Why companies are looking to Alberta to produce plastic

The trucktrafficatInter Pipeline's construction site northeast of Edmonton seems to never stop, nor does the work on the foundation of its$3.5-billion petrochemical complex.

It's full steam ahead for the project, which in roughly four years' time will begin turningpropane into polypropylenea high-value plastic used in things like chairs, piping, medical equipment and rugs.

It will be the first major petrochemical plant builtin Alberta in nearly two decades.

"Canada doesn't produce anypolypropylene but we import about $1 billion a year ... so we're going to change that," said David Chappell, senior vice-president of petrochemical development for Inter Pipeline.

"And that's important for Canada, to become less hewers of wood and drawers of water. Now, we'll actually add value."

Canada's resourcesector has takenits share of knocks recently as capitalinvestment has raced totheU.S., enticed by the oil boom, tax cuts and loosening of regulations.

Despite the stiff competition, Alberta is starting to stirup interest from theAmerican petrochemical sector, thanks in part to its abundant supply of natural gasand somegovernment incentives.

Growing interest

Provincial and municipal officials in northern Alberta say they are being approached byinternational companiesabout potential opportunities in the region.

Earlier this year,DowDuPont CEO James Fitterling told Bloomberg that U.S tariffs on steel imports might spurthe company to lookto Canada as the site of its nextmajor petrochemical facility.

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For longtime followers of the sector, there's reason for optimism.

"Ithink people are coming around and saying it's worth a second look now for the first time in probably 20 years," said PeterTertzakian, an economist and executive director of the Arc Energy Research Institute.

The worldwide petrochemical business has experiencedstrong growth for more than decade.

Demand for end-use products like polymers, thermoplastics and synthetic fibres, particularly in emerging markets with rising standards of living,is helping to drivegrowth.

Petrochemical products arereplacingmaterials like concrete, aluminum, steeland cardboard. They make up nearly 100 per cent of the modern diaper and are used inrefrigerators, washing machines and cars.

Canada's petrochemical sector is clustered in Alberta, Quebec and Ontario, where Nova announced a $2-billion expansion project late last year.

Alberta's petrochemical industrycurrently uses natural gas liquids, mostly ethane, as feedstock for making ethylene, which can end up in such things as flexible packing material, textiles and antifreeze.

The province ishome to four ethane-cracking plants, including two of the world's largest.

Billions of dollars in capital investment were pumped into the industry over the years. But in theearly 2000s, a lack of availablenatural gas liquids andsky-high natural gas priceshitthe industry hard.

Thanks to advances in technology, Alberta now has access to massive amounts of natural gas (and gas liquids)at some of the lowest prices in the world.

"We're in a new era and the realization is starting to finally set in,"Tertzakiansaid.

Large natural gas resource

The development of the massive Montneyand Duvernay formations offers a vast supply of natural gas toprovide energy and raw materialsfor petrochemical plants.

"The Alberta opportunity is strikingly very similar to what's happening in the U.S.," said Stephen Zinger, authorof a recent reportby international energy research firm Wood Mackenzie on petrochemicalopportunities in Canada.

"When you're looking into the Montney play and the deep basin Duvernay, there'sa lot of development to be had there."

Provincialincentive programs are also part of the story.

In 2016, Alberta's Petrochemical Diversification Program, which offered $500 million in royalty relief incentives, attracted 16 proposalsworth $20 billion. Two were selected, including Inter Pipeline's project.

In March, the province revealed another round of royalty credits for methane, ethane and propane, as well as loan guarantees and grants for additional feedstock recovery projects.

Zinger said the incentives should help Alberta compete more quickly with the U.S.

"Effectively what this is doing is accelerating these projects by a number of years," he said.

Communities with big plans

All that said, Canada still has some hurdles incompeting with the U.S., Zinger said.

For one, capital investment costs to build plants are higher in Canada.

But provincial and municipal officials in Alberta believe they can compete.

Brian Glavin, head of economic development for Grande Prairie in northwest Alberta, said the city has been contacted about regional efforts to develop an area south of the community forpetrochemical production.

"It would be in the billions-of-dollars scale of development," Glavin said.

"If you look at the Alberta Industrial Heartland in the Edmonton area, that would bean ultimate ambition... to be able to attract that level of investment."

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Alberta Energy Minister MargMcCuaig-Boydsaid she's heard a lot of interest in what's happening in Alberta since visiting Houston earlier this year.

"We know that Alberta, in the upfront costs of building, we're a little bit more expensive," she said.

"But we do know that once we're operational we can go toe to toe with anybody, especially in the Gulf Coast."