WoodMac: $500M investment in Canada petrochemicals industry - what are the opportunities and risks?
The provincial government of Alberta, Canada opened up the process for companies to apply for financial incentives to invest in petrochemical feedstock recovery (Petrochemical Feedstock Infrastructure Programs or PFIP) and petrochemical manufacturing (Petrochemicals Diversification Program – Round 2 or PDP2). The incentive programs will help to offset higher capital investment costs, tax structures, and carbon taxes relative to other jurisdictions that are attracting similar petrochemical investments (US Gulf Coast, China, Middle East).
The PFIP will help encourage private industry to invest in gas processing and straddle extraction plants in Alberta in order to capture more NGLs from existing natural gas pipelines. The incentives will take the form of $300 million in grants and $200 million in loan guarantees. A stable and competitive supply of additional feedstocks is a major concern for the Alberta petrochemical industry when studying new investments in petrochemical plants. If extracted, there is currently enough NGLs (particularly ethane) that is not being extracted from natural gas streams in order to provide enough feedstock for a world-scale ethylene plant in Alberta.
The PDP2 program will help to encourage private industry to invest in petrochemical facilities in Alberta that utilize methane, ethane or propane feedstocks. The incentives will take the form of $500 million in royalty credits, which petrochemical companies can trade with local oil and natural gas producers in exchange for lower feedstock prices. A similar PDP1 program for $500 million in incentives was previously announced in early 2016 to incentivize petrochemical investments in the methane or propane value chains in Alberta. Two companies were selected in late 2016: $200 million was awarded to Inter Pipeline’s $3.5 billion propane-to-propylene-to-polypropylene
Applications for the PFIP and PDP2 programs are due on 1st October 2018. The Alberta government will likely award PFIP incentives to midstream petrochemical feedstock providers and PDP2 incentives to 2-3 major petrochemical proposals in Q1 of 2019.
Below is an overview by WoodMac of the opportunities and risks for the Alberta petrochemical industry:
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