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Oilsands producer Suncor and utility Atco to pursue 'world-class' hydrogen project

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CALGARY — Oilsands producer Suncor Energy Inc. is partnering with utility Atco Ltd. on a "multibillion-dollar" project to produce more than 300,000 tonnes per year of hydrogen.

The Calgary-based companies say the project will help Canada reach its 2050 target of net-zero greenhouse gas emissions — and aid their own GHG reduction goals — by capturing and storing more than 90 per cent of the carbon dioxide produced from energy required to make the hydrogen.

The project would reduce Alberta's CO2 emissions by more than two million tonnes per year, they said.

"That's actually one of the joys of this is that by combining the potential demand on the natural gas system with demand that we have for our refinery in Edmonton, we can actually build at world-scale," said Suncor CEO Mark Little.

"At 300,000 tonnes a year of hydrogen, this is a world-scale project ... I do think ultimately Canada's actually going to be a big player in clean hydrogen globally and I think this is the first big step forward."

There's no capital cost estimate yet for the project but Atco chair and CEO Nancy Southern said in the joint interview with Little it will certainly be a "multibillion-dollar" facility. 

The project as presented is a "positive" step by industry but it's difficult to weigh its benefit against other choices with the available information, said Chris Severson-Baker, Alberta regional director for the Pembina Institute environmental think tank.

"We really need to find ways to reduce the emissions in a significant way on an absolute basis from oil and gas and that will either happen through carbon capture and storage like this kind of project or simply reduced production, which is inevitable if the world continues to go down this track of substituting other forms of energy for transportation fuels," he said.

Suncor is to build and operate the hydrogen production and carbon dioxide sequestration facilities and Atco would construct and operate the associated pipeline and hydrogen storage facilities.

About 65 per cent of the hydrogen would be used by Suncor in refining processes and cogeneration of steam and electricity, reducing emissions by up to 60 per cent at its Edmonton refinery.

Another 20 per cent would be added to the provincial natural gas grid to reduce emissions from uses such as home and business heating. The rest will be sold to various users.

"We think there's going to be tremendous demand from transportation, the agriculture fertilizer industry, large heavy-haul trucking," said Southern.

"We see that there's going to be significant demand for the additional excess 15 per cent of the hydrogen."

Atco announced a $6-million pilot project last year to blend about five per cent hydrogen into the natural gas stream for utility customers in Fort Saskatchewan, a small city northeast of Edmonton. It was backed by $2.8 million in Alberta provincial grants and is expected begin construction this year.

The project announced Tuesday would easily supply the blending project, Southern said.

The hydrogen production facility would be located at Atco's Heartland Energy Centre near Fort Saskatchewan. It is expected to face an investment decision in 2024 and could be operational as early as 2028. 

The partners hope to access provincial and federal financial and other support but say there are many regulatory and fiscal unknowns, such as availability of carbon sequestration rights, emissions reduction compliance credits, regulations to allow hydrogen blending into natural gas and investment tax credits for carbon capture utilization and storage (CCUS).

Bringing the project forward now in the midst of a 90-day consultation period for the federal government's CCUS support promised in its recent budget is expected to sharpen focus by presenting a "real project" to discuss, Little said.

In the budget announcement, Ottawa said captured carbon used for enhanced oil recovery won't qualify for a proposed investment tax credit — Little said that's not a problem for the Suncor-Atco project because the "base case" is to store all of the carbon underground.

Both Alberta Premier Jason Kenney and François-Phillippe Champagne, federal minister of innovation, science and industry, voiced support for the project in a news release.

This report by The Canadian Press was first published May 11, 2021.

Companies in this story: (TSX:SU, TSX:ACO.X)

Dan Healing, The Canadian Press