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Feedstock hunger pangs Ethane supplies dwindle in Alberta; Dow Canada executive says companies prepared to pull up stakes and relocate Gary Park For Petroleum News
When a successor is chosen for Ralph Klein later this year one of the new Alberta premiers first and most pressing issues will be dealing with an ethane-starved petrochemical industry.
High on the list of solutions is the message Klein delivered at a meeting of Western Canadian and Alaska political leaders in March, when he again made an argument for gaining access to feedstocks from Alaska gas assuming a pipeline to the Lower 48 is built through his province.
In the meantime, the drumbeat is growing louder as petrochemical leaders warn that access to new supplies of ethane is essential to the economic health of their industry.
Ramesh Ramachandran, president and business director for Dow Chemical Canada’s olefins division, said in March that a lack of secure supplies is eating into the competitiveness and threatening the economic viability of the sector.
Klein: Alberta wants some of liquids Klein said in Anchorage that a pipeline from Alaska’s liquids-rich gas fields is extremely important to his province and its hopes of producing new energy from the oil sands.
He said Alberta “would like to be able to strip some of those liquids” for its petrochemical operations — a slightly toned down version of earlier warns that no Alaska gas would pass through the province unless that access was granted.
Klein said that without Alaska gas, the Alberta petrochemical industry would have to count on much smaller supplies within its own borders or wait for gas from the Mackenzie Delta, which can’t compete with North Slope gas for liquids content.
Ramachandran pulled no punches in telling a Canadian Energy Research Institute conference that it is just a “matter of time before (a shortfall of ethane) has the Alberta petrochemical industry on the ropes.”
He said Dow, which spends C$2.2 billion a year in Alberta on various services, feedstocks and products to support its plants, needs access to 280,000 barrels per day of ethane to operate the two Alberta plants it has built in the past five years, but its share of a potential pool of 425,000 bpd from provincial sources is only 240,000 bpd and falling.
Ramachandran said his company is unable to obtain the ethane feedstock to keep its ethylene crackers functioning at capacity, but Alberta ethane shipped out of the province through the Alliance pipeline is actually heating a lot of homes in the United States and “that’s unfortunate.”
Unless an answer is developed, Alberta risks seeing plants relocated to the Middle East or Southeast Asia at a heavy cost to the province, he warned.
Ramachandran has earlier said Dow is “not the United Way … we are for-profit companies and we are not motivated to stay here out of altruism.”
Depending on the end use, he noted that polyethylene can add 12 to 58 times the input value of the gas used in its manufacture.
Ramachandran suggested that the Alberta government should extend an enhanced royalty scheme, along the lines of that applied to the oil sands, to cover ethane “because the value is higher.”
Alberta exploring ‘climbing up the value chain’ The Alberta government is exploring ways of “climbing up the value chain” to capture greater returns from its natural resources, but Intergovernmental Affairs Minister Ed Stelmach was unable to indicate when the findings might be released other than “soon.”
In a speech last year, Ramachandran insisted that his industry’s bid for government policy to promote ethane extraction from natural gas was comparable with using a royalty regime to spur oil sands development.
He said the government should recognize the massive investment needed to convert ethane to ethylene and other high-value products — a process he said was no different from upgrading the oil sands to bitumen and energy-producing products.
Because of the heavy front-end costs of oil sands projects, the owners pay a 1 percent royalty until they recover their capital investment. They then pay 25 percent.
In the same way, he said petrochemical producers are trying to persuade the government to establish a royalty mechanism to encourage ethane production from gas-gathering systems without hurting the gas producers.
Ramachandran has said public policy should support the cost of a system to gather all of the ethane produced in Alberta for use inside the province.
He has rejected suggestions that such a policy would be inconsistent with a free-market ideology and could contravene the North American Free Trade Agreement.
He said free markets “work in a regulated environment … so a regulatory policy framework and free markets are not inconsistent ideologies.”
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