Alberta’s growing petrochemical opportunity: Download the new Alberta Oil & Gas Quarterly

Global demand for petrochemical products is growing quickly as the world’s population expands and emerging economies build capacity.

According to the International Energy Agency (IEA), the production of plastics has increased worldwide by more than tenfold since 1970, faster than the rate of growth of any other group of bulk materials and almost 60 percent faster than growth of gross domestic product (GDP).

Of the nearly 10 million bbls/d of growth in total oil demand projected for 2030, the petrochemical sector is on course to account for more than a third, the IEA says. At the same time, petrochemicals are expected to drive seven percent growth in roughly 30 trillion cubic feet of increased natural gas demand.

“Society’s growing dependence on chemicals has been reflected by a steady period of growth in the output of the chemical and petrochemical sector,” the IEA said in its spring 2019 report, The Future of Petrochemicals.

Alberta is poised to capitalize on this booming opportunity both in major projects for new production of petrochemical products within its borders and the export of oil and gas feedstocks for petrochemical facilities worldwide.

Download your free copy of the Summer 2019 Alberta Oil & Gas Quarterly: Alberta's Growing Petrochemical Opportunity.

Abundant, low-cost resources – particularly of natural gas liquids (NGLs) – are key to Alberta’s attractiveness in this market.

Feedstock price and availability are amongst key considerations for investors when determining whether a region is cost competitive for a petrochemical project, according to the Canadian Energy Research Institute.

The surge of shale gas in North America has contributed to increased global use of NGLs for petrochemical production, says Steve Weber, vice-president of refining and petrochemical consulting with Argus Media.

For example, he says that ten years ago 90 percent of the ethylene produced in Europe came from naphtha derived from crude oil. Today that has dropped to 50 percent.

“That difference has been made up by additional cracking of propane and butane, which have become more cost competitive versus naphtha,” Weber says.

A sign of the times also is the proliferation of propane dehydrogenation (PDH) and polypropylene (PP) plants around the world. In less than ten years the number of PDH/PP facilities operating globally has increased from less than five to 33, led by development of projects in China, Weber says. There are also 20 additional PDH/PP plants announced or under construction worldwide.

Two of these are in Canada, where the ethane-dominated petrochemical industry is on its way to a milestone shift with its own PDH/PP capacity in Alberta.

The first project, Inter Pipeline Ltd.’s $3.5-billion Heartland Petrochemical Complex, has been under construction since December 2017 and remains on schedule for completion in late 2021.

The second project is owned by Canada Kuwait Petrochemical Corporation, a joint venture of Pembina Pipeline Corporation and Petrochemical Industries Company K.S.C. of Kuwait.

The $4.5-billion project received partner go ahead in February 2019 and has moved into execution at its site near Edmonton. The facility is expected to be in service mid-2023.

A $2-billion new methanol plant is also planned for the Grande Prairie region by Nauticol Energy, and Inter Pipeline is in the early stages of considering the development of a $600-million acrylic acid/propylene derivatives facility near Edmonton.

All four of these projects have financial support from the Government of Alberta in the form of future royalty credits.

The new infrastructure will play a part to help struggling natural gas producers in the province, and so will the advent of propane exports off the coast of B.C. Canada’s first propane export facility celebrated its first cargo to Asia in May 2019, a milestone that owner AltaGas Ltd. said “charts a new course for Canadian energy” with market optionality and premium netbacks.

A second export terminal in the same region is under construction by Pembina Pipeline Corporation, expected to start operations mid-2020.

“You have the opportunity either to provide feedstock for petrochemical operations in Asia, or certainly there are opportunities to further build more capacity in Alberta with the amply supplied and cost attractive feedstocks that are in the Western Canada region,” Weber says.

“I’m very optimistic that there’s going to continue to be investment [in Alberta]. It’s okay to sell the propane to China, but you can also add value through the whole chain rather than just selling the raw materials.”

LNG projects in Western Canada are less likely to provide feedstock to global petrochemical facilities, he says, because the NGL value streams are largely expected to be extracted before shipment overseas.

Download your free copy of the Summer 2019 Alberta Oil & Gas Quarterly: Alberta's Growing Petrochemical Opportunity.

Image: Construction at Inter Pipeline Ltd.'s Heartland Petrochemical Complex in September 2019. Photo by Joey Podlubny for JWN