Chemical Reaction

How can Alberta maintain a viable petrochemical industry in a time of declining natural gas production? The government’€™s made a good first step

Illustration by Matthew Daley

Five years ago the prospects for expanding Alberta’s petrochemical industry were bleak. We were experiencing tightening supplies of ethane feedstock from conventional sources, and watched a significant volume of ethane leave the province on a bullet ride for Chicago – along with jobs and the opportunity to add value to these
resources in Alberta.

Today the feeling of optimism around Alberta’s petrochemical industry couldn’t be more different. Here’s what has changed.

A new value-added framework is emerging. The Alberta government has made some very positive and tangible steps to promote growth in a competitive and viable petrochemical industry that go beyond policy-scoping and industry consultation.

Real progress began with the provincial government’s Integrated Energy Vision paper unveiled last year, which resulted in programs like the new Incremental Ethane Extraction Policy (IEEP) introduced this July.

The IEEP and draft regulations from Alberta Energy are modeled on royalty-based programs the government has used to successfully promote economic development in the province in the past. By investing the Crown’s royalty share and using incentives to encourage new investment to create value beyond resource extraction, the government has established the necessary business climate to expand value-added industrial activity.

Uncertainty has been addressed. The IEEP is a key tactical step to maintain competitiveness of the petrochemical industry. It addresses cost uncertainties that have created higher risk and lower incentive for continued, long-term investment in Alberta. Designed to provide the means to stimulate capital investment supporting further infrastructure development, we’re confident the IEEP will ultimately enhance the value obtained from Alberta’s hydrocarbon resources beyond just the commodity value.

The IEEP is a critical first step in developing a broad vision and framework to ensure continued cost-competitive and efficient growth of Alberta natural gas, natural gas liquids production and end-use markets. But the IEEP is only one part of the equation. Together with the government, we will need to also consider how to maximize the efficiencies of existing infrastructure without disrupting current commercial practices.

The discussion, and the vision, has broadened. We are very encouraged by the Natural Gas Liquids Extraction Convention inquiry that is now underway. The inquiry is collecting perspectives from multiple stakeholders on how best to integrate and harmonize Alberta’s gas system infrastructure, and at the same time optimize extraction of valuable natural gas liquids from gas being transported.

Simply put, the inquiry will help further define an “Alberta Hub” concept that we think offers compelling economic and commercial drivers for all parties –producers, industry and North American gas markets. Some benefits of taking this approach will be consolidating and processing new hydrocarbon streams, including future northern and Alaskan gas, that could give the petrochemical industry access to additional feedstock in the coming years. The inquiry also provides an opportunity to determine how to most efficiently provide lean gas to the oilsands and free up oilsands off gases as future petrochemical feedstocks.

The policy that could emerge from the recommendations of this inquiry will be critical to ensure the continued cost-competitive and efficient growth of Alberta natural gas, natural gas liquids production and growth in Alberta’s petrochemical industry. Alberta is Canada’s largest petrochemical producing area, with annual shipments including chemicals of over $9 billion, exports of more than $5 billion and direct employment for more than 6,500 people.

The stakeholders must be vigilant. These policy discussions must stay focused on broad strategic issues that affect industry competitiveness and ensure Albertans receive maximum benefit from the province’s natural resources.

We at Nova Chemicals are bullish on the direction. The Alberta government has taken a big step by establishing “value-add” as a top provincial priority as we continue to develop the oilsands and as northern gas comes on line. It still has some things to work through: the transmission of future gas supplies through Alberta; long-term infrastructure interconnectivity and viability; and the economics of upgrading hydrocarbons into higher-value products here in Alberta.

Alberta is absolutely critical to Nova. Our largest manufacturing facilities and our research and development facilities are located here, a lot of our earnings are generated here, and we hope the bulk of our future growth will be here. We have invested over $4 billion in our Joffre petrochemical site, and as a long-term ethane customer, we are working on developing potential new ethane feedstock infrastructure such as a recently proposed ethane extraction facility near Fort Saskatchewan and an oilsands off gas project.

We are increasingly bullish on our industry’s future in Alberta and very optimistic about Alberta’s competitiveness in the global market and the advantages of continuing to invest here. What a difference five years makes!

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