Minister McCuaig-Boyd at podium announcing Bill 1, Energy Diversification Act. Photo: Alberta Government
The Alberta government released more details of its downstream diversification strategy. Energy Minister Marg McCuaig-Boyd announced an expanded Petrochemicals Diversification Program that hopes to attract $10 billion of private investment and a new Petrochemicals Feedstock Infrastructure Program designed to make available more of the inputs for petrochemical processing.
Yesterday’s announcement, which follows recent plans to speed up commercialization of bitumen partial upgrading. is based upon recommendations from the Energy Diversification Advisory Committee, which released its report in late Feb.
Full disclosure: I was contracted to provide copy editing services for the final draft of the report.
Petrochemicals Diversification Program
Alberta will provide $500 million in royalty credits spread across four years beginning in 2020-21 for the second round of the Petrochemicals Diversification Program.
The first round, also worth $500 million, attracted two projects.
For instance, Calgary-based Inter Pipeline is building a $3.5-billion propane-to-polypropylene complex that already under construction in the Industrial Heartland complex near Fort Saskatchewan, creating an estimated 2,300 direct full-time jobs and 180 operational positions.
The Round 2 announcement was applauded by Inter Pipeline Senior VP David Chappell: “We are pleased that another round of this program has been announced because the incentives it provides, combined with abundant low-cost feedstock, place Alberta among the top locations to construct world-scale petrochemical facilities. Investments like Inter Pipeline’s Heartland Petrochemical Complex will support strong communities and Albertans for many years to come.”
But EDAC warned throughout its report that the window to build new facilities and compete for the rapidly expanding Asian market, especially China and India, is closing fast because other countries (think the Middle East and the United States) are also investing heavily in petrochemical expansion.
In fact, over the past decade the US enjoyed $185 billion of new capital in the sector while Alberta attracted just $4 billion.
Texas, Louisiana, Pennsylvania all have aggressive state strategies to attract and subsidize petrochemical investment.
Another $500 million that doesn’t kick in for three years is a drop in the bucket.
The government notes that the existing petorchemical industry employs more than 7,500 people directly with annual exports of $8.2 billion and is the largest the manufacturing sector in the province.
Does existing success not argue for a more aggressive approach that commits more money and starts much sooner?
Bob Masterson, CEO of the Chemistry Industry Association of Canada called Round 2 “an incredibly courageous move on the part of the Alberta government.”
What Alberta needs is more courage yet. Time is of the essence, according to EDAC, and Round 2 is simply not enough nor soon enough.
Petrochemical Feedstock Infrastructure Program
Another $500 million in loan guarantees and grants will underpin a Petrochemical Feedstock Infrastructure Program, spread over three years beginning in 2021-22, that will secure a larger supply of the raw materials needed by petrochemical manufacturing.
The investments would encourage industry to move forward on the facilities and infrastructure needed to capture more ethane (the primary focus), methane and butane.
“These developments could include new natural gas processing facilities, smaller projects built closer to wellheads or straddle plants, facilities that are built along major natural gas pipelines that can extract certain components during transportation,” the government’s press release said.
“These two programs complement each other because the greater and more stable the supply of these raw components, the greater the potential of attracting and supporting more value-added developments in Alberta.”
Too little and not soon enough
Round 2 of the diversification program and the infrastructure program combined with last week’s $1 billion of support for partial upgrading brings the Notley government’s commitment to downstream diversification to $2 billion that won’t be completely spend until the middle of next decade.
The programs are expected to “attract more than $10 billion in private investment, support roughly 8,000 construction jobs and create hundreds more operational jobs.”
A quick back of the cocktail napkin calculation suggests Alberta is planning to spend several billions over the next seven or eight years to roughly double downstream investment in the province.
Albertans understand provincial finances have been rocked by three years of downturn in the global oil and gas industry and money is tight.
When McCuaig-Boyd launched the Energy Diversification Act last week, her announcement included a comment from Lori Kent, executive director of the Resource Diversification Council, who claimed that her members have $20 billion in petrochemical projects that are looking for a home.
“If these projects are all built in Alberta, they would mean billions of dollars more for the province and the municipalities. Over their operating lifetimes, they would add $56 billion to Alberta’s and Canada’s gross domestic product,” Kent said.
If that’s true, why wait two to three years to make the funding available? Is there not a serious danger of having that $20 billion of private capital be wooed to a more agile jurisdiction?
Would Texas take a nap if there was money on the table for new job-creating, tax revenue-generating petrochemical plants?
The partial upgrading program starts earlier, in 2019, but most of the technologies are considered to be five to 10 years from commercialization, so Alberta won’t enjoy the benefits ($10 to $15 a barrel value uplift according to a School of Public Policy paper last year) for years yet.
The expanded petrochemical diversification and the feedstock infrastructure programs are a good start, but that’s all they are.
Premier Notley may want to consider getting on the hotline to Ottawa and asking Prime Minister Justin Trudeau to at least match Alberta’s contribution.
The provincial strategy is just too tepid.