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Canadian Backlash to Natural Gas Exports to U.S.
Natural gas exports to the United States are attracting hostile political attention on the buying side of the Canadian market as tightening supplies and strong prices affect industrial consumption and employment. Closure of six Ontario and Alberta plants, at a cost of 550 jobs, by Dow Chemical Canada prompted an immediate call for government intervention by the Ottawa-based Communications, Energy and Paperworkers Union.
Bob Huget, an Ontario executive of the national union, called the action by the Canadian subsidiary of the U.S.-based Dow “a huge blow to economic well-being.” The union vowed “to explore every possibility to save these jobs and reinforce this industry.”
CEP, whose members range from journalists to refinery and offshore production platform workers, called the Dow plant closures “clear indication” that energy free trade has had its day. “Canada’s petrochemical industry is suffering because of our mad rush to export raw product from Alberta’s oil patch, thus cutting off needed natural gas and other feedstock to the domestic market.”
The union has also intervened before the National Energy Board against a project by TransCanada PipeLines. The company’s Keystone proposal, to convert one of the gas lines in its right-of-way to liquids service for new oilsands traffic, encourages wasteful use of gas, according to the critics.
CEP echoes multiple environmental groups that are attempting, before the Alberta Energy and Utilities Board as well as the NEB, to slow down oilsands development because bitumen extraction and “upgrading” into refinery-ready light crude contributes to tightening supplies and high prices of natural gas.
Depending on the plant and production methods, each barrel of oil output uses between 0.75 and two MMBtu of gas.
Environmental opposition to the Mackenzie Gas Project also dwells heavily on predictions that it will only encourage oilsands development. Consumption of gas by oilsands projects is forecast to exceed the Canadian arctic production and pipeline project’s maximum capacity of 1.8 Bcf/d by the time it reaches markets in the early 2010s.
But the industry critics have yet to score any regulatory victories beyond lengthening agency proceedings. The Dow case, on close examination by the authorities, did not lend itself readily to support claims that the Canadian petrochemical sector’s problems are directly related to gas markets.
Age, foreign competition and a deteriorating pipeline were blamed for the plant closures.
Dow announced two of seven plants at its Fort Saskatchewan complex east of Edmonton – the company’s largest Canadian site – will shut down by the end of October, ending about 170 jobs. But the five surviving Alberta plants — and nearly 900 jobs running them — will keep going for years to come, the company predicted.
In Ontario all four plants on Dow’s 49-year-old Sarnia site will shut down by the end of 2008, causing 380 job losses.
Age and international competition — not shortages of a key petrochemical building block, gas byproduct ethane — led to the Fort Saskatchewan closures, Dow Canada president Jeff Johnston said in an interview.
The two doomed Alberta plants were 27 years old, exported all their output to Asia and needed overhauls that were too costly to keep them competitive with newer rivals overseas, he said.
Instead of ethane, chlorine derived from underground salt deposits near Fort Saskatchewan was the main raw material used by the ill-fated Alberta operations. They made chemicals used for manufacturing an array of products from paper and detergent to vinyl house siding and raincoats.
The Sarnia complex is closing because deterioration of a pipeline dried up supplies of its raw material, ethylene made from gas byproduct ethane by Dow at Fort Saskatchewan. Stored stockpiles will be used up this month after no suitable replacements were found in about six months of looking, Johnston said.
Ethylene deliveries have been suspended since March on BP Energy Canada’s 29-year-old Cochin Pipeline from Fort Saskatchewan to Regina as a result of safety concerns.
BP notified industry the 2,900-kilometre (1,800-mile) line suffers from a form of metal fatigue known as stress-corrosion cracking, which causes ruptures and explosions. High shipping pressures gradually spread tiny flaws on steel pipe walls into dangerous weak patches. A series of leaks and explosions on Canadian gas pipelines prompted a lengthy NEB inquiry in the early 1990s, followed by extensive surveys and overhauls that included development of new remote inspection technology.
Investigation of a 2003 leak on Cochin uncovered evidence that the plague of aging Canadian pipelines has spread to the gas byproducts system. Operating pressure must be reduced below the level needed to ship ethylene until at least the fall of 2007, the industry notice said.
Other, lower-pressure gas byproducts such as propane continue to be delivered, BP Canada spokesman Kurt Kadatz said. Work on the problem continues and it is still too early to say when ethylene service will be restored or how much repairs will cost, he added.
But Dow is encouraged by an effort underway this summer to improve Alberta ethane supplies available for increasing ethylene and petrochemical production at Fort Saskatchewan, Johnston said.
The complex is operating below full potential, the Dow president said. “We need to work through this to find a long-term ethane source that’s affordable.”
Alberta Energy Minister Greg Melchin launched the ethane talks at a June industry conference. He hopes to receive a report in a few weeks from a specialist hired to help gas, pipeline and petrochemical firms work out an ethane supply plan, Alberta Energy spokesman Jerry Bellikka said.
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