The current billion-dollar expansion of Nova Chemicals Corp.’s polyethylene facilities at Joffre would have seemed improbable five years ago, says the petrochemical company’s CEO.
Speaking at the official launch of the construction project on Friday, Randy Woelfel reflected on the state of the industry in 2008. Natural gas production in Alberta was in steep decline, which meant the supply of ethane — the chemical compound that is stripped from natural gas and used to produce ethylene and ultimately polyethylene — was also dropping.
“The outlook looking forward was pretty bleak,” he said, recalling how ethane supplies fell 12 per cent in 2008, followed by a further 3 1/2 per cent slide in 2009 and 10 per cent in 2010.
With Nova’s polyethylene plants forced to run at 85 per cent capacity, the economic future of the company and its employees was uncertain. But between that time and this spring, when Nova’s board of directors authorized funding for the addition of a third reactor to the company’s polyethylene 1 plant, new sources of ethane were secured, said Woelfel.
Those new sources have included off-gases from oilsands upgrading, and ethane from the Bakken shale formations in North Dakota and other areas.
“We’ve put in place some actions that really profoundly have changed the future of our company,” said Woelfel. “We’re going to be able to run what we have here full by the end of this year.”
Not only that, but the expansion of Nova’s facilities is expected to boost its annual polyethylene output to about 3.5 billion pounds from the current 2.5 billion pounds.
Woelfel said much of the credit for the improved feedstock supplies belongs to the Alberta government and its incremental ethane extraction policy, which provides financial incentives for investment in ethane extraction facilities.
“It was really a vital component.”
Woelfel expressed confidence that Nova’s ethane requirements can now be met for many years to come. And he pointed out that North American demand for polyethylene, which is used to make products ranging from plastic bottle caps and toys to food packaging and bags, is currently strong.
New polyethylene production is planned for the United States Gulf Coast, acknowledged Woelfel, with companies there eager to capitalize on the cheap ethane prices that have resulted from an abundance of natural gas flowing from shale formations there. In fact, he said, ethane is currently three to four cents a pound cheaper for Gulf Coast petrochemical plants than it is for Nova in Alberta.
“We think that’s a short-term phenomenon,” said Woelfel. “Our view is long term. We still think it will be competitive, Alberta versus the Gulf Coast.”
The Joffre plants, he continued, also stack up well against competitors in the Middle East, which have traditionally enjoyed the lowest feedstock costs.
Hughes said Nova’s current expansion, and the development of a petrochemical industry in Alberta nearly 40 years ago, are shining examples of how creative government policies can take advantage of market opportunities and create an attractive environment for business. A comparison could be made, he added, between Alberta’s petrochemical industry and the value-added opportunities that now exist with respect to the refining of crude oil and bitumen.
“We’re open to those kinds of initiatives,” said Hughes, pointing to the province’s bitumen royalty-in-kind (BRIK) program — under which it collects royalties as raw bitumen that can be directed to specific refining projects — as a policy tool that can encourage such development.
With initial work already underway, Nova’s polyethylene 1 expansion project is expected to utilize an average of 250 tradespeople between now and its anticipated completion in the fall of 2015. The number will peak at around 600 late next year and into 2015.
In addition to the installation of a third polyethylene reactor, the project will involve the construction of another flare stack and cooling tower, a new electricity substation, expanded rail yards and other infrastructure.
More than 100 Nova officials and invited guest attended Friday’s ceremony, which was held in a polyethylene warehouse at Joffre. Those in attendance included Diana McQueen, minister of Environment and Sustainable Resource Development; Cal Dallas, minister of International and Intergovernmental Relations; and other provincial, federal and municipal politicians.