In Canada, state support fuels petrochemical renaissance

Canada is becoming an increasingly-attractive area in North America for chemical-related investments because of a highly skilled and educated workforce, a competitive tax system and government subsidies for chemical investments, and cheap and plentiful feedstocks.

Alberta Energy Minister Margaret McCuaig-Boyd announces support for energy diversification, making Alberta more competitive for major private investments in the petrochemicals sector. Date: March 12, 2018. Image Credit: Government of Alberta

While news headlines for the petrochemical construction boom have mainly been focused on the U.S., another boom is beginning in Canada.

There are nearly 100 projects being proposed and researched for Canada, valued at more than $12 billion, according to the Chemistry Industry Association of Canada (CIAC). While some are facing stiff competition from U.S. jurisdictions, Canada is quick to offer tax incentives to grow this industry.

Petrochemical Diversification Program

In Alberta, the province is committing up to $1 billion to grow its petrochemical industry. The Honorable Margaret McCuaig-Boyd, Minister of Energy for Alberta, told Petrochemical Update the money will be used for loan guarantees, grants and royalty credits to spur more private investments in the sector.

There will be $500 million in royalty credits for a second round of the Petrochemicals Diversification Program, spread over four years starting in 2020-21.

Another $500 million is for loan guarantees and grants for a petrochemical feedstock program starting in 2021.

“We are encouraging construction of new extraction facilities with $500 million in loan guarantees and grants through a Petrochemical Feedstock Infrastructure Program which was announced on March 12, 2018,” McCuaig-Boyd said.

“This new feedstock program is intended to encourage natural gas midstream projects to support liquids extraction, focusing on ethane recovery, such as building a straddle plant along a pipeline,” she added.

Inter Pipelines $3.5 billion propane dehydrogenation and polypropylene facility, received $200 million in funding through the first round of Alberta’s Petrochemicals Diversification Program.

Inter Pipeline

Image: Inter Pipeline has begun detailed construction of its $3.5 billion Heartland Petrochemical Complex in Strathcona County, near Edmonton. Image Credit: Inter Pipeline

In December 2017, Inter Pipeline announced it will move ahead with construction of Canada’s first integrated propane dehydrogenation (PDH) and polypropylene (PP) complex.

The $3.5 billion Heartland Petrochemical Complex will be in Strathcona County and, once operational in late 2021, will convert Alberta’s abundant supply of propane into high value, easy to transport, and recyclable PP.

The Heartland Petrochemical Complex will be designed to convert 22,000 barrels/day of locally sourced, low-cost propane into 525,000 tonnes/year of PP.

The facility design has $400 million invested to date in engineering, procurement and early civil works, and the company expects to invest $650 million more in 2018.

“I believe the Canadian energy industry is evolving. In Canada, we have long been very good at extraction and export of oil and gas,” said David Chappell, Senior Vice President, Petrochemical Development of Inter Pipeline.

“The next step is for Canadian industry to move along the energy value chain and produce valuable products that the world wants and needs. Polypropylene is one great example, but there are more derivatives with great potential,” Chappell said.

Inter Pipeline Project Status

In 2017, Inter Pipeline began the work, building surface water runoff and deep underground infrastructure. Now, construction work is underway with the general contract awarded to Kiewit Construction Services.

The site is busy with five pile driving rigs on site, installing up to 50 piles per day with a total goal of nearly 3,000 piles to be driven by summer 2018. The company is purchasing equipment and has begun fabrication.

“We have already signed several long-term contracts and plan to secure between 70 and 85% of total petrochemical processing capacity of the complex under take-or-pay contracts by the time the complex begins operations,” Chappell said.

The plan is for Inter Pipeline to utilize the remaining un-contracted plant processing capacity for its own commercial purposes.

Inter Pipeline Location

The Heartland Petrochemical Complex, which will be located in Strathcona County was chosen for strategic reasons including infrastructure and feedstock.
"It’s really an ideal location.

Strathcona County is in Alberta’s Industrial Heartland, an area that is zoned heavy industrial with good access to two railways and other essential industrial infrastructure,” Chappell said.

The site is within a few kilometers of Inter Pipeline’s Redwater Olefinic Fractionator which processes oil sands upgrader offgas and turns it into propane (among other NGLS). This represents one potential source of propane feedstock for the Heartland Complex.

But the big advantage is the propane feedstock advantage. Over the long-term the Canadian propane market is expected to be oversupplied. Supply is expected to continue to grow as producers drill for liquids rich gas, Chappell said.

Alberta propane trades at a discount to Mont Belvieu (Texas) hub, creating a feedstock cost advantage for Alberta-based propane derivatives.

Inter Pipeline Polypropylene

The decision to produce polypropylene came as a natural conclusion as the company was already processing and handling propylene and propane.

“The value increase from propane to propylene was obvious, and research showed the demand for polypropylene growing,” Chappell said. “Not to mention the fact that it is an easier product to transport.”

"The opportunity to build a large volume, on-purpose propane to polypropylene complex was a logical extension from our existing business in Alberta’s Industrial Heartland," he added.

Other investments

Industrial chemical capital expenditures in Canada grew by 7% to just under $1 billion in Canada, according to the CIAC, but there is room for more growth.

NOVA Chemicals announced a $2 billion expansion in December in Sarnia Lambton. Shortly after, Inter Pipeline authorized plans for its PDH and PP facility. Canada Kuwait Petrochemical is in the front-end engineering design phase of its proposed integrated propylene and PP facility in Sturgeon County near Edmonton. And Methanex is looking at either Geismar, Louisiana, U.S. or Medicine Hat, Alberta, Canada as a location for its next brownfield $1.0 to $1.6 billion methanol expansion.

By Heather Doyle