Ink barely dry on $4.5 billion deal for petrochemicals plant, Pembina eyes ethane opportunity

Ink barely dry on $4.5 billion deal for petrochemicals plant, Pembina eyes ethane opportunity

CALGARY – Days after signing off on a $4.5-billion propane-to-plastics plant in Alberta, the top executive at Pembina Pipeline Corp. said he’s been fielding calls about building another petrochemical plant.

“The phone is ringing, not just for propane but for ethane as well,” Pembina president and CEO Mick Dilger said in an interview with the Financial Post.

Earlier this week, Pembina and joint-venture partner Petrochemical Industries Co. of Kuwait announced they would build a $4.5-billion plant outside Edmonton to capitalize on an abundant supply of propane in Alberta to produce polypropylene, used in plastic products such as grocery bags and car parts.

Days after that decision, Dilger said there’s also an opportunity to get involved in another petrochemical project, but instead of using propane as an input, the plant would tap the province’s abundant ethane output. Ethane can be upgraded into polyethylene, which is used to manufacture a range of products including plastic garbage bins, cutting boards and construction materials such as drain pipes.

Both ethane and propane — as well as methane, butane and pentane — are by-products of drilling for natural gas in northwestern Alberta and north-eastern British Columbia.

“All forms of hydrocarbons are abundant in Western Canada,” Dilger said. “We’ve got way more than we can consume. We’re producing it at a five-to-one ratio. There’s no end in sight.”

Dilger would not say whether Pembina was one of the companies that had submitted a proposal for an ethane petrochemicals project to the Alberta government, but noted that the company has studied the potential for investing in such a project.

“We’ve done a comprehensive study about where the opportunities are,” Dilger said.

“You probably wouldn’t see Pembina doing something on its own, but we could do something with an industry-expert partner,” he said, adding the company partnered with PIC for its propane plant.

But it may face intense competition from rivals. There is so much propane, ethane and methane available in the province at low prices that chemical companies have submitted a total of 23 proposals to the Alberta government in an attempt to access $2.1-billion in royalty credits and other supports for projects that would cost a cumulative total of $60 billion to build.

All forms of hydrocarbons are abundant in Western Canada. We’ve got way more than we can consume…. There’s no end in sight.

Mick Dilger, CEO, Pembina Pipeline Corp.

The Alberta government, which did not respond to a request for comment, is expected to announce in the coming weeks the winners of the funding it has made available through its petrochemical diversification plan.

The petrochemicals industry expects the government to announce four or five projects out of the 23 submissions from the program, said Bob Masterson, president and CEO of Chemistry Industry Association of Canada.

“Most observers would be surprised if the new funds don’t include one new (ethane) cracker,” Masterson said.

Currently, Nova Chemicals and Dow Chemicals own ethane crackers in the province but Masterson said there is enough ethane supply to build a new facility.

If the Royal Dutch Shell Plc-led $40-billion LNG Canada project is built as planned, there could be a market for two more polyethylene plants in Alberta as a result of additional natural gas drilling, Masterson said.

The additional drilling would produce more propane, ethane and methane and potentially plants to process those liquid hydrocarbons.

Pembina and competitor Inter Pipeline Ltd. both applied for and won royalty credits from the Alberta government in its first round of funding through its petrochemical diversification project and both are now building propane-to-polypropylene plants in the province worth a cumulative total of $8 billion.

Dilger called the royalty credits “a true difference maker.”

“Had we not had those grants, we would not have gotten this over the finish line,” he said of the propane-to-plastics plant announced this week, which won $300 million in royalty credits from the government.

An ethylene plant, however, would likely be a more expensive undertaking, Masterson said. By way of comparison, Shell broke ground on a new US$6-billion ethane plant in Pennsylvania in 2017.

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