Alberta announces grants for chemical projects; Pennsylvania to approve incentives; chemical trade to shrink 16% in 2020

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Hydrocarbon-rich Alberta is connected by rail to Pacific Ocean ports. Photo courtesy of Dennis Larsen/Pixabay

Alberta chemical incentives replace credits with grants

Alberta, home to Canada’s biggest petrochemical industry and to the country’s only meaningful incentives for chemical investment, will switch from royalty credits to direct grants and end a C$1-billion cap as it re-names, improves and expands its Petrochemicals Diversification Program (PDP).

The Alberta Petrochemicals Incentive Program (APIP) will be a 10-year program to improve the potential of a region with plentiful gas and rail access to the West Coast. Pacific Ocean ports could offer a shorter ocean route to Asia compared with the Gulf Coast that requires crossing The Panama Canal.

“We are currently finalizing the program’s technical details and design. Additional details, including the program start date, will be released in the fall,” said on July 14 by email Samantha Peck, press secretary at Alberta’s Ministry of Natural Gas and Electricity.

“Currently there is no cap. However, this will continue to be assessed throughout the program’s duration,” she added.

“Grants are a more efficient financial instrument as proponents can account for the full value of this incentive in their project modeling,” she said.

“Unlike the exploration and production sector, petrochemical companies are not required to pay royalties. Under PDP rounds 1 and 2, companies that received royalty credits sold those to energy producers, often below market value,” she added.

The new program “will run alongside the second round of the PDP. Projects submitted under PDP2 may also be eligible for APIP.” However, an eligible project can only receive funding once, she said.

The Chemistry Industry Association of Canada (CIAC) welcomed the announcement that came as part of an economic recovery plan in a context where crude price volatility hit Alberta since the start of Covid-19.

“It’s something that is open and transparent. If you meet certain criteria you get it,” Greg Moffatt, senior director, business and economics at the CIAC, said by telephone.

“It is a grant rather than a royalty credit that I have to go transact with another party,” he added.

“But in the end, it notionally has the same value as the royalty credit save the avoided transaction costs to both manufacturer and producer assuming producers paid the face value of the credit less transaction costs,” he said.

APIP is also an improvement because PDP 1 and PDP 2 “did not align with business planning cycles for large global scale capital investments,” Moffat said.

APIP “will see all eligible projects receive support as long as they are operational and consuming feedstock within the 10-year time frame of the program,” he said.

APIP will be “easily understood by potential investors to factor in to a project FID,” he said.

During the first PDP round there were C$500 million awarded to two projects, of which only one by Canada’s InterPipeline, a propane de-hydrogenator (PDH) and polypropylene (PP) complex near Edmonton, is set to start operations, by next year.

Canada’s Pembina and Kuwait’s PIC earlier this year deferred the other PDH/PP project shortly after the start of the Covid-19 pandemic, also near Edmonton.

For the second PDP round Alberta targeted C$1.1 billion. Of that, it awarded in Feb. 2019 C$80 million to Nauticol Energy, which had announced plans to invest C$2 billion in Alberta. But a final investment decision for a methanol project has not been decided.

In March 2019 the Alberta province committed C$70 million in future royalty credits for a $600 million acrylic acid and propylene derivatives facility by InterPipeline, also under PDP2.

While the incentives could help develop Alberta’s gas and liquids resources into petrochemicals, the CIAC has in the past expressed concerns about any possible double carbon taxation or new federal laws that could declare plastics toxic.

Pennsylvania approves $667 million in tax incentives for petrochemicals

The Pennsylvania House and Senate approved $667 million in tax credits for a 25-year period to start in 2025 that would provide incentives to chemical and fertilizer manufacturers that use dry natural gas, provided the governor signs the bill.

Governor Tom Wolf, who vetoed a similar bill four months ago, was involved in negotiations of the new bill and is likely to sign it, The Pittsburgh Post-Gazette reported on July 14.

The program will provide resources to companies that invest at least $400 million and create more than 800 jobs. The maximum credit per company is $6.7 million annually, it said.

Pennsylvania is home to a Shell’s ethylene-polyethylene project, with an investment estimated at over $6 billion.

State incentives for the Shell project served as a model for the new bill provision. The difference is that those incentives were for ethane whereas the new bill would be for dry natural gas.

Hydrocarbon resources are plentiful in Pennsylvania due to shale formations.

The area is close not only to feedstock but also to the country’s biggest petrochemical final markets. This is an area within a 700-mile radius that includes industrial centers extending from Washington D.C to Boston as well as around the Chicago-Detroit region.

ACC: US chemical trade to contract 16% in 2020

U.S. chemical shipments abroad will contract nearly 15% in 2020 as the pandemic slashed demand in export markets while imports will shrink 19% amid similar weakness in the U.S., the American Chemistry Council (ACC) said in its Mid-Year Situation and Outlook report.

Total U.S. chemical trade with other countries will shrink 16% in 2020 to $199 billion. A full recovery to pre-Covid levels in exports is not likely until 2022.

A full recovery of imports may take until 2023, the ACC report added.

“Further deterioration” in relations with trading partners such as China could delay those recovery expectations, it said.

“Steep tariffs on US-Chinese chemicals trade as well as downstream products remained in place even after Phase 1 Deal early in 2020,” the ACC report said.

By Petrochemical Update