As province looks for value-added jobs, petrochemical sector puts up its hand
Chris Varcoe, Calgary Herald
Mofrom Chris Varcoe, Calgary Herald
Published on: January 17, 2016 | Last Updated: January 17, 2016 9:29 PM MST
David Chappell, president of Williams Energy Canada, is promoting the merits of his company building a massive petrochemical plant northeast of Edmonton.
Stuart Gradon / Calgary Herald
Standing on the streets of Tulsa, David Chappell has a value proposition for those back home in Alberta. The president of Williams Energy Canada is on the phone explaining the merits of his company building a massive petrochemical plant northeast of Edmonton. The total cost for the industrial complex tied to the project would top $2.5 billion — if the right deal with Alberta can be struck.
“It will take about $250 million a year of propane and turn it into about $750 million of propylene, and then there’s an associated plant with this that will take that propylene and turn into polypropylene, about $900 to $1 billion,” he said.
“When you think of the story of value-added and diversification … it’s a great story for Canada and for Alberta to start doing that here.”
As Premier Rachel Notley’s government considers how to entice value-added energy jobs to Alberta as part of its royalty review, the petrochemical industry says billions of dollars in future investment are up for grabs — if the province makes the right call.
The NDP is expected to soon unveil its long-awaited review of the royalties Alberta charges to produce oil and natural gas on Crown land.
The government’s royalty panel is also looking at how to encourage more investment in the province and “diversification opportunities such as value-added processing,” including ways to increase domestic oil refining and upgrading.
Several panel submissions insist the opportunity exists to entice more petrochemical operations to Alberta to turn cheaper commodities such as natural gas into more valuable products used in everything from consumer plastics to fertilizers.
Huge shale gas resources provide North America “with an economic growth opportunity that has not been seen for several decades,” says the Chemical Industry Association of Canada.
“It is important to understand this unique and ‘one-time opportunity,’ to see how it is already making a difference and to realize how we can maximize the value and benefit.”
Methanex Corp. told the panel it’s evaluating a US$1.3-billion methanol plant at its Medicine Hat facility. The Vancouver-based company said it would “strongly support a royalty credit system for new investments in value-added industries.”
Oklahoma-based Williams is examining a propane dehydrogenation project near Redwater to produce propylene, a feedstock in plastics, and will make an investment decision in the second-half of 2016.
“It just depends on how the government decides to incent industry to add value in the province, and certainly the royalties is one way,” Chappell said.
For a province hit hard by the oil and gas price downturn, the prospect of creating new jobs by adding value to raw resources is enticing.
In a recent interview, Notley said her government is considering the options to get more value-added out of the petrochemical industry, particularly as energy prices remain in the doldrums.
“We’ll probably have some stuff to rollout about that very early in the new year. There’s no question, we’re always looking at ways to incent or otherwise partner to bring about (value) upgrading,” she said.
Methanex already employs about 125 workers in Alberta to produce an organic chemical used in products such as plastics, foams, resins, paints and pharmaceutical items. Its submission to the panel said its proposed project would create about 1,000 jobs during construction and 50 permanent positions.
The Williams facility would directly create 80 full-time jobs, with another 1,500 construction positions at its peak.
Alberta has cheap propane feedstock that would make the facility economically feasible, but Chappell notes construction costs remain about 30 per cent above competitors such as the U.S. Gulf Coast.
That leads to the question of government incentives.
“People always say why should the Alberta government give money to industry, and it’s important people understand there’s a lot of opportunities for money to go elsewhere and it’s hard to compete globally on things if our costs are so much higher,” Chappell said.
“So it’s an investment in the future, and investment in jobs and it’s an investment in getting rid of the cyclical nature of our Alberta government revenues.”
Dwarfed by the oilpatch’s shadow, Alberta’s petrochemical industry reported $14 billion in sales last year, with mainly gas and natural gas liquids — particularly ethane and methane — converted into an array of value-added products.
Industry proponents say the combination of low commodity prices and surplus feedstock supplies have created the potential for new petrochemical facilities in the province.
The Chemical Industry Association notes that across North America, there are up to $150 billion in projects underway, announced or anticipated, and its submission says “the royalty system can be an effective tool in providing economic diversity and responsible development.” It says programs could be designed to encourage the upgrading “through improving the availability of competitive-valued feedstock.”
“There are different ways you can incent and encourage companies to come in,” said association vice-president David Podruzny. “If you want economic diversification, you probably want to build off your strengths.”
Alberta’s Industrial Heartland Association, which represents 40 companies in Canada’s largest hydrocarbon processing centre northeast of Edmonton, noted current royalty rates are the same whether feedstock is processed in the province or exported as a raw commodity.
It wants a system that “positively rewards processing of energy commodities like methane and propane within Alberta.”
Executive director Neil Shelly said billion-dollar projects, like the one proposed by Williams, are “shovel-ready” in Alberta.
“If they get a nod from the government on a program, they could virtually start construction and start employing people tomorrow,” he said. “There’s some real immediate low-hanging fruit.”
Putting taxpayer money on the line comes with political repercussions, however. Economic Diversification Minister Deron Bilous said he has met with industry to discuss opportunities, but the NDP government hasn’t made any decisions yet on if it will offer incentives.
“The value-added (sector) really does mean high-paying, quality jobs that stay here in the province. If we have a choice between shipping raw resources or shipping a more upgraded or value-added product, we’ll take the latter,” he said.
“We need to ensure that it makes sense. I mean, when we’re talking about spending taxpayer dollars, we have a responsibility … to always ensure we’re getting the best value for our dollar.”
Opposition MLAs urged caution about using royalties to pick winners in business. Wildrose MLA Derek Fildebrandt noted “government haven’t historically proved to be particularly good gamblers with taxpayers money.”
“The government would be well served to focus on stimulating industries we have that are hurting, rather than focusing on corporate welfare schemes to create ones that don’t exist,” he said.
Likewise, Tory Leader Ric McIver said it’s important to recognize taxpayer money is at risk.
“Philosophically I don’t like the idea of government being in the business of being in business. Realistically, government support of the oilsands historically is why they exist today,” he said.
“The government will be judged either harshly or kindly based on whether they’re right or wrong about these things.”
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