INTERVIEW: It is ‘now or never’ for Canada’s Sarnia petchem hub

TORONTO (ICIS)–Canada’s Sarnia petrochemicals production hub in southern Ontario is at a critical “now or never” point – invest and renew now or risk plant shutdowns in coming years, Bob Masterson, president and CEO of trade group Chemistry Industry Association of Canada (CIAC) told ICIS in an interview.

Like other chemical industry clusters around the world, Sarnia is facing two key transformations: net-zero emission production and the circular economy.

Both will require massive investments – but, at the same time, can be a big opportunity for Sarnia, which could become a North American “innovation zone” for the new chemistries that the industry will need in the coming years, Masterson said.

It is up to the Ontario government to seize this chance and make the province’s Canadian dollar (C$) 26bn ($21bn) chemistry industry a priority for its economy – rather than continue taking it for granted and risk its decline, he said.

“You cannot count on the status quo, it is either invest and transform, or decline, and there is a choice to be made,” Masterson said.

While the current Ontario government has taken important steps to improve the regulatory climate since taking office in 2018, “urgent attention” was needed to ensure the province does not continue to be “a fly-over destination” for global chemistry investors, he said.

Without government stepping up, the trajectory for Sarnia points to decline – and once decline sets in, “it can happen very quickly,” Masterson said, pointing to the example of Montreal.

There, production declined quickly when Dow’s former Petromont petrochemicals joint venture (JV) with a Quebec government investment agency closed down back in 2008, and shortly afterward Shell announced the closure of its Montreal refinery.

The Sarnia hub is integrated, with plants supplying each other – meaning that if one facility is closed, others will be impacted immediately and severely, Masterson said.

Also, for Sarnia’s economy the impacts of a declining chemical industry would be much worse than they were for Montreal, he said.

While the broader Montreal economy with more than 3m people absorbed the loss of high-paying chemistry industry jobs, the much smaller Sarnia region would not be able to do so, he said.

“You are not going to replace C$120,000/year jobs in chemicals with call-centre jobs and still have a healthy, robust community,” he said.

SARNIA PLAYERS
Ontario’s petrochemical production is mostly concentrated at the Sarnia hub, located near Detroit, on the US border to Michigan.

Producers at Sarnia include NOVA Chemicals, ARLANXEO, INEOS Styrolution, ExxonMobil’s Imperial Oil affiliate, Shell, Suncor, Cabot and Mitsubishi Corp’s Diamond Petrochemicals, among others.

Sarnia-based producers have been keeping up their “stay in business” maintenance spending capital investments as their plants at the site churn out basic petrochemicals such as ethylene, polyethylene (PE), butadiene (BD), benzene, carbon black and styrene, among others.

However, in terms of the next expansion investments that companies are always looking at, Sarnia has seen little of the more than C$300bn of chemistry sector investments that have been completed or are underway in North America over the past seven years, Masterson said.

The exception is NOVA Chemicals’ cracker and PE expansion investment.

“We have the facilities here, so let’s work on the business case” to ensure that some of the massive new investments to decarbonise production processes and move to the circular economy will be in Sarnia, rather than the US Gulf Coast, he said.

“Either we renew and transform the [Sarnia chemical] sector now, or in a decade or a decade and a half it is not going to be at the scale it is right now,” he warned.

While Sarnia once had the newest, largest and most productive chemical plants, over the years the assets have aged and “it is tough to see” how the petrochemicals hub can stay relevant if it does not participate in the coming new waves of capital expenditure, he added.

CALL FOR ACTION
Government action is needed, and such action is certainly possible, Masterson said.

As examples, he noted Canadian government roles in the auto, aerospace, mining and other sectors, as well as US state government involvement – in particular in Texas, Louisiana and Pennsylvania – in attracting major petrochemical investments.

In Canada’s chemical industry, the Alberta provincial government has shown the way, Masterson said, and went on to note Dow’s recently announced plans for a major net-zero carbon emissions ethylene and derivate complex at its Fort Saskatchewan site near Edmonton.

Alberta’s policies, incentives and infrastructure for energy and petrochemicals play a key role in Dow’s project plans.

In the case of Ontario, the provincial government needs to come out and state that it is interested and wants chemistry to be a priority, he said.

Risky, multi-billion dollar investments – in chemistry or other industries – need government as a committed and long-term partner to ensure a measure of predictability, he said.

“I can’t think of any multi-billion dollar new chemistry investment taking place anywhere in the world where government isn’t at the table, discussing the long-term certainty of the project,” he added.

On the other hand, if the Ontario government chooses to do nothing, that “will continue to give us what we have now, which is decline,” he said.

“If you are happy with nothing, you will get nothing”, he added.

In Canada, critics occasionally disparage tax incentives or grants for industrial projects as “corporate welfare”.

However, those short-sighted criticisms miss the long-term economic net benefits from big investments in an industry that pays average salaries of more than C$100,000 year, Masterson said.

TIER 3
To support its call for government action, CIAC commissioned an expert study on Sarnia’s prospects from research group IHS Markit.

The study found that Ontario provides the least competitive investment conditions across the five major competing chemistry regions in North America – US Gulf Coast; US Northeast (Marcellus); US Midwest; Alberta; Sarnia.

It ranks Ontario/Sarnia as “Tier 3” in terms of attractiveness for new chemical investment – as opposed to the US Gulf Coast’s “Tier 1” ranking.

The study’s main message is that the status quo cannot be taken for granted, and if no immediate action is taken to attract capital investment to Sarnia, it will fall even further behind, leading eventually to plant closures.

The study identified the following key barriers for Sarnia to attract new investments and compete with other jurisdictions:

• Policy uncertainty or lack of regulatory clarity
• Constraining regulations
• Concern over feedstock security
• Less competitive electric power price
• Lack of an effective partnership between government and businesses

FEEDSTOCKS
Regarding feedstocks, the study noted the ongoing uncertainties over Enbridge’s Line 5, a 540,000 bbl/day pipeline system that ships oil from western Canada via Michigan to markets in eastern Canada and the US.

The Michigan state government, fearing oil spills, is seeking to end a 1953 easement that allows Line 5 to cross the Straits of Mackinac into Michigan on its way to Sarnia.

The potential closure of Line 5 “poses one of the largest threats to feedstock security for refineries in Sarnia as well as the downstream facilities that rely on feedstocks from the refineries,” the study said.

“Concern about feedstock security is a significant factor in any future investment decisions and creates uncertainty in terms of investing,” it added.

Canada’s federal government last month invoked a 1977 pipeline transit treaty with the US to resolve the ongoing dispute, and on Monday (8 November) a White House spokesperson said that the Biden administration would engage with Canada in talks over the future of Line 5.

($1 = C$1.25)

Thumbnail photo: Bob Masterson, CEO and president of Chemistry Industry Association of Canada/Association canadienne de l’industrie de la chimie

Interview story by Stefan Baumgarten