COVER STORY
CANADA Industry is eyeing a recovery and planning the next phase of growth ALEXANDER H. TULLO, C&EN NORTHEAST NEWS BUREAU
H
al Oil, is also optimistic. "We are project2003, Canadian chemical pro- ing that 2004 will be a better year than ducers are optimistic about a re- 2003," he says. "In the bigger businesses for covery in 2004. But the chem- us, such as the polyethylene business, we ical industry there is thinking are looking to go back to historical growth longer term, and it is grappling with how levels—like 4 to 4.5% growth." it can retain its traditional competitive adGriffiths isn't alone. In a survey comvantages during a new phase of growth. pleted last month, CCPA members said Production mostly decreased in 2003. they expect volumes and sales to increase Volumes of key organic chemicals such as by 5% in 2004, with exports to be boostethylene and polyethylene declined slight- ed by 13%. ly And inorganic chemicals dropped more However, another spike in natural gas dramatically; for example, sulfuric acid tum- prices would be a setback for the Canadibled 13% and chlorine, 9%. an chemical industry, especially for AlberHowever, shipments rose across the ta's ethane-based ethylene sector, where board—to $28.6 billion—because of high- feedstock prices are influenced by U.S. nater prices for chemical products, ural gas rates. Speculation, inispurred by a spike in natural gas tially spurred by a cold snap in prices in February the U.S. Northeast, drove up As has happened every year spot natural gas prices as high as since 1994, Canada's trade deficit $7.55 per million Btu in Decemin chemicals increased. In 2003, ber, nearly 40% higher than they it reached $9.2 billion, an inopened for the month. crease of about $200 million. Canadian chemical producers WORLD However, David J. Shearing, are quick to point out that, deCHEMICAL senior manager of business and spite the rising prices, gas proOUTLOOK economics at the Canadian duction is up, inventories are Chemical Producers' Associahigh, and demand is projected to tion (CCPA), says business conditions for be low Rick Henson, vice president of eththe Canadian chemical industry have no ylene and petrochemicals at Nova Chemplace to go but up this year. "It has bot- icals, was astonished by December's prices. tomed out and is starting to recover," he "The forces that are driving prices up aren't says. really reflecting fundamentals," he says. J. S. (Steve) Griffiths, vice president and "They are reflecting an emotional response general manager of petrochemicals for to short bursts of cold weather." ExxonMobil's Canadian affiliate, ImperiVinceJ. Smith, president and chief execAVING SEEN POSITIVE SIGNS IN
utive officer of Dow Canada, was also surprised by the run-up. 'We're still going into the year with sufficient supply To me, that tends to suggest more stability this winter than we have seen in the past," he says. Moreover, Henson says prices in Alberta haven't risen as sharply as rates in the U.S. "The difference in prices between Alberta and the U.S. Gulf Coast in the last few weeks has been quite a bit higher," he says. 'Alberta remains an attractive place, notwithstanding that in North America as a whole, gas-based industry competitiveness versus the other regions has changed. Alberta shows up well, both in the global context and certainly in the North American context," Henson says. But more feedstocks will be needed if there is to be another round of major petrochemical expansions in Alberta. The 2.8 billion-lb-per-year cracker that Nova and Dow completed in 2000 tapped the available ethane supply for crackers. Another big cracker will have to wait until natural gas is drilled in Alaska or in the Mackenzie Delta in northwestern Canada. Whether ethane from this gas will be available for Alberta chemical producers when it is tapped at the end of the decade is uncertain, says David Podruzny senior manager and secretary to the board at CCPA. "We have been advocating whenever the Alaska gas pipeline brings gas from the north down, as it comes through Alberta, that some of the liquids will be available for our members to bid on." But chemical producers aren't pinning all their hopes on northern gas. They see the tar sands in northern Alberta as a potential source ofpetrochemical feedstocks for the Canadian industry in the future. The most in-depth study on this prospect was completed in late 2002; it was compiled by Calgary-basedT. J. McCann & Associates and sponsored by Nova, Shell
SHIPMENTS
PRICES
Sales were mostly up for chemical products
Chemical prices increased in 2003
$ Billions (U.S.)
Price index, 1997 = 100
140 120
Organic chemicals
Inorganic chemicals
^^\
100 Chemicals & chemical products
All manufacturing
80
1993
94
NOTE: All data converted at exchange rate of $1.00 U.S. = $1.405 Canadian. a C&EN estimates. SOURCE: Statistics Canada
HTTP://WWW.CEN-ONLINE.ORG
60
1993 94
_L_
95
96
97
98
99
00
_L
_J_
01
02
03a
a C&EN estimates. SOURCE: Statistics Canada
C & E N / J A N U A R Y 1 2, 2004
21
COVER STORY PRODUCTION Output of most products was down in 2003 1999
2000
2001
2002
2003a
CHANGE 2002-03
Ammonia Ammonium nitrate Benzene Butadiene
4,889 1,052 805 230
4,888 1,110 859 252
4,297 1,174 751 245
4,501 1,152 849 276
4,615 1,056 843 279
2.5% -8.3 -0.7 1.0
Chlorine Ethylene Hydrochloric acid (100%) Nitric acid
1,065 3,881 157 1,007
1,079 4,069 155 1,074
1,054 4,261 143 1,054
1,095 4,734 151 1,143
996 4,715 151 1,113
-9.1 -0.4 0.0 -2.6
Polyethylene" Polystyrene0 Propylene Sodium chlorate
2,485 200 1,000 1,049
2,751 203 934 1,107
3,035 186 882 1,082
3,330 195 956 1,055
3,219 184 930 1,132
-3.3 -5.5 -2.7 7.3
Sodium hydroxide Sulfuric acid Toluene Urea Xylenes
1,082 4,194 260 3,783 253
1,094 3,804 218 3,887 312
1,074 3,846 222 3,363 271
1,111 3,887 256 3,436 294
1,059 3,371 274 3,352 303
-4.6 -13.3 7.1 -2.5 3.1
THOUSANDS OF METRIC TONS
a C&EN estimates, b Includes low-, linear low-, and high-density resins, c Includes acrylonitrile-butadienestyrene resins. SOURCE: Statistics Canada
Chemicals Canada, synthetic crude maker Suncor, and the Alberta Energy Research Institute. The plan calls for a $5.5 billion project to make some 1 million metric tons each of ethylene and propylene, 500,000 metric tons of benzene, 700,000 metric tons ofp-xylene, and many other chemical products. The McCann study projects the internal rate of return for such an investment at 15.2%. Bow's Smith has been cautious about the grandiose plans for the oil sands because of the magnitude, complexity, and modest financial return of the proposed project. "There hasn't been anything to suggest one way or another where the project is going to go," he says. Nova's Henson says the plan, while imperfect, is a huge step in the right direction. "The economics of it are uncertain, but the fact you can look at conventional technology and come up with the approach that they did was good and helps advance the cause," he says. Henson says harnessing the sands for petrochemicals will be evolutionary rather than revolutionary "It is fair to say it won't start with a big bang like the McCann study put together, which was a many-billion-dollar effort," he explains. "We are looking more at pieces of this and having a program where over time you eventually get to multi-billion-dollar programs and partnerships." A more immediate concern for Canadian chemical producers is the declining U.S. dollar, which lost about 20% of its 22
C&EN / JANUARY 1 2, 2004
value versus the Canadian dollar during the year. About two-thirds of Canadian chemical products are exported to the U.S., CCPA's Shearing explains. "With the weakening U.S. dollar and the strengthening Canadian dollar, [Canadian producers'} costs are going up but their sales are not, so their margins are being squeezed," he says. Industry observers also are wondering if the industry is losing an important ally in Quebec for new investments. In September, Societe General de Financement du Quebec (SGF) and Spain's Interquisa completed a 500,000-metric-ton-peryear, $470 million purified terephthalic acid plant in Montreal. The plant will supply a 95,000-metric-ton Shell/SGF polytrimethylene terephthalate plant now under construction and will be fed by a Coastal/SGF/?-xylene plant. However, the government of Quebec, which owns SGF, is reviewing SGF's role in the Quebec economy Chemical makers suspect this will mean fewer investments in chemical projects. Longer term, chemical producers are concerned about the role that Canada's entry into the Kyoto protocol on climate change will mean for them, though the treaty's future is in doubt if Russia doesn't ratify it. "How individual companies will achieve individual [emissions reduction] targets that are being set for large industrial emitters in this country without impacting their competitiveness vis-a-vis our U.S. neighbors is going to be a concern for our
members," CCPA's Podruzny observes. Chemical manufacturers are pleased that Canada's new prime minister, Paul Martin, seems willing to work with industry on implementation proposals. "I think it is encouraging that the new administration in Canada is saying what matters with [the Kyoto protocol} is that we have a good plan that can both achieve our international obligations and lead to sustainable economic development," Podruzny says. Some companies are skeptical about the protocol altogether. "It is not really an effective tool to address global warming," one producer says. "It is an ineffective tool from an environmental perspective, and it is a tool that can have a damaging effect on the Canadian and other economies." David Findlay, vice president of corporate development at DuPont Canada, who is based in Canada, says DuPont doesn't see the Kyoto protocol as a negative. "Because we are a multinational company, we're operating under several jurisdictions that in fact have ratified," he says. 'And as we address our initiatives on a global basis, the first acknowledgment is that we accept the preponderance of the scientific evidence that the emission of greenhouse gases is a big factor. We think of Kyoto as a reasonable step in the international community to make a start toward stabilizing greenhouse gases."
Deficit widened further $ Billions (U.S.) 25 Imports \ ^ ^ j | 20 15 10
^^^"^-
Exports
5 0
199394 95 96 97 98 99 00 01 02 03a NOTE: All data converted at exchange rate of $1.00 U.S. = $1,405 Canadian, a C&EN estimates. SOURCES: Statistics Canada, Industry Canada
Findlay says DuPont can meet initial targets for the protocol without having to incur much additional cost in many jurisdictions, including Canada. However, he does admit that the Kyoto protocol may prove to hurt Canada competitively versus the U.S., which has not ratified the treaty. "It does add a cost that U.S. facilities don't have," he says. But factors like the Kyoto protocol will play out over the next decade. Right now, the industry in Canada is focused on enjoying the recovery • HTTP://WWW.CEN-ONLINE.ORG
