New petrochemical plants in Alberta are economically competitive with new facilities in four global hubs including the U.S. Gulf Coast, according to recent analysis conducted by the Canadian Energy Research Institute (CERI). CERI found that Alberta’s petrochemical plant total supply costs are reduced substantially by Western Canada’s oversupply of natural gas and its liquids including ethane, propane and butane; even in the context of carbon pricing. The conclusions, published in June, do not include the corporate tax and carbon tax policy changes that have been enacted by Alberta’s new provincial government under Premier Jason Kenney.
Even so, researchers ranked Alberta’s total petrochemical supply costs number one in every jurisdiction and context, both with carbon taxation and without. CERI modelled economics for new petrochemical facilities in Alberta, the U.S. Gulf Coast, Ontario and South Korea. For the Canadian jurisdictions, researchers used existing corporate tax rates and carbon pricing, as well as the federal government’s planned carbon tax of US$50/ton by 2022. “Alberta is a very competitive market, in particular because of the low feedstock prices and the current abundance of feedstock,” said CERI CEO Allan Fogwill.
CERI found that for facilities on the U.S. Gulf Coast, feedstock costs represent approximately 73 percent of a project’s total supply cost structure. That compares to 78% in Ontario, 83% in South Korea, and 67% for projects in Alberta. Consider propane feedstock, for example. For the first seven months of 2019, propane prices at Edmonton have averaged US$10.31/bbl compared to US$25/bbl at Mont Belvieu, Texas and US$36.78/bbl in the Far East, according to Sproule and GTI. During the same period, butane prices averaged US$12.88/bbl at Edmonton compared to US$25.20/bbl at Mont Belvieu.
CERI’s study assessed the different supply costs of ethane, propane, an ethane/ propane mix, LPG and naphtha for the petrochemical production of polyethylene (via steam cracking) and polypropylene (via dehydrogenation). Alberta’s supply costs stack up well compared to CERI’s other study jurisdictions, but there is worldwide competition for new projects in the petrochemical industry, Fogwill said. “[Supply cost] in and of itself is not likely to attract a lot of additional investment, because what we’ve seen in the past is that investment decisions are heavily swayed by local incentives,” he said, citing for example US$1.6 billion in tax breaks extended to Royal Dutch Shell for the US$6-billion Pennsylvania Petrochemicals Complex, which is currently under construction. In Alberta there are two integrated propane dehydrogenation and polypropylene facilities under construction, with a combined capital value of $8 billion. Together these projects have $500 million in committed future royalty credits from the Government of Alberta.
(Source Courtesy https://www.jwnenergy.com)