HOUSTON (ICIS)--Canadian chemical companies could have access to growing supplies of ethane, the country's main petrochemical feedstock, if current policies continue and if demand continues to grow for the diluent used to produce oil sands.
- Oil sands require condensate, which Canada produces from reserves of wet gas
- Wet gas also contains ethane
- Higher gas prices could encourage more output
All of Canada's crackers use ethane as a feedstock, so the prospect of rising supplies will open the possibility for new ethylene capacity.
In addition to its feedstock, Canada's carbon policies and carbon-capture infrastructure could help it attract companies to build more plants in the country.
OIL SANDS DRIVE NGLs
OUTPUT
Oil sands make up the
majority of total crude production in Canada.
If the country raises crude production, much of
that increase would come from oil sands.
For oil sands, the Canada Energy Regulator expects production to rise sharply in the next 15 years before tapering off and declining, according to its Canada's Energy Future 2021 report. The following shows the report's forecast, with figures in thousands of barrels per day.
Source: Canada
Energy Regulator
The Canadian polyethylene (PE) and ethylene producer NOVA Chemicals also expects oil sands production to increase, albeit in a disciplined manner, said Tammy Ardolino, vice president, feedstocks and infrastructure for the company.
MONTNEY GAS
Oil sands
production is connected to ethane because the
process requires diluent that makes the viscous
substance flow through pipelines.
Canadian oil sands producers can obtain local sources of diluent from the condensate and butanes the country produces from its reserves of wet gas.
Wet-gas is rich in condensate as well as ethane and other natural gas liquids (NGLs). As a result, rising production of oil sands will require more diluent, which Canada could produce by raising output at its wet-gas reserves, much of which are in the Montney formation in the northeastern part of British Columbia province. That will produce more condensate as well as ethane and other NGLs.
Canadian production of natural gas should continue rising because of rising production of oil sands as well as liquefied natural gas (LNG) from export plants.
The following chart shows the forecast for Canadian gas production. Figures are in billions of cubic feet per day.
Source: Canada
Energy Regulator
Like the Canada Energy Regulator, Ardolino expects the rise in oil sands production to increase demand for condensate to blend with oil sands. That, in turn, will increase local ethane production.
The following chart shows the forecast for ethane production from the Canada's Energy Future 2021 report. Figures are in thousands of bbl/day. They do not include Canadian ethane imports from the US.
Source: Canada
Energy Regulator
The following chart shows the growth of ethane rejection, which occurs when plants do not extract all of the ethane from natural gas. Instead, the ethane is left in the stream and is later burned as fuel.
Figures are in thousands of bbl/day.
Source: Canada
Energy Regulator
NATGAS PRICES MAY ENCOURAGE MORE
OUTPUT
The role of diluent demand
in Canada's natural-gas market is a legacy of
the advent of shale-gas in the US, said Greg
Moffatt, vice president of policy for the
Chemical Industry Association of Canada (CIAC).
Prices for natural gas fell. The US, once Canada's largest gas customer, became its largest competitor, Moffat said.
With that, condensate demand became an important driver in Canada's gas market.
More recently, the natural gas market has undergone profound changes since the coronavirus pandemic, said David Cherniak, policy manager of business and economics for CIAC.
Gas prices have surged, especially since Russia's invasion of Ukraine.
In the US, natural gas futures on the NYMEX recently closed at nearly $7/MMBtu, its highest front-month since October 2008.
SUSTAINABILITY
ADVANTAGE
Canadian chemical
producers have long held a feedstock advantage
due to their access to ethane. Canada has since
augmented that advantage with one for
sustainability.
The country has a sophisticated carbon-pricing regime that provides certainty, said Luis Sierra, NOVA CEO, in an interview with ICIS. In addition, Alberta province already has carbon capture and sequestration (CCS) infrastructure. .
"The companies themselves, as they are looking to grow their business, their boards and shareholders are putting pressure on them to bring a sustainability lens to their operations," Moffatt said. "And even just from an access-to-capital perspective, you are seeing pressure on investors to incorporate those sustainability goals into their growth options."
Canada's carbon-capture infrastructure and carbon-pricing regime were among the reasons that Dow picked Alberta to build a 1.8m tonne/year ethane cracker.
Cherniak of the CIAC mentioned other projects, including those that will rely on carbon-capture to produce blue hydrogen by steam methane reformers.
The Gulf Coast in the US and other parts of the world are also developing carbon-capture projects, so Canada's existing infrastructure will face more competition.
"People are not standing still," Cherniak said.
STRICTER SUSTAINABILITY POLICIES LOWER
ETHANE
The Canada's Energy Future
report presented another scenario where more
stringent environmental policies would restrain
oil, gas and ethane production.
The regulator's evolving policies scenario assumes that Canada's governments will tighten environmental laws beyond what has been announced.
For example, the evolving-policy scenario assumes that carbon prices will continue rising after reaching $170/tonne in 2030 under current policies. By 2050, those prices would reach $470/tonne under the assumptions made by the evolving-policies scenario.
It also assumes that Canada will build fewer LNG export plants.
For ethane, the difference between the two schenarios shows itself in the amount of ethane rejection.
The following chart compares the two scenarios for ethane rejection. Figures are in thousands of barrels per day.
Source: Canada
Energy Regulator
The following shows a similar scenario comparison for oil production. Figures are in thousands of barrels per day.
Source: Canada
Energy Regulator
The following shows the scenario comparison for natural-gas production. Figures are in billions of cubic feet per day.
Source: Canada
Energy Regulator
The evolving scenario illustrates how volatile policy could be in the upcoming years.
Canada needs policy certainty and predictability to attract investments, Moffatt said.
FIRST NATIONS AND
MONTNEY
Another possible
constraint on future production of natural gas
is a
judgement on 29 June 2021 from the Supreme
Court of British Columbia in the case Yahey
versus British Columbia.
In it, the court found that Montney gas development was among the industrial activities that had breached a treaty between the province and the Blueberry River First Nations indigenous tribe.
The court prohibited the province from continuing to authorise activities that breached the treaty.
Since then, the province and the Blueberry River First Nations reached an initial agreement, under which 195 forestry, oil and gas projects will proceed, British Columbia said.
Meanwhile, 20 currently approved authorisations will not proceed without more negotiations and agreement from the tribe, the province said. These projects are in areas that the Blueberry River First Nations deem to be of high cultural importance.
The two sides are working on a way to review new oil, gas and forestry projects.
Ardolino of NOVA noted that no new well licences have been issued since mid-2021. However, the current backlog of licences should support drilling for the next 1-2 years.
Thumbnail shows Canada. Image by Shutterstock
Insight by Al Greenwood