The oilsands could prove to be Alberta's winning hand in developing its petrochemical sector, if industry and government play their cards right, researchers say.
"We can get sufficient and sustainable supplies of (petrochemical) feedstock from our oilsands industry to produce compounds such as ethylene and propylene," says Duke du Plessis, a senior adviser to both the Alberta Energy Research Institute and Alberta Economic Development, a pair of provincial government agencies.
Propylene in particular, he says, is in high demand, with a global growth rate of about five to six per cent each year. Because the compound is a useful plastic found in many products, companies worldwide are eagerly searching for new supplies.
By bringing oilsands production into the picture, du Plessis says Alberta can easily double current feedstock levels being supplied to the province's petrochemical producers.
"Of course, we have so much (heavy oil) supply that we could produce whatever the market could bear" in terms of petrochemicals, as well as refined products such as gasoline, diesel and jet fuel, du Plessis adds.
It's a message du Plessis will share with delegates at a petrochemical conference in Kananaskis next week, staged by the Canadian Energy Research Institute (CERI), a non-profit energy research group.
Adding value to Alberta's resources is both "a policy and a vision" for the government, du Plessis adds, but will require serious commitments from both the public and private sectors to become a reality.
"Right now the government is identifying the opportunities we have before us, but clearly this sort of future, where we're adding value to our product, must be jointly done by industry and government."
This "value-added" message has been resonating around Canada's energy industry for the last few years and has intensified in recent months. At an energy conference held in April, for example, an Alberta Energy official said the province was poised to reap the benefits of upgraded petroleum products.
But to be in this position by 2020, industry must ramp up its heavy oil upgrading capacity to two million barrels per day (b/d) from the current one million b/d, and to increase its refining capacity to one million b/d from 400,000 b/d today, says Soheil Asgarpour, oilsands business unit leader with Alberta Energy.
Graeme Flint, vice-president of strategic development and joint-venture management for Nova Chemical Corp., agrees with that logic, saying there is no reason why Alberta should not be refining bitumen for hungry markets in the U.S. Midwest and California, in addition to expanding its petrochemical sector. Instead of building or modifying refineries at downstream locations, he advocates a serious investment closer to home.
Flint sees Alberta's current business model - focusing on shipping raw materials such as crude oil and natural gas south of the border - as a fundamental problem. By solely exporting raw resources, the province is missing out on billions of dollars of revenue in value-added products.
"The petrochemical industry adds significant value," he says. "It can be upgraded for export to the North American and international marketplace."
Canada's petrochemical industry currently relies heavily on natural gas liquids (NGLs) from natural gas to provide the feedstock to maintain the province's output of chemical products. But a tight supply and growing demand is placing limits on growth, Flint says, adding that his own company will hold off on expansion "until we can see some significant increase in the additional supply of feedstock.
"What we're seeing, as far as natural gas is concerned, is a plateauing of that production and to some extent a reduction in traditional natural gas output, which is being replaced by coalbed methane production," which doesn't contain ethane or other NGLs needed for petrochemical production.
Flint says Canada has a huge potential for producing value-added commodities, given the size of its hydrocarbon resource base. He advocates following Saudi Arabia's example of approaching other countries - as the oil-producing giant has done with India - to encourage them to invest in refineries close to the production.
"Maybe Alberta has to look at that kind of model and say: 'We need to reach out to downstream industries and countries and invite them to invest' " in refineries and petrochemical plants in Alberta.
Given the petrochemical potential, the time is ripe to bring on frontier natural gas supplies, says Michel Scott, vice-president of government and public affairs for Devon Canada Corp.
"We're drilling up a storm, but supply is just not responding in the same manner; prices are up, demand is still very strong, so it's a perfect time to bring on new sources of supply," says Scott, who will speak to conference delegates on the issue.
Bringing these new supply sources onstream, however, is proving to be an arduous task. Gas from the proposed Alaska project, which would offer petrochemical companies a massive and steady gas supply rich in NGLs, is moving slowly and is at least 10 years away, in Scott's view.
The smaller Mackenzie gas project, meanwhile, is mired down in land-claim issues between the federal government and some First Nations groups, a fact Scott believes could push the start date back from about five years to as much as 10 years. Other sources, such as gas from Arctic islands, are several years away.
"My message to (petrochemical officials) will be, 'Guys, where I thought we'd be seeing some supply increases in five years, the horizon is more like five to 10 right now.' My conclusion is that it just doesn't seem like there's a lot of relief in sight."
This year's version of the annual petrochemical conference has drawn more attention than those of past years, says CERI senior director of research George Eynon. Delegate registration has reached an all-time high, something he chalks up to a renewed interest in Alberta's petrochemical sector.
"In the energy industry there's a bit of a buzz (about petrochemicals) going on. A lot of oil and gas producers are looking at where they can put their product" beyond traditional markets, Eynon says.
Petrochemical production is one of the largest manufacturing industries in Alberta, according to the provincial government, accounting for over $8 billion worth of products and $4 billion in exports each year, and an annual production capacity of 8.6 billion pounds. The industry directly employs more than 6,500 Albertans with a combined payroll of nearly $400 million.
Web Watch: www.ceri.ca (John Ludwick can be reached at ludwick@businessedge.ca)
