Pembina Joins Fray to Build Canada's First Plastic Pellet Plant

  • Pembina Pipeline and Kuwait Petroleum study Alberta facility
  • Williams and Goradia also proposing complexes in the province

Pembina Pipeline Corp. has entered the race to establish a plastics industry in Canada, as it studies building a petrochemical complex with a unit of Kuwait Petroleum Corp.

Pembina, a Calgary-based company that transports and processes natural gas, is evaluating a propane dehydrogenation and polypropylene upgrading facility in Alberta with Petrochemical Industries Company K.S.C. to produce plastic pellets for export. The complex would tap into a glut of propane in Western Canada, consuming 35,000 barrels a day, and would produce as much as 800,000 metric tons a year of polypropylene, the companies said on Monday.

They join Williams Cos., the gas pipeline company being purchased by Energy Transfer Equity LP, and Goradia Capital, a closely held chemical investor, in considering an Alberta plastics plant. The provincial government is offering subsidies to spur development of the petrochemical industry as a downturn in oil and gas weighs on the economy. The project could help Pembina expand into a new line of business, according to Leon Frazer & Associates Inc.

“This could be a diversifier for them given low oil and NGL prices,” Rebecca Hazan, a Toronto-based associate portfolio manager at Leon Frazer, said in an e-mail, referring to natural gas liquids prices.

U.S. crude is down more than 60 percent from its high in mid-2014 amid a global glut, as the Organization of Petroleum Exporting Countries vies to maintain its market share.

Propane Glut

At the same time, propane, a byproduct of the shale boom considered a gas liquid, has slumped throughout North America, and Alberta has seen some of the lowest prices. The province’s stockpiles swelled after Kinder Morgan Inc. reversed a pipeline in 2014 that carried the fuel out of Canada, to import diluent to mix with oil-sands bitumen.

Spot prices for propane in Edmonton, Alberta, traded at 9 cents a gallon on Monday, an improvement over negative prices last year though still far off a high of $2.66 in January 2014, according to data compiled by Bloomberg.

Pembina and Kuwait Petroleum aim to decide whether to proceed in 2017 with the project, for which they haven’t disclosed an estimated cost. It’s targeted for startup in 2020. Williams and Goradia plan to decide on their C$3 billion ($2.32 billion) project this year.

Annual Meeting

Pembina, already the largest supplier of Alberta’s existing petrochemical industry, announced the potential investment ahead of an annual meeting with investors in Toronto on Monday.

“Developing this project represents another natural extension of our natural gas liquids value chain and is a logical step for additional seamless integration with our existing asset base,” Mick Dilger, chief executive officer of Pembina, said in a statement on Monday.

Petrochemical Industries Company, or PIC, is a producer of ammonia, urea fertilizer and polypropylene in Kuwait and is a subsidiary of the state-owned oil company. PIC already has a stake in Alberta’s petrochemical industry after establishing a joint venture with Dow Chemical Co. in 2004 called MEGlobal that gives it a 50 percent interest in Dow facilities including an ethylene oxide and ethylene glycol plant in Fort Saskatchewan, Alberta.

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