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relief Inter Pipeline to build $3.5 billion plastics project in boost to Canadian oilpatchGeoffrey Morgan, CALGARY In a boost to Alberta’s beleaguered energy industry, Inter Pipeline Ltd. said it will spend $3.5 billion on Canada’s first ever propane to plastics petrochemical plant.

The announcement that a major new energy project will be built is welcome news in Alberta, which has seen a raft of pipelines and natural gas export plants delayed or cancelled, amid a three year long downturn in oil prices.

Starting next month, Inter Pipeline will spend the next four years building a propane dehydrogenation and polypropylene (PDH PP) facility, which will take 22,000 barrels of propane per day and convert it into 525,000 tonnes per year of “polymer grade” plastic pellets. The pellets are used to build every day consumer plastic products such as bottles and toys.

“This is a whole new value chain for Canada,” company senior vice president David Chappell said Monday, adding that there are currently no petrochemical plants in Canada that use propane as a feedstock.

Canada’s current fleet of petrochemical plants, located mainly in Alberta and Ontario, use ethane to create plastics or methane to produce methanol, but the country imports thousands of tonnes of propylene pellets every year.

Chappell said the PDH PP facility would help reduce Canada’s trade deficit for propylene and eventually create other opportunities for chemical plants that produce propylene glycol, which is used as de icing fluid for airplanes, or super absorbent polymers, used in diapers.

There is an abundance of low cost propane in Western Canada and low cost natural gas and electricity, which helped drive down the project’s expected operating costs, apart from readily available labour due to the lean times in the construction industry, which has helped reduce costs, Chappell said.

“Not much is happening in Alberta when it comes to construction and so we’ve got very competitive capital costs right now,” Chappell said.

The Canadian Association of Petroleum Producers manager of markets and transportation Mark Pinney said the project comes as “a relief” after a string of project cancellations.

“It improves the overall economics for natural gas wells,” Pinney said.

Explorers and Producers Association of Canada president Gary Leach said that the decision was “great news” for the province and natural gas producers in Western Canada.

“Based on some disappointing decisions around West Coast LNG facilities for example, you can get all the approvals and still have the company decide not to give it that final investment sanction,” Leach said. petrochemical complexes on the Gulf Coast.

“We’re excited to see this new investment that will create thousands of good paying jobs and help diversify Alberta’s economy,” Alberta Energy Minister Marg McCuaig Boyd said in a release.

The project will create 13,000 direct and indirect jobs during construction, Chappell said, and require 180 people to operate once it’s complete.

The government has also awarded royalty credits to Inter Pipeline competitor Pembina Pipeline Corp. for its proposed propane to plastics facility, and an announcement is expected next year.

In addition, Pembina and AltaGas Ltd. to send propane produced in Western Canada to foreign markets.

However, Raymond James analyst Chris Cox thinks the economic feasibility of the the Inter Pipeline project could suffer as the LPG terminals are built.

“While the company expects Western Canadian markets to remain over supplied, we differ in this view as we see potential for an over build of new propane projects (whether on the pet chem side or for exports) driving a much tighter market for propane by the time the project comes into service,” Cox said in a note to clients.

But Inter Pipeline said it does not expect the propane market in Alberta to tighten to the point where the project suffers, even with other proposals being built. “We think there’s ample supply for all of these projects,” Chappell said.

CAPP’s Pinney said Canadian natural gas companies currently produce 153,000 barrels of propane per day and production continues to grow as more companies are drilling in Duvernay and Montney formations, which produce propane in ample quantities.

The two LPG export terminals and Inter Pipeline’s petrochemical project represent incremental demand of 87,000 barrels of propane per day.

Inter Pipelines’ shares dipped following the announcement down almost 2 per cent to $26.71 each on the Toronto Stock Exchange.
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