Major investment incentives for Canadian petrochemicals sector

On 8 June 2018, the provincial government of Alberta, Canada, opened up the process for companies to apply for financial incentives to invest in petrochemical feedstock recovery (Petrochemical Feedstock Infrastructure Programmes, PFIP) and petrochemical manufacturing (Petrochemicals Diversification Programme – Round 2, PDP2). Assessing the risk and opportunities posed by the financial incentives, Wood Mackenzie suggests the programmes will help offset higher capital investment costs, tax structures and carbon taxes relative to other jurisdictions that are attracting similar petrochemical investments, such as the US Gulf Coast, China and the Middle East.

The market analyst notes that the PFIP will help to encourage private industry to invest in gas processing and straddle extraction plants in Alberta in order to capture more NGLs from existing natural gas pipelines. The incentives will take the form of $300mn in grants and $200mn in loan guarantees. ‘A stable and competitive supply of additional feedstocks is a major concern for the Alberta petrochemical industry when studying new investments in petrochemical plants. If extracted, there is currently enough NGLs (particularly ethane) that is not being extracted from natural gas streams to provide feedstock for a world-scale ethylene plant in Alberta,’ says Wood Mackenzie.

The PDP2 programme will help to encourage private industry to invest in petrochemical facilities in Alberta that utilise methane, ethane or propane feedstocks. The incentives will take the form of $500mn in royalty credits, which petrochemical companies can trade with local oil and natural gas producers in exchange for lower feedstock prices. A similar PDP1 programme for $500mn in incentives was previously announced in early 2016 to incentivise petrochemical investments in the methane or propane value chains in Alberta. Two companies were selected in late 2016, according to Wood Mackenzie – $200mn was awarded to Inter Pipeline’s $3.5bn propane-to-propylene-to-polypropylene complex current under construction; and $300mn was awarded to Canada Kuwait Petrochemical Corporation’s (CKPC) planned $4bn propane-to-propylene-to-polypropylene complex that is expected to make a final investment decision (FID) in early 2019.

Applications for the PFIP and PDP2 programmes are due on 1 October 2018, with awards anticipated in 1Q2019.