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Canadian petrochemicals industry faces major obstacles

February 04, 2013
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The Canadian petrochemicals industry has the potential to grow dramatically thanks to low natural gas prices, but a number of obstacles are standing in its way, according to the Financial Post. New markets as a whole and exports to the United States in particular are not easily accessible and the shortage of a key feedstock is preventing petrochemical capacity expansion.

One of the major problems for the Canadian petrochemicals industry is the shortage of ethane -- a key natural gas component and an ingredient of crucial importance for chemicals producers. According to David Podruzny, vice-president and board secretary at the Chemistry Industry Association of Canada (CIAC), the industry has been short on liquids for a few years now. The CIAC has 60 members, or around two-thirds of the entire domestic industry. The companies represented by the CIAC reported a 21 percent fall in aggregated operating profit last year, whereas their overall sales slipped three percent.

The main reason for this was the fact that Canada's natural gas drilling activity went down 23 percent, causing the industry to run short on ethane, thus pushing the production of ethylene-based derivative units well under capacity, Podruzny explained.

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Alarmingly, estimates suggest that exports of Canadian petrochemicals to the United States have also dipped nine percent from the previous year. Canada's biggest market is expected to shrink further in 2013, by another 4 percent, as the United States is boosting its own petrochemicals production. In order to succeed, Canadian companies are looking at innovations and are importing much needed ethane from North Dakota and Marcellus shale, as well as recovering off-gases from bitumen upgraders, the CIAC noted.

Grant Thomson, president of olefins and feedstock at Calgary-based NOVA Chemicals Corp., said that the company's polyethylene investments are directed at domestic production. He estimated that the company will invest between C$1.5 billion to C$2 billion in this field over the next few years. Investments include projects like a C$1 billion polyethylene expansion near Red Deer, Alberta, and a C$250 million project that will convert the company's Corunna cracker facility in Ontario into natural gas liquids. NOVA is also rolling out preliminary engineering projects for a number of its eastern assets in a bid to expand its ethylene facility, since there is potential for producing more derivatives there, Thomson added.

Investments in the industry are vital and industry leaders should grab the opportunity, Podruzny commented. Various companies are looking into different projects, considering hefty investments of C$5 billion to C$10 billion. Whether businesses will succeed is entirely up to their efforts to achieve success, he added.

Meanwhile, focusing on domestic expansion should be accompanied by efforts to expand exports. According to Richard Patton, president and chief executive of CIAC, the government realizes the potential of new markets and has the most active trade agenda seen some time. Podruzny said that Canada is involved in several free trade agreements that could add up to six percent to the profitability of companies in the industry.

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