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Alberta - March 20, 2018

ST98 Petrochemical

What do a plastic water bottle, a gallon of paint, the rubber soles of your sneakers, fertilizer, and your laundry detergent all have in common?  They’re all examples of how you use petrochemicals in your everyday life.

 

Petrochemicals—chemicals derived from oil and natural gas—have received a lot of airtime with talk of how to diversify Alberta’s oil and gas industry. Last week the Government of Alberta announced two new programs that will see $1 billion invested in the province’s petrochemical industry to encourage industry to expand existing petrochemical facilities and build new ones. Ultimately, this will increase capacity to use more natural gas liquids (NGLs).

NGLs are at the centre of Alberta’s diversification conversation and include ethane, propane, butane, pentanes, and pentanes plus. The lighter components (propane, ethane, and butane) are separated from natural gas and are used as feedstock, or fuel, to make finished products such as petrochemicals.

Defining the Problem

Basic economics talks about supply and demand: if you have too much of something and can’t get rid of it, it sells at a discount (perhaps more common sense than economics). That’s where Alberta’s at with propane: we have a surplus of it and if we want to increase the value of it, we need to create a place to use it.

In 2015, there was such an excess of propane that spot prices were briefly negative. According to the Alberta Energy Regulator’s ST98: Alberta’s Energy Reserves and Supply/Demand Outlook Report, producers are opting to leave propane in the NGL mix leaving Alberta, rather than remove it, due to the oversupply and low prices.

Building Capacity

The basis of the diversification conversation is simple: how does Alberta create its own demand for our propane and other NGLs?

Increasing facility capacity will allow even more quantities of NGLs to be consumed because it takes a lot of energy and feedstock to produce petrochemical products. It also takes substantial time and money to construct a facility capable of turning raw molecules into useful day-to-day items.

“Overall, the government’s programs are aiming to increase the value of Alberta’s NGL supply by helping to stabilize prices, which will increase development activity and create a greater local market for them,” says Shamus Hardie, an economist with the energy forecasting group at the Alberta Energy Regulator.

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