Alberta's feedstock ethane supply at a crossroads.

Dow Chemical's feedstock and energy manager, Rob McNeil, gave a presentation on Alberta's petrochemical feedstock requirements at the recent 2007 petrochemical conference held by the Canadian Energy Research Institute. McNeil outlined the state of the ethane supply to Alberta's crackers and how it relates to existing and future demand.

Current ethane production from the western Canada sedimentary basin is estimated to be around 265,000 barrels per day, but supplies of conventional natural gas from the basin have peaked and are declining. As a result, ethane supplies are also declining at about 2.2 percent per year.

To keep the existing ethylene plants operating at capacity and supply any new world-scale crackers, new supplies of ethane will have to come from a number of sources. Government policies could also increase natural gas supplies in the area. A world-scale ethylene plant consumes about 90,000 barrels per day of ethane.

The future feedstock picture is clouded by uncertainty regarding gas supplies from the north such as in Alaska and the Mackenzie Valley. Coal bed methane will also dilute the natural gas liquids content in the overall gas supply available for the extraction plants.

Conventional sources of ethane will continue to be an important and significant source for the foreseeable future. Improving recovery efficiencies in existing pipeline straddle plants in the system will be a key source, but significant volume will come from the Aux Sable/NOVA extraction plant expected to start up in mid-2010 on the Alliance pipeline.

The oil sands will shortly become another important source of ethane supply. In the short term, about 30,000 barrels per day will be available in the Fort Saskatchewan vicinity and from a large bitumen upgrader. By 2015, ethane supplies from the Mackenzie Valley and Alaska will come into the picture. An unforeseen addition to the Alberta supply of ethane and ethylene has resulted from the discontinuation of shipments to Ontario via the Cochin pipeline.

McNeil hinted, though, that existing ethane sources may have some difficulty keeping the existing ethylene plants running at full capacity right now. The next step would he to debottleneck the plants to their ultimate production potential. He added that ethane supply is not the only impediment to new derivative plants. Price is an important factor. In the current "short market pricing" environment, it is difficult to increase the volume of ethane unless the price comes down somewhat. Government policies can help gas supplies. McNeil said Dow Chemical has the resources to backstop new ethane extraction and new derivative plants. Alberta's new incremental ethane extraction policy can help if properly implemented. With industry wide participation, he said, there will be more ethane at competitive prices.

The question of how government policies in the area can help secure more gas supplies was also addressed. Three areas were looked at, one being regulatory. The gas industry is said to be overburdened with regulations regarding such matters as the spacing of wells. Other areas for policy change include royalty relief for some new natural gas sources and measures to improve the tight labour market, which is inflating costs. A pipeline route has been chosen and discussions with stakeholders are being initiated.

The ethane supply will be sourced from existing raw gas delivered to the Rimbey plant for processing. Keyera has entered into a commercial arrangement outlining the terms for the sale of the ethane from the project to Dow. The project is subject to a number of conditions, including the receipt of regulatory approvals.

"With this arrangement, we are able to address our need for long-term, affordable ethane feedstock," said Jeff Johnston, president of Dow Chemical Canada. "We intend to submit this project as one of the first under consideration under the new Government of Alberta incremental ethane extraction policy," Johnston noted.

The Rimbey gas plant is Keyera's largest gas processing facility and a key energy complex in west central Alberta. Keyera is the operator of the plant and holds an 86.4percent ownership interest. With a raw gas processing capacity of 422 million cubic feet per day and 2,500 km of gathering pipelines, the plant's extensive capture area allows it to provide energy processing services to a large number of producers. The Rimbey plant currently produces sales quality natural gas and specification-grade propane, butane, and condensate. It also produces frac oil and up to 285 tonnes per day of liquid carbon dioxide, both of which are used in the well-servicing industry in Alberta.

Camford Chemical Report