Alberta, Canada could be the next petrochemical hub thanks to its oil sands

Alberta upgrade

05 May 2008 00:00  [Source: ICB]

With its rich oil sands resources, Canada's province has the potential to become a major petrochemical supplier in the coming years

Consultant's Corner
Fred du Plessis/Kline & Company

THE NEXT big petrochemical hub - in Canada? Despite a lengthy dearth of capital investment in the North American chemical industry, the idea is hardly far-fetched.

Conversion of bitumen "upgrader bottoms" to synthesis gas (syngas) could serve as a basis for integrated downstream, midstream, and upstream clusters that would produce a range of products to serve both North American and export markets.

The three oil sands deposits in Alberta contain nearly 174bn bbl of proven reserves, making it the world's second-largest oil reserve. Production of bitumen from the oil sands is expected to triple from current levels, to more than 3m bbl/day by 2015.

Key government groups in the area - the Alberta provincial government, the City of Edmonton, and Alberta's Industrial Heartland Association (representing the four other municipalities in the greater Edmonton region) - are focused on developing a value-added downstream industry based on the oil sands to produce petroleum products and petrochemicals, rather than simply selling the processed oil.

25-YEAR PLAN

Kline & Company has developed a 25-year plan for implementing an integrated network of petrochemical clusters, and has determined the most economically feasible and ecologically sensitive downstream products to manufacture at these sites.

A key raw material for the chemical clusters will be bitumen, a heavy crude oil produced from the oil sands with an API quality in the range of 8-15 degrees. Developing the oil sands is an energy-intensive process that can require large quantities of fuel for steam generation and heating. But today's high oil prices make it economically attractive.

Bitumen requires more extensive processing, or "upgrading," than does crude oil.

In this process, which involves hydrogenation, followed by distillation of the refined crude, a significant amount of residue, or "upgrader bottoms," is produced. This material, which is often converted to coke, has a low value on the market and in some cases ends up being stored. It is considered to be permanently "stranded."

As recovery operations expand in the oil fields, growing numbers of bitumen upgraders will increase capacity to as much as 3m bbl/day by 2025, resulting in the production of large quantities of upgrader bottoms.

Something will need to be done with this material. Bitumen upgrader bottoms can provide an alternative raw material for production of syngas, a major building block for petrochemicals.

Existing technology used to convert refiner bottoms should be applicable to the conversion of bitumen upgrader bottoms. Some minor technological changes might be required, but in principle, there are no issues whatsoever in applying the technology in use today. This situation will provide a key opportunity for Alberta to become a leading syngas producing region.

Several upgrading operations are under way in the greater Edmonton area (GEA). Oil company Shell Canada already has an upgrading operating in the region, and others, such as Norway's StatoilHydro, Canadian firms BA Energy, Suncor and North West Upgrading, and French petrochemical giant Total have all purchased land and are either studying or are in the process of building upgrading plants.

Chemical clusters would be built adjacent to upgraders in the Heartland area. An upstream and midstream cluster would be located directly in the Heartland, taking advantage of supplies of syngas and other conventional feedstocks.

A downstream cluster would be in the northeastern part of the city of Edmonton, where there is land zoned for industrial use. The products manufactured here would be high-value, high-performance chemicals produced via very clean processes.

TO EDMONTON!

Chemical companies have already been attracted to the GEA. US-based NOVA Chemicals, Dow Chemical, Air Products and Praxair, Canadian fertilizer firm Agrium, and France's Air Liquide are just a few, and represent both commodity and specialty producers. The goal is to create integrated groups of producers located on land dedicated for chemical investment.

An integrated value chain will provide numerous benefits. The products and by-products of some plants will serve as raw materials for others and can be directly piped without need for transport. Shared services and utilities will lower the cost for each member of the cluster. Integrated facilities will also have a lower environmental impact and reduced waste management issues.

Building the necessary infrastructure for the chemical clusters will be critical. There is a lot of work to be done in the GEA to create the infrastructure to service the manufacturing facilities and to move 5m-20m tonnes of chemicals and polymers around. Government bodies need to be willing to take the risk to facilitate infrastructure development and make the decision to act.

On the logistics side, rail companies Canadian Pacific and Canada National already have a presence in Alberta, but capabilities will need to be expanded.

Products going to other points in North America will need to be moved by rail into Chicago or other hubs, while products for export markets will require a rail connection to British Columbia and a port that can handle such materials.

A top priority will be the simultaneous development of the necessary infrastructure for the clusters themselves, for supporting industries such as equipment manufacturers, and for logistics capabilities.

Promoting the cluster to the international investment community will be another challenge. Becoming "investor ready" as soon as possible is critical to the success of the chemical cluster concept.

Chemical manufacturers will need strong arguments for coming to Alberta rather than selecting an established chemical production area. The fact that companies like Dow and Shell are already in the GEA is an indicator that petrochemical production in the region makes economic sense.

31 KEY PRODUCTS

In the very short term, Kline has identified 31 "strategically imperative" products that would serve as the feedstocks for other facilities.

Compounds include methanol, ammonia, ethylene and propylene oxide (PO), glycols, maleic anhydride (MA), cyclohexane (CX), phenol, cumene, xylene, propylene, acetic acid, acrylonitrile (ACN), polyethylene (PE), polypropylene (PP), and other intermediates.

Products for North America would be those not made by existing producers and thus would not place the cluster in direct competition. Some potential products don't currently have strong markets, but do have significant potential for future growth.

The 77 candidates were then prioritized by when projects should be implemented. The strategically imperative products above would need to be available for consumption by projects built in the second wave, which would take place in five to 10 years.

The products to be included in the third wave, which would take place 10 years out and beyond, would be high-value-added chemicals and other derivatives. Selection of specific products would be highly dependent on what takes place in the first 10 years.

Kline believes strongly that there is significant potential for growth in Alberta if all parties necessary for the development of strong, integrated chemical clusters - governments, manufacturers, logistics providers and utility companies - work together in cooperation with an appointed leader to manage the overall project.

Fred du Plessis is a senior vice president with Kline & Company. He is also president of the European Chemical Marketing and Strategy Association, and treasurer of the European Chemical Site Promotion Platform. He was a coauthor of the European Petrochemical Association's report: A Paradigm Shift: Supply Chain Collaboration and Competition in and between Europe's Chemical Clusters.

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