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| Ethane exports deflate Alberta's economic outlook - Wednesday, July 23, 2003 at 10:02 |
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Ethane exports deflate Alberta's economic outlook Tuesday, July 22, 2003 On Edmonton's eastern and northern border, giant petrochemical plants produce plastic for garbage bags, bottles and household cleaning products, and the ingredients for Styrofoam cups and anti-freeze. But the industry faces a shaky future without some serious planning to find new supplies of natural gas for feedstock, says Wall, executive director of Alberta's Industrial Heartland Association, a regional agency for Fort Saskatchewan and the counties of Lamont, Strathcona and Sturgeon. And that will require some leadership, he says. Wall is pointing in the right direction. What the province badly needs is a new petrochemical industry strategy. The traditional energy industry is undergoing a profound shift as conventional oil and gas supplies dwindle. More crude now flows from the oilsands than oil wells, and the most promising new natural gas supplies will likely come from the Northwest Territories. The success of the oilsands and the development of the region's sizeable petrochemical industry are a direct result of forward-looking policies by a provincial government almost two decades ago. Former premier Peter Lougheed actively pursued both as part of his sound plan to diversify the province's economy. The petrochemical industry has created thousands of jobs. Most importantly, it enables the province to extract more value from its natural gas production before the gas leaves the province. A few years ago, for instance, Nova noted that ethane removed from natural gas and converted into a petrochemical compound was 10 times more valuable than ethane exported from Alberta and burned as fuel. Recently, the record high prices of natural gas have narrowed that gap, squeezing the petrochemical industry's profit margins. Celanese Canada has been forced to close three of its six petrochemical plants in Edmonton. More critical, however, is the question of future supply. With natural gas supplies in decline, the industry can't expand. At best, it will stagnate, and at worst, it will head back south of the border where much of Alberta gas is now stripped of its more valuable components to feed American, rather than Canadian, petrochemical plants. The Klein government has known for years this crunch was coming. It is, in part, a result of a short-sighted decision taken in 1998 when the Alliance pipeline was approved. Until then, the Alberta government required that ethane first be stripped out before the rest of the gas was exported. That policy guaranteed feedstock for the petrochemical plants and enabled billions of dollars in investment to go ahead. The Klein government allowed that caveat to be lifted when U.S.-based Alliance came to Alberta to build the badly needed $4-billion pipeline that takes about 1.3 billion cubic feet of gas a day to Chicago. At the time, the government was more worried about moving shut-in Alberta gas (and taking the increased flow of royalties into government coffers) than about securing supplies for the petrochemical industry. There are no easy solutions to the future-supply problem. This spring, a study for the Alberta Energy Research Institute and industry partners proposed a $8.5-billion plant that would extract ethane from the oilsands. This would require a major initiative by industry and government, not unlike the effort it took to develop the oilsands in the 1980s. Years of research, capital investment and a high degree of industry co-operation would be needed, with government taking a leading role to encourage development of new technology and bring independent energy industry players together. Larry Wall says now is the time -- before the next wave of oilsands plants are built. "We're at a crossroads" he says. We can be content with shipping crude bitumen (for gasoline) from the oil- sands, There will be another opportunity for the Klein government to recapture valuable ethane flow when the Mackenzie Valley pipeline is built to bring gas from the Northwest Territories. That strategy will require very sophisticated negotiations with the NWT government and industry. Since the National Energy Board is the approving authority, and not the Alberta government, Alberta has no legal right to put conditions on those exports. But it could -- and should -- intervene at NEB hearings expected to begin next year to pitch the caveat that ethane must be stripped before this gas leaves the country. Or the Klein government could negotiate directly with the NWT government and the pipeline consortium consisting of the Aboriginal Pipeline Group, Imperial Oil, ConocoPhilips, Exxon and Shell. Long-term economic planning has never been the strong point of the Klein regime, and mostly that's been fine. But when it comes to our petrochemical industry, there's a crucial role for government to play. During the Kyoto battle, Klein recruited former premier Lougheed to help battle the federal government. Lougheed, who already says he's looking into the issues around the petrochemical industry, might be enlisted to play a role on this front too.
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