Alberta Energy Diversification Act praised by industry and labour, panned by Kenney

Energy Diversification Act builds upon recommendations from recent Energy Diversification Advisory Committee report

Premier Rachel Notley says the new Energy Diversification Act, which kicked off the spring session of the legislature, will attract billions of new investment in petrochemicals and partial upgrading as well as thousands of new jobs. Industry gave the legislation a thumbs up, though it wants to see more details to ensure the NDP government got it right. And labour is hopeful downstream diversification will replace the many good paying union jobs lost during the recent downturn.

“Now is the time to make sure the economic recovery benefits every Albertan. That’s why our focus is on creating more good jobs for people, diversifying our economy and making sure this economic recovery is built to last,” Premier Rachel Notley said after Thursday’s Speech from the Throne.

Full disclosure: I provided contract copy editing services for the final draft of the EDAC report.

Energy Diversification Act
Industry and business stakeholders join Energy Minister McCuaig-Boyd left of stand) in announcing the introduction of Bill 1: The Energy Diversification Act.

The bill is an endorsement by the government of recommendations from the Energy Diversification Advisory Committee report, released in late Feb. by Energy Minister Marg McCuaig-Boyd along with details of the $1 billion over eight years that will be provided to support the commercialization of partial upgrading of bitumen technology.

Details on petrochemical investment incentives will be released next week, McCuaig-Boyd said in a press conference.

“For too long, talk of diversifying our energy sector has just been that, talk. But our government has shown that we are different and we are taking action. And that action today is putting forward in legislation our goal for energy diversification in Alberta,” she added.

“As the economy gets stronger, it’s time to talk about how we secure the recovery for the long term and build on an economy to last, one where no Albertan is left behind.”

Carol Howe of PetroLMI says over 52,000 direct jobs, most of them in Alberta, were lost following the oil price downturn in late 2014 and only 17,000 are expected to return by 2021, even though production grew by 400,000 b/d from 2014 to 2017 and another 400,000 b/d of supply will be added this year.

The mighty Alberta oil sands isn’t the jobs generator it was even four years ago and probably won’t be going forward as producers optimize operations and replace workers with technology.

The Notley government is proposing to create new jobs by adding more value to Alberta’s natural gas and oil sands bitumen.

The government said in a press release that it expect two to five partial facilities would cost up to $5 billion in private investment, while creating 4,000 jobs during construction and 200 full-time jobs during operation.

Lori Kent, executive director of the Resource Diversification Council, says her members have $20 billion in petrochemical projects that are looking for a home.

“If these projects are all built in Alberta, they would mean billions of dollars more for the province and the municipalities. Over their operating lifetimes, they would add $56 billion to Alberta’s and Canada’s gross domestic product,” she said during the press conference.

“Construction alone would add 42,000 full-time direct employment and thousands more high-quality jobs would be created to operate these facilities.”

Mark Pinney, manager, natural gas markets and transportation, says the United States is much more aggressive when pursuing downstream investments, offering financial incentives, tax abatement, and the recent corporate income tax reductions. The EDAC report estimated that Alberta’s main disadvantage is a 10 to 15 per cent higher capital cost at the front of the project.

The “renewal of the petrochemical diversification program, we think it’s a good thing for the government to be offering financial incentives to help us to be competitive. These royalty credits that come out of that program will be there so that petrochemical companies can use them to offset their feedstock costs,” he said in an interview.

“What we think is important is we do want to see financial incentives to encourage feedstock supply and competitiveness for a petrochemical industry. And that’s the approach the government seems to be taking here.”

Gil McGowan, president of the Alberta Federation of Labour and an EDAC co-chair, called the legislation “groundbreaking.”

“Albertans have been asking for years: who will pick up Peter Lougheed’s mantel. Now they have their answer. Her name is Rachel Notley,” he said in an email statement to Energi News.

“We’re not just talking about creating thousands of jobs in construction, operations and maintenance. We’re talking about the creation of a new engine for the Alberta economy. Given what’s happening with upstream portion of the energy sector, this government’s commitment to the downstream could be the difference between ongoing prosperity in our province and stagnation.”

The lone naysayer was Jason Kenney, leader of the official opposition. He dismissed the legislation as the last gasp of a failing government.

“Bill 1, it’s like Seinfeld, it’s a bill about nothing. It’s a bill empowering the minister to create programs they can already create,” he said to reporters after the Throne Speech.

“There’s no clearer sign of a government that’s run out of ideas than a bill like that.”

The legislation will enable the creation of three new downstream diversification programs.

Petrochemicals Diversification Program

Bill 1 will extend the Petrochemicals Diversification Program, introduced by the Notley Government in 2017 to encourage the development of value-added petrochemical manufacturing in Alberta.

Two projects were selected under the first round of this program. Construction has already begun on a $3.5billion propane dehydrogenation facility and polypropylene facility in the Industrial Heartland.

The complex will process propane into a more valuable product that is used to manufacture plastics products, including packaging and automotive parts.

When it first launched, the program received roughly twice the interest the government had expected, with applications representing an estimated $20 billion in private investment.

Feedstock Infrastructure Program

A Feedstock Infrastructure Program will help industry move forward on the facilities and infrastructure needed to capture more natural gas liquids required for value-added development. This includes components such as ethane, methane and butane.

Ethane and other components are separated or processed from natural gas in a variety of ways, often at a large-scale processing facility, but it can also occur in smaller facilities located closer to the production site.

Straddle plants extract certain natural gas liquids, including ethane, from major natural gas transmission pipelines and then ship them to other processing or manufacturing plants.

The government says his program will encourage industry to develop more of the facilities needed to capture these important raw ingredients instead of relying on imports from the United States and elsewhere.

Partial upgrading

Partial upgrading turns oil sands bitumen into medium or heavy crude oil, eliminating or reducing the need for diluent to make the bitumen less viscous so it can flow through pipelines more easily. This increases the volume of bitumen product that can be shipped through pipelines.

Partial upgrading would enhance oil sands industry competitiveness by reducing industry costs, increasing pipeline capacity by as much as 30 per cent and enabling more refineries to process Alberta bitumen product.

It would not limit future opportunities for full refining within Alberta.

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