Dow Canada seeks partners, subsidies in second half 2023 as it readies $10-billion expansion FID

Dow, the biggest U.S.-based petrochemical company, plans to clinch enough accords and incentives for its Canadian operations during the second half of 2023 to help support a decision on whether to start in 2024 a six-year construction of an expanded ethylene-polyethylene complex with 2,000 tonnes of annual capacity.

Expandable polystyrene. Image courtesy of boscoshane, Pixabay

The Fort Saskatchewan, Alberta project would create what Dow has described as the world's first net-zero CO2 emissions ethylene and derivatives complex. The Midland, Michigan-based company first announced this project in 2021, when it originally had an expected FID by the end of 2022.  Company officials then said earlier in 2023 that a decision on an FID was anticipated by December.

“We are on track to secure partner agreements and subsidies during the second half of this year, and we are targeting board and regulatory approval, along with a final investment decision by year-end,” said the company´s CEO James Fitterling, speaking during the company´s second quarter earnings discussion on July 25, according to a transcript of the call by Motley Fool.

Construction is projected to begin in 2024, and start-up of the project will occur “in two phases,” he said. Phase 1 would add 1,300 kilotons of ethylene and polyethylene capacity annually by 2027 and the second phase would contribute another 600 kilotons annually by 2029, he added.

Dow Canada, based in Alberta, has manufacturing facilities in Calgary and Ontario.

Lower feedstock cost than U.S. Gulf Coast

“We expect to spend, on average, roughly $1 billion of capex annually on the project beginning next year through project completion,” Fitterling added.

Industry sources had estimated the project cost at about $10 billion, The Fort Saskatchewan Record reported in April 28, 2022, citing third party sources. Other media reports have cited similar estimates from third parties.

“At full-run rate, we expect the project to deliver $1 billion of EBITDA annually and targeted returns on invested capital above our enterprise goal of 13% over the economic cycle, driven by the Alberta feedstock cost advantage,” Fitterling said.

The Alberta location will help Dow obtain lower costs “compared to the rest of the world, even more advantaged than the U.S.,” he added.

Alberta is the biggest contributor to Canada´s hydrocarbon production. Canada is the world´s fourth biggest world oil producer with 5.7 million barrels per day in 2022, according to a table published by the U.S. Energy Information Administration. That is equivalent to 6% of the world´s total production and is only smaller than that of Russia and Saudi Arabia (both under 12%) and the U.S. (about 20%).

Advancing with contracts

On contracts already signed, Fluor said on Feb. 20, 2023 that Dow had awarded it a front-end engineering and design (FEED) and engineering, procurement and construction management (EPCM) services contracts for the Fort Saskatchewan project.

“Fluor will book the initial FEED award in the first quarter and anticipates the additional EPCM scope will be awarded throughout 2023 pending a final investment decision by Dow’s Board of Directors,” Fluor said at the time.

On April 25, 2023 Dow announced it had selected Linde as its industrial gas partner for the supply of clean hydrogen and nitrogen for its proposed net-zero carbon emissions integrated ethylene cracker and derivatives site in Fort Saskatchewan. 

Dow´s newer crackers and plants are more efficient and pollute less. Dow completed in 2021 the construction of a cracker in Texas in what it called its Texas-9 investment that operates at just 65% of the conversion cost of the average plant owned by Dow, and up to 60% lower carbon dioxide emissions. That plant has delivered a 15% return on investment since start-up.

Louisiana fire, explosion creates $100 million headwind

Dow may face headwinds to earnings that may represent about $100 million as a result of an unplanned event in July that affected the company operations in Louisiana, said company CFO Howard Ungerleider, also during  the second quarter earnings discussion.

“As we get a more refined estimate, we will update,” Ungerleider said, according to a transcript of the call by Motley Fool.

According to a July 16, 2023 report from the Louisiana-based newspaper Plaquemine Post South, there had been on July 14 explosions and a fire at a plant owned by Dow in the area. Causes of the explosions around the glycol unit were under investigation, it said. Ethylene glycol is used as antifreeze and also to make plastic fibers and other chemical products.

The explosion occurred just over a year after a chlorine leak at the Olin Chemical Plant in the same area, Plaquemine Post South added.

Two-thirds of planned layoffs completed

The company also said it has completed 75% of the layoffs announced earlier in the year.

As part of its efforts to achieve savings “75% of the 2,000 impacted rolls exited at the end of the second quarter, and more than 90% are expected to exit by the end of the year,” Ungerleider said.

Company officials had said earlier in the year layoffs were necessary and part of efforts to reduce spending amid a challenging economic environment.

“We continue to expect a challenging macroeconomic environment in the third quarter,” Ungerleider said.

“In the U.S., industrial activity remains weak with June manufacturing PMI in contraction at 46.3,” he added.

Nuclear power

“In collaboration with X-energy, we are preparing to submit a construction permit application through the U.S. Nuclear Regulatory Commission for our small modular nuclear energy facility in Seadrift, Texas,” Fitterling said.

“We plan to break ground in 2026, and the project is expected to provide the site with safe, reliable, low-carbon power and steam,” he added.

According to the website of X-energy, the advanced nuclear reactor project may slash the Seadrift Site's emissions by about 440,000 tonnes of CO2 per year.

Dow’s Seadrift Site manufactures over four million pounds of materials every year that are used in areas like food protection, footwear, wire and cable insulation, solar cell membranes, and for medical, personal hygiene, and pharmaceutical products packaging.

The U.S. Department of Energy named Dow "a sub-awardee under X-energy’s Advanced Reactor Demonstration Program Cooperative Agreement. The JDA provides for up to $50 million in engineering work, up to half of which is eligible to be funded through ARDP, and the other half by Dow," according to the website of X-energy. 

By Renzo Pipoli