If the Petrochemicals Incentive Program is any guide, the Kenney government plans to dress up the Chevies on the used car lot and sell them as new Corvettes.
“Alberta is ready to seize the opportunity to become a global destination for petrochemical manufacturing,” is how Dale Nally, associate minister of natural gas and electricity, describes an upgrade to the Petrochemicals Incentive Program. Alberta is already home to the second-largest petrochemical complex in North America, behind the US Gulf Coast, and the Program attracted two major projects under the NDP, none so far under the UCP. Hyperbolic rhetoric notwithstanding, Thursday’s announcement doesn’t appear to be a gamechanger.
There are only two changes to the program.
The first is switching from royalty credits to grants. Instead of receiving credits that the investing company can then sell to oil and gas producers, the Alberta government is offering cash. The last round of the program, launched in October with similarly grandiose claims from the government, appears to have not interested investors. Presumably, this is the reason for the change.
The second concerns how applications are processed. Under the NDP, the government took a “triage” approach, according to economist Kent Fellows, where individual projects were scrutinized before approval. Now, as long as the application meets program criteria, it’s approved.
“Individual project assessments give the govt way more information and allow them to build much more context around specific applications,” the University of Calgary professor tweeted.
The press release touts the move as “Government will no longer pick winners and losers through a private evaluation process.” But that strategy comes with its own downside.
“If the program is too passive, then it will be seen as ‘dumb money’, funding that comes without due diligence,” says Fellows. “This is bad because that kind of financing sends no useful signal to private suppliers of capital.”
The press release also neglected to mention that last year the UCP government chopped the $500 million Petrochemicals Feedstock Infrastructure Program, which helped fund projects like “straddle plants” that strip liquids (mostly ethane) from natural gas flowing in a pipeline. Those liquids are the feedstock for the petrochemical plants.
On balance, the UCP government appears to have improved the Petrochemicals Incentive Program. How much it has been improved will depend upon its success.
When the NDP introduced the program in early 2018, the government already had two projects – Canada Kuwait Petrochemical Corporation and Interpipeline – worth approximately $8 billion ready to go. This time, the government has none to show after 14 months in power.
The proof of the pudding will be in the tasting, but there is nothing here to justify the bombast from Nally and the business leaders quoted in the release.
Since the UCP formed government, 14,000 directly oilfield jobs have been lost in Alberta. Capital expenditures have not recovered. Junior oil and gas companies, already on the ropes after the 2015 and 2016 downturn, are failing or being snapped up for a song by bigger competitors. The service sector has been decimated and the $1 billion orphan well clean up – funded by Ottawa as part of the pandemic support – is being criticized for poor design and implementation.
To make matters worse, there is plenty of evidence that the energy transition is accelerating and that the next few years will see major disruptions to global hydrocarbon markets. Disruption is not good for the Alberta industry, which is a high-cost marginal producer far from markets.
Cheerleading isn’t going to fix these problems.
Alberta needs a plan, strong leadership, and flawless execution. If the Petrochemicals Incentive Program is any guide, the Kenney government has chosen to dress up the Chevies on the used car lot and sell them as new Corvettes.
Car buyers are too smart to buy the hype and Albertans shouldn’t, either.