As the application period for the new petrochemical incentive program came to a close last week, political and business leaders in Alberta’s Industrial Heartland want the government to look past what they expect will be a successful one-off program, to creating a long-term diversification strategy.
The incentive program was announced in early February as a way to encourage investment in value-added petrochemical facilities to diversify the economy.
The provincial government thought that despite a “glut” of cost-advantaged propane, it was missing out on global petrochemical opportunities. To make itself competitive with U.S. jurisdictions, which often have lower freight and construction costs, it decided to invest $500 million in royalty credits, which companies can trade or sell to oil and natural gas producers to use against royalty payments to the province.
“We’re very happy with (the government),” said Neil Shelly, executive director of Alberta’s Industrial Heartland Association. “It’s a very good move, but it’s not mission accomplished. If we’re looking at really modifying the Alberta economy so we’re not so dependent on commodity cycles – we live and die right now on the price of oil and gas – we’re going to have to go beyond the existing program.”
At last Wednesday’s St. Albert and District Chamber of Commerce luncheon Sturgeon County Mayor Tom Flynn asked Finance Minister Joe Ceci if the government was considering expanding the program, which he expects would be oversubscribed.
Alberta’s Industrial Heartland Association, of which Sturgeon County is a member municipality, has so far heard from three companies that wish to take advantage of the incentive program – Williams Energy, which announced plans to build a propane dehydrogenation (PHD) facility in 2013; a private company that wishes to remain confidential; and Pembina, which announced two weeks ago that it would be undertaking a feasibility study on a world-scale PHD and polypropylene upgrading facility.
The facility would be located in Strathcona County, where the propane producer already has a strong presence. A final investment decision is expected in mid-2017.
Shelly suspects Pembina’s recent show of interest has something to do with the province’s new petrochemical incentive program.
While a number of factors are aligning to make Alberta more competitive with its neighbours down south, namely lower construction costs due to the recent slowdown in the provincial economy, the incentive program is “the cherry on top of the sundae,” he said.
“What can tip the scales one way or the other is what governments are prepared to do,” said Shelly, who added that when government comes to the table it sends a “very positive message to investors” that their projects are wanted and will be well-received.
But the $500-million commitment, with a maximum of $200 million towards one project, can only go so far.
The government expects the program to result in a capital investment of between $3 billion and $5 billion, which translates to the construction of two, possibly three, facilities province-wide.
While this is the “economic shot in the arm” Alberta needs, at a time when the economy is lagging and unemployment is sitting at 7.1, Shelly says more needs to be done if the government truly wishes to diversify the economy and avoid the oil and gas rollercoaster in the future.
In response to Flynn’s question, Ceci said he was happy to hear that there was so much interest since that would lead to job creation, but gave no indication the government would be investing more credits in the future.
“You’re asking about the future at a time when we have a really challenging situation on our hands,” he said. “I will definitely keep that in mind as a way to grow our economy going forward.”
The application period for the petrochemical incentive program closed Friday. The Energy department could not confirm the number of applications received, saying that an update on the status of the program and next steps would be provided in the upcoming weeks.
