Alberta’s Industrial Heartland positioned for low-emissions hydrocarbon processing

Alberta’s Industrial Heartland has become Canada’s largest hydrocarbon processing center over the past quarter century and holds potential to become a larger player on the international stage in the next quarter century. 

Alberta’s Industrial Heartland (AIH), a 582-sq km pre-zoned industrial region in parts of three counties (Lamont, Strathcona and Sturgeon) and two cities (Fort Saskatchewan and Edmonton), has had more than C$45 billion ($32 billion) in capital investment by more than 40 companies since first investment in the early 1950s. In addition to providing petroleum products, petrochemicals, fertilizers, and power to provincial, North American, and global markets, the investment has created more than 30,000 direct and indirect permanent jobs in Alberta.

“We would like to see C$70 billion by 2030, and then continue at that pace of growth through to 2050,” said Mark Plamondon, executive director of the Alberta’s Industrial Heartland Association (AIHA), at the AIHA annual conference in September. 

Three major factors driving this potential growth, according to Plamondon, are the AIH’s access to relatively low-cost and abundant feedstock, inherent and built advantages to decarbonize hydrocarbon processing, and support from all three levels of government. 

Jim Fitterling, chairman and chief executive officer of Dow Inc., said these factors were key when taking final investment decision (FID) in November 2023 to advance the $6.5 billion retrofit and expansion of the company’s Fort Saskatchewan petrochemicals plant as part of Dow’s Path2Zero decarbonization and expansion program (OGJ Online, Nov. 8, 2024). 

Plamondon has also cited AIH’s location as another factor driving potential growth, especially given its proximity to East Asian markets, despite acknowledging the region’s transportation advantage is not as clear cut as the others.

Feedstock advantage

The fundamental advantage for the growth of hydrocarbon processing in AIH in the past has been abundant and relatively low-cost feedstock compared to the US Gulf Coast, an advantage that should continue in the future, Plamondon said.

“AIH is in the heart of the second largest oil and gas reserves in the world, with the region connected by pipelines to the oil sands to the north and liquids-rich gas plays such as Montney and Duvernay to the west,” he said.

Key reasons Western Canadian natural gas and NGLs have tended to sell at moderate to large discounts to North American markers such as Henty Hub for almost 2 decades, and are likely to do so for the foreseeable future include: rising production from US shale plays like Marcellus and Utica backing Western Canadian gas out of northeastern US and eastern Canada markets; and the scale of potential LNG export projects on its west coast being dwarfed by potential increases in Western Canadian gas production. 

The cost advantage has not been as consistent for Western Canadian crude oil as natural gas and NGLs but has occasionally been large relative to North American marker West Texas Intermediate (WTI) for extended periods in recent decades—with the WTI-Western Canadian Select (WCS) price differential ballooning to a record high of about US$50/bbl in autumn 2018, compared with US$12-15/bbl when growing regional production has exceeded pipeline takeaway capacity. 

That is not the case presently, with the 590,000 b/d Trans Mountain Expansion (TMX) project to Burnaby, BC, coming online in May 2024, but Western Canada may fall back into oil pipeline deficit as early as 2026 due to rapidly rising production, especially from the oil sands. 

Decarbonization advantage

The foundation of AIH’s relatively newfound decarbonization advantage is the Western Canadian Sedimentary Basin’s (WCSB) ideal conditions for storing large volumes of captured CO₂, current and proposed infrastructure to do so, and the region’s experience producing both grey and blue hydrogen, according to Plamondon.

The WCSB’s porous rock formations, which have been extensively studied and utilized for oil and gas extraction, have been proven to be well-suited for CO₂ sequestration.

AIH alone is capturing and storing 2.6 million tonnes/year (tpy) from three projects, Shell’s Quest CCS project for emissions from the bitumen upgrader at its Scotford Energy and Chemicals Park, and emissions associated with North West Refining Inc.’s 80,000-b/d NWR Sturgeon Refinery and Nutrien Ltd.’s Fort Saskatchewan fertilizer plant. 

CCS has also been sanctioned for two additional facilities in the AIH, Dow’s Fort Saskatchewan Path2Zero project and Shell’s Polaris project to capture and store emissions from the refinery and chemicals plant at its Scotford complex.

In support of these projects, the Alberta Carbon Trunk Line (ACTL), with an ultimate capacity of 14.6 million tpy, came into operation in June 2020. The Alberta government has also awarded the AIH carbon hub status, with six additional CO₂ pipeline and storage projects under consideration. This includes the recently sanctioned Atlas Carbon Storage Hub east of Edmonton, a 50-50 partnership between ATCO EnPower and Shell, serving the latter’s Polaris project.

The other CO₂ pipeline and storage projects are: Bison Low Carbon Ventures Inc.’s Meadowbrook Hub Project north of Edmonton; Enbridge Inc.’s Open Access Wabamun Carbon Hub west of Edmonton; Enhance Energy Inc.’s Origins Project south of Edmonton; Pembina Pipeline Corp. and TC Energy’s Alberta Carbon Grid northeast of Edmonton; and a project by Wolf Midstream and partners for a hub east of Edmonton. 

“And only 1.6 million tpy of ACTL’s total capacity is being used, capturing emissions from the NWR refinery and Nutrien, so there’s surplus capacity in that system right now,” Plamondon said.

AIH is also positioned to produce relatively low-cost blue hydrogen, pivotal in decarbonizing hydrocarbon processing through its application as a clean energy carrier, feedstock, and reducing agent.

In 2023, Alberta produced about 2.5 million tonnes of hydrogen, including 500,000 tonnes of blue hydrogen, with AIH accounting for about 40% of the former and more than two-thirds of the latter.

This does not include production from the blue hydrogen plant Linde is to build and operate to supply Dow’s Fort Saskatchewan Path2Zero project, the grey hydrogen production that will be converted into blue hydrogen by Shell’s Polaris project, and six other potential production projects: one for domestic use, a joint venture between Suncor Energy and ATCO Ltd.; and five for export to East Asian markets. 

One area of growth for the petrochemical industry is the production of low-carbon hydrogen for derivatives such as ammonia, with Asia having the greatest market potential, Plamondon said.

Four of the five potential export projects are JVs primarily targeting the Japanese market: a Mitsubishi Corp. and Shell Canada Products project announced in September 2021; an Inter Pipeline, Petronas Canada, and ITOCHU Japan JV announced in May 2022; an ATCO and Kansai Electric Power Co. project announced in April 2023, and a Pembina Pipeline Corp. and Marubeni Corp. JV announced in May 2023. 

In December 2023, Calgary-based Hydrogen Canada Corp. said it is exploring a project to export to South Korea and other Asian markets.

In addition, to support efforts to decarbonize current and future hydrocarbon processing activity in AIH, the region has large tracts of flat land suitable for development of solar farms, according to Plamondon.

“Silicon Ranch and Shell Canada completed a 58-Mw solar farm at the end of August that provides about 20% of the electricity needs of Shell’s Scotford Energy and Chemicals Park. To the west, global solar giant Alpin Sun is studying the largest renewable energy development to date in central Alberta, a 1,200-acre, 200-Mw solar farm that will help decarbonize the power needs of even more facilities,” he said.

One area of growth for the petrochemical industry is the production of low carbon hydrogen for derivatives such as ammonia, with Asia having the greatest market potential, Plamondon said.

Four of the five potential export projects are JVs primarily targeting the Japanese market: a Mitsubishi Corp. and Shell Canada Products project announced in September 2021; an Inter Pipeline, Petronas Canada, and ITOCHU Japan JV announced in May 2022; an ATCO and Kansai Electric Power Co. project announced in April 2023, and a Pembina Pipeline Corp. and Marubeni Corp. JV announced in May 2023. 

In December 2023, Calgary-based Hydrogen Canada Corp. said it is exploring a project to export to South Korea and other Asian markets.

In addition, to support efforts to decarbonize current and future hydrocarbon processing activity in AIH, the region has large tracks of flat land suited for the development of solar farms, according to Plamondon.

“Silicon Ranch and Shell Canada completed a 58-Mw solar farm at the end of August that provides about 20% of the electricity needs of Shell’s Scotford Energy and Chemicals Park. To the west, global solar giant Alpin Sun is studying the largest renewable energy development to date in central Alberta, a 1,200-acre, 200-Mw solar farm that will help decarbonize the power needs of even more facilities,” he said.

Government advantage

The third advantage for the growth of hydrocarbon processing in AIH is support from all three levels of government, including financial incentives.

In the early 1990s former Alberta Premier Ralph Klein coined the phrase “Alberta Advantage” to describe the province’s low-tax, business friendly environment backed by a highly skilled workforce. The province has the lowest corporate tax rate in Canada at 8% and no provincial sales and payroll taxes, and a relatively streamlined regulatory process for getting capital intensive projects built.

This has been further enhanced in the case of AIH by the province making the region the first and only Designated Industrial Zone (DIZ) in both Alberta and Canada in August 2022. 

“The DIZ adds to the competitive advantages in Alberta’s Industrial Heartland by streamlining regulatory processes and reducing red tape through centralization, making the region even more attractive as a global destination for world-class hydrocarbon processing investments while achieving environmental outcomes,” Plamondon said.

In October 2020, the province announced its Alberta Petrochemical Incentives Program (APIP), which pays up to 12% of a petrochemical project’s capital costs upon completion, while the cities and counties making up AIH provide tax breaks to businesses making significant capital investments.

On the decarbonization front, Emissions Reduction Alberta, an arm of the Alberta government, has been funding technology projects and infrastructure upgrades by companies since 2009, while the Albertan and Canadian governments have recently adopted programs to support emission reductions by large industrial emitters.

In December 2023, the provincial government introduced the Alberta Carbon Capture Incentive Program (ACCIP), a grant program with similar criteria as the APIP, but for carbon capture, utilization, and storage (CCUS) projects instead. Blue hydrogen projects in Alberta also are eligible for funding under APIP.

In June 2024, the Canadian government’s Carbon Capture, Utilization, and Storage Investment Tax Credit (ITC) and Clean Hydrogen Investment Tax Credit (ITC) became law. From 2022 to 2030, the CCUS ITC provides a refundable tax credit covering 60% of eligible capital expenditures for direct air capture (DAC), 50% for CCUS, and 37.5% for transport and storage, with these rates declining by half for eligible expenditures between 2031 and 2040 and terminating completely thereafter.

The Clean Hydrogen ITC provides a 15% to 40% refundable tax credit for investment in clean hydrogen projects as of March 28, 2023, with rates halved in 2034 and fully phased out post-2034. The tax credit rate is based on the assessed carbon intensity of the hydrogen that is produced; hence green hydrogen projects will receive higher ITC rates than blue hydrogen ones.

Transportation advantage and disadvantage

“AIH is at the heart of a world-class continental transportation network, with Alberta’s renowned highway transportation network and Canada’s two Class I rail providers intersecting in the Heartland. These provide highly integrated service to points throughout the province, country, and beyond, while ongoing and future planned expansions will continue to improve access to these continental and global markets,” Plamondon said. 

For example, on Sept. 19, 2024, Manitoba-based Cando Rail & Terminals Ltd. detailed plans to double the size of its Sturgeon Multi-Purpose Rail Terminal, including adding the ability to stage 12,000-ft unit trains to improve service, especially to the Port of Prince Rupert, the AIH’s main conduit for exports to Asia (OGJ Online, Nov. 8, 2024).

Prince Rupert is half the shipping distance to East Asian markets as the US Gulf Coast, and a third shorter than the Middle East, providing exporters in the AIH with a transportation cost advantage over exporters from those two hydrocarbon processing regions, Plamondon said.

However, exporters from the AIH must first ship their products to Prince Rupert by rail, with regulatory and other hurdles remaining for ramping up shipments of dangerous goods such as ammonia on CN Rail, especially with numerous First Nations along the route.

On June 7, 2024, in an early step to overcome these hurdles, the Alberta government announced it is providing a C$250,000 grant to the Prince Rupert Port Authority to coordinate the Industrial Heartland to British Columbia Economic Corridor Forum. 

By doing so, the Alberta government is hoping to determine and prioritize issues, identify opportunities, and develop recommendations related to the Highway 16 corridor between the AIH and Prince Rupert by bringing all the major stakeholders together at the forum.

“Improving efficient, cost-effective and resilient supply chains to export products to port and beyond is critical to improving the competitiveness of Alberta’s Industrial Heartland. Billions of dollars of future investment are dependent on shipping Alberta-made and value-added energy products through West Coast ports to global customers. The forum is a critical strategy to unleash AIH’s potential to enhance our international competitiveness,” Plamondon said.