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Arctic gas vital to chemical plan North Slope, Mackenzie Delta gas liquids key components of Alberta’s plan to boost ethane supplies, keep petrochemical sector alive Gary Park For Petroleum News
The Alberta government has announced its long-awaited lifeline to the petrochemical industry, a policy that has been years in the making and depends heavily on North Slope and Mackenzie Delta gas supplies finding their way to hubs in the province.
In taking the wraps off a new ethane policy, the government obviously hopes the petrochemical sector will not only put fears of plant shutdowns behind it but embark on an era of expansions on a grand scale.
Energy Minister Greg Melchin presented a package of incentives designed to spur increased volumes of ethane, the essential building block in the manufacture of such products as plastic, Styrofoam, ethylene glycol and polyvinyl chloride.
He put the Incremental Ethane Extraction Policy on the same footing as upgrading bitumen, suggesting it may even generate a larger return.
For now, its best prospect is to prevent a downwards spiral by an industry that has exports of more than C$6 billion a year from Alberta, employs 6,500 in the province and has seen capital spending of C$9 billion since the 1970s.
Policy would help attract investment Melchin said the policy is one way to ensure that Alberta is capable of attracting investment on the same scale as the United States.
“Securing additional ethane ensures the petrochemical industry’s future sustainability and gives the industry an opportunity to make new investments,” he said.
“Industry has been feeling the pressure of tight ethane supplies and I am pleased we are addressing this need through this initiative.”
He said “value-added upgrading of our energy resources is a key priority for this government as it will create a wide range of development opportunities and long-term benefits for Albertans.
“This policy supports our integrated energy vision by seizing the opportunity to take our raw resources up the value chain, developing more end products and expanding the markets for our oil sands resource,” Melchin said.
The Canadian Chemical Producers Association described the program as the “best approach” to stimulating value-added upgrading in Canada.
A spokesman said the policy is good for petrochemical producers and a range of industries that develop and use natural gas products.
Credits rebated against royalty payments The government will distribute credits to petrochemical facilities based on the amount of incremental ethane they use which will then be rebated against their royalty payments which amounted to C$35 million last year.
Melchin insisted the credits are not a subsidy, but are a way of trading royalties for greater value, echoing a common refrain from chemical industry leaders.
It needed Val Mirosh, vice president of Nova Chemicals, to identify one of the keys to success for the policy, saying her company is gearing itself to take advantage of new ethane supplies that are expected to become available if the Alaska and Mackenzie gas pipelines are built and enter Alberta.
In particular, the Alberta government has its eyes on North Slope gas which has a much richer liquids content than Mackenzie Delta gas.
“There is a time to look at these types of opportunities and I think that time is now,” Mirosh told the Calgary Herald.
Klein has been determined to extract ANS liquids Alberta Premier Ralph Klein and other cabinet ministers, along with industry executives, have made no attempt to hide their determination to extract liquids from North Slope gas if the Alaska line passes through Alberta on its way to the Lower 48.
That hinges in part on whether the Alaska producers opt for a bullet line, which would give them greater certainty over defined capital costs and construction schedule, or tie into the existing Alberta pipeline network, which would open the door to regulatory uncertainty over questions such as whether or how previous agreements and treaties would apply.
The Alaska producers have been unsuccessfully pressing Canadian governments to clarify those issues, which creates worries among Alberta’s petrochemical industry that the North Slope producers will lose patience and build the bullet line, a costlier undertaking, but one that gets the gas to market faster.
Dow Chemical Canada President Jeff Johnston said that as the policy advances his company will be more encouraged to invest in Alberta if there is an assured, long-term, affordable supply of ethane.
Dow has warned on a number of occasions that Alberta’s emerging petrochemical industry could be rendered uneconomic without adequate access to ethane, and issued clear threats that without competitive ethane they are ready to leave Alberta.
Company executives have called for government intervention to encourage ethane production in Alberta, which they have argued is no different from the royalty regime used to spur oil sands expansion.
Klein making case for slowing bitumen export Amid that debate, Klein, with only two months of his 14 years as premier remaining, has apparently decided to make a case for slowing the export of bitumen to refineries in the United States and possibly Asia.
And the leading candidates to replace him are singing from the same song sheet when it comes to keeping more of the value from raw bitumen in the province.
Klein asked Melchin to “review the whole situation” of bitumen being shipped to the United States for upgrading to synthetic crude and refining into products such as diesel and jet fuel.
By some government estimates, Alberta is losing US$15-$20 per barrel by exporting bitumen.
Jim Dinning, the top pick in the contest, said he is concerned when he hears of companies “planning to ship more of our raw resources for refining in the United States.”
“I believe if you mine it here, you upgrade it here.”
His stance came just days after BP announced it will spend US$3 billion at an Indiana refinery increasing its ability to handle raw oil sands output to 350,000 barrels per day from 85,000 bpd by 2011 and a time when EnCana, Husky Energy and Imperial Oil are looking outside Alberta to process their oil sands production.
Pipeline projects in the works There are also a multitude of pipeline projects in the works by Enbridge, TransCanada, Terasen and Altex to ship bitumen to the U.S. and possibly Asia for upgrading and refining.
Klein insisted that “bitumen ought not to leave the province. ... We should try to add value to it,” adding there are no laws, policies or regulations to prevent the outflow of raw bitumen.
He has urged Melchin to develop a program to encourage the energy industry to establish upgraders and refineries in Alberta — an objective Melchin and the industry have already explored over the past year in studying the feasibility of a possible C$8.5 billion, 450,000 bpd refining and petrochemical complex.
But preliminary results from that study show the venture is technically feasible, but would face the same sky-high labor and materials costs that are forcing producers to look for answers outside Alberta.
However, Klein argued that oil sands pioneers Suncor Energy and Syncrude Canada have shown what he wants “can be done.” A number of major producers and small independents are also pushing ahead with upgrader and refining projects.
Another contender for Klein’s job, cabinet minister Lyle Oberg, said he would base the province’s royalties on the higher value of bitumen upgraded in the U.S. rather than the cheaper raw product to arm-twist producers into processing the resource in Alberta.
Klein was not willing to give his views on using higher royalties, or offering incentives as leverage.
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