OREANDA-NEWS. October 09, 2015. Prior to the drop in oil prices during the second half of 2014, the shale revolution was putting the US in a position to become less dependent on foreign oil, fueling job creation in the oil and gas industry, and creating a manufacturing renaissance. Many countries attempted to replicate the same success that the US experienced in shale. However, the US and Canada are the only major producers of commercially viable natural gas from shale formations in the world.

While large-scale commercial production of shale gas has not yet been realized in Canada, at least to the degree that the US has attained, many petrochemical companies are exploring the opportunities from the new supply of natural gas liquids derived from shale gas developments in Canada.

Feedstock advantage

The US and Canada grouped together are second to the Middle East on the cost curve. The abundance of ethane availability in the region gives producers in North America an advantage over Europe and Asia.

Currently, there are six ethane base crackers in Canada, four in Alberta and two in Ontario. Nova has three ethane based units in Joffre, Alberta, with a total capacity of 2.8 million mt/year, as well as another cracker in Corunna, Ontario, with a capacity of 840,000 mt/year. The other cracker in Ontario is owned by Imperial Oil in Sarnia and has a capacity of 300,000 mt/year. Dow operates the largest ethane based cracker in Canada (Fort Saskatchwan, Alberta) with a capacity of 1.3 million mt/year. There are no official announced plans to build another cracker, but according to sources, there have been some petrochemical companies looking to build ethane crackers in Alberta’s industrial heartland.

Canadian production of NGLs is expected to increase rapidly over the 2013 to 2030 period, according to the Canadian Energy Research Institute. The increase in ethane supply in Canada can possibly lead to an increase in ethylene cracking capacity. Demand for petrochemical feedstock is expected to nearly double in 2021. According to CERI, expansion of the petrochemical industry in Canada is a reasonable option due to the low-cost feedstock. However, logistical challenges in the export market remain.

Depending on economics, ethane could be left in the gas stream and be sent to the Pacific Northwest to feed the area’s LNG facilities. Ethane to supply existing domestic crackers may not be viable. Feedstock for the Dow and Nova crackers in the province is already nearing full capacity due to the ethane flowing in from Vantage’s pipeline, which was commissioned in early 2014 and carries ethane from a source near Tioga, North Dakota, in the US and extends in the northwest direction through Saskatchewan to its destination near Empress, Alberta.

Looking at the “Canadian Ethane Supply and Demand Balance” chart published in the August 2015 CERI report “Examining the Expansion Potential of The Petrochemical Industry in Canada,” we see the largest increase in ethane supply from US imports, but the largest share of supply will be from total gas plant production in Canada. The largest increase on the demand side is expected to be in steam cracking in Alberta and Ontario.

And in the “Canadian Propane Supply and Demand Balance” chart in the CERI report, we see the largest increase in propane supply will be from US imports, but the largest share of supply consists of propane also produced by Canadian gas plants, followed by refineries, then off-gas plants. Domestic demand is expected to increase significantly while exports availability will grow slightly.

Sources have indicated that there have been some foreign companies interested in shipping ethane out of Western Canada. However, Canadian ethane does not have to look too far for a home. According to William Gillian, CEO of Badlands, “We’re actually looking at building a bigger ethane cracker in North Dakota because of the fact that we think we can be successful in gaining an important amount of ethane from Canada.” Badlands has currently signed an agreement to receive ethane from Continental Resources.

According to Alberta government officials, petrochemical opportunities from shale developments are still evolving, and supply required to fill another world scale cracker may be a few years away. Regardless, the overall opportunities for the Canadian petrochemical sector due to an increase in ethane supply from shale plays looks positive.