Major Canadian Propane Project Gets OK
Canadian midstream company Inter Pipeline said December 18 its board of directors has authorised construction of a world-scale, $3.5bn integrated propane dehydrogenation (PHP) and polypropylene (PP) plant northeast of the Alberta capital of Edmonton.
The project, dubbed the Heartland Petrochemical Complex, will be designed to convert 22,000 b/d of locally-sourced and low-cost propane into 525,000 metric tons/year of polypropylene, a plastic product used to manufacture a wide range of finished products, from Canadian currency to recyclable coffee cups.
Propane feedstock will largely come from Inter Pipeline’s nearby Redwater Olefinic Fractionator, which extracts propane from off-gases transported to Redwater from bitumen upgrading facilities near Fort McMurray, and from liquids-rich natural gas feedstocks provided by other parties. Other fractionators in the region will also contribute propane to the complex, when complete in late 2021.
There is currently a large over-supply of propane in Alberta, largely due to significant growth in liquids-rich gas production from the Montney and Deep Basin. Inter Pipeline competitors Pembina Pipeline and AltaGas have both recently embarked on propane export terminal projects on the west coast at Prince Rupert, BC, while Pembina is poised to announce its own propane conversion facility in Alberta next year.
“Alberta is an ideal location to construct a world-scale propane-based petrochemical operation,” Inter Pipeline CEO Christian Bayle said. “Driven by attractive feedstock and utility costs, the Heartland Complex is expected to be one of the lowest cost polypropylene producers in North America. This dynamic should result in attractive profit margins given the premium pricing this plastic currently receives in the North American market.”
Detailed engineering for the project was awarded to Fluor in 2013 and is now about 85% complete, while front-end engineering and design was awarded to Linde Engineering earlier this year and is about 70% complete. Inter Pipeline has already completed early civil work at the site in preparation for construction to begin early next year.
Inter Pipeline is conducting a two-phase contracting process to underpin its investment in the Heartland Petrochemical Complex. Phase 1, which has been completed, resulted in Inter Pipeline securing certain take-or-pay contracts with an average term of nine years. Phase 2 contracting will start in early 2018 with the objective of securing between 70% and 85% of total petrochemical processing capacity under take-or-pay contracts over the next four years. The remaining uncontracted processing capacity will be used by Inter Pipeline for its own commercial purposes.
Funding for the project, which attracted $200mn of Alberta royalty credits under the Government of Alberta’s Petrochemical Diversification Program, is expected to be provided through a combination of debt and equity financing sources. Capital commitments over the next four years will be met through a combination of capacity under an available $1.5bn committed credit facility, undistributed cash flow from operations, the periodic issuance of new term debt, hybrid debt securities and proceeds from existing dividend reinvestment programs.
When the complex is in operation, Inter Pipeline expects to earn between $450mn and $500mn per year in long-term annual average Ebitda.
“This investment represents the largest organic growth project in our history, and a key part of Inter Pipeline’s growth strategy,” Bayle said. “The Heartland Complex is highly complementary to our existing natural gas liquid processing activities and is structured to provide a new source of material long-term cash flow.”