Cheap feedstocks still driving hope of Canadian petrochemical boom

Cheap and affordable ethane and propane, along with tax incentives are putting Canada’s slow-growing petrochemical industry on track for expansión, despite political and trade hurdles.

Inter Pipeline moved to the site the propane-propylene splitter and the PP reactor, components that are the core of the $3.5-billion facilities known as the Heartland Petrochemical Complex. Image: Inter Pipeline

Major Canadian petrochemical projects are running as scheduled in ongoing construction to hike plastic production capacity and claim a bigger share of an increasingly competitive North American and world market.

Inter Pipeline is advancing as scheduled in building a propane dehydrogenation project (PDH) just east of Edmonton, Alberta since last year. The project has scheduled a 2021 start-up date.

The Canada Kuwait Petrochemical Corporation (CKPC), an equal venture of Pembina Pipeline Corporation and Kuwait, has moved into the execution stage in plans to build a polypropylene (PP) plant just north of Edmonton before mid-2023.

In Sarnia Lambton, Calgary-based Nova Chemicals will be busy until the fall season placing pilings to support infrastructure.

The work is part of plans to invest over $2 billion to expand an ethylene cracker and add polyethylene (PE) capacity by the end of 2021.

The above projects have in common access to low cost ethane and propane in Canada. There are other large-scale energy projects advancing, including an LNG export terminal and additional pipelines underway. Meanwhile, the Canadian petrochemical industry faces challenges but also opportunities ahead.

Inter Pipeline installs core components

The Inter Pipeline project remains on schedule and on budget, a company official said by email in May.

In the first quarter, Inter Pipeline moved to the site the propane-propylene splitter and the PP reactor, components that are the core of the $3.5-billion facilities known as the Heartland Petrochemical Complex.

In March 2019, Inter Pipeline got $36 million from the Canadian Strategic Innovation Fund.

The CEO of the Chemistry Industry Association of Canada (CIAC), Bob Masterson, said then such incentives make the country “a good place for chemistry companies to make world-scale investments.”

Alberta had earlier offered a separate royalty credit for the PropaneDehydrogenation (PDH) plant through a diversification funding.

CKPC moves to “execution” phase

CKPC’s operational overview for the quarter ended March 2019 said construction of the $3.3 billion PP complex near Edmonton is “on time, on budget.”

“The project is now transitioning into the execution phase including obtaining engineering, procurement and construction bids, site clearing activities and the placement of long-lead equipment orders,” Pembina said in its first quarter interim report.

Pembina and Petrochemical Industries Co. of Kuwait announced in February a final decision for an equal venture to build a PDH plant and a 550,000-tonne-per-year PP facility by mid-2023.

The project also received incentives in April including from the Canadian Strategic Innovation.

Nova Chemicals to continue piling work into the fall

Nova Chemicals, the Calgary-headquartered company, owned by the Emirate of Abu Dhabi, is also busy advancing work in its new Rokeby Site, in Sarnia-Lambton, Ontario, located with easy access not just to Canada’s markets but also to the north-central U.S. The project is within 65 miles of Detroit.

“Cement trucks are arriving daily to progress work on the foundations. Piling is anticipated to continue into the fall,” according to the February edition of the Rokeby Site Construction Newsletter.

Completion of piling work is essential to lay foundations of the new facility. Work in the past year has included new roadways and parking lot construction. Nova bought in 1988 the Corunna petrochemical facilities, located next to the Rokeby construction site.

The project involves adding capacity of approximately one billion pounds of PE per year by the end of 2021. Works include a cracker expansion to increase the existing unit’s current ethylene capacity by more than 50 percent.

Transcanada becomes TC Energy; LNG Project advances

In October 2018 the partners forming LNG Canada took a final investment decision to build what will initially consist of two liquefaction plants with combined capacity to process about 14 million tons of LNG per year.  

Construction will take place in Kitimat, British Columbia. It is a partnership led by Shell, with 40%, that includes Petronas (25%); PetroChina (15%); Mitsubishi Corp. (15%); and Kogas with the remaining 5%.

According to LNG Canada, on March 1 “the project owners handed over responsibility of the work site to JGC Fluor” who became the prime contractor. Construction will take four to five years.

Energy shipments to Asia have the advantage of reaching that continent in half the time compared with U.S. Gulf shipments as it avoids the Panama Canal.

More projects

Other large energy projects in Canada include work led by Transcanada Corporation, which has now changed its name to TC Energy.

The phase 4 of the company’s Keystone XL pipeline has yet to be completed. It enters the U.S. and travels to Baker, Montana where it would pick up crude oil to deliver it further south. A 327-mile long stretch of that pipeline, which originates in Alberta, runs within Canada.

Another TC Energy project in Canada is a proposed 125-mile pipeline that will transport 900,000 barrels of crude oil per day from the Edmonton region to facilities near Hardisty, in east-central Alberta. The company received approval in 2015 but has since delayed the project.

Challenges Ahead

Competing with U.S.-made plastics would be harder as the U.S. is seeing a second wave of massive investment.

The U.S. has seen six project expansions just in PE come online since the third quarter of 2017, mostly in Texas and Louisiana, and will see four others before the end of the year. Others are planned.

There is also exposure to trade disputes and their effects, not just a possible economic slowdown in the world’s biggest markets in the U.S. and China. The United States-Mexico-Canada agreement is also unfinished.

Environmental regulations that may curb demand, like a potential ban in Vancouver on unnecessary use of plastic straws and other plastic is also a threat.

Changes in the political environment of Alberta, which produces by far most of Canada’s gas, will impact the industry.
Rachel Notley, leader of the New Democratic Party and who served as premier of Alberta from 2015 to 2019, lost her re-election bid in April. She was defeated by Jason Kenney, of the United Conservative Party, an opposer of carbon taxes who had during his campaign threatened to shut pipelines from Alberta to British Columbia.

Notley had offered during the campaign to double incentives for petrochemical and upgrading projects over the next decade.

Opportunities

The Canadian projects are counting on geographical advantages to beat U.S. petrochemicals in their own turf.

According to a Petrochemicals Industrial Profile by the Canadian government, facilities in Ontario and Quebec can better supply the northeast and central U.S. compared with those on the Gulf Coast. Those in Alberta have bigger advantages for central and western U.S. markets.

One certainty is Canada will continue to offer its petrochemical industry plentiful resources.

Canada is one of the world's top five biggest producers of natural gas and of the six biggest crude oil producers, according to the Canadian Association of Petroleum Producers. The country has gas reserves to last 300 years at current consumption rates while crude reserves are only smaller than those in Venezuela and Saudi Arabia, it added.

Crude oil production in Canada reached a record 4.4 million barrels per day in December but declined to 3.9 million barrels in January. The drop came after Alberta' Notley announced a mandatory and temporary oil production cut in December to be effective in January, citing a need to support international prices, and amid production bottlenecks.

In December, Canada's record production was nearly equivalent to that of Iraq, which had 4.5 million barrels per day, according to sites that track monthly output statistics like Trading Economics. It was also bigger than that of China at 3.8 million barrels per day. Russia, the U.S. and Saudi Arabia are by far the world's three biggest crude producers.

By Renzo Pipoli