Petrochemicals Industrial Profile

Introduction

Petrochemicals are a category of organic chemicals derived principally from two feedstocks: natural gas liquids (NGL) obtained from natural gas processing plants, and oil refinery streams such as naphtha and light gas oil.

NGL (principally ethane, propane, and butanes) are "cracked" at high temperatures to yield the primary petrochemical building blocks of ethylene, propylene, butylenes and butadiene. Cracking crude oil based feedstocks such as naphtha or gas oil yields higher ratios of the ethylene co-products propylene, butylenes and butadiene plus the aromatic products benzene, toluene, xylenes along with other co-products.

Primary petrochemicals are reacted to form secondary petrochemicals, other chemical products, or polymerized to form synthetic resins. These in turn are incorporated into a great variety of industrial and consumer products. In Canada, ethylene is the primary petrochemical product made in the largest quantity from whichever feedstock is used. Ethylene is produced in Alberta, Ontario, and Quebec and used at nearby plants to make derivatives including ethylene oxide, ethylene glycol, ethylene dichloride, and vinyl chloride monomer, and polymerized to synthetic resins including polyethylene, polyvinyl chloride, polystyrene, and synthetic rubber. Relative production levels for the major petrochemicals are shown in Figure 1.

Figure 1: Relative Petrochemical Production (tonnes basis)

Figure 1: Relative Petrochemical Production (tonnes basis)(the long description is located below the image)

Source: Statistics Canada and Innovation, Science and Economic Development Canada estimates

Description of Figure 1
Figure 1: Relative Petrochemical Production (tonnes basis)
Petrochemicals Share of Total, %
Source: Statistics Canada and Innovation, Science and Economic Development Canada estimates.
Benzene 5.5
Ethylene 51.6
Butadiene 1.8
Butylene 1.6
Propylene 6.4
Toluene 1.8
Xylenes 2.8
Styrene 9.5

Under the North American Industrial Classification System (NAICS 32511), the definition of petrochemicals is limited to "acyclic (aliphatic) hydrocarbons and cyclic aromatic hydrocarbons". The main chemicals falling within this definition are: ethane, butanes, ethylene, propylene, butylenes, butadiene, benzene, toluene, xylenes, ethylbenzene and styrene. Note however, that much of the benzene, toluene, and xylenes produced in Canada are streams from oil refinery operations, and as such their production is captured within NAICS 32411 — Petroleum Refineries. Similarly, most ethane and butanes are produced from gas extraction operations which are also captured in NAICS 32411.

Structure and Performance of the Industry

The Canadian petrochemical industry had shipments of $6.2 billion in 2010, and employed 1060 people in 16 manufacturing establishments (see the table entitled Principal Statistics on the page NAICS 32511 Petrochemical). Following a decline in output caused by the recession, the industry showed strong growth in 2010. The majority of larger firms operating in Canada are owned by U.S. and European multinational firms that operate subsidiary or joint venture operations around the world.

Compared to the overall manufacturing average, Figure 2 shows that the petrochemical industry has a very high level output per employee, reflecting the capital intensiveness of this industry.

Figure 2: Shipments per Employee (thousands of constant 2002 Canadian dollars)

Figure 2: Shipments per Employee (thousands of constant 2002 Canadian dollars)(the long description is located below the image)

Source: Statistics Canada

Description of Figure 2
Figure 2: Shipments per Employee (thousands of constant 2002 Canadian dollars)
Year All Manufacturing Petrochemicals
Source: Statistics Canada.
2000 288.0 3,171.4
2001 278.0 2,775.5
2002 282.0 3,060.9
2003 294.0 2,671.4
2004 220.0 3,347.1
2005 330.0 2,859.4
2006 339.0 3,569.1
2007 349.0 3,751.7
2008 363.0 3,893.3
2009 336.0 2,359.9
2010 371.0 3,261.3

The industry employs a highly skilled workforce as evidenced by the high average salary levels compared to all manufacturing in Figure 3.

Figure 3: Average Salaries (thousands of constant 2002 Canadian dollars)

Figure 3: Average Salaries (thousands of constant 2002 Canadian dollars)(the long description is located below the image)

Source: Statistics Canada

Description of Figure 3
Figure 3: Average Salaries (thousands of constant 2002 Canadian dollars)
Year All Manufacturing Petrochemicals
Source: Statistics Canada.
2000 42.3 77.8
2001 41.9 71.3
2002 41.8 75.2
2003 42.8 71.3
2004 43.9 73.2
2005 44.0 70.1
2006 44.1 72.4
2007 43.6 80.9
2008 43.4 78.2
2009 43.1 77.7

Regional Clusters

Canada's petrochemical plants are concentrated in Alberta, Ontario and Quebec as shown in Figure 4.

Figure 4: Regional Distribution of Establishments (percentage of total)

Figure 4: Regional Distribution of Establishments (percentage of total)(the long description is located below the image)

Source: Statistics Canada

Description of Figure 4
Figure 4: Regional Distribution of Establishments (percentage of total)
Region/Province Establishments
Source: Statistics Canada
Quebec 18.8
Ontario 31.3
Alberta 43.8

Trade

In 2010, exports of petrochemicals were $2.4 billion and imports were $0.9 billion for a strong trade surplus of $1.5 billion. Trends in trade orientation are shown in Figure 5. Canadian exports represented 39 percent of shipments in 2010, and imports accounted for 19 percent of the domestic market.

Figure 5: Trade Orientation (percentage of total)

Figure 5: Trade Orientation (percentage of total)(the long description is located below the image)

Source: Statistics Canada

Description of Figure 5
Figure 5: Trade Orientation (percentage of total)
Year Imports as Percentage of Domestic Market Exports as Percentage of Shipments Ratio of Trade Balance to Shipments
Source: Statistics Canada
2000 8.60 30.3 23.7
2001 8.70 28.7 21.9
2002 6.20 28.6 23.9
2003 7.80 30.0 24.1
2004 12.0 33.2 24.1
2005 13.6 31.8 21.0
2006 15.5 35.0 23.1
2007 13.9 37.6 27.5
2008 15.7 33.4 20.9
2009 23.9 39.5 10.5
2010 19.3 38.8 24.2

The proportion of Canadian exports going to the United States increased from 64 percent in 1992 to 100 percent in 2010. The proportion of our imports coming from the United States was 95 percent in 2010. The strong predominance of our trade with the United States reflects the tariff advantage resulting from the North American Free Trade Agreement, and the impact that transportation has on competitiveness in a given market.

There are no tariffs on petrochemicals imported into Canada (for example, Canada's Most Favoured Nation tariff rate is 0 percent).

Globally, many leading petrochemical-producing countries participated in the Uruguay Round of multilateral trade negotiations under the General Agreement on Tariffs and Trade (GATT). Export tariffs from Canada into other countries are highly variable. For countries like Canada that have signed on to the Chemicals Tariff Harmonization Agreement (CTHA), all petrochemical tariffs will drop to 0 percent once the Agreement is fully implemented.

Relationship to Oil and Natural Gas

Raw material and utilities constitute almost two thirds of petrochemical manufacturing costs. Low feedstock prices are, therefore, critical to the success of Canadian operations. Not only are oil and gas used as fuels, but they are also the source for most of the feedstocks used to produce petrochemicals.

Whereas oil has long been a globally-traded commodity and prices tend to be more or less equal in all regions, natural gas is a regional commodity, with wide variations in prices observed from one part of the world to another. Gas has only been transported from source to markets in situations where construction of a pipeline was economic. Liquified natural gas (LNG) opens up another option for moving gas from so-called stranded pools to markets, and thus moves natural gas closer to becoming a global commodity. At present less than 10 percent of global natural gas is moved as LNG and this ratio will need to become much higher before we start to see significant equalization of prices on a global scale. In North America, natural gas is currently abundant and relatively cheap. As a result, whenever possible North American petrochemical producers are using feedstocks obtained from natural gas. In most other parts of the world, where gas is not so abundant, oil is the dominant petrochemical feedstock.

Technology

Access to technology is typically not an issue for this industry in Canada. For the most part, both the process and product technologies utilized are up-to-date, either as a result of in-house development or through licensing agreements with parent companies or other technology providers. Some of this technology has been developed in Canada, but the trend in this industry has been to centralize R&D activities close to the head office, and with the exception of NOVA Chemicals, all of the major research centres are outside Canada.

Against this general trend, Canada has had some limited successes in attracting niche R&D activity, driven by the fact that performing research in Canada is very cost effective. There is a good supply of qualified scientists engineers, and salary costs for this highly-skilled labour are lower than in other industrialized countries. Canada also offers more favourable tax treatment to R&D expenditures than other G7 countries. It is estimated that the cost of performing R&D in Canada is 18 percent lower than the comparable cost in the United States or Japan, and 40 percent lower compared to Germany.

Environmental Issues

Canada's petrochemical industry, along with other chemical and related sectors, must deal with a variety of environmental issues being addressed by federal, provincial and municipal regulators, including:

  • control of odours
  • release of toxic chemicals
  • volatile organic compound (VOC) emissions
  • generation of greenhouse gases
  • emissions of contributors to acid rain (for example, NOx, SOx)
  • ozone depleting substances
  • testing required prior to introduction of new substances
  • land contamination
  • storage and handling mishaps.

Canada–U.S. Comparison

The petrochemicals industries in Canada and the U.S. are structurally quite similar. In the U.S., the major petrochemical producing region is along the Gulf Coast in Texas and Louisiana. Figure 6 compares shipments per employee in the two countries on a constant Canadian dollar basis.

Figure 6: Canada–United States Comparison, Shipments Per Employee (thousands of constant 2002 Canadian dollars)

Figure 6: Canada–United States Comparison, Shipments Per Employee (thousands of constant 2002 Canadian dollars)

Source: Statistics Canada and U.S. Department of Commerce.

Description of Figure 6
Figure 6: Canada–United States Comparison, Shipments Per Employee (thousands of constant 2002 Canadian dollars)
Year Canada United States
Source: Statistics Canada and U.S. Department of Commerce.
2,000 3,171.4 3,405.4
2001 2,775.5 3,239.9
2002 3,060.9 3,378.5
2003 2,671.4 3,615.0
2004 3,347.1 4,742.3
2005 2,859.4 5,449.9
2006 3,569.1 4,797.2
2007 3,751.7 4,618.5
2008 3,893.3 1,568.8
2009 2,359.9 1,350.9

A portion of the Canadian industry is composed of subsidiary operations originally built largely to satisfy Canadian domestic demand, and thus were scaled to this market. With North American product rationalization resulting from the FTA, many of these multinational plants now serve North American markets, but in most cases these are still constrained from producing commodity products by virtue of their lack of size, and tend instead to focus on niche markets.

Figure 7 compares average salaries in the two industries.

Figure 7: Canada–United States Comparison, Average Salaries (thousands of constant 2002 Canadian dollars)

Figure 7: Canada–United States Comparison, Average Salaries (thousands of constant 2002 Canadian dollars)

Source: Source: Statistics Canada and U.S. Department of Commerce

Description of Figure 7
Figure 7: Canada–United States Comparison, Average Salaries (thousands of constant 2002 Canadian dollars)
Year Canada United States
Source: Statistics Canada and U.S. Department of Commerce.
2000 77.8 96.6
2001 71.3 104.1
2002 75.2 109.7
2003 71.3 102.7
2004 73.2 97.6
2005 70.1 93.3
2006 72.4 88.5
2007 80.9 83.3
2008 78.2 83.8
2009 77.7 92.2

Figure 8 shows gross margins (as a proxy for profitability) for the two industries.

Figure 8: Canada–United States Comparison, Gross Margins (percentage of total)

Figure 8: Canada–United States Comparison, Gross Margins (percentage of total)

Source: Source: Statistics Canada and U.S. Department of Commerce

Description of Figure 8
Figure 8: Canada–United States Comparison, Gross Margins (percentage of total)
Year Canada United States
Source: Statistics Canada and U.S. Department of Commerce
2000 32.1 26.2
2001 29.5 13.9
2002 25.6 27.7
2003 19.4 25.2
2004 12.1 39.5
2005 14.7 44.6
2006 18.5 44.2
2007 14.8 36.2
2008 14.9 37.2
2009 7.40 36.6

Prospects for the Future

Canadian facilities compete with producers based in the United States, notably with plants located along the U.S. Gulf Coast. Facilities in Ontario and Quebec are better situated than those on the Gulf Coast to supply the large customer base in the northeastern and central United States and Canada. Commodities manufactured in Alberta are largely shipped to central and western U.S. markets or offshore.

Global chemical companies are making most of their major new investments in the Middle East and Asia Pacific. New capacity has been drawn to the Middle East by low-cost feedstocks, and this production is destined for export markets in Asia and Europe. The attraction in Asia Pacific is proximity to booming markets. Despite a large increase in petrochemical capacity, Asia Pacific will remain a large net importer for the foreseeable future.

Most of the recent growth in the Canadian industry has occurred in Alberta, based almost exclusively on natural gas feedstocks. There are two main petrochemical complexes in the province. One at Fort Saskatchewan, near Edmonton, is an integrated petrochemical cluster based heavily on ethylene and derivative products that offers extensive pipeline inter-connections, large underground salt cavern storage capacity for hydrocarbons (raw materials and products), and nearby petroleum refineries for raw material acquisition and co-product exchange. The other complex at Joffre, near Red Deer, is an integrated cluster based exclusively on ethylene and derivatives. Joffre is connected to the Alberta Ethane Gathering System for feedstock supply, and is connected by pipeline to Fort Saskatchewan allowing for movement of product streams between the two centres. In Alberta today there is insufficient volumes of feedstock to support any major new investment. New developments are needed to change this scenario. Possible options are the import of feedstocks from neighbouring provinces or states, utilizing feedstocks from oil sands, and the development of northern gas.

In Ontario, Sarnia has an integrated petrochemical complex that provides petrochemical producers with large underground salt storage caverns, nearby petroleum refineries, extensive pipeline infrastructure, a tanker terminal for offshore shipments, and ready access to large U.S. and Canadian customers via excellent transportation networks. Most of the recent investment in Ontario has been to make existing manufacturing units more efficient through "debottlenecking". Efforts are currently underway to secure additional natural gas liquid feedstocks from the Marcellus shale gas formation. If successful, this could reinvigorate the petrochemical cluster in the Sarnia area.

In Quebec, the petrochemical industry is centred around Montréal and uses solely oil-based feedstocks. Crude oil arrives in Montréal by tanker or via pipeline from Portland, Maine. Although on a smaller scale than Sarnia, Montréal is also an integrated petrochemical complex that offers petroleum refineries, a tanker terminal for ocean shipments, and access to the markets of eastern and central Canada and the United States.

Major Firms

Major Canadian Firms owned by U.S. and European Multinational Firms
Company Head Office Location Location of Plants
Dow Chemical Canada U.S. Fort Saskatchewan, Alberta
Prentiss, Alberta
Imperial Oil, Chemicals Division U.S. Sarnia, Ontario
NOVA Chemicals Canada Joffre, Alberta
Sarnia, Ontario
Petro-Canada Canada Oakville, Ontario
Montréal, Quebec
Shell Chemical U.K./Netherlands Scotford, Alberta

Association

The principal association representing petrochemical companies in Canada is the Chemistry Industry Association of Canada. The head office is located in Ottawa, with regional offices in Vancouver, Edmonton, Toronto and Montréal.

Chemistry Industry Association of Canada
Ottawa Head Office
580 - 350 Sparks Street
Ottawa Ontario K1R 7S8

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