Alberta Petrochemical

Transcription

1 Alberta Petrochemical Industry Tom Pearson November 15, 2006

2 Alberta Petrochemical Industry - History Proposed in 1974 by Premier Peter Lougheed in response to demand for Alberta oil by Ontario petrochemical industry didn t want to ship petrochemical jobs to Sarnia Alberta had been investigating ethane based petrochemical manufacturing technology The Lougheed government felt that Alberta should have its own petrochemical industry to diversify the economy Pg. 2

3 Alberta Petrochemical Industry - History Initial Corporate Involvement Dow Chemical Canada Alberta Gas Trunk Line Alberta Gas Ethylene Dome Petroleum Construction Period: Startup of New Facilities: September 1979 Pg. 3

4 Alberta Petrochemical Industry Original Facilities Alberta Gas Trunk Line (AGTL) Alberta Natural Gas extraction/straddle plant in Cochrane Empress extraction/straddle plant Alberta Ethane Gathering System (AEGS) supplied ethane from Cochrane and Empress to AGE E- E 1 ethylene plant in Joffre Pg. 4

5 Alberta Petrochemical Industry Original Facilities Alberta Gas Ethylene (AGE) - Joffre Alberta Gas Ethylene established by Alberta government and eventually became part of NOVA E-1 1 Ethylene Plant (Ethane Cracker) Ethylene Pipeline to Dow Fort Saskatchewan Diamond Shamrock Alberta Gas (now Oxyvinyls) ) PVC - Scotford Pg. 5

6 Alberta Petrochemical Industry Original Facilities Ethane Feedstock Regulations Alberta Petrochemical Industry had First Call on all ethane feedstock Supply and Price of Ethane feedstock guaranteed by Alberta government Exports of ethane limited to amounts not required by Alberta Petrochemical Industry Pg. 6

7 Alberta Petrochemical Industry Original Facilities Dow Chemical Canada Fort Saskatchewan Ethylene Dichloride/Vinyl Chloride Monomer Chlor-Alkali (Chlorine and Caustic) Ethylene Oxide/Ethylene Glycol Ethylene Storage Wells Power and Utilities Two Cogen Power Units Pg. 7

8 Alberta Petrochemical Industry Original Facilities Dome Petroleum 1800 mile Cochin Pipeline from Fort Saskatchewan to Sarnia, Ontario Products shipped: Ethylene to Dow Chemical Canada, Sarnia,, Ontario facilities Pg. 8

9 Alberta Petrochemical Industry Original Facilities Dome Petroleum Products shipped: Ethane (amounts not required by Alberta petrochemical industry) Propane Pg. 9

10 Alberta Petrochemical Industry Expansions Alberta Gas Ethylene E-2 E 2 Ethane Cracker Joffre Alberta Gas Ethylene Polyethylene Joffre (Unipol process licensed from Union Carbide) Dow Chemical Train 1 Polyethylene Fort Saskatchewan Pg. 10

11 Alberta Petrochemical Industry Expansions Union Carbide (now Dow Chemical) P1 Glycol - Prentiss Shell Chemical Styrene - Scotford ICI (now AT Plastics) Polyethylene - Edmonton Celanese Vinyl Acetate and Methanol - Edmonton Pg. 11

12 Alberta Petrochemical Industry Expansions Dow Chemical LHC-1 1 Ethane Cracker Fort Saskatchewan Dow Chemical Natural Gas Liquids Fractionator Fort Saskatchewan (JV with Shell Canada) Dow Chemical Train 2 Polyethylene Fort Saskatchewan Pg. 12

13 Alberta Petrochemical Industry Expansions Union Carbide (now Dow Chemical) P2 Ethylene Glycol Prentiss All existing Dow Ethylene derivative plants expanded (Chlor ( Chlor- alkali, VCM/EDC, EO/EG, Polyethylene) Celanese expanded extruded Cellulose Acetate Pg. 13

14 Alberta Petrochemical Industry Expansions Dow Chemical LHC-1 1 Ethane Cracker 100% Expansion Fort Saskatchewan Dow Chemical Train 3 Polyethylene Fort Saskatchewan Pg. 14

15 Alberta Petrochemical Industry Expansions NOVA E-3 E 3 Ethane Cracker Joffre (50% JV with Union Carbide now Dow Chemical) NOVA Sclairtech Polyethylene Joffre NOVA Cogen Power Units (4) - Joffre Amoco Linear Alpha Olefins (LAO) Plant - Joffre Pg. 15

16 Alberta Petrochemical Industry Expansions Union Carbide (now Dow Chemical) LP7 Polyethylene - Prentiss Dow Chemical Third Cogen Power Unit Fort Saskatchewan Shell Canada Ethylene Glycol Scotford NOVA Joffre Ethane Extraction Pg. 16

17 Alberta Petrochemical Industry Expansions Shell Chemical Cogen Power Unit - Scotford Shell Canada Cogen Power Unit Scotford Pg. 17

18 Alberta Petrochemical Industry Expansions Alberta Petrochemical Industry annual revenue now approaching $9 Billion per year Second largest industry in Alberta Pg. 18

19 Alberta Petrochemical Industry Expansions Total Alberta Petrochemical Industry 7000 direct jobs & 14,000 indirect jobs Total Salary $1.7 Billion per year Alberta income tax paid: $168 million per year Alberta property tax paid: $92 million per year Pg. 19

20 Alberta Petrochemical Industry DECLINE 2001 Celanese Vinyl Acetate, Acetic Acid, Formaldehyde & Penta Erythrol plants shutdown Loss of 310 direct jobs & 620 indirect jobs Alberta salary reduction of $75 million per year Alberta income and property tax reduction of $10 million per year Pg. 20

21 Alberta Petrochemical Industry DECLINE 2002 Dow Chemical 1968 Chlor-alkali plant shutdown Loss of 35 direct jobs & 70 indirect jobs Alberta salary reduction of $8.4 million per year Alberta income and property tax reduction of $1.6 million per year Pg. 21

22 Alberta Petrochemical Industry DECLINE 2003 Dow Chemical Fort Saskatchewan $75 million Ethane Cracker expansion delayed indefinitely Pg. 22

23 Alberta Petrochemical Industry DECLINE 2005 Celanese Cellulose Acetate I (cigarette tow) plant shutdown Loss of 200 direct jobs & 400 indirect jobs Alberta salary reduction of $48 million per year Alberta income and property tax reduction of $7 million per year Pg. 23

24 Alberta Petrochemical Industry DECLINE January 2006 Oxyvinyls PolyVinyl Chloride resin plant shutdown Loss of 55 direct jobs &110 indirect jobs Alberta salary reduction of $13 million per year Alberta income and property tax reduction of $2.6 million per year Pg. 24

25 Alberta Petrochemical Industry DECLINE March 2006 Dow Chemical Vinyl Chloride Monomer plant shutdown Loss of 40 direct jobs & 80 indirect jobs Alberta salary reduction of $10 million per year Alberta income and property tax reduction of $1.7 million per year Pg. 25

26 Alberta Petrochemical Industry DECLINE October 2006 Dow Chemical Ethylene Dichloride and Chlor-alkali plants shutdown Loss of 220 direct jobs & 440 indirect jobs Alberta salary reduction of $53 million per year Alberta income and property tax reduction of $7.6 million per year Pg. 26

27 Alberta Petrochemical Industry DECLINE April 2007 Celanese Cellulose Acetate II and Methanol plants shutdown Loss of 240 direct jobs & 480 indirect jobs Alberta salary reduction of $58 million per year Alberta income and property tax reduction of $8 million per year Pg. 27

28 Alberta Petrochemical Industry DECLINE Total Cost of Celanese Site Shutdown Loss of 750 direct jobs & 1500 indirect jobs Alberta salary reduction of $180 million per year Alberta income tax reduction of $18 million per year Alberta property tax reduction of $7.5 million per year Pg. 28

29 Alberta Petrochemical Industry DECLINE What Happened?? Pg. 29

30 Alberta Petrochemical Industry ISSUES High cost natural gas in North America Alliance Pipeline and other ethane supply constraints Lack of petrochemical industry investment incentives in Alberta Pg. 30

31 Alberta Petrochemical Industry Natural Gas High cost natural gas has made North American industry uncompetitive North American natural gas production forecast to be flat at best Increased North American natural gas demand due to population growth, new gas fired power plants, and oil sands development Pg. 31

32 Alberta Petrochemical Industry Natural Gas Historic US$1.00/MMBtu gas price differential compared to U.S. Gulf is now reduced MacKenzie Delta gas may help by pushing wetter gas currently burned for fuel in Fort McMurray south into central Alberta as long as new oil sands development doesn t use it all!! (alternative upgraders can gasify petroleum coke byproduct to produce fuel gas) Pg. 32

33 Alberta Petrochemical Industry Ethane Alberta petrochemical industry is currently short 30,000 40,000 BPD of ethane Alberta ethane royalty is the same as that for natural gas but is less than royalties for propane and butane Pg. 33

34 Alberta Petrochemical Industry Ethane Ethane is more valuable as a feedstock than as a fuel, i.e. Albertans are not receiving full resource value for ethane New ethane extraction capacity expensive relative to existing at Empress and Cochrane applies to both deep cut and field extraction Petrochemicals from oil sands off- gases and byproducts even more expensive Pg. 34

35 Alberta Petrochemical Industry Ethane Additional extraction possible if Alberta is considered more competitive than U.S. Gulf in a North American context No economic incentives exist to encourage extraction of more ethane in Alberta, either via deeper cuts at Empress and Cochrane or via new field extraction plants that have access to existing collection pipelines Pg. 35

36 Alberta Petrochemical Industry Alliance Pipeline 2001: $5 Billion 3000 km natural gas and liquids pipeline from NW Alberta to Chicago (Alberta gov t.. removed original ethane export restrictions) Aux Sable Fractionator located 75 km SW of Chicago to extract liquids Ships BCF/day natural gas plus up to 80,000 BBL/day natural gas liquids consisting of ethane, propane, and butane (30,000 40,000 BBL/day ethane ½ from NE B.C.) Pg. 36

37 Alberta Petrochemical Industry Alliance Pipeline Ethane extracted at Aux Sable fractionator is sold to Equistar which produces ethylene and ethylene derivatives (export of manufacturing jobs to U.S.) Ethane formerly supplied to Equistar from U. S. Gulf is now available to ethylene producers in Texas and Louisiana (Dow Chemical has six ethane crackers in the U. S. Gulf) Thanks, Alberta!! Pg. 37

38 Alberta Petrochemical Industry Alliance Pipeline Shipping tariffs are based on volume so pipeline economics are optimized by maximizing higher BTU liquids in the gas stream (NGL s ( are the basis of the pipeline economics) Export of NGL s is subsidized by natural gas Pg. 38

39 Alberta Petrochemical Industry Alliance Pipeline Alberta is no longer on the petrochemical industry expansion radar screen Why? Availability of economic ethane feedstock is very uncertain A significant piece of the Alberta Advantage is now viewed as exported to the U.S. Gulf as well as Alberta jobs Pg. 39

40 Alberta Petrochemical Industry Alliance Pipeline Alliance Pipeline was a watershed event, a paradigm shift for the Alberta Petrochemical Industry equivalent to moving all Canadian auto manufacturing to Detroit or Canadian aircraft manufacturing to Boeing in Seattle Pg. 40

41 Alberta Petrochemical Industry Dow Strategy Future expansions of Alberta ethylene and ethylene derivative plants are no longer considered due to ethane supply concerns Alliance Pipeline exacerbated an already tight Alberta ethane supply situation Investment in the Alberta Petrochemical Industry ceased with startup of the Alliance Pipeline Pg. 41

42 Alberta Petrochemical Industry Dow Strategy Ethane formerly supplied to Equistar now available to Dow plants in U.S. Gulf (Thanks, Alberta!!) New Dow petrochemical investment now in Kuwait, Oman, Saudi Arabia, Malaysia and eventually China Pg. 42

43 Alberta Petrochemical Industry Investment Incentives Increase provincial royalties on extracted ethane intended for export (possible NAFTA issue but not necessarily) Ten year property tax exemption on new manufacturing facilities - are routinely available in Texas and Louisiana Restore Manufacturing and Processing Tax Credits Pg. 43

44 Alberta Petrochemical Industry Investment Incentives Restore 3-year 3 writeoffs for new manufacturing facilities. 25%-50% 50%- 25% CCA rates were in place until late 1980 s Restore Investment Tax Credits. ITC was 7% in 1984, phased out by 1988 Energy and Water Conservation Tax Credits Zero or low interest rate loans Pg. 44

45 Alberta Petrochemical Industry Investment Incentives Government guaranteed loans R&D investment incentives Flow-through tax treatment for new manufacturing investments Government infrastructure investment Promote upgrading of tar sands by- products and off-gases instead of burning them for fuel Pg. 45

46 Alberta Petrochemical Industry Investment Incentives Venture capital incentives Industry/government partnerships (example: SGF/Petromont in Quebec) Reduce provincial royalties on ethane at wellhead and upgraders to encourage local extraction (has been recently announced but only on incremental ethane) Pg. 46

47 Alberta Petrochemical Industry Ethane Policy Develop a long term ethane feedstock policy for the province incorporating both legislative and financial instruments to promote upgrading of Alberta s resources instead of exporting them at the first exportable level!! This also applies to bitumen and bitumen by-products!! Pg. 47

48 Alberta Petrochemical Industry Ethane Policy Support an economically viable ethane extraction system to gather Alberta ethane Keep sufficient quantities of Alberta ethane in the province required by the petrochemical industry for capacity operation (similar to Alberta government policy in the 1970s) Pg. 48

49 Alberta Petrochemical Industry Ethane Policy The Premier of Alberta likes to state that the Alberta government is not in the business of being in business. However, the Alberta government made the business decision to allow the export of Alberta ethane via the Alliance pipeline and as such is obligated to rectify the hugely negative effects of that decision. Pg. 49

50 Alberta Petrochemical Industry FUTURE RISK Direct shipment via pipelines of Alberta oil sands bitumen to U.S. refineries or to Kitimat/Prince Rupert for upgrading in the Far East will limit future oil sands upgrading in Alberta and represents a huge export of Alberta jobs to the U.S. and the Far East Pg. 50

51 Alberta Petrochemical Industry FUTURE RISK Export of Alberta oil sands bitumen to U.S. refineries or to the Far East for upgrading also guarantees the upgrader by- products, including ethane, propane and butane, will not be available for the Alberta petrochemical industry Pg. 51

52 Alberta Petrochemical Industry Q & A Pg. 52