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Petrochemical Incentives Paying Off for Edmonton Manufacturers

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David MacLean.

Edmonton area manufacturers breathed a collective sigh of relief when Pembina Pipeline Corp. and its international partner announced it will build a $4.5 billion propane dehydrogenation plant and polypropylene upgrading facility in northeast of Edmonton. The positive decision was widely anticipated but until the investors sign on the dotted line, anything can happen.

This announcement comes on the heels of the $3.5 billion announcement by Inter Pipeline to build a similar facility in the Capital Region. Construction on this project is well underway, with successful delivery to the site of a massive vessel fabricated by Edmonton-based Dacro Industries Inc.

These investments are a much-needed shot in the arm for manufacturers across the province. The trickle down impact begins with structural steel and large-scale fabrication to pipes and valves and advanced electronics – much of which is manufactured right here in Alberta.

Both projects can at least be partially attributed to the Alberta government’s Petrochemicals Diversification Program (PDP) that provides royalty credits to oil and gas producers who sell feedstock to the plants. The Pembina project will receive $300 million in royalty credits under the program.

Long story short, the government reduces its take from oil and gas producers in order to make petrochemical projects like these more competitive. The reality is, Alberta is in a pitched battle with other jurisdictions around the world to attract limited petrochemical investment dollars.

The pool of North American petrochemical investment is massive – some $250 billion will be invested in the United States alone. Historically, Canada has received an average of 10 per cent of that, but over the last five years Canada has captured just 2 per cent.

That’s because competing jurisdictions like the US Gulf Coast and the Persian Gulf have been eating our lunch. Pennsylvania offered Shell $1.65 billion in tax credits to build a world-scale ethane cracker. Louisiana offered $1 billion in incentives to Sasol for development of an ethane cracker in that state. All in, US government supports account for 10-15 per cent of project capital costs.

On a level playing field, Alberta can compete with anyone. Cheap feedstock, declining construction costs and solid regulatory framework make our province a great landing spot for investment. Aggressive US incentives, however, tip the balance in their favour.

This might not make free market loving Albertans particularly happy, but we have a tough decision to make. Do we want to have a petrochemical industry in Alberta with the thousands of highly-skilled and high-paying jobs that go along with it? Do we want to see more of our oil and gas products refined into finished products to be easily shipped to foreign markets? If the answer is yes, we need a competitive policy framework.

The fate of programs like PDP will be on the ballot in this provincial election. Regardless of who wins, programs like the successful PDP shouldn’t just be maintained – they should be expanded and enhanced.

Canadian Manufacturers & Exporters (CME) is the voice of Canadian manufacturing. CME represents more than 2,500 companies who account for an estimated 82 per cent of manufacturing output and 90 per cent of Canada’s exports.

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