Newfoundland’s Green Hydrogen Project
This week Frank Davis, Assistant VP, Green Hydrogen and Canada Country Head at Pattern Energy joins as our guest. Pattern Energy is developing a green hydrogen project at the Port of Argentia in Newfoundland and Labrador. The project will use renewable electricity to produce green hydrogen and convert it into ammonia.
Here are some of the questions that Jackie and Peter asked Frank: Tell us about the different parts of the project (electricity production to hydrogen and ammonia). Why did you select the province of Newfoundland and Labrador? How do you manage the variability of renewable power while running the ammonia plant 24/7? How much does the cost of green ammonia compare with ammonia produced from fossil fuels? Would you look for 10 or 20 year take-or-pay contracts before proceeding with the project or is it a merchant model? How does Canadian policy for green hydrogen compare with the U.S. Inflation Reduction Act (IRA)?
Content referenced:
- Learn more about Pattern Energy’s project in Newfoundland: Argentia Renewables – Pattern Energy
- UN IPCC AR6 Synthesis Report: Climate Change 2023 (see page 7 of the Summary for Policy Makers to see the infographic that compares to what extent future generations will experience a hotter and different world),
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Episode 194 transcript
Disclosure:
The information and opinions presented in this ARC Energy Ideas podcast are provided for informational purposes only and are subject to the disclaimer link in the show notes.
Announcer:
This is the ARC Energy Ideas podcast with Peter Tertzakian and Jackie Forrest. Exploring trends that influence the energy business.
Jackie Forrest:
Welcome to the ARC Energy Ideas podcast. I’m Jackie Forrest.
Peter Tertzakian:
And I’m Peter Tertzakian. Welcome back. Well, it’s been another week, two weeks, I don’t know how many weeks of volatility. We’ve got SVB Bank collapses, the war in Ukraine drags on, and the situation with China. It just seems like doom and gloom and capping it off is this IPCC report that just came out, which is more doom and gloom. What do you make of it?
Jackie Forrest:
Yeah, it was, and I think it got lost a little bit with all of the news. I think it normally would get more attention, but this report is their synthesis report. It’s a summary of the previous reports. It’s as long as ever, something like 85 pages for the main report. The short version is 36, and it’s as hard to read as ever. But I did find it interesting. They did have some new ways to communicate. The UN Secretary-General had a seven-minute video and it had some pretty scary words in it like, “Climate bomb is ticking.” “We’re on thin ice.”
Peter Tertzakian:
Okay, so all this doom and gloom, is resonating with people because they’re trying to put food on the table, and here comes a report, that most average people won’t even read. But if they did, you get past the first sentence of doom and gloom and you go, “I can’t hack it anymore.”
Jackie Forrest:
Yeah, they amped up the language in the communication and I think with everything else going on, I felt that way a little bit. They talk about 1.5 degrees as achievable only if we supercharge our efforts and they say that developed countries need to now get to net zero by 2040 instead of 2050, and that’s going to be a topic for COP 28. Well, as we all know, 2050 was hard to achieve.
Peter Tertzakian:
Well, 2050, yeah. I call it aspirational. Some people get angry at me for calling it aspirational because they say, “No, it’s not aspirational, it’s necessary.” I’m going, “Okay.” But we started with the Paris Agreement. Let’s just take that as the starting point. In December 2015. The way I look at the numbers, we haven’t achieved anything since that. It’s getting on eight years and then since the Paris Agreement, which if you recall, the original was a two degrees C aspiration, then it became a one-and-a-half degrees C aspiration. Then it became a net zero aspiration, net zero by 2050, and then now the goal post is moving to net zero by 2040, and we haven’t even come close to achieving the original.
So the remedy seems to be for the IPCC to amp up, as you said, doom and gloom, thinking that that kind of psychology is going to get people to act. And I’m not a psychologist, but I think this whole notion, I’ve said it before on the podcast, “Follow the science. Follow the science.” Yeah, follow behavioral science. I think the IPCC needs a lesson in how to get people enthusiastic about change rather than continually pull fire alarms, which in this day and age has no effect. So there’s my rant for the day.
Jackie Forrest:
Well, it hasn’t worked in the past because we still way fall short of the goal. There’s some really interesting information in there, in that he also has taken infographics and they’ve done a great job of that. So the report has some useful, easy-to-look-at information. I do suggest people look at one of them, which is showing the impact of climate on people born at different times. So if you were born in 1980, it’s not too bad, if you were born in 1950, it does not have a big impact on you. If you’re born in 2020, it’s a big impact. So I think there is an urgent problem here, but I also think that just saying that we’re going to get to net zero by 2040 isn’t the way to solve it. It’s controversial, but I think we need to look at other solutions like geoengineering.
Peter Tertzakian:
I’m not debating the content. I’m debating the fact, like what you said early on, it’s hard to read, it’s full of amped-up doom and gloom. And so any data that’s turned into information that’s turned into knowledge that ultimately is supposed to be turned into decision making, because that’s the knowledge value chain. Information on its own is just, “Okay, so what do I do?” We’re not connecting the dots to the, what do I do? Because it’s so obscured in jargon, complexity, and negativity that it just doesn’t resonate. That’s my point. I’m not trying to debate the veracity, integrity, or whatever of the report. I am debating the ability of such a report to make a change and given the history of seven years, it’s not working.
Jackie Forrest:
I would agree with that. I do agree. And I think we need to look at other alternatives too. So as I said, it’s controversial, and we had a podcast on that with David Keith about geoengineering. But other solutions are, how can we move more quickly? And so that would be a topic for today. One of the solutions is to move to cleaner energy, and one of those energy types is green hydrogen.
Peter Tertzakian:
Hydrogen and hydrogen in Canada is a big topics. Hydrogen as an alternative route or pathway for Jules to travel from source to end use is very much topical. So we said, “Well, why don’t we call a hydrogen expert in?” We’ve done that in the past, but we’ve got a very unique guest today from Toronto, Frank Davis, who is the assistant vice president, of Green Hydrogen and Canada Country Head for Pattern Energy. And the significance of Pattern Energy is that they are leading the initiative to develop green hydrogen in Newfoundland in the Avalon Peninsula. So welcome, Frank.
Frank Davis:
Thank you very much. It’s nice to be here.
Jackie Forrest:
Great. Well, Frank, we’re excited to learn about the project. We have lots of questions about it, but before we get to that, maybe just tell us a bit about yourself and how long you’ve been with Pattern Energy.
Frank Davis:
I’m glad to do that. Peter was kind enough to introduce me as a hydrogen expert. I don’t know that I would describe myself as a hydrogen expert per se, but I’m certainly a recovering lawyer, who is working toward becoming a hydrogen expert. I’m originally actually from Newfoundland, so it’s quite fitting. I started my career in the legal field and worked for a few years with one of the largest law firms in Canada, but then quickly realized the real fun was going to be in renewables. This was 12 years ago when the wind in Canada was still somewhat of a dubious proposition and somewhat of a fringe industry. But I was proud to be involved in executing some of the leading wind projects in the country. I’ve been with Pattern for about 12 years, and I lead our commercial business in Canada and more recently lead a green fuels development business for us globally.
Peter Tertzakian:
Tell us a little bit about Pattern energy, the projects you’re involved in worldwide, as a starter.
Frank Davis:
Absolutely. So Pattern, we’ve been around since about 2009, headquartered mostly in the United States, but projects really throughout the US, one of the leading wind portfolios in Canada, solar projects in Mexico, and a large renewables platform in Japan as well. So we operate today about six gigawatts of renewables globally. We are rapidly shifting our focus to greenfield development of large-scale renewables using large HVDC transmission lines to facilitate grid expansion.
Peter Tertzakian:
So HVDC, I always like to clarify the jargon for our audience. So that’s high voltage direct current lines.
Frank Davis:
Exactly. High voltage direct current. So we’re utilizing this technology with great success down in the Southwestern US. We are building very large, very successful projects in New Mexico. In January of 2022, we commissioned our Western Spirit Project, which is over a gigawatt of installed wind, delivering power ultimately into Southern California. That was at the time, the largest single-phase wind construction job in the Americas.
Peter Tertzakian:
Let’s put that in context for our audience to one gigawatt. I know it’s not comparable in, necessarily its overall deliverability capacity, et cetera, but a gigawatt is like a nuclear power plant equivalent, isn’t it?
Frank Davis:
Certainly a small nuclear power plant, but it would exceed the size of most large hydroelectric developments.
Peter Tertzakian:
So it’s big. It’s big.
Frank Davis:
Can power hundreds of thousands of homes. It’s a very large-scale piece of infrastructure, which is, again, this is designed to deliver power into major southwest load centers in the US including Los Angeles, and Southern California. So that particular project is about three times the size of the largest wind project in Canada today. So very serious capacity. On the heels of that, Pattern is now in early construction on a project also in New Mexico called SunZia Wind, which is 3,500 megawatts of wind that will be one of, if not the largest onshore wind projects in the world, and that includes a 500 mile HVDC transmission line. So a massively ambitious project, but I think where the industry needs to go to tackle these issues that you guys spoke about in your intro, these are big, serious global issues, and we need a large capital. We need ambitious ideas and bold ideas, I think, to make a dent in this issue. So Pattern is proud to be part of the solution here.
Jackie Forrest:
And I think our listeners would be interested to know that we are all shareholders of some sort here because you were purchased by the Canadian Pension Plan in March 2020. Just tell us a little bit about that and how things have changed since you have the Canadian Pension Plan involved.
Frank Davis:
Well, as the Canada Country Head, I was thrilled when that deal was executed and we could proudly wave the Canadian flag above Pattern. Working with CPPIB has been just a transformational evolution in our business. It’s been tremendously positive. CPPIB itself is an extraordinarily talented group of individual, of managers, who are helping us unlock new potential in our business. There’s the obvious access to large low-cost capital to fund these ambitious projects, but also I think a renewed sense of discipline on our growth. We’ve evolved from being a nimble gun-slaying developer project to project, the opportunity to opportunity, to take a much more thoughtful discipline view of our long-term growth. We’re focusing more on fundamentals, on analytics, and on becoming smarter on where to focus our resources. We want to move beyond just parking large megawatts on the grid and think about becoming a more dynamic solution provider for global decarbonization. And I think working closely with CPPIB is helping us achieve that rapidly. So proud of the deal for sure.
Peter Tertzakian:
Well, let’s focus on Newfoundland, where you’re from, and certainly, I’ve been there several times, spent quite a bit of time there, and love the province. It’s really a spectacular place, but it’s also, I think you would agree, a harsh place given the weather, and it’s nestled in the Atlantic Ocean. But Argentia, not Argentina, Argentia, which is about an hour’s drive west of St. John’s. Is that on the Avalon Peninsula?
Frank Davis:
Exactly. [inaudible 00:11:35] hour.
Peter Tertzakian:
Yeah, that’s a little bit more potentially nestled and shielded, correct me if I’m wrong, but that’s where this project, which you’re going to talk about is going to go. So tell us about the project, its location, and what it is that is appealing to Pattern energy.
Frank Davis:
The project is, as you said, located at a port, one of the most active developed industrial ports in the province, maybe in eastern Canada. It’s the closest other than St. John’s, which is a really busy urban port, right downtown St. John’s. Argentia is the closest sea-bound vessel port to Europe. It’s an active deep-water port. It’s where one of the main passenger ferries from Nova Scotia lands. So chances are if your listeners are vacationing in Newfoundland this summer, a good number of them will be landing in Argentia on the Marine Atlantic Ferry and making the drive to St. John’s. Argentia, it’s a fascinating site with a lot of history. It was the site of a US naval base, essentially a US military base during World War II, selected by the Americans for obvious strategic advantages associated with military purposes. They built a network of runways out on a 3000-acre piece of land sitting out on the water.
The site was used to support World War II efforts, but then beyond that, the Americans were present on the site for several decades, right up until the late nineties. So the site is very much an industrial site. It’s been home to over the years, several come and go type industrial projects. A large oil and gas wellhead is being produced there right now for the West White Rose Project. So it’s a site that the local community is very accustomed to seeing large-scale industrial projects, as I said, come and go there. There’s a great appeal from the local community and seeing the site repurposed for renewable energy. So we’re certainly seeing a lot of support locally for this.
The project itself will be a renewable energy-powered green hydrogen and green ammonia production and export project. This involves constructing and operating a large wind farm. Now, Peter, you mentioned the harsh weather environment in Newfoundland. A lot of that is tied to an extraordinary wind resource. Essentially, the port of Argentina offers about nine or 10,000 acres of buildable private land upon which we can build a roughly 300-megawatt wind project at wind capacity factors that vastly exceed what we could see in other parts of Canada.
Peter Tertzakian:
So wind capacity, in other words, is that the wind blows more in 24 hours there than in other places.
Frank Davis:
Absolutely. Essentially, the energy production from a wind farm there will be roughly 10 to 15% higher than the energy production from a wind farm built in, for example, southwestern Ontario. So the wind speeds are higher, the productive capacity of the wind is stronger, and what we call the diurnal pattern of the wind, how it blows, comes, and goes over 24 hours, is much stronger. So ultimately we can get more energy out of the wind in Newfoundland than we can in most places in North America. So that has the immediate effect obviously, of bringing the levelized cost of energy for a wind down on a per kilowatt basis. So we’ve always been interested in Newfoundland as a place to build wind, but up until the advent of a green hydrogen market and a sense of a growing demand for green fuels globally, there hasn’t been a market opportunity for wind in Newfoundland. They’ve chosen to infill their grid largely with hydropower. This project, utilizing renewables to make and export green fuels, is now the opportunity to finally utilize this great wind resource.
Jackie Forrest:
All right. Tell us a little bit more than the wind is the advantage, and that’s part of why you’re in thinking about Newfoundland. But tell us a little bit about, well, once you produce the wind, what are all the pieces to produce the green hydrogen and ship it offshore?
Frank Davis:
A very large-scale industrial project goes into something like this. There’ll be a large wind farm built. You will also need to access clean grid power to infill various power needs associated with the project. There will then be a green hydrogen electrolysis plant, which is a large installation of first of all electrolyzer stacks, which perform the reaction to unlock a water molecule into its constituent elements, obviously one of which is hydrogen. Part of the electrolyzer plant will include, water delivery and water treatment infrastructure, also a slew of power conditioning, and power rectifying type equipment to properly channel the power into the electrolysis. So going through the electrolyzer plant, you end up with oxygen and hydrogen coming out of the water. The oxygen can be used for good uses locally, including agriculture. It’s a good use for oxygen byproduct.
But then with the hydrogen, we utilize that in a synthesis process to create ammonia. So an ammonia plant, it’s an industrial facility that will utilizes an air capture unit, which captures nitrogen out of the air. So we think of ammonia as NH3, thinking back to first or second-year chemistry. So we need nitrogen and hydrogen to make ammonia. So we’ll acquire nitrogen directly from the air using air capture, and then the hydrogen we have produced from the electrolysis will be synthesized, and liquid ammonia will be produced, stored on-site, and put on vessels for export markets. So that’s the basic run of the process flow.
Peter Tertzakian:
So we’ve got this energy supply chain that goes from wind, which generates electricity. The electricity is used to split H2O, the water molecule, apart. The hydrogen is then combined with nitrogen from the air to make ammonia. The ammonia is put in a tanker, presumably, you’re going to make a dock for ammonia tankers. The ammonia then gets shipped to a market, say Germany, which was mentioned by the Prime Minister, and we’ll come to that in a minute. Then they have to take the ammonia, strip out the nitrogen to get the hydrogen, and put the hydrogen in some device to generate electricity again or whatever they’re going to do, steel plant. It just sounds like a lot of gymnastics, and this creates skepticism among physicists and engineers in the community saying, “Okay, it’s all very elegant and cool, but it’s also very complex, requires a lot of process equipment, a lot of energy in which cannibalizes potentially the energy out, which makes the whole thing very expensive.” So what do you say to that?
Frank Davis:
Well, certainly if you’re thinking about making ammonia as a hydrogen carrier, I would agree that today, right now where we sit, it’s a proposition that’s expensive, complicated, and perhaps not as energy efficient as it will need to be in the long-term. The way that we and many other developers are thinking about developing green ammonia projects is not necessary to have this ammonia cracked open and re-access the hydrogen on the receiving end, but it’s actually to service, right now, a robust and growing ammonia trade on the ammonia commodity itself. Ammonia is itself responsible for something between 1% and 2% of global emissions because right now all the ammonia in the world is made using natural gas. The hydrogen is obtained from natural gas using steam methane reformation. So making ammonia right now, I guess we’ll call it gray ammonia, is an emitting process that needs to be improved.
So new uses for ammonia both to feed existing fertilizer production, which half the world’s food supply, depends on ammonia. A ton of other industrial and chemical uses, potential uses for marine bunkering fuel, and potential uses for power generation. This isn’t relying on ammonia to be split open back into hydrogen. This is direct usage of the commodity itself. So really these projects are about finding low-cost ways of producing ammonia that does not produce carbon emissions, and there’s a real appeal in that from a policy standpoint and appeal in that, I think, at the end-use customer level as well. So that’s the market we’re aiming to serve on early-moving projects like this.
Jackie Forrest:
And I think that’s important. I saw a study about how large the existing ammonia market is for agricultural uses, and as you say, the first opportunity is probably replacing the gray, we’ll call it, ammonia with green. Let’s come back to the project. One question I have is, you talked about the wind resource not always being constant. So even though it’s going to be better, it’s not going to be 24/7, but usually when you’re running an ammonia plant, and I think even an electrolyzer, it would be ideal to be having it running 24/7. How are you dealing with the variability of the wind in that process?
Frank Davis:
That’s a great question and certainly a question that is fundamental really to even the operations and economics of how these projects will work. The electrolyzers are going to be designed to respond more effectively to variable generation. They will need some degree of back feed power from a clean grid to support them, so that’s another reason why Newfoundland is a good place to do this the grid is very clean. But the electrolyzers can generally ramp up and down by a variable resource, and as well, in an arrangement with the local grid, we can supply wind to the grid when they need it, and we can pull power off the grid when we need it. So it’s somewhat of a win-win for the local grid to provide more of a balancing asset in a location like this.
Peter Tertzakian:
And what is the source of electricity for the grid? I know Newfoundland has a fair bit of hydro, but what is the source of the
Frank Davis:
It is. So Newfoundland is largely hydro. They’ve introduced recently a very large hydro project in Labrador called Muskrat Falls and they’re running through commissioning processes on that now. But yes, for the most part, Newfoundland is a hydro-driven grid. There are backup thermal units that rely on crude oil, but I think from a certification standpoint, the grid is considered quite green and low carbon. And Jackie raises a very good point concerning how ammonia needs to operate. The traditional ammonia plant doesn’t like to ramp up and down because of the extreme heat associated, the extreme swings and heat going on in a synthesis chamber, it likes to operate consistently. The power and the electricity needed for the ammonia plant are nominal. That can just be serviced using a reliable grid connection. But what it does require is steady amounts of hydrogen.
So to address that feature, these projects will include a small amount of what we call buffer hydrogen storage that will account for downturns and hydrogen production. You’ll have a buffer degree of hydrogen available on the site, and that’ll depend on what sort of storage vessel you’re using. Some places have natural formations, and salt caverns where hydrogen could be stored. If it’s a small enough amount, it could be stored in steel tanks or pipelines on the surface. So that’s how you ultimately account for providing steady streams of hydrogen to the ammonia plant. You build in some buffer storage. I think going forward, the ammonia technology licensers of the world, the ThyssenKrupps, and Haldor Topsoes, will be challenged to think about how their technology can better respond to variable energy. If we want to decarbonize ammonia, it’ll need to be done on a green ammonia basis powered using renewables. So I think right now the big ammonia technology licenses are thinking of ways to adapt their technology to better respond to renewable energy.
Peter Tertzakian:
Let’s talk about, indirectly, the economics of this and the technology because the technology improvement drives down costs and makes it more competitive ultimately. But let’s get a sense of the competition in the ammonia market because certainly a lot of people think about this project as a hydrogen project to Germany, and so as I said earlier, you look at the math and you go, ‘Okay, if there’s like $45 a GJ roughly, whereas natural gas long-term, maybe an LNG would be, I’ll call it $10 to $15.” So it’s three times as expensive and that’s potentially problematic. But if it’s ammonia, which I’m not familiar with at all within ammonia markets, what is the price differential between a unit of ammonia that’s green, produced by this plant, on day one versus buying ammonia that’s gray, standard methods? How much more expensive is this?
Frank Davis:
Great question, and I’ll answer that maybe in a couple of ways. The current global pricing of ammonia sits on a curve that corresponds almost directly to the price of natural gas in a particular market. So if we looked at what was happening with natural gas prices last fall, late last summer in Europe, prices were, it’s fair to say, relatively high, perhaps out of control. That led to massive spikes in ammonia pricing globally. On a relative basis, right now, the European pricing curve for ammonia, it’s probably trading at about $500 per ton at this moment. Last fall, it was trading at something like $1,700 a ton. So there will be wild swings that correspond directly to volatility and natural gas prices both in Europe at Henry Hub, wherever it is you’re producing your ammonia, it’s going to respond directly to those natural gas pricing dynamics.
So obviously, of course, green ammonia will be challenged to keep its levelized cost of ammonia as low as possible. That’s going to be a direct correlation to the cost of energy, the feature of green ammonia that will be attractive to large commodity brokers, and ultimately ammonia buyers will be that it provides a fixed price hedge against that volatility and natural gas because we are producing green ammonia with renewable assets, that essentially the cost of energy is going to be fixed on a project life basis. We can essentially offer the market a long-term hedge against this gas volatility. So green ammonia is not necessarily the replacement product for gray at the outset. It feeds into a larger commodity pool that offers, I think, an interesting economic solution for large traders of ammonia looking to hedge against some of this.
Peter Tertzakian:
What is the price you will sell that ammonia at? The fixed price swap that you’re talking about?
Frank Davis:
Most of the levelized cost of ammonia coming out of Canada is likely to be in the, call it $900 a ton to $1,100 a ton range, and that’s consistent with feedback we’re hearing from the European market that they’d like the ammonia to be settling in at about a thousand dollars a ton. So as you can see that that sits at the midpoint between where we are now and where we were last fall after the spike in gas prices. So if we can produce ammonia at about a thousand dollars a ton, we should be able to respond to that demand need.
Jackie Forrest:
So you’re saying when the gas markets are stable and at the low side of their range, this would be about twice the cost for ammonia as well?
Peter Tertzakian:
Yeah, I have to say I’m a bit skeptical just to be controversial here, because in places like the Middle East and others, even the United States, I don’t believe that natural gas prices are going to be exorbitantly high, and before the war in Ukraine and the Russian issues, we had a seven-year period where natural gas prices were incredibly low, and so I think that a thousand dollars is still potentially high and potentially electrolyzer technology and other types of operating efficiency improvements will bring the cost, therefore, the price down. Is that possible?
Frank Davis:
Yep, I think that’s correct, but also I think your skepticism is maybe premised on the notion that “Well, we want to eat into the current gray market.” We don’t necessarily want to take away gray ammonia usage. That’s going to remain fairly consistent. These plants can run for decades. Most of the ammonia plants running right now have been in operation for 30 or 40 years, so they’re probably not going anywhere anytime soon. We’re responding to what will be a growth in demand for ammonia. When we need to produce more food as a planet, we will need a lot more fertilizers. But then getting into more broad uses for ammonia, for power generation, countries like Japan wanting to import 30 million tons of ammonia by 2050, then the question will become, “Well, are we as a planet going to produce more gray? Are we going to introduce more emissions into the picture or will there be policy incentives from the government? Will there be carbon pricing and other counteractive economic forces that will portray green as an economic solution?”
Jackie Forrest:
Right. Like if you burden the gray with a carbon tax, it helps narrow the gap. Well, let’s talk a little bit about the timing of the project. When the Prime Minister announced the project, when the chancellor from Germany visited, he talked about shipping hydrogen to Europe by 2025. Now you’re talking about ammonia, but hydrogen is inside that ammonia. That’s only a few years away. When do you think your project would be up and running, and how long is the regulatory process?
Frank Davis:
We always love to hear governments being ambitious on execution timeframes and supporting those timeframes. I think 2025 is a very ambitious target. We hope to be underway on construction by then, once all of our environmental permitting is complete and once this plan has been designed. While it’s important to get these projects developed and to market as quickly as we can, it’s also important not to rush these developments. Making ammonia right now is the purview of a relatively small number of companies globally. It doesn’t lend itself to rapid development and deployment. These are complicated projects. They’re large, they’re bulky, they take a long time to permit, and they take a long time to build as well. So we want to be conscious of meeting the demand and the policy forces behind this, but ultimately, we can’t get [inaudible 00:29:41]. We want to have this paced properly, both with the local community, environmentally, and ultimately from just a good prudent development standpoint.
Peter Tertzakian:
Let’s talk about the environmental aspect of it, the permitting you to speak about, the regulatory process you just mentioned, and the relationship to all of that happening to shovels in the ground by 2025. Because ammonia is quite toxic. It’s a disinfectant. If there’s a tanker spill, there are all sorts of impacts on marine life. A crude oil tanker has to go through all sorts of regulations. We know that in this country, and takes a lot of permits. The Department of Fisheries, and a series of whole other departments have to opine on the permitting. It seems to me that even getting permits by 2025, let alone deliveries is challenging. Talk about the regulatory issues, the environmental impacts of toxicity, and its relationship to Argentina and the port.
Frank Davis:
This is an issue that is first and foremost for Pattern in everything we do, whether it’s a wind project or a transmission line, or potentially these new green fuels projects. Process safety, community sanction, and ultimately a sense that we are not introducing any risk into either our business or the local community, or the environment. That’s paramount to everything we do here. So both the federal government and the provincial governments, I think, are taking a responsible and disciplined approach to permit. They’re not green lighting, they’re not flagging projects through. They are keeping in place a rigorous permitting regime from just an environmental assessment standpoint, both on the wind and the hydrogen and ammonia piece, but also a regulatory environment surrounding the storage of potentially hazardous substances at a dock. Now we take comfort in the fact that ammonia itself enjoys an almost sterling global safety record.
There have been very, very few incidences of problems associated with ammonia. There’s certainly been a few. Nothing is free of safety defects, but ammonia generally enjoys a very admirable safety record. A few weeks ago, I was standing in front of the community in Essentia, which is the town right next to Argentia, and one of the residents asked a question, “Is ammonia safe? Will we be able to smell it? What’s the deal with safety?” So I gave my response to that. But then a gentleman who’s a resident of the community stood up and said, “Look, I worked in an ammonia plant in Saskatchewan for 13 years. I was on the emergency response team at the ammonia plant,” and he did not witness a single release or a single safety incident at this ammonia plant.
They tend to operate very well in agricultural-type rural areas that are close to where people live. The process safety of ammonia has been well developed over the past hundred years. It’s certainly an environment we need to be very conscious of, and we want to work closely with all the regulators to ensure that everything we’re doing is meeting and exceeding all safety requirements. So I would agree with you completely. As more developers get into doing this, it’s something we all need to be very conscious of and keep as a top priority.
Jackie Forrest:
Okay. Well, we’re running out of time here. Just have a couple more questions. Is another hurdle for the project getting a buyer, would you be looking for a contracted takeaway or would you see this as a merchant model where you would just build the project and try to sell into the open market?
Frank Davis:
Great question. And this is something that a lot of developers are now approaching and wanting to structure offtake relationships that’ll be conducive to financing. Ultimately, these projects will tie back to, in some cases, the construction of large-scale renewable assets. So we would want to replicate to the extent we can the financing environment and structures that are associated with renewable projects. So that would require, and I think there’s a general recognition that green ammonia projects will need long-term offtake with good credit-backed marquee buyers. That could either come by way of a fixed price offtake arrangement or perhaps say, floor price, ceiling price offtake arrangement. But certainly, that’s the consensus among the producer set, which is that we will need to see offtake contracts that govern the operational life, or at least the financing period for the project. And I think there’s also, because of that feature of green ammonia, that it adds a long-term hedge into an overall commodity pool, we are seeing the buyers, the big commodity traders leaning into that model as well and wanting to support that.
So I think the project right now, we are in a market-sounding and very advanced discussions with parties who would be the off-takers of this product. The offtake will be structured on a FOB basis, meaning a buyer will show up, tanker at our dock, and take the product away. So we wouldn’t purport to get involved in actually the downstream shipping and distribution of the ammonia. We’re seeing [inaudible 00:34:51] shaping up to handle that part of the distribution.
Peter Tertzakian:
Again, I get back to the overall complexity of everything that you’re trying to do. And by the way, we’re glad it’s happening in Canada because there’s so much going on in the United States with the IRA and so on with the inflation reduction Act. But it is complex, it involves a wind farm, a hydrogen plant with electrolyzers, an ammonia plant, presumably loading facilities, and stuff. So that’s a lot to coordinate. Frank, what keeps you up at night concerning this project?
Frank Davis:
Well, other than my new six-month-old baby and worrying about all those logistics, I think one of the things we’re laser-focused on right now is the environment and policy fundamentals that will go to supporting these projects. IRA in the United States was a very significant move by the US government to ensure that the US emerges as a leader in green hydrogen production and exports. It is going to be tough for anybody to compete head-to-head with those economics, but certainly, we want to ensure that Canada meets that challenge head-on, provides an incentive environment that is going to be supporting projects to move quickly, and that these policies are resilient, that they can stand the test of time, and that there won’t be a political risk around these policies ’cause we need to make investment decisions now for projects that’ll come online in four or five years. So we need those policies to be resilient and essentially be enjoying bilateral support across this political spectrum.
Peter Tertzakian:
Well, we recorded this just before the budget is coming out, right Jackie?
Jackie Forrest:
Yeah, this will be released the day, the budget, so you won’t have to lose sleep for long, Frank. You’ll know by the time we release this and hopefully, it will allow you to go forward with this project. We certainly want to see investment in Canada and not all go into the US.
Peter Tertzakian:
Yeah. Well, great. Thank you, Frank Davis, you’re the VP of Green Hydrogen Pattern Energy, so thanks for joining us. It’s been great to have more clarity on the project.
Frank Davis:
This was a lot of fun. Appreciate it, and I hope to come back once we’re underway in construction or commissioned and talk about our great success.
Peter Tertzakian:
Well, I want to come and visit it, so I want a private tour because I love coming to Newfoundland and Labrador.
Frank Davis:
Anytime.
Jackie Forrest:
Great, and thank you to our listeners. If you enjoyed this podcast, please rate us on the app that you listened to and tell someone else about us.
Announcer:
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