Michael McCoy
C&EN Northeast News Bureau

Canada held the chemical industry spotlight in October when Nova Chemicals and Union Carbide opened the world's largest ethylene plant in Joffre, Alberta. That opening is indicative of Canada's modest but growing role on the global chemical stage.

The $800 million ethane-based ethylene cracker should reach full commercial production of more than 2.8 billion lb per year by the end of this year. It will supply several nearby ethylene-based facilities that are under construction or were recently completed: a Nova polyethylene plant based on the company's new Advanced Sclairtech process, a Union Carbide Unipol process polyethylene plant, a BP linear -olefins facility, and a Shell Chemicals ethylene glycol plant. All told, new facilities worth some $2.5 billion are coming onstream.

Dan Boivin, president of Nova's olefins and polyolefins business, says he's very happy with the way the start-up went, particularly given the never-before-attempted scale of the new cracker. "All in all, given the issues you can run into in a project of this scope, we're pretty pleased," he says.

The Joffre start-up also caps a strong year for Canadian chemical manufacturers and bodes well for 2001 production gains in petrochemicals and plastics, which account for 75% of Canadian industrial chemical output.

Government statistics show that Canadian shipments of chemicals and chemical products--a broad category that includes pharmaceuticals, paints, and cleaning products--are set to rise 9% this year, a sharp improvement over last year's 4.5% gain. Organic chemical shipments should rise a striking 25% after increasing 6% in 1999, while inorganics will grow a more modest 8%.

Exports, which account for close to 60% of Canadian chemical output, are on track to rise 15% this year. Chemical imports will rise about 12%--less than exports on a percentage basis but more on a dollar basis, to the overall detriment of Canada's chemical trade balance.

These mostly favorable statistics showed up in the form of higher prof-its at Nova. Despite rising feedstock prices, the company earned $248 million through the first three quarters of 2000, versus $82 million for the same period last year.

On the other hand, DuPont Canada , a more diversified manufacturer with operations concentrated in Ontario, was unable to continue a string of record performances: Higher raw materials costs and weak prices in some segments resulted in a year-to-year profit decline of 7% through the first nine months of the year, to $135 million.

Boivin attributes Nova's good performance in part to the company's "Alberta advantage"--its cost advantage over the U.S.'s Gulf Coast petrochemicals producers. Compared with its U.S. peers, he says, Nova enjoyed a third-quarter ethylene production cost advantage of 10 cents per lb.

Alberta's advantage could come under pressure when the new Alliance Pipeline linking Northwest Canada with the U.S. Midwest starts up this month. Unlike existing pipelines, the Alliance Pipeline employs unique technology that allows it to ship natural gas liquids containing ethane, propane, and butane in addition to the traditional methane.

Boivin acknowledges that the pipeline could siphon ethane out of Alberta, but he notes that, except for two relatively small Equistar Chemicals ethylene crackers in Illinois and Iowa, the U.S. market for ethane is on the Gulf Coast, many miles from the pipeline's endpoint in Chicago. "Ethane just isn't that valuable a commodity to be shipped that far," he says. "It makes much more sense to upgrade it to petrochemicals in Alberta."

Although Boivin doesn't see a major risk to existing petrochemicals production in Alberta, he does caution that adequate feedstock is not currently available to supply further expansion of Alberta's petrochemicals business through a fifth ethylene cracker. Gas producers have been drilling furiously throughout the province, he says, but "the gas hasn't shown up."

Longer term, gas discoveries in Alaska and in Canada's Northwest Territories may be the Alberta chemical industry's best hope, Boivin says, provided producers can be convinced to route pipelines near ethane extraction plants in Alberta. "These projects should boost availability of ethane in the province," he says, "but it will take a few years."

Canada's other major chemical production centers--in Ontario and Quebec--can't depend on inexpensive feedstocks to attract investment. Instead, notes David F. Podruzny, a senior manager for business and economics at the Canadian Chemical Producers' Association , the federal and provincial governments are using corporate income tax cuts as a way to spur spending.

Canada's federal government recently announced plans to cut the corporate income tax rate from 28% to 21%, while finance officials in both Alberta and Ontario proposed cutting manufacturing business taxes from about 14.5% today to 8% by 2005. After the cuts, the tax rates in the two provinces will be a full 10% below the average rate of the U.S. Great Lakes states, officials say.

Podruzny says such efforts are necessary to attract the foreign investment needed to keep the Canadian economy growing. "Tax competitiveness is a very visible element of overall competitiveness," he says. "There seems to be a recognition in government that being 'as good as' doesn't win any investment."

Major investments tend to have a snowball effect, Podruzny notes. For example, in Montreal East, Quebec, the Spanish oil company Cepsa is building a $300 million plant for the polyester intermediate terephthalic acid. That plant will likely catalyze restart of a Coastal Corp. facility making the feedstock p-xylene and could, Podruzy says, pave the way for a polyester bottle resin plant as well.

Likewise, in Sarnia, Ontario, the Alberta-based energy company TransAlta broke ground last month on Canada's largest cogeneration facility. When it starts up by the end of 2002, the plant will provide power and steam to Bayer, Dow Chemical Canada, and Nova operations in Sarnia.

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A new low-cost power source could help Dow's Sarnia site in its efforts to host a proposed facility for Dow Plastics' new ethylene-styrene interpolymer. Likewise, local Bayer officials have been trying to nab a major pharmaceutical intermediates facility that the German company plans for North America, although the company indicated recently that it may opt for expansion in Germany instead. Nova, meanwhile, recently completed a pilot plant for the Sclairtech process in the Sarnia area.

With his company's new cracker nearing full production in Joffre and the big new Sclairtech plant following close behind, Nova's Boivin says he's optimistic about prospects for the Canadian chemical industry next year. "The Canadian industry is looking forward to being a stronger and more powerful international player in this business," he says. "I think we are doing the fundamentals as well as or better than most others."

a C&EN estimates. b Includes low-, linear low-, and high-density resins. c Includes acrylonitrile-butadiene-styrene resins. Source: Statistics Canada

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