Canada’s CKPC helps Pembina add value and allows Kuwait to spread risk

Pembina Pipeline Corp. is taking a further step to add value to the hydrocarbons it handles as it enters the petrochemical industry with experienced chemical producer Kuwait’s PIC, which in turn sees the project as a way to reduce risk, Pembina’s CEO Mick Dilger said recently.

The automotive industry depends on polypropylene to make bumpers, tanks, cable insulation and carpet fibers. Photo by Hans Braxmeier/Pixabay

The 60-year-old Pembina started to process large volumes of gas and fractionate liquids only within the last decade as an initiative to fill excess pipeline capacity. It will now foot $1.9-billion of the total $3.3-billion investment. Pembina’s load is higher as it gets to own supporting facilities.

“We started to say, Where do these hydrocarbons go? Well, propane gets turned into polypropylene,” CEO and president Dilger said during the annual shareholder meeting discussing the equal venture northeast of Edmonton, Alberta.

Kuwait’s Petrochemical Industries Company (PIC) will sell all the final product and face competition not only from polypropylene (PP) production elsewhere, but from other resins that may compete in some applications such as polyethylene (PE), increasingly available due to North American expansions.

Pembina extends value chain

“Anything between where we are and those higher value markets we are going to fill,” Dilger said referring to the project to be built by mid-2023.

The concept behind is “real vertical integration value thinking,” Dilger said. It builds on similar decisions to process gas and fractionate NGLs that allowed Pembina to “become its own customer.”

The Final Investment Decision (FID) announced in February to build a PP plant by “taking advantage of the abundance to buy propane in the Redwater area” is a continuation of that effort.

Back in 2009 Pembina only owned a small gas-processing plant. It didn’t have any fractionation as recently as in 2011 but now processes 6 billion cubic feet a day and fractionates over 350,000 barrels/daily of liquids.

“We continue to drive toward higher value markets,” Dilger said. This includes “taking landlocked hydrocarbons out to the water where they are worth a lot more money” he added.

“The value that you add to a barrel of propane is dramatic,” Dilger said.

Pembina and Kuwait -perfect match

“They are a world leader in polypropylene marketing and we are a world leader in propane supply,” Dilger said.

“Our job is to bring the propane. Their job is to market the PP, and the company in the middle is the joint venture that turns propane into PP,” Dilger said.

Sulaiman Sultan Al-Marzouqi, who heads PIC’s olefins and aromatics division, said in a March release that the company wants to grow its “petrochemical core business inside and outside” Kuwait.

PIC wants to “maintain a leading position in the high growth olefins and aromatics products through partnerships, with a focus on Asia and other emerging markets.”

PIC expects to be marketing over 2,000 tonnes/year of PP, with about one-fourth of that to come from CKPC and the rest will include output from other projects in Kuwait and abroad, according to PIC’s website.

“To support these marketing activities PIC has developed a global marketing organization and is currently bolstering its North American presence,” the Kuwait company said.

PIC’s website shows current annual olefins capacity at 150,000 tonnes/year of PP and 600,000 tonnes/year of propylene, in addition to other products like polyethylene and monoethylene glycol.

Dilger said the company’s drive to invest in Canada has another goal as its main objective.

“They are actually investing here to avoid risk. If you think about what happened to poor Kuwait, it was lit on fire some years ago,” Dilger said while answering a question regarding potentially adding geopolitical risk to an Alberta project.

Kuwait then “had all their oil assets in one basket so they’re actually moving money across the globe to mitigate macro risk and that’s why they are here,” Dilger added.

The “terms of our venture is that we each have to perform and if the other party doesn’t perform, then we can step into their shoes,” Dilger said.

The 550,000-tonne/year integrated propane dehydrogenation (PDH) and PP plant will consume 23,000 barrels per day of propane. The polypropylene will be easily shipped and be transformed elsewhere into auto parts, medical devices, food packages, appliances or carpets.

According to the Calgary-based joint venture, named Canada Kuwait Petrochemical Corporation, Alberta yields “over five times more propane than it consumes.” Propane is exported out of Alberta by rail. Canada does not produce any PP.

Pembina’s PDH project behind Inter-Pipeline

Canada’s need to import all PP it consumes will end a year and a half before CKPC completes construction. Another Calgary-based pipeline going solo in a very similar venture has led the way.

Inter Pipeline, with a much smaller market capitalization than Pembina, started construction last year and plans to complete an integrated, $2.6-billion PDH-PP facility, also near Edmonton, by late 2021. This Project will produce 525,000 tonnes/year of PP. 

Inter Pipeline’s CEO Christian Bayle told Bloomberg that the plant may generate $370 million annually. Production will be targeted to North America, as it has the highest PP prices worldwide, he said. This compares with Pembina’s projection of up to $259 million annual return for its $1.9-billion plant.

Bayle said that Inter Pipeline’s decision to build the facilities in Alberta was “truly a bold step forward for us, and honestly I think for the industry at large.”

Pembina’s presentation to shareholders did not mention the rival project being ahead. However, Pembina’s Chairman of the Board Randall Findlay made clear Pembina watches over what peers do before taking important decisions.

Asked by a shareholder why Pembina hiked pay for directors anywhere from 13% to 46% in the last couple of years while share prices only rose 11%, Findlay say the company does “compare to our competitors and judge the proper compensation in line with peer groups.”

Pembina and CKPC officials declined a request to provide comment for this story.

By Renzo Pipoli