A TC Energy metering station in Brier Park is shown in this May 2021 file photo, shortly after the company cancelled a second loop to deliver natural gas to Medicine Hat.--News Photo Collin Gallant
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The City of Medicine Hat could be hampered in a quest to lure artificial intelligence hubs by limited natural gas supply, city energy officials told the News, as well as the scope of projects that would dwarf the city’s current electrical plant.
That might be counterintuitive for the “Gas City” but has been increasingly stated by city energy officials in recent years as they tied local gas rates to the cost of purchasing from outside the city, and outlined financial losses on gas production.
It’s also an issue this month as the province launches a “concierge service” for large data firms willing to locate AI hubs to the province, including rural centres, when they are coupled with new onsite power production that could require huge amounts of methane to fuel.
Local officials said Wednesday that the largest projects might require five to six times more power than the city currently can generate, but small, scalable projects could be of interest.
“We’re certainly open to looking at the opportunities in AI, and actually have had multiple discussions with potential investors,” said Rochelle Pancoast, head of the city’s energy division. “Those (discussions are) to understand what that could look like, the servicing requirements and their needs, and whether there could be a fit.”
Medicine Hat was one of the first municipalities or utility companies to finalize a major supply contract with a cryptocurrency firm, Hut 8 dataprocessing, in 2017.
But, the city has said since it has turned away numerous other requests from crypto companies for power after weighing the needs for major capital expansions against the benefits.
The city’s policy is to require substantial assurances from firms before they would consider adding more gas-fired turbines at a cost of $50 million to $60 million each, said Pancoast.
Similarly, recent AI hub announcements deal with gigawatts of power (equal to 1,000-megawatts), while the city’s current top capacity is about 300 megawatts.
Last week Premier Danielle Smith told reporters that an AI attraction strategy would fast-track applications by tech firms willing to build or partner with utilities to operate onsite power production.
That would keep massive demand from influencing prices for other Alberta businesses and residential customers on Alberta’s market driven electricity grid, she said.
“Anywhere that has nearby natural gas resource is going to be the beneficiary (of the AI strategy) and the ability to develop their own power,” said Smith, noting Fort McMurray, Grande Prairie, Central Alberta and “over in my neck of the woods in Medicine Hat.”
This week a high-level proposal from celebrity businessman Kevin O’Leary aims to eventually invest $70 billion at an industrial site near Grande Prairie. Capital Power also says it has two initial applications to develop AI hubs near its Genesee power complex near Edmonton.
Smith also outlined that she sees room for smaller operators that could ramp up over time, which is the most likely scenario in Medicine Hat, said Pancoast.
“There’s a lot to consider and we’re a relatively small power producer, but we’re open to see if they are a fit,” said Pancoast.
“There are (smaller) opportunities that could work, and even larger opportunities to bring forward if (investors) are willing to take on that power risks.
“Key questions for us is access to gas supply, and that could be several years away. That’s a deterrent, and we’re in discussions with the province trying to address that.”
Currently, the city operates about 500 low-production gas wells in or near the city, but currently imports 80 to 90 per cent of gas used by customers due to dwindling production and high demand in winter months.
As well, the city’s power plants and local industry also require high-pressure gas that is available on the Alberta system.
New power production would also require more natural gas to use as fuel.
In early 2020, the city signed a definitive supply contract with TC Energy toward that company building an additional 24-inch, 65-kilometre loop of pipeline to the city.
That project was cancelled by TC Energy while it was still before the National Energy Board in 2021. Another unnamed contracted buyer pulled out and TC stated the economics of proceeding with the city contracted alone didn’t make financial sense.
At that time the city’s energy division acquired higher deliveries from other regional pipeline gathering systems at other entry points to the city, but has worked behind the scenes on the issues.
A leaked committee report from 2022 stated cost options to create a “Medicine Hat Express” pipeline to deliver more gas sat above $200 million.
Pancoast said this week that regardless of new major investment, the city will need to secure higher volumes of delivery in even modest growth scenarios.
“We have flagged it as a gap for this area,” she said.
