The state of the petrochemical industry and how the midstream market is impacted

The petrochemical industry is Canada's third largest manufacturing sector, exporting almost 2 thirds of production. Alberta's petrochemical advantage was outlined in this presentation. Alberta's abundant natural resources and progressive business climate have contributed to the growing interest of investors. Other advantages include proximity to natural gas resources; secure supplies of natural gas and gas liquids; and favourable government policies. It was suggested that the petrochemical industry took root in Alberta because of a distinct natural gas feedstock price advantage. However, high natural gas feedstock prices have brought the industry to a crossroads. Petrochemicals consume over half of Alberta's industrial gas use, and 75 per cent of the operating expenditures in petrochemical plants are tied up in feedstock costs. It was noted that Middle East gas is priced at one fifth of North American gas, and that volatility and maturing gas basins affect supply and increase cost. Excess natural gas pipeline capacity has tightened basis differentials. Nearly half of liquefied natural gas (LNG) terminals are strategically placed along the U.S. Gulf coast. Transportation costs and the distance of haul inequities were discussed. It was noted that the sales volume of basic chemicals and plastics fell by 2 per cent in 2003. However, chemical export revenues rose 12 per cent in 2004. Details of World and North American ethylene demand, capacity and operating rates were provided, as well as cash costs and regional averages in 2004. Various downstream integration opportunities include the use of hydrogen in refinery integration; capturing carbon dioxide rich sources for enhanced oil recovery; capitalizing on the potential for propylene derivative plants; crude butadiene; and pyrolysis gasoline. It was concluded that a sustained global recovery in the petrochemical industry must reflect a change in business strategy. Although the Alberta petrochemical industry is still at risk, opportunities for growth still exist. refs., tabs., figs