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It’s a gas — maybe
Progress for LPG exports, petrochemical could be lift for Canada’s gas producers
Gary Park for Petroleum News
Just as the newly elected Alberta government was opening up a second front to defend its embattled oil and natural gas industry, unexpected reinforcements for gas producers have surfaced in the shape of liquefied petroleum gas, LPG, exports and the prospects of a resurgent petrochemical sector.
The breakthroughs coincided with a broad-based initiative by the government of Premier Jason Kenney to find answers to a decade-long slump in gas prices.
From a peak price at Alberta’s AECO trading hub of almost US$8 per million British thermal units in 2008, producers have experienced a sickening descent to under US$2 in 2015 where the price level has remained ever since.
That has translated into a grim outlook for Alberta which raked in C$8 billion in gas royalties in the 2005-06 fiscal year and ended the last budget year at a bleak C$446 million.
Natural gas cabinet post Following his election in April, Kenney wasted no time acknowledging the plight of gas by creating a cabinet post for natural gas.
The newly appointed Minister Dale Nally said beleaguered producers have for too long “felt like second cousins” of Big Oil.
“But here’s the reality ... if we can get natural gas to (LNG) markets, it’s a game changer for Alberta,” he said, noting that “some days we are almost giving this product away for free.”
Faced with what he rates as an “extreme sense of urgency,” Nally said he is troubled by the financial failure of mid-size Trident Exploration in April, which quit the sector, dumping 4,700 wells on to Alberta regulators.
Based on warnings from his own sources, he said Trident is “not alone ... there are about a dozen other producers in a similar plight and they could go the same way as Trident.”
Simon Bregazzi, chief executive officer of Jupiter Resources, Canada’s fifth-largest gas-weighted producer at about 420 million cubic feet per day, rated Trident as “the tip of the iceberg,” an outlook which he said was well known to the government.
Nally was quick off the mark in seeking an answer to domestic transportation constraints that put a chokehold on Alberta prices at a time when global gas demand rose by 5% (18% in China).
Working group Meetings were called in May and resulted in the formation of a working group that includes five producers, TC Energy (the gas shipping giant that was formerly known as TransCanada) and a number of industry organizations.
TC Energy added to the volatility of AECO prices in 2017 when it started restricting production for interruptible gas deliveries, while prioritizing firm-service contracts.
A 2018 report commissioned by the previous Alberta government called for a reversal of TC Energy’s “restriction protocol,” but Nally is not ready to take that step, favoring a more collaborative approach.
He suggested that could include chasing new markets in North America and increased sales to Alberta’s petrochemicals operations.
LPG turnaround The first encouraging hint of a turnaround has come from LPG operators, led by Calgary-based AltaGas which ended May by shipping the first load of propane to Asia from its C$500 million terminal near Prince Rupert.
Chief Executive Officer Randy Crawford said AltaGas is keen to engage in competition with the United States, which has been accelerating energy production over recent years, with its eye on accessing Asian markets.
AltaGas said it has an edge by offering a 10-day shipping connection from British Columbia compared with 25 days from the U.S. Gulf Coast.
At least 50% of the company’s initial exports of liquefied propane has been contracted to Japan-based Astomos Energy.
AltaGas expects to ship 1.2 million metric tons of propane a year that could increase if it proceeds with plans for a barge-based floating facility and is able to find a partner to build a pipeline to deliver natural gas to the processing facility.
Although Alberta gas producers are hopeful they can secure a slice of the business, AltaGas has not said where it will obtain its feedstock beyond identifying Alberta and British Columbia as the sources.
Two other propane ventures are in advanced stages, with Pembina Pipeline targeting mid-2020 for completion of a C$260 million terminal near Prince Rupert to handle 1.5 billion cubic feet per day of raw gas, for permitted capacity of 25,000 barrels per day of propane.
Pacific Traverse Energy hopes to begin exports in 2023 under a 25-year license to deliver 1.25 million metric tons a year from Kitimat.
LNG demand in Asia Despite a series of setbacks to plans for exporting LNG from British Columbia continued strong demand in Asia is prompting investors to take a fresh look at those prospects.
AltaGas and Japan-based Idemitsu suspended work on their Triton LNG venture in 2016 after failing to sign sufficient long-term contracts for a first phase of 550,000 metric tons a year.
AltaGas Senior Vice President Dan Woznow said, “people are knocking on our door wondering what’s next.”
Greg Kist, who heads a fledgling consortium known as Rockies LNG Partners, representing 10 producers, said Western Canada’s gas industry wants to put a spotlight on the need to construct an LNG project beyond the Shell-led LNG Canada mega-project that plans to start shipments in 2025.
Although the Rockies group does not expect to become terminal operators it hopes to play a role in bringing together producers, First Nations and industry players with the ability to advance a pipeline from the gas fields of British Columbia and Alberta and an LNG plant.
Petrochemical On the petrochemical front, there is the prospect of a turnaround in Alberta if Chevron Phillips Chemical Co. succeeds in its US$15 billion bid to acquire Nova Chemicals, based on a Reuters report.
The joint venture between Chevron and Phillips 66 could mean the return of a multinational “with big pockets” to Alberta, said Bill Rawlusyk, executive director of natural gas liquids at IHS Inc.
Nova is run by the UAE state-owned Mubadala Investment Co. (which has global assets valued at US$225 billion), while Chevron Phillips has 31 facilities in the United States, Europe and the Middle East.
Since it was acquired for US$500 million in 2009, the company’s business has grown rapidly, tapping into the shale boom in North America.
Rawlusyk said there is a special advantage for companies to build petrochemical plants in Canada based on the incentives offered by the Alberta government.
He said the attraction would be cheap ethane because natural gas prices are so low, adding there has been strong speculation lately about another big ethane cracker being built in Alberta.
Capital spending on industrial chemical facilities in the province is forecast by members of the Chemistry Industry Association of Canada to climb by 65% this year to C$1.9 billion, up C$300 million from the most recent peak in 2014.
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