Canadian chemical investment rolls amid price volatility, buyout bids

Current chemical construction in Canada represents some C$10 billion and includes a polyethylene plant and ethane cracker expansion, as well as two separate polypropylene plant complexes each with its own propane de-hydrogenators (PDHs).

Inter Pipeline installed in late September a purge bin at HPC. Photo credit: Inter Pipeline

Canada’s first wave of C$10 billion of chemical investments continued at the end of a year that saw the two companies with the two most advanced petrochemical projects get acquisition proposals.

Petrochemical projects under construction in Canada include pipeline operator Inter Pipeline’s going by itself on a polypropylene and PDH facility.

Pembina partnered in February with Kuwait’s Petrochemical Industries in the Canada Kuwait Petrochemical Company (CKPC), a similar project.

The two projects by Inter Pipeline and CKPC, that will take locally available propane to turn to propylene and then polypropylene, are worth a combined C$8 billion. They are both near Edmonton, Alberta. Inter Pipeline will complete the first in late 2021, Pembina will follow in 2023.

Nova Chemicals is investing C$2 billion to expand its ethane cracker as well as its polyethylene production capacity. It plans to complete works in 2021.

InterPipeline installs major vessel

Inter Pipeline installed in late September a purge bin. This brought total spending to date to C$1.9 billion, of a C$3.5 total projected final spending.

The Heartland Petrochemical Complex (HPC) , as Inter Pipeline call its project, will produce 525,000 tonnes per year of polypropylene.

Work “continues to progress well on the (PDH) facility which is expected to be mechanically complete by the end of 2020,” a year before the complex begins operations, said Christian Bayle, Inter Pipeline’s president and CEO. The PDH plant will supply propylene for polymerization.

Inter Pipeline has “de-risked approximately 60% of the project cost and we expect to exit the year with 65% of cost de-risked,” he added. The de-risking occurs through the “execution of lump-sum contracts from purchase orders.” 

Inter Pipeline considers other investments in petrochemicals in Canada.

“We have a long-term strategy to further expand our infrastructure-based petrochemical investments and we're working hard on that,” said Jeffrey Marchant, Inter Pipeline’s transportation vice president. No potential new project would overlap with HPC, he added.

Pembina, Kuwait prepare for EPC awarding

The Canada Kuwait Petrochemical Corp. (CKPC) has received and now evaluates engineering, procurement and construction (EPC) bids before taking decisions. It is also advancing on early worksite preparation that will continue at least until the end of the year, the company said.

The equal venture will convert approximately 23,000 barrels per day of propane to propylene. The Kuwaiti company will tap into its international experience to help find buyers for the coming 550,000-tonne polypropylene annual capacity.

Pembina’s net investment in this project will be C$2.5 billion, C$500,000 higher than Kuwait, as it gets to own related new pipeline infrastructure.

Nova on schedule, Nauticol’s timeline slips

Nova Chemicals was set in November to receive delivery of a 165-ft polyethylene stripper, the largest equipment, or vessel, planned for the Ontario facility.

The project is in Sarnia, Canada about an hour drive northwest from Detroit. The facilities have geographic advantages to reach U.S. Midwest converters compared with Gulf Coast resin producing rivals.

Nova Chemicals will by 2021 add 950,000 pounds annual polyethylene production capacity as well as expand the existing Corunna ethane cracker by more than 50%.

Nauticol Energy, which announced on October 2018 plans to build a C$2 billion methanol facility with construction of a 3-million-tonne annual capacity plant, did not start construction this year.

A land purchase was being coordinated, but a final transaction was still pending, according to the latest information posted by Nauticol in the middle of the year. Officials there didn’t comment if pricing volatility was causing delays in investment decisions.

Price volatility and buyouts

Jaret Sprott, senior vice president and COO of Pembina, explained that big, long-term projects like CKPC must anticipate price volatility as they need to maintain a very long-term outlook. Momentary price volatility may not be an issue for a long-term project.

“It's pretty much as expected. Again, it is a long-term or a long ways from being in service. Again it's more relative to what the other opportunities are, what is Mont Belvieu (Texas) pricing and Conway (Kansas) pricing versus Edmonton (Alberta) pricing,” Sprott said in the company third quarter conference call.

“When we sanction these projects, we obviously run multiple scenario analysis and Monte Carlo analysis to take a long-term view of the pricing. It wasn't based on strip pricing at a point in time (…). We took a very long-term view of it,” Pembina CEO Michael Dilger added.

North American propane prices are weaker on-year, according to the Energy Information Administration (EIA). The Mt. Belviu propane spot price at the start of November was about U.S. 51 cents/gallon, down from nearly 82 cents/gallon a year earlier.

North American polyethylene and polypropylene prices have seen declines during the past year.

As for methanol, spot prices in China main port CFR as of September were down to under $250 per tonne, according to Methanol Markets Services Asia. This compares with over $400 per tonne in November of last year.

Pembina Pipeline Corp. said in August it agreed to pay C$4.4 billion for assets including Kinder Morgan Canada.

Chevron Phillips made a US$15 billion bid to acquire Nova Chemicals, owned by the UAE-based Mubadala, according to a WoodMackenzie report published in June.

Earlier this year Inter Pipeline confirmed it received an unsolicited proposal to purchase the company but did not give more detail. The company said it was not in any negotiation.

By Renzo Pipoli