The Alberta government is pulling out the stops to ensure the province’s petrochemical industry grabs every available opportunity to lock up natural gas liquids as feedstock.
And one key new source of ethane is associated gas from the Bakken oil play in North Dakota, supported by a pipeline to carry liquid ethane from Hess Corp.’s natural gas processing plant near Tioga, N.D.
The pipeline will interconnect with the Alberta Ethane Gathering System near Empress, Alberta, and is designed to transport up to 40,000 barrels per day, expandable to 60,000 bpd with the addition of two pump stations.
Information submitted to Canada’s National Energy Board points to a startup date for ethane production in late 2012 or early 2013, with initial volumes reaching 30,000 bpd by 2015.
“We are importing raw materials from the United States and upgrading it here into refined products. That’s great to see,” said Neil Shelly, executive director of Alberta’s Industrial Heartland Association, which promotes investment in petrochemical plants, upgraders and refineries.
The Industrial Heartland covers an area of 225 square miles near Edmonton that is specifically zoned for industrial use and includes five municipal governments which are eager to develop a global energy processing center.
Tioga Lateral
Hess is also involved as anchor shipper on the Tioga Lateral pipeline and has executed a precedent agreement with Alliance Pipeline, jointly owned by Veresen and Enbridge, to develop the lateral to connect production from the Bakken processing plant to the Alliance mainline near Sherwood, N.D.
The Tioga Lateral will facilitate movement of liquids-rich natural gas to NGL processing facilities owned by Aux Sable Liquids Products (owned by Veresen, Enbridge and Williams Partners) near Chicago.
The lateral will have an initial design capacity of 120 million cubic feet per day, which can be expanded based on shipper demand.
Veresen President Stephen White said the rapid increase in crude oil drilling activity in the Bakken is generating a corresponding need for additional capacity to gather and process associated NGL volumes and enable producers to receive value from the NGL stream.
The Tioga lateral and the recently acquired Prairie Rose Pipeline and Palermo condensate recovery plant allow Enbridge to attract additional gas volumes to the Alliance Pipeline and draw additional NGLs to the Aux Sable facilities.
Loss of NGLs on Alliance
Although the liquids pipeline connection from the Bakken to Alberta is welcome news for the Alberta petrochemical sector, the realization that Aux Sable will benefit from Bakken NGLs will send a shiver through the province’s chemical producers, who have paid a heavy price since Alliance came on stream 12 years ago.
Matthew Foss, Alberta Energy’s acting assistant deputy minister, resource development policy, told delegates to a Canadian Energy Research Institute petrochemical conference in June that “it’s in your interests to negotiate a long-term sustainable supply of ethane because once it goes out it is going to be very difficult to find ways to get it back.” He pointed to the loss of NGLs on Alliance extracting up to 102,000 bpd of NGL products from the 2.1 billion cubic feet per day of Western Canadian gas shipped to the Chicago area.
When Alliance was first before regulators, the Alberta government lost a battle to first strip out NGLs and ever since has been motivated to overcome that loss.
Alberta Premier Alison Redford told the same conference her government is eager to partner with the petrochemical industry to sustain the sector’s competitiveness.
She said the two sides must “keep working together to ensure the industry reaches its full potential.”
Redford said Alberta and Western Canada are aware of the considerable potential for new feedstock sources to supply a growing petrochemical.
But the challenge is to “make these feedstocks available to industry in an economic and sustainable manner and to do so in a globally competitive way,” she said.
Unconventional growth
Foss said the rapid growth of unconventional plays in Western Canada and the push to establish LNG projects raises pressure on governments to introduce policies that ensure NGLs are extracted out of any gas designated for LNG, or at least be available for that opportunity.
“The question is: Are there ways government can get involved that make sense and that don’t run afoul of market principles?” he asked the conference, acknowledging there is value to the ethane in any export LNG because of the higher heat content.
Foss said the answer lies with petrochemical companies taking a proactive approach to obtaining their needed feedstock.
The Alberta petrochemical sector generates about C$25 billion in annual revenues, C$13.5 billion in exports and provides about 13,000 direct jobs.
Shortage of ethane
However, the Canadian National Energy Board, the Canadian Chemical Producers Association and the Canadian Manufacturers and Exporters, along with producers such as Dow Chemical Canada, have repeatedly warned over the past decade that the failure to deal with a shortage of feedstocks such as ethane could cripple the sector.
The NEB has forecast that post-2012 Alberta could be faced with importing 13,000 bpd of NGLs just to maintain the industry’s status quo.
In an effort to head off declining feedstock supplies, the Alberta government introduced the Incremental Ethane Extraction Program in 2007 to promote the development of additional sources.
Redford said the results of that initiative have been positive, with off gases from oil sands operations now delivering new supplies of ethane.
Government investment
Energy Minister Ken Hughes told the conference his government has so far invested C$162 million in the program which has led to C$552 million in direct capital expansions.
Graeme Flint, a Nova Chemical vice president, said that given wide frac spreads producers will want to continue seeing the value of their NGLs achieved by extraction in the field rather than left in the gas stream and exported as LNG.
“Although that gas value is high in export markets, we think that when you subtract the cost of getting it to market you are going to get a fair value for extracting liquids in Canada. What you want to do is try and avoid any transportation or commercial arrangement associated with LNG that results in an economic penalty for extraction of those liquids,” he said.
Justin Reimer, assistant deputy minister with Alberta Enterprise, said that to counter the glut of natural gas and low prices the government will work with industry on a strategy to create greater in-province benefits from gas through value-added uses.
He said petrochemical facilities provide long-term benefits to Western Canada from manufacturing facilities that draw on extraction industries as a source of feedstock, estimating that manufacturing that relies on high value feedstock can create an economic multiplier of 7.3.
Reimer said that Albertan residents, as owners of their province’s natural resources, need to consider ways to utilize NGLs to facilitate market product diversification and decide whether the government can play a role in establishing an industry-led NGL markets hub.
However, he conceded that “various players along the value chain have different approaches and views” on whether the Alberta government should take the next steps in that direction.
