US natgas growth may lead to Canadian ethane shortage - NOVA

15 March 2010 20:16  [Source: ICIS news]

HOUSTON (ICIS news)--The growth of US natural gas capacity may make natural gas production in Canada less economical, which in turn could lead to a feedstock shortage for Canadian petrochemicals producers, the chief executive of NOVA Chemicals said on Monday.

Speaking during a conference call for fourth-quarter earnings, CEO Randy Woelfel said factors including gas pricing, the availability of drilling, and the discovery of large amounts of shale gas in the US had led to an accelerated decline in natural gas production from Canada’s Alberta province.

Specifically, the structural costs differential between Alberta-based ethane relative to US Gulf-based supplies is very important to the company, Woelfel said.

Ethane, which is extracted from natural gas, is used as a feedstock for chemicals produced by NOVA, including ethylene and polyethylene (PE).

“We are clearly seeing some degree of decline in the west [Canada], and as a result of that, overall ethane supply is down,” Woelfel said. “There is definitely a real structural concern for producers and consumers over the short-to-medium term.”

Woelfel said NOVA had expressed its concerns with Alberta government authorities, seeking additional incentives for investments in ethane extraction.

While additional natural gas and ethane supplies would be available in the US, proposed natural gas pipelines from several locations were not economically feasible at present due to lower natural gas pricing, NOVA said.

In addition, NOVA recently joined a fight against a toll surcharge on a US pipeline system that supplies its chemical production in southern Ontario province with feedstock.

NOVA is headquartered in the US but was founded in Canada, where the bulk of its manufacturing takes place.

NOVA noted, however, that Canada's ethane availability in 2010 was actually slightly better thus far than its pre-year projection. In addition, NOVA’s lower reliance on PE exports to Asia in 2009 meant fewer supply and operating issues compared with its peers in the US Gulf (USG) region, Woelfel said.

Earlier on Monday, NOVA reported a fourth-quarter net income of $17m (€12.4m), up from a $212m net loss in the year-earlier period. Sales slipped 2.5% to $1.12bn.

During the earnings conference call, Woelfel said the company’s business results had improved steadily through 2009, with the fourth quarter as its only quarterly profit.

NOVA is a wholly-owned subsidiary of Abu Dhabi’s International Petroleum Investment Company (IPIC), which acquired the company last year for $2.3bn.

Woelfel took over as NOVA's chief executive on 1 January.

($1 = €0.73)

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By: Ben DuBose
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