Despite critics, western Canada builds a petrochemical industry

According to the critics, western Canada is no place for a world-scale petrochemical industry. Alberta's grand industrial design set diversification of its petroleum-based local economy as its goal about three years ago, prompting ferocious opposition and even ridicule. Nonetheless, there is already a veritable collection of expensive hardware in place here, spewing out volumes of synthetic fluids and resins.

Since 1976 Alberta has attracted about $2 billion worth of private investments in a series of interlocking petrochemical facilities. As a result, four specially designed and built natural-gas processing plants are stripping ethane from Alberta's abundant natural gas. It is to become ethylene, the key component in a number of petrochemical products.

The Alberta plants are catering to both home and export markets. But exports face formidable obstacles -- especially in the United States -- due to the high tariffs thrown up to protect indigenous industries.

In June the first installment of still more private investment, possibly another $2 billion over the next five years, was plunked down jointly by Shell Canada Ltd. and Alberta Gas Trunk Line Company (AGTL).

AGTL was the catalyst in the first phase of Alberta's petrochemical development. This exclusive shipper of provincially produced gas is likely to have a equally crucial role in the second phase of investment which is directed by and large toward the further upgrading of petrochemicals.

Proponents of the Alberta petrochemical development pinned their hopes and staked their fortunes on two predictions. First, the world will be needing a lot more petrochemical products in the future. Second, traditional sources of raw materials, crude oil in particular, will be in increasingly short supply.

As the critics say and the sponsors do admit, petrochemical industry construction costs in western Canada run approximately 25 percent higher than on the US Gulf Coast. Operating costs are an average 15 percent more here. The higher overheads stem partially from a much colder climate. It requires a great deal more insulation -- for example, around the labyrinth of exposed steel pipes and pressure vessels. There are also penalties inherent in transporting masses of personnel and equipment to the province, often to remote areas. the transportation penalty actually works the other way, too -- in shipping products.

As a result of these disadvantages, Alberta petrochemical are at least 10 percent more expensive than comparable domestic or US products.

The proponents of the vigorous and capital-intensive petrochemical development, however, see their ultimate advantages as Alberta's vast gas reserves. These now stand at about 55 trillion cubic feet and are growing at an annual rate of nearly 8 percent.

The choice of gas as the raw-material source could indeed prove to be fortunate. But it was essentially forced on Alberta by a rival petrochemical scheme launched in the mid-1970s in Ontario. There, Petrosar Ltd., partly owned by the Canadian federal government, is now cracking 100,000 barrels per day of Alberta crude oil to produce ethylene for sale to private processors in Sarnia's Chemical Valley.

Even though Alberta is pumping about 1.2 million barrels per day of crude, in the long term, production would have been insufficient to support two rival petrochemical operations 2,000 miles apart.

The final verdict on the economic viability of Alberta's petrochemical enterprise inevitably will reflect the impact of escalating gas prices. It will also be affected by the results of bilateral talks was well as the General Agreement on Tariffs and Trade negotiations on international trade.

Gas prices have risen in the interim from below $1 to over $2 per million Btus (British thermal units). This change already has reduced somewhat the all-important feedstock cost advantage Alberta's petrochemical plants at first enjoyed. As the critics claimed at the outset, Alberta could find itself subsidizing the local petrochemical industry if gas prices rise much higher.

Also, Alberta has been singularly unsuccessful so far in influencing either Canadian or foreign thinking on tariffs on petrochemicals, despite strenuous and sometimes dramatic provincial attempts at trade diplomacy.

Repeated efforts to directly involve foreign investoers, especially the Japanese, in partnership ventures to date have failed. The threat of a global price war to be initiated perhaps by mideast oil producers, now acquiring immense petrochemical capabilities as a sideline, also continues to linger on.

Yet notwithstanding the uncertainties, most of the household names of the cosmopolitan petrochemical business -- using their respective local subsidiaries as vehicles -- are represented at some stage of the Alberta developments. Dow Chemical, C-I-L, Celanese, Union Carbide, Esso, Diamond Shamrock have joined Canada's Cominco, Sheriff Gordon, AGTL and others in the multibillion dollar gambit to make all Western Canada synonymous with petrochemicals.

Whether they succeed or fail in their endeavors will be known certainly not later than 1985.

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