CALGARY – After losing out on investment dollars to the U.S. for decades, observers say Canada’s petrochemical industry is “back in the game” after Pembina Pipeline Corp. said it is proceeding with a new propane-to-plastics facility.
Calgary-based Pembina and joint-venture partner Petrochemical Industries Co. of Kuwait (PIC) announced they would build a new facility near Edmonton that will process 23,000 barrels of propane per day into polypropylene, a plastic used to make car parts, grocery bags and plastic-based currency.
Canada’s manufacturing sector currently relies entirely on imported polypropylene and analysts believe the Pembina facility — along with a similar, under-construction $3.5-billion project by Inter Pipeline Ltd. — will help cut imports, apart from selling the product internationally.
“Today’s announcement is the culmination of many years of hard work with our partner to develop a project that is well positioned to capitalize on Alberta’s abundant supply of propane,” Pembina president and CEO Mick Dilger said in a release.
Pembina’s share of the project’s capital costs will be $2.5 billion including a 50 per cent interest in the joint venture, which will own the plants, and a 100 per cent stake in the supporting facilities. The project is expected to be in service by mid-2023.
Credit ratings agency DBRS Inc. said the project would not impact Pembina’s credit profile as the company has secured long-term take-or-pay commitments from customers for the product.
The positive final investment decision was widely expected by analysts as the company had postponed a decision on the project last year as it sought binding off-take agreements.
“While likely not a complete surprise to the market, it is nevertheless encouraging to see the partners reach an FID on the (propane-to-plastics) facility, after earlier delaying the sanctioning due to the level of contracting for the facility,” Raymond James analyst Chris Cox said in a note.
Alberta Premier Rachel Notley said in a release the project would employ more than 3,000 people in the province at the peak of construction and contribute to the province’s economic diversification “by adding value to resources owned by all Albertans.”
The propane-to-plastics facility is also getting $300 million in royalty credits from the Alberta government.
Indeed, government credits received by both the Pembina joint venture and Inter Pipeline helped secure the two investments, according to Bob Masterson, president and CEO of the Chemistry Industry Association of Canada.
We’re now back in the game. For two decades, we got nothing
Bob Masterson, CEO, Chemistry Industry Assocation of Canada
“We’re thrilled as this is continuing a winning streak in the last 12 months in which we’re seeing over $8 billion invested in Alberta and over $10 billion in the country,” Masterson said.
“We’re now back in the game,” he said.
Prior to last year, there had been very few new investments in petrochemical projects in Canada for over two decades — a period he called a “losing streak,” Masterson said.
“For two decades, we got nothing,” Masterson said.
A recent members survey by the Chemistry Industry Association of Canada projected capital spending would jump by 65 per cent to $1.9 billion this year, the highest since $2.2 billion in 2014 and third-highest in a decade.
The survey suggested employment would rise by about four per cent or 640 jobs to 17,670 in 2019.
PIC chief executive Abdullatif Al-Farhoud said the project would help the Kuwaiti company expand its existing asset base in Alberta, a market “with long-term feedstock.”
Propane is a by-product of drilling for natural gas in the province’s prolific Montney formation, lying under much of northwestern Alberta.
Companies drilling in the Montney produce a mixture of gas and a concoction of such liquid hydrocarbons as propane, butane, ethane, pentane and others that are collectively called natural gas liquids, or NGLs.
… the Montney ‘has the potential to overwhelm any reasonable demand growth scenario that you throw at it’
RS Energy director Samir Kayande
“For the project proponents, it’s great. They can count on a lot of NGL supply to fill these things,” RS Energy director Samir Kayande said of the propane to plastics facilities.
There is so much natural gas and related liquids in the Montney that the formation “has the potential to overwhelm any reasonable demand growth scenario that you throw at it,” he said.
For instance, Kayande said between 2017 and 2018 producers in the Montney added 22,000 bpd of new propane supply in Alberta — roughly the capacity of the Pembina facility.
There are multiple petrochemical projects proposed in Alberta to soak up the supply of low-cost natural gas from the Montney and emerging Duvernay formations and the province expects to announce more royalty credits in the coming weeks for new proposals.
“It would have to be a great number of projects to really make a dent in the amount of gas you can get out of the Montney,” Kayande said.
With a file from The Canadian Press