Inter Pipeline’s $3.5B plastics project to bolster Alberta’s energy industry

Petrochemical plant called ‘great news,’ to create 13,000 jobs, diversify economy

In a boost to Alberta’s beleaguered energy industry, Inter Pipeline Ltd. said it will spend $3.5-billion on Canada’s first propane-to-plastics petrochemical plant.

The announcement that a major new energy project will be built is welcome news in Alberta, which has seen a raft of pipelines and natural gas export plants delayed or cancelled, amid a three-year long downturn in oil prices.

Starting next month, Inter Pipeline will spend the next four years building a propane dehydrogenation and polypropylene (PDH-PP) facility, which will take 22,000 barrels of propane per day and convert it into 525,000 tonnes per year of “polymer grade” plastic pellets. The pellets are used to build every day consumer plastic products such as bottles and toys.

“This is a whole new value chain for Canada,” David Chappell, company senior vice-president, said Monday, adding that there are no petrochemical plants in Canada that use propane as a feedstock.

Canada’s fleet of petrochemical plants, located mainly in Alberta and Ontario, use ethane to create plastics or methane to produce methanol, but the country imports thousands of tonnes of propylene pellets every year.

Chappell said the PDH-PP facility would help reduce Canada’s trade deficit for propylene and create other opportunities for chemical plants that produce propylene-glycol, which is used as de-icing fluid for airplanes, or super-absorbent polymers, used in diapers.

There is an abundance of low-cost propane in Western Canada and low-cost natural gas and electricity, which helped drive down the project’s expected operating costs, apart from readily available labour due to the lean times in the construction industry, Chappell said.

Mark Pinney, manager of markets and transportation for the Canadian Association of Petroleum Producers, said the project comes as “a relief” after a string of project cancellations. “It improves the overall economics for natural gas wells,” he said.

Gary Leach, president of the Explorers and Producers Association of Canada, said the decision was “great news” for Alberta and natural gas producers in Western Canada. “We used to think multibillion-dollar projects were just regular, weekly occurrences in Alberta for many years and I think we just took them for granted, so it’s nice to see this scale of investment,” Leach said.

Both Leach and Pinney praised Alberta’s NDP government for providing $200 million in royalty credits to help make the project more competitive against similar U.S. petrochemical complexes on the Gulf Coast.

“We’re excited to see this new investment that will create thousands of good-paying jobs and help diversify Alberta’s economy,” Alberta Energy Minister Marg Mc- Cuaig-Boyd said in a release.

The project will create 13,000 direct and indirect jobs during construction, Chappell said, and require 180 people to operate once it’s complete.

The government has also awarded royalty credits to Inter Pipeline competitor Pembina Pipeline Corp. for its proposed propane-to-plastics facility.

Pembina and AltaGas Ltd. have both announced liquefied propane gas (LPG) export terminal projects near Prince Rupert, B.C., to send propane to foreign markets.

Raymond James analyst Chris Cox thinks the economic feasibility of the Inter Pipeline project could suffer as the LPG terminals are built.

“While the company expects Western Canadian markets to remain over-supplied, we differ in this view as we see potential for an over-build of new propane projects (whether on the pet-chem side or for exports) driving a much tighter market for propane by the time the project comes into service,” Cox said in a note to clients.