces are starting to fall in place with announcements by Suncor and Atco in May 2021 to produce more than 300,000 tonnes per year of clean hydrogen using advanced technology to capture more than 90% of the emissions generated in the hydrogen production process. AirLiquide’s $1.3-billion investment in the industrial Heartland is purported to build a “net-zero hydrogen production and liquefaction facility expected onstream in 2024.”
“It’s stunning to consider the pace that new technologies in this space are advancing and the government of Alberta will be there ……and to give industry the tools they need to led the way,” Nally stated. Blending hydrogen and natural gas to heat homes and using excess renewable energy to make hydrogen illustrates the integration benefits of this technology. Alberta’s plan is to lower emissions and is places the province on the cusp of one of the greatest economic recoveries the provinces that we have ever seen.
It seems all too good to be true. The roadmap is the brain child of David Layzell a University of Calgary professor with the Transition Accelerator, a “pan Canadian non-profit. Layzell, who is the Director of the Canadian Energy Systems Analysis Research Initiative at the University of Calgary,” likes to use the oil sands as an example of what the future could like for Alberta under the hydrogen plan. Unlike the oil sands carbon emissions footprint, Layzell noted the roadmap “will align with the need to address climate change,” but like the oilsands, hydrogen is expected “to drive the economy of Alberta and ultimately of Canada.” In Dr. Layzell’s view the use of this technology can address climate change. “It points to credible and compelling transition pathways to a low carbon future.” Key elements are carbon capture and storage and the use of zero CO2 fuels in transportation.
During the question-and-answer period with media, Kenney denied this was an aspirational document and was “not pretty words on paper.” He said he was getting calls from “corporate CEOs”. He referenced the game changer $15-million grant to CP Rail from Emissions Reduction Alberta. However, “the feds do need to come the table for carbon capture and storage,” said Kenney, “Companies do have to make investments as well,” he admitted.
Questions
The 50-page Hydrogen Roadmap strategy raises more questions than it answers in terms of economics, technology and the risks to Alberta taxpayers.
Fundamental questions are raised in the document under the heading “Alberta’s hydrogen ambition.” The ambition reads like a prospectus for speculative investments. The following are called policy pillars in the document but read like a series of massive technological and financial obstacles that should make any investor, including governments, wary. These pillars include:
- Build new market demand;
- Enable carbon capture, utilization and storage;
- De-risk investment- “hydrogen is an enormous opportunity with challenging economics;”
- Activate technology and innovation- “demonstration projects, research, and innovation are needed to prove and scale up emerging clean hydrogen technologies. Training and development;”
- Ensure regulatory efficiency, codes and standards to drive safety;
- Lead the way and build alliances; and
- Pursue hydrogen exports.
It doesn’t take much of a graduate finance student’s time to conclude that such an enterprise will require huge expenditures to bring the technology, resources, and markets together. As the roadmap warns in an understated way the economics are “challenging” and so is the technology.
For an impoverished treasury, such as Alberta’s and for a taxpaying population that already pays too little tax to finance its desired level of public services, this effort will require bankrolling from a gullible federal government. For oil and gas, engineering and oil services firms that are desperate to find work to transition its pipelines, facilities, and human resources from fossil fuel development, the hydrogen strategy is a plausible gambit because it is painted with low to no GHG emissions once the processing is complete. It is hoped that Ottawa will be more interested in financing some of the tens of billions of dollars necessary in the clean up of abandoned wells, buried pipe, and remediation activity that will keep thousands of Alberta workers employed for decades.
Amazon- “Another massive win for Alberta’s tech sector
The second announcement came on 8 November – Amazon had decided to create “close to 1,000 new jobs through a total investment of $4.3 billion, making it perhaps the largest single investment in the history of the province’s tech sector.” The investment by Amazon Web Services (AWS) is the second cloud centre in Canada- the other being in Montreal. There are 25 such AWS centres across the globe. The investment will take place over 15 years. Ground is being broken on the construction of this facility. AWS big customers in Calgary include TC Energy and Benevity, a home-grown “global corporate purpose software company.” AWS pledges to use renewable energy including drawing power from the huge Vulcan solar farm being built. The $4.3-billion investment includes the capital cost of the facility and the ongoing operating costs- the latter is not usually regarded as “investment.” Drawn out over 15 years, $4.3-billion works out to be $300-million per year, clearly a significant boost for the Calgary economy.
According to Schweitzer
There are so many reasons to be optimistic about Alberta’s tech sector. Alberta is on track for a record year in venture capital and tech investment, creating thousands of jobs and diversifying our economy. This transformative investment from Amazon Web Services clearly demonstrates Alberta is a top destination for tech investment and talent.”
The next day the City of Calgary Economic Development placed a full-page ad in The Globe and Mail showcasing this investment. This investment was made possible through the work of Invest Alberta and Schweitzer’s ministry. A delighted Kenney occupied the podium but did acknowledge Invest Alberta officials and Schweitzer’s involvement. The news release listed other tech investments including plans of RBC (300 jobs), Benevity, Mphasis (1,000 jobs), Infosys, Exro ($15-million and 50 “high skill cleantech jobs”), mCloud Technologies (head office relocation), and Rogers proposed National Centre in Technology and Engineering (500 high-paying jobs). Kenney believes that the province will begin to draw workers into Calgary, noting that Alberta continues to see the fastest growing population in the nation.
Kenney waxed on about an emerging “ecosystem” which he described as the point of reaching critical mass of people with transferable skills. This investment is a “game changer” Kenney went on to say several times. In answering a journalist’s question about what made the difference in attracting the investment, Kenney tellingly referenced Alberta’s “youngest and best educated young workers” many of whom have been unemployed. This created what Kenney termed an “open and flexible labour force.” Given Amazon’s poor reputation as an employer of choice, open and flexible sounds like a code word for docile. Other factors included low taxes and regulations, high quality of life, and the “job creation tax cut.” AWS officials did not answer that question.
Questions
Amazon is known to drive a tough bargain when it sits down with municipalities to see what they are prepared to pay to lure capital construction and local jobs. Although the announcement made no reference to the costs, it seems improbable that Amazon would not exact some financial assistance from an provincial agency like Invest Alberta and/or Calgary’s Economic Development Authority. Usual attractions include tax holidays, special considerations for zoning, lot servicing, and access to various training programs at public expense. Kenney mentioned the Jobs Now program and there are many other tailored programs that provide funding from the Alberta government to hire workers. Calgary city councilors and NDP opposition members should be asking for disclosure of what programs AWS has been given access to in order to attract this investment. AWS may be a game changer but one wonders why it is foreign capital that must be attracted, often at hidden costs, and not local capital being nurtured, and possibly at a lower cost.
Petrochemicals- $2.5-billion project adds to economic momentum
On 10 November, came another announcement of a “carbon neutral ammonia and methanol production facility in the Municipal District of Greenview,” adjacent to Grande Prairie. The facility is to be developed by the Northern Petrochemical Corporation. The project is expected to provide more than 4,000 jobs during construction and 400 permanent jobs. Premier Kenney, Dale Nally, and Travis Toews, who is also the MLA for Grande Prairie-Wapiti, attended the announcement.
According to the press release, the announcement “is one of many made possible through Alberta’s Economic Recovery Plan, a bold plan to create jobs and diversify the economy.” In a short presentation to the assembled group at the Greenview Gateway Association, Geoff Bury, president and CEO of Northern Petrochemical Corporation claimed the firm selected the Grande Prairie area after looking at “possible locations nationally and globally.” Bury acknowledged that the Petrochemical Incentive Program was a key factor in making this decision and he thanked the Premier for that. Abundant natural gas resources were necessary to feed the ammonia plant. Ammonia is a “carrier” for hydrogen and Bury believes the ammonia market will “take off.” Bury promoted the project on the basis of the jobs to be provided to the local community and the economic spinoffs. Bury also threw out a tidbit for Kenney saying the project was expected to produce $3-billion in tax revenue for the province. The event witnessed the signing of a purchase and sale agreement between NPC and the M.D. of Greenview for 295 acres of land.
Kenney’s waxed glowingly about the 200 years of supply of natural gas and that the project would reduce emissions – a “win-win-and-win-win” adding the cost per unit of carbon capture and storage has fallen 50 per cent. A combative Kenney praised the work of Wayne Drysdale a former PC MLA who was instrumental in funding carbon capture in the face of “those no-no-know it-alls.” Kenney also wants to “get the feds to put their money where their mouth is” to support efforts to help CCUS which has the additinal benefit of enhancing oil recovery “with no emissions,”
Questions
Who is the Northern Petroleum Corporation? The corporation’s website is under construction so there is no information about the company- its directors, its investors. The website does make the claim that the corporation is an “Alberta based supplier of value-added products to global markets.” Presumably the corporation had enough money to buy 295 acres of land in Greenview.
Bury’s Linked-In profile shows that he is an executive with Maribo Resources Ltd. a virtually unknown Canadian oil and gas company. That company is focused on “under-explored basins in Trinidad and the greater Caribbean region and based in Calgary.” The simple website features the firm’s strategy and experience which includes a “substantial seismic database, acquired through an agreement with a 3rd party, and an inventory of drill-ready onshore and offshore prospects.” The private company has entered into joint ventures with Centrica, RWE Dea, Niko Resources and Parex.
Bury ‘s profile with Maribo gives his experience as working with both public and private companies spanning a variety of industries including oil and gas, petrochemical, manufacturing, environmental and information technology. He is a chartered accountant and was the Finance Manager of Qatar Fuel Additives Company, a world-scale methanol and MTBE production facility
It seems odd the province would showcase a massive investment by a corporation with no known track record whose sole executive has little petrochemical experience. The biggest question is where is the huge amount of capital – in the form of risk capital equity and borrowed funds- coming from. This venture has all the signs of the ill-fated Sturgeon Refinery which was brought to development by North West Upgrading. This was the enterprise whose cost overruns forced the province to provide loans to keep the project going along with long-term feedstock agreement which Hs been subject to a highly critical 2018 Auditor General’s report.
Opinion
Kenney taking centre stage at these announcements is no surprise as there have been few happy moments for the embattled head of an unpopular UCP government. Kenney’s plan has always been to win support from the local business community while courting international capital. These latest wins present a challenge for Ms. Notley’s New Democrats as this could be a key turning point for Kenney’s government. The fly in the ointment however that it is unclear that these projects will actually pay off for the government in the sense of producing net net revenues after the costs of attractions are taken into account. Notley’s lieutenants should be demanding to see what cost-benefit analysis has been done on these projects and what the costs of underwriting these investments are and will be. This is where the Notley opposition should be concentrating their attack. The issue is the known and unknown corporate welfare that is being doled out by the government locking successive governments into commitments which will likely cost more to the treasury than the trumped up benefits purported by project proponents. As I have said before, we have seen this movie before and it doesn’t end well.
Notley should also be careful not to endorse the hydrogen strategy until there is concrete evidence that this is consistent with absolute reductions in the province’s GHG emissions. There are a lot of moving parts and if all it does is allow the oilsands to continue producing while the province’s absolute emissions stagnate, this will become a losing proposition as institutional investors eschew any carbon emission industry.
Kenney’s ill-tempered entreaties for “the feds to put their money where their mouth is,” along with his condescension around the Glasgow “gabfest” will do little to aid in Alberta’s quest for billions in federal aid. Indeed, the more Kenney chides the federal government, the more he plays into Notley’s hands as more moderate Albertans tire of the Premier’s anti-Trudeau and anti-Ottawa rants. It is six months to the UCP leadership review and Kenney will need the help of more than future economic prospects to win the hearts and minds of his party.