The battle over tolls on a big natural gas pipelines has become a fight over the future of manufacturing products from energy in Alberta.
The makers of fertilizers and petrochemicals in the province are warning that a TransCanada Corp. proposal to change its natural gas transportation charges stands to price them out of business – worsening a competitive disadvantage that has already seen Alberta spurned for new project spending in recent years.
The TransCanada proposal stands to cost industrial gas users in Alberta, including Agrium Corp., Dow Chemical Co. and Nova Chemicals Corp. an extra $70 to $100-million a year – enough to “probably make the difference between whether industrials can compete and survive in Alberta or not,” said Greig Sproule, executive director of the Industrial Gas Consumers Association of Alberta.
The warning from the gas users adds another wrinkle to the complex and powerful set of forces arrayed around the National Energy Board hearing into tolls on the Mainline, the TransCanada pipeline system that has since the 1950s carried western gas to central and eastern markets.
TransCanada wants to preserve the Mainline, which is running half-empty, and as a result has seen huge increases in the cost to carry a thousand cubic feet across the country. Part of TransCanada’s proposal includes bumping up the price to move gas on a separate network of pipe that circulates gas around Alberta.
For gas producers, TransCanada has predicted that cost bump will be more than offset by a rise in the price of natural gas in the province.
But that logic does little for companies who buy and burn gas inside Alberta, and face a double burden from the increased cost of transportation and the gas itself.
In total, Alberta stands to face an extra $500-million a year in natural gas costs if the TransCanada proposal goes through, Mr. Sproule’s association warns, at least some of which will be borne by consumers running fireplaces and stoves.
In response to questioning from TransCanada’s lawyers at the NEB hearing last week, Mr. Sproule said his association would not otherwise dispute a hike in gas prices from changes to the Mainline system. But, he said, the Alberta toll hike is responsible for half of the predicted impact.
That’s enough to substantially disadvantage companies seeking to attract new spending to Alberta, the petrochemical industry warns.
TransCanada, through a spokesman, said its proposal "is in the larger public interest of promoting a healthy and more sustainable Western Canadian gas industry," which in turn will maintain the supply of gas petrochemical companies in Alberta rely on.
Rob McNeil, a commercial director with Dow Chemical Canada ULC, pointed out that Alberta has already seen a wealth of new petrochemical spending pass it by. For example, companies across North America are considering the construction of 12 new ethylene plants, he said – but none are destined for Alberta.
“We’ve had a very good history for attracting ethylene plants here. But heading into the future, zero for 12. And that’s not good,” he said.
That’s on top of the other facilities that have already shut in Alberta, plants that made everything from Styrofoam to chlorine to PVC.
Alberta has an advantage in that natural gas costs in the province are cheaper than elsewhere. But the TransCanada proposal stands to erode up to 40 per cent of that advantage, Mr. McNeil said. It will also substantially raise the price of buying ethane, another important petrochemical feedstock, Mr. McNeil said. That’s troubling for producers who have counted on the Alberta cost advantage to overcome the province’s distance from markets, which raises the price of getting products to buyers.
“These impacts are major – a major disadvantage for us being here in Alberta,” Mr. McNeil said.
Kelly Wazney, director of energy and raw materials for Agrium, added that of a half-dozen fertilizer plants proposed for the continent, none are in Alberta. They are, instead, in places like Illinois, Texas and Quebec “because you’re better off to build in the marketplace and not have to pay high delivery costs to get your product to market versus producing your product in Alberta.”