Williams Canada Plastic Project Seen Spurred by Alberta Benefits

  • Partners weighing $2.2-billion complex in Canadian first
  • Subsidies meant to diversify province from oil amid downturn

Prospects for a C$3 billion ($2.2 billion) petrochemical complex in Alberta led by Williams Cos. are brightening as the province seeks to diversify an economy dragged down by a slump in oil.

Alberta is offering incentives for the sector as Williams, the natural-gas pipeline company being purchased by Energy Transfer Equity LP, and Goradia Capital, a closely held chemical investor, prepare to decide this year whether to proceed with a project near Edmonton that would establish the plastics industry in Canada.

Already Canada’s leading producer of petrochemicals with four ethylene plants that use its abundant supplies of natural gas as raw material, Alberta is vying for investment primarily with Louisiana, where subsidies, a dense pipeline network and a larger labor pool reduce costs. The program, announced on Monday, will offer subsidies worth C$500 million for the construction of plants to make such products as plastics, detergents and textiles.

“Incentives like this are critical to get over that initial hurdle,” David Chappell, president of Williams’ Canadian division, said in a phone interview. Williams plans to apply for the benefits, which it will factor into the final investment decision, he said. “It’s difficult to get a new industry going.”

Petrochemical Complex

The complex, fed by propane from natural gas, would consist of a unit that removes hydrogen from the gas liquid to produce propylene run by Williams, and a facility to turn the propylene into plastic pellets operated by Goradia, as well as a gas-fired co-generation power plant.

The program is the latest effort by Alberta’s left-leaning government to revamp policies as the province’s oil and gas industry confronts a market downturn. Other measures include a royalty reviewannounced last week and new limits on carbon emissions and higher corporate taxes introduced last year. The royalty review highlighted opportunities to spur investment in gas and gas liquids helped by a simplified, and in some cases, lower payment structure for producers.

With the petrochemical subsidies, Premier Rachel Notleyis taking a page from Peter Lougheed, a former Progressive Conservative Alberta premier who in the 1970s offered similar benefits to the sector to use ethane as a feedstock to make ethylene and polyethylene. Lougheed’s efforts helped attract an industry that now boasts some of the world’s largest facilities and which has helped Alberta’s economy by expanding and stabilizing its exports, according to a report last year by the University of Calgary’s School of Public Policy.

Royalty Credits

Notley’s program aims to support C$3 billion to C$5 billion of capital investments with the potential for two to three new petrochemical facilities to be built. Qualifying investors will earn credits that can be used to pay royalties on natural gas production, or be sold to producers. The petrochemical industry has been lobbying for such perks for years.

Williams, which first announced plans to build an Alberta propane dehydrogenation facility in 2013, has been emphasizing the challenge of high capital costs in the province in talks with the government, Chappell said. Even Alberta’s dirt cheap propane, which producers couldn’t give away last summer, haven’t improved the profitability of such a plant because competitors are benefiting from similar market conditions and their own government incentives, he said.

Cheap Propane

Propane, a byproduct of the shale boom considered a gas liquid, has slumped throughout North America, and Alberta has seen some of the worst prices. The province’s stockpiles have risen after Kinder Morgan Inc. in 2014 reversed a pipeline that carried the fuel out of Canada, to deliver diluent to mix with oil-sands bitumen.

Manufacturers that use plastic pellets to make products such as yogurt containers and car bumpers are already indicating interest in setting up in Alberta to buy from Williams and Goradia if the project proceeds, rather than importing from the U.S., Chappell said. The complex would consume about C$250 million worth of propane a year and churn out almost as much plastic pellets as Canadian manufacturers import each year, he said.

“This is a huge value add for Canada and it changes the whole balance of trade,” Chappell said.

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