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it was a matter of. was not a matter of chance ;. choice . “. ”. Our economic success. - Former U.S. President Bill Clinton. Choosing to Succeed : -through Value-added Upgrading in Alberta. Gregory A. Howard

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Our economic success

it was a matter of

was not a matter of chance;

choice.

Our economic success

- Former U.S. President Bill Clinton


Choosing to succeed through value added upgrading in alberta

Choosing to Succeed :-through Value-added Upgrading in Alberta

Gregory A. Howard

Commercial ManagerOlefin Feedstocks and Natural Gas LiquidsDow Chemical Canada Inc.


Choosing to succeed
Choosing to Succeed

  • Outlining Alberta’s Petrochemical Advantage

  • Meeting Challenges

  • Competing Globally

  • Choosing Opportunities


The chemical industry in canada a keystone of the economy
The Chemical Industry in Canada:A Keystone of the Economy

Chemistry

Discovery and Innovation

Better Products

Social and Economic Benefits

Improved Quality of Life


Alberta s petrochemical advantage
Alberta’s Petrochemical Advantage

  • Alberta’s abundant natural resources and progressive business climate caught the attention of gas consuming investors.

  • Proximity to natural gas resource.

  • Secure supplies of natural gas and gas liquids.

  • Favourable government policies.

  • Feedstock price advantage.


Alberta’s Petrochemical Advantage

The petrochemical industry took root in Alberta because of a distinct natural gas feedstock price advantage and as a result, Alberta has thrived.

  • Largest petrochemical producing area in Canada second only in North America to the USGC

  • >$9 Billion in annual production

  • >$5 Billion in annual exports

  • 6500 direct jobs

  • Additional 16,000 indirect jobs

  • >$220 Million in annual tax revenue

  • 6th largest manufacturing sectoremployer in Alberta


Meeting challenges
Meeting Challenges

  • High natural gas feedstock prices have brought the industry to a crossroads.

  • As an industry, petrochemicals consumes over 380 Bcf/gas per year . . .

  • that’s over HALF of Alberta’s industrial gas use.

  • or, a $2 billion gas bill . . . without the residential rebate program.

  • and, for a petrochemical plant, fully 75% of operating expenditures are tied up in feedstock costs.


Alberta s petrochemical advantage has eroded

Meeting Challenges

ALBERTA’S PETROCHEMICAL ADVANTAGE HAS ERODED

  • Middle East gas priced at 1/5 of North American gas.

  • Seasonal volatility of border gas flows and maturing gas basins affect supply and increase cost.

  • Excess natural gas pipeline capacity has tightened basis differentials.


Alberta s petrochemical advantage has eroded1

Meeting Challenges

ALBERTA’S PETROCHEMICAL ADVANTAGE HAS ERODED

  • Midstream asset margin squeeze.

  • Nearly HALF of liquefied natural gas (LNG) terminals strategically placed along US Gulf Coast.

  • Little flexibility because Alberta’s petrochemical industry was built on a single feedstock.


Usgc vol ethylene feedstock
USGC Vol% Ethylene Feedstock

Ethane

Naphtha

Propane

Data courtesy of PetralConsulting Company


North american ethylene cash cost comparison
North American Ethylene Cash Cost Comparison

Compressed Alberta ethylene margin


Gas basis differential squeeze pennies do make a difference

Meeting Challenges

Gas basis differential squeeze . . . pennies DO make a difference.

  • Excess/stranded pipeline capacity elevates cost for less product.

  • Transportation cost hikes of just 10¢/GJ increases annual costs to industrial gas consumers by $40 million.

  • Real or perceived North American gas supply shortfalls due to declining domestic production.

  • It’s a matter of plants running . . . or not.


Choosing opportunities
Choosing Opportunities

  • Alberta is poised to regain its foothold as market leader in the North American petrochemical industry . . .

  • Enjoyed 2 years of relatively good prosperity globally following five years of petrochemical recession.

  • Alberta didn’t participate as fully as it should have.

  • Frontier feedstock supplies can help restore Alberta’s petrochemical advantage.



Prudhoe Bay

TransCanada Pipeline

Mackenzie Valley Pipeline

Alaska Pipeline

Alliance Pipeline

Inuvik

MacKenzie Valley

Gas 2011 ~1.5 Bcf/day

Frontier

Supplies

4 Primary Ethane Pools

1. Straddle Plants

2. C2+ Mix

3. Oil Sands

4. Frontier Gas

Alaska Gas

2016

4-5 Bcf/day

Oil Sands

Ethane/Ethylene

C2+

Fractionator Feed in

Ft. Saskatchewan

Straddle Plants

Spec C2

Alberta Ethane Supply Pools


% Operating Rate

110

105

100

95

90

85

80

75

70

% Operating Rate

North America Ethylene Demand, Capacity & Operating Rate

(provided by CMAI)

Million Metric Tons

40.0

35.0

30.0

25.0

20.0

15.0

10.0

5.0

0.0

99

00

01

02

03

04

05

06

07

08

09

Demand 0.4 / 0.8 *

Capacity 1.4 / 0.9 *


Million Metric Tons

% Operating Rate

160.0

110

140.0

105

120.0

100

100.0

95

80.0

90

60.0

85

40.0

80

20.0

75

0.0

70

99

00

01

02

03

04

05

06

07

08

09

Demand 3.3 / 4.6 *

Capacity 3.6 / 5.0 *

% Operating Rate

*%AAGR 99-04 / %AAGR 04-09

WorldEthylene Demand, Capacity & Operating Rate

(provided by CMAI)


2004 Global Ethylene Cash Costs

Regional Averages as of September 2004

(provided by CMAI)

US $ Per Ton

750

USGC Natural Gas = $5.85/MM Btu

650

Brent Crude = $36/Bbl

North America

Wt'd Avg = $464/ton

550

Average US Feedstock Basis

West Europe

450

Wt'd Avg = $350/ton

Northeast Asia

Wt'd Avg = $315/ton

350

250

Global ethylene demand for

Southeast Asia

Wt'd Avg = $280/ton

2004 is forecast to exceed

100 million metric tons

150

Middle East

Wt'd Avg = $130/ton

50

0

20

40

60

80

100

120

Cumulative Ethylene Capacity (Million Tons)


Choosing opportunities1
Choosing Opportunities

Alberta can compete and regain its foothold as market leader in NA . . .

  • Government policies allow for value added energy sector.

  • Alberta is able to sustain a viable industry until the frontier feedstocks arrive.

  • Alberta is able to regain our low feedstock cost advantage.


Choosing opportunities2
Choosing Opportunities

That means:

  • Ensuring that the right enabling framework of policies are put in place to promote upgrading Alberta’s vast resources into exportable manufacturing products.

  • Ensuring Alberta has access to northern gas and northern gas liquids.

  • Developing alternate fuel sources for electricity generation and oil sands extraction


Competing globally
Competing Globally

Sustained global recovery in petrochemical industry must reflect change in the way we do business.

  • Growth expected to occur outside North American geography.

  • New business reality: choosing excellence over growth and a sustainable industry through competitively priced feedstocks.


What is the ethane extraction project
What is the Ethane Extraction Project

  • Commisioned by Energy Minister Greg Melchin

  • Objective: Increase supply of ethane available to facilitate value-added upgrading in Alberta and encourage full optimization and possible expansion of the Alberta petrochemical industry.

  • EEP was conducted in two phases

    • Phase 1 – Petrochemical stakeholders and the Department of Energy

    • Phase 2 – Broader Stakeholder Consultation


Eep phase 1
EEP Phase 1

  • Reviewed the state of the industry – development of the burning platform

    • Supply/Demand validation

    • Developed five potential options, one of which was do nothing

    • Finding submitted to Minister Melchin in December 2005

    • Minister Melchin recommended proceeding with the “Extension of the Gas Cost Allowance (GCA) option.

    • Minister Melchin stated that the “Do Nothing” option was not an acceptable alternative.


Eep phase 2
EEP Phase 2

  • Broader Stakeholder Consultation

    • Included producers, pipeliners, mid-streamer, refiners, petrochemicals and government.

    • Series of weekly round table meetings held to refine the proposed GCA modifications

    • As part of Phase 2, Purvin and Gertz was commissioned by the broader stakeholder group to validate previous studies

      • P&G’s conclusions:

        • Ethane supplies have not kept up with demand

        • Additional ethane is available, it is more costly to extract

        • Current ethane feedstock shortfall is 25-30kb/d.

        • Incremental debottlenecking, could generate an additional 40kb/d demand.

        • Cost hurdles for new ethane supply could erode the Alberta Advantage


Eep gas cost allowance mechanism
EEP Gas Cost Allowance Mechanism

  • Expansion of the existing GCA mechanism

    • Option chosen because:

      • timely implementation

      • basic principals are already in place

      • consistent with current policies and royalty calculations

  • May require a minor modification to the Natural Gas Royalty Regulations.


Salient eep highlights
Salient EEP Highlights

  • Uses transferable royalty credits similar to the sulphur emissions control program

  • Ethane extraction facilities must meet certain qualifying criteria

  • Applies only ethane from conventional natural gas streams

  • Must be incremental ethane supply to the province

  • Total program funding will be capped

  • Program has a defined sunset.

  • Targets initial capital costs only, no O&M as in the field plants

  • Ministerial discretion

  • Each individual ethane project must prove direct and indirect value-added benefits to the government and Albertans.

  • Policy must be non-discriminatory – not targeted to one specific project


Summary
Summary

  • A healthy Alberta petrochemical industry is important to ALL

  • The Alberta advantage is at risk

  • The petrochemical industry is actively working to meet the industry challenges - head on

  • Opportunities for growth still exist however, the bar for success has been raised

  • Alberta continues to be a great place to do business, let’s work to ensure petrochemical viability.


Questions and answers
Questions and Answers

Our sustained success is certain if we choose it.

but we need the right environment to achieve it.


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