Canadian petrochemical incentives to continue under new leadership
The potential Chevron Phillips-Nova acquisition comes as Canada’s petrochemicals industry is rebounding, brought on by cheap natural gas and government incentives which are expected to continue even under the new political leadership.
Capital spending on industrial chemical industry projects in Canada this year is expected to jump by 65% to C$1.9 billion, the highest since $2.2 billion spent in 2014, according to a year-end members’ survey by the Chemistry Industry Association of Canada (CIAC). The CIAC represents producers that together contribute 75% of the country’s chemical products by value.
Investors see a unique advantage for building petrochemical plants in Canada, given cheap natural gas, a strong supply chain and infrastructure, and incentives offered by the previous government in Alberta.
Incentives continue under new leadership
The new conservative government elected in April to lead the hydrocarbon-rich Alberta province will respect past royalty credit awards to develop petrochemical projects but uncertainty over the shape of future policies has the industry urging for additional incentives to continue.
The change comes after Rachel Notley, Alberta’s premier between 2015 and April, lost her reelection bid representing Canada’s New Democratic Party to conservative Jason Kenney, casting a shadow of uncertainty as to the future of incentives.
The CIAC, which groups 50 members in a C$53-billion industry, wants not just Alberta but also Ontario to keep incentives that succeeded in attracting investment.
Another uncertainty has to do with Bill C69, which is pending legislation related to environmental permitting that that could eventually impact feedstock availability. The Canada West Foundation believes that after some 15 months it may be approved soon, after amendments.
Since Notley lost to Kenney on April 16, allowing conservatives to regain control of the Alberta government they had lost in 2015, the incentive programs that Notley offered to maintain and expand would likely see changes.
“We will honor the agreements made by the previous government under the Petrochemical Diversification Program,” Oscar Lamers, an official with the energy communications area of the Edmonton-based government, said in June.
“We are currently exploring options for supporting diversification of our petrochemicals sector including ways to revitalize natural gas and related industries,” he added.
“In 2016, the previous Alberta government committed C$500 million in future royalty credits as part of the Petrochemicals Diversification Program (PDP). All of these funds have been allocated,” he said.
In a first round, Inter Pipeline got C$200 million in royalty credits for its C$3.5-billion propane dehydrogenation plant (PDH) under construction near Edmonton. Another PDH-polypropylene project, by the CKPC joint venture of Pembina Pipeline Corp. and Kuwait, got C$300 million in credits for its approved C$4.5-billion project.
“Two other projects were approved to receive funding under the renewed PDP. These include Nauticol Energy’s proposed methane to methanol facility in Grande Prairie and Inter Pipeline’s proposed acrylic acid facility planned for construction in Alberta’s Industrial Heartland,” Lamers added.
Nauticol has yet to announce a final FID for its C$2 billion planned facility, which fetched C$80 million in credits. Inter Pipeline received C$70 million in credits for its announced C$600 million facility.
The initial round targeted projects tapping methane and propane, while the renewed program expanded benefits to ethane.
Continue the incentives
The CIAC a had set expectations on the expanded Petrochemical Diversification Program that Notley had announced, because the incentives had been clearly successful, Dave Cherniak, senior policy analyst at CIAC said.
“The second phase of PDP funding, announced in March 2018 had a further C$500 million in royalty credits and was expanded to include ethane feedstock. However, interest was so strong, having attracted 23 project applications with a total value of C$60 billion, that the former government of
Alberta announced an additional C$600 million in credits in November of 2018 bringing the total value to C$1.1 billion,” he said.
“To date, the two rounds of PDP funding have attracted $12.6 billion worth of projects to Alberta,” Cherniak added.
Alberta also had in place a separate Petrochemical Feedstock Infrastructure Program with a value of C$1 billion, meant to boost gas liquids output. So far it has not approved any award, Cherniak said.
“CIAC believes that the number of applications to the program speak for themselves,” Cherniak said. The association “expects to hear more positive announcements” for Alberta, which sits atop the hydrocarbon-rich Western Canadian Sedimentary Basin.
Federal and Ontario governments’ incentives
In Ontario the government there had instead used loan guarantees and direct funding through the Jobs and Prosperity Program that granted C$100 million to Nova Chemical’s C$2-billion expansion of an ethylene cracker and a new polyethylene facility. The program was discontinued. CIAC has urged Ontario to continue it.
At the federal level there is a Strategic Innovation Fund originally announced in 2017 with C$1.26 billion, with an additional C$800 million announced last year. Under this fund, Inter-Pipeline and CKPC each got C$49 million, while Nova’s Ontario project got C$35 million.
The federal government also offers the Accelerated Investment Incentive to match a similar measure put in place in the United States.
“It allows for meaningful improvement in a company’s cash flow rate while making capital investments (and) will be in place at the 100% rate until 2024 and subsequently declines through 2028,” Cherniak said.
Canada’s senators approved Bill C-69, the Impact Assessment Act, in June. The act sets up a new authority to assess industrial projects, such as pipelines, mines and inter-provincial highways, for their effects on public health, the environment and the economy.
The bill is now set to go to Royal Assent after a motion by Senator Grant Mitchell to keep the Senate from insisting on amendments that the House of Commons didn’t agree to.
By Renzo Pipoli