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Vol. 24, No.45 Week of November 10, 2019
Providing coverage of Alaska and northern Canada's oil and gas industry

Alberta shuffles deck

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Close to deal to return C$3.7B in crude-by-rail contracts to railways; scraps some grants, petrochemical venture loan guarantees

Gary Park

for Petroleum News

The five-month tap-dance by the new Alberta government to rearrange its petroleum industry holdings is gathering pace as the administration of Premier Jason Kenney scales back diversification programs to attract petrochemical projects and draws closer to off-loading a crude-by-rail, CBR, investment.

Leading the announcements, Energy Minister Sonya Savage said the government will scrap grants and loan guarantees for upgrading (which converts oil sands bitumen into synthetic crude for refining) and a petrochemical feedstock infrastructure program that was introduced by the former New Democratic Party administration.

She also said Alberta is within sight of selling a C$3.7 billion agreement with Canadian National and Canadian Pacific railways to buy tanker cars which would move 120,000 barrels per day to overcome a shortage of pipeline capacity.

The NDP government said the program would generate revenue of C$6 billion, an estimate Kenney scorned, arguing the financial risks were too high.

Savage said the negotiations are taking time because of the number and complexity of the contracts, but “we’re getting there.”

Production quotas key

TD Securities said a key point in the negotiations is retaining a provision that allows companies to exceed their production quotas as long as the additional volumes leave Alberta.

The investment firm forecast oil production growth of 8% to 30% in 2020 if a deal is reached.

So far, the government has earmarked C$1.5 billion for backing out of the program, although Finance Minister Travis Toews hopes the final figure will be in the range of C$800 million to C$900 million.

The 2019-20 Alberta budget estimated the CBR deal would cost taxpayers C$1.8 billion more than the cost of scrapping it.

On the petrochemical front, Savage confirmed the government has scrapped two government-backed programs in the name of fiscal responsibility, while sticking with a C$1.2 billion petrochemicals diversification venture.

She said the two programs offering financial backing to feedstock and infrastructure plans that have been discontinued “carried a high financial risk to our province ... we want to ensure that the innovation and development that industry can bring to the province is prudent and benefits Albertans and investors.”

Royalty credits to continue

But for now, the government will continue offering royalty credits to privately funded large-scale projects that build facilities to turn ethane, methane and propane into products such as plastics, fabrics and fertilizers.

To date, two projects - one from Inter Pipeline and one from Nauticol Energy - have been awarded a combined C$150 million in credits, leaving C$950 million still available.

Associate Minister of Natural Gas Dale Nally said his department will continue gathering industry input and recommended potential changes to the diversification program to determine how Alberta can best attract private industry.

In a separate recent report, the Canadian Energy Research Institute found that new petrochemical plants in Alberta are economically competitive with new facilities in the U.S. Gulf Coast, Ontario and Korea.

It said total feedstock supply costs in Alberta are reduced by access to a surplus of natural gas in Western Canada, although the report did not cover corporate or carbon tax policy changes enacted by the Kenney government.

In the first seven months of 2019 propane prices at Edmonton averaged US$10.31 per barrel compared with US$25 in Texas and US$36.78 in the Far East, according to industry sources.



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