PETROCHEMICAL DREAMS CLOSER TO REALITY
Projects could fuel more than $6.9 billion of investment into province’s energy sector
Slowly, but surely, the province’s plan to entice companies to build large petrochemical plants in Alberta is plodding ahead.
It may seem painfully slow at times, but at least it’s moving in the right direction.
More importantly, proponents and industry analysts believe the opportunity window is now open and the economics appear sound — potentially triggering more than $6.9 billion of investment into Alberta’s energy sector.
On Monday, a proposed propylene and polypropylene production complex to be built in Alberta’s Industrial Heartland area took a step forward.
Calgary-based Pembina Pipeline Corp. announced the signing of a formal joint venture agreement with partner Kuwait-based Petrochemical Industries Co.
The two businesses created a new company, known as Canada Kuwait Petrochemical Corp., and are proceeding with frontend engineering work for the propane dehydrogenation and polypropylene upgrading facility in Sturgeon County, northeast of Edmonton.
The facility would take 22,000 barrels per day of propane produced in Western Canada and convert it into polypropylene, used to produce plastics for products such as automobile parts or appliances.
“The encouraging results of the recently completed feasibility study … give Pembina the confidence to further advance the project,” company senior vice-president Stuart Taylor said in a statement.
As part of the agreement, the partners will refine the capital costs, now estimated at $3.8 billion to $4.2 billion, and develop an updated project schedule.
Analysis will be completed by late next year, slightly behind initial projections, and both partners will then make a final investment decision.
“This is a great step because we’ve got the big momentum going,” said Ed Gibbons, chair of Alberta’s Industrial Heartland Association.
A separate proposal from Calgary-based Inter Pipeline Ltd. to build a large petrochemical facility in the same area is also making strides.
Inter Pipeline is considering construction of an integrated $3.1-billion propane dehydrogenation and polypropylene complex facility in Strathcona County. A final investment decision is expected around the middle of this year.
“The economics look good. We’re comfortable with the business proposition today,” Inter CEO Christian Bayle said last week.
“What kind of sets the timing for moving forward definitively on this project is getting the right (customer) off-take agreements in place.”
Both of these developments would be foundational blocks in Alberta’s strategy to build up the value-added segments of the energy economy.
These plants would take a raw product now in plentiful supply — propane — and enhance its value through processing.
With the dramatic growth of shale gas in recent years, propane output is rising in North America. Western Canada’s production typically sells at a discount.
As long as the proponents can lock in cheap feedstock and long-term contracts with buyers, analysts say these facilities will be competitive with rivals in the U.S. and around the world.
Feedstock typically makes up 60 to 70 per cent of the component costs for petrochemical operations and Western Canada has a distinct “leg up” with lowpriced propane, said Todd Dina, director of global olefins with energy consultancy IHS Markit.
This advantage should offset higher construction costs in Alberta, as well as the greater distance from larger U.S. markets.
“The two Canadian projects look viable at this point,” Dina said Monday from Houston.
The proposed developments would be the first of their kind in Canada. They would not only meet domestic demand but also allow the country to export polypropylene, in pellet form, to the United States and abroad.
To get them built, the Alberta government will provide the projects $500 million in incentives, in the form of royalty tax credits.
Setting aside the argument on whether governments should offer any incentives to businesses — something common in the petrochemical sector — the developments aim to capitalize on an opportunity, with strong demand for polypropylene anticipated in the next five years.
“There’s a good chance they will get built,” said Stephen Zinger, senior vice-president of chemicals with consultancy Wood Mackenzie.
It’s estimated the two petrochemical complexes would create more than 240 full-time jobs and about 4,000 temporary positions during construction.
Bayle said the royalty tax credits are a helpful part of the economic equation, but cautioned there is still work to do and the company may take more time beyond this summer to make its final investment decision.
However, the spectre of the government providing any incentives still rubs critics the wrong way.
Wildrose MLA Drew Barnes welcomes the jobs that come with petrochemical developments, but believes there are better ways to entice private-sector investment to Alberta — such as establishing a more competitive corporate tax rate.
“I don’t believe that the government or any bureaucrat is qualified to pick winners and losers,” he said.
The NDP first announced its incentive program in February 2016 — selecting the two projects last December — and the minister in charge isn’t worried about the pace of progress or their chances for success.
He’s confident shovels will be in the ground later this year for Inter Pipeline’s project, and in 2018 for Pembina’s petrochemical complex.
“We know the economics are there, we know there’s significant interest,” Economic Development Minister Deron Bilous said in an interview.
Progress on Alberta’s bold petrochemical plan may seem snail-like at times.
But for an economy that’s been hammered by recession, two big building blocks in the province’s value-added energy puzzle are now inching into place.
I don’t believe that the government or any bureaucrat is qualified to pick winners and losers.