A new 10-year, billion-dollar program in Alberta will award grants to companies to build new petrochemical facilities, pivoting the sector away from royalty credits that have long been used to try and entice sector investment to the province.
The Alberta petrochemicals incentive program, set to be announced Thursday, will cast a wide net, with cash available for any company that builds a new petrochemical facility in the province. It will run alongside Alberta’s current $1.1-billion petrochemicals diversification program, which continues to use royalty credits.
Dale Nally, the province’s Associate Minister of Natural Gas and Electricity, told The Globe and Mail the move to grants is “based on industry needs, not government desires.”
Royalty payments that energy producers make to government are a mainstay of Alberta’s resource economy. But unlike exploration and production companies, those in the petrochemical sector are not required to pay royalties, so they essentially sell those credits to energy producers on a government-created “grey market” at 90 cents on the dollar, Mr. Nally said.
With the energy market taking a beating from the pandemic-caused demand destruction, those credits have lost value and become even more difficult to sell, he added, making grants a more enticing option.
The petrochemical sector – fed by natural gas, methane, propane and ethane – accounts for about one-third of Alberta’s total manufacturing exports.
The new program underscores the value Alberta’s governing United Conservatives place on petrochemicals as a means of climbing out of the fiscal hole caused by the COVID-19 pandemic and oil price crash, even as BP PLC exits the sector, citing a shift to low-carbon energy.
The energy giant agreed to sell its global petrochemicals business to London-based Ineos for US$5-billion last month, but Mr. Nally said that doesn’t mean his government is betting on the wrong horse.
“Companies will always make business decisions that are made in the best interest of their shareholders, so BP made the decision they did. But don’t forget, it was picked up by another large-scale global chemical company that continues to expand its operations, so petrochemical is still an attractive industry to be in,” he said.
Indeed, the International Energy Agency has identified petrochemicals as a key driver of future global energy demand.
In a 2018 report, the IEA found demand for plastics – the most familiar group of petrochemical products – had nearly doubled since 2000. It forecast that the sector would consume an additional 56 billion cubic metres of natural gas by 2030, equivalent to about half of Canada’s total gas consumption at the time of the report.
Canada ranks 17th in the world in proven natural gas reserves, according to the federal government. Globally, it was the fourth-largest producer and sixth-largest exporter of natural gas in 2018, 69 per cent of which came from Alberta.
Under the new Alberta government program, every project that meets eligibility criteria will receive funding, Mr. Nally said, which removes the government from “picking winners and losers.”
“Our position is that we shouldn’t be in that business – we should let the merits of the business model determine its success,” he said.
The program won’t begin until the fall, but Mr. Nally said it was important to get the message out early so prospective recipients can build it into their business plans. That’s also why the program will run over 10 years, which better aligns with the long-term planning that accompanies petrochemical builds.
The Alberta government will work with industry over the summer to finalize program guidelines, including eligibility, process and reporting requirements.
Projects will only receive cash once they’re up and running, which Mr. Nally said will protect taxpayers from the “inherent risks” that come with grants. The amount will vary by facility, calculated according to the value of the project.
Petrochemicals play a crucial role in strengthening and diversifying Alberta’s economy, Mr. Nally said, and the current global health crisis underscores the sector’s importance as it pumps out essential personal protective equipment such as rubber gloves and masks.
“Right now, when people think world-class petrochemical facilities, they think Saudi Arabia, they think Louisiana,” he said.
“Our goal with this program is to make them think Alberta first.”
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Emma Graney