The Alberta government recently introduced new legislation, Bill 1, the Energy Diversification Act, aimed at promoting private sector investment in upstream, midstream and downstream oil and gas sectors. If passed, the Act would require Alberta's Minister of Energy to establish programs that support "energy diversification." The new legislation would specifically require the Minister to, among other things:
- renew the Petrochemicals Diversification Program ("PDP"), initially launched in 2016, and to expand the scope of that program to include ethane-consuming projects;
- increase development of value-added upgrading in Alberta through a "partial upgrading program" under the Petroleum Marketing Act; and
- create a "petrochemical feedstock infrastructure program" under the Mines and Minerals Act.
As part of the programs to be established under the proposed legislation, the Minister would have broad authority to use any financial tools available to the Minister including but not limited to royalty credits and grants.
The proposed legislation also includes separate requirements for the Minister to develop programs to "increase access to capital" and to "support energy export development", though the proposed legislation and government press releases have not been clear on whether those objectives will be furthered through separate programs or as part of the three programs identified above.
Renewed (and expanded) PDP
The PDP was originally launched in February 2016 as part of the Government of Alberta's attempt to encourage investment in new petrochemical facilities in Alberta. The original program was enabled by the Petrochemicals Diversification Program Royalty Credit Regulation, made under the Mines and Minerals Act.Project applications were processed by Alberta Energy in accordance with its Application Information and Guidelines, which outlined the application process and program eligibility.
Round one of the PDP focused on encouraging "private sector investment in new Alberta-based facilities with methane or propane base value chains". The province reviewed bids for 16 projects and committed to issuing up to $500 million in royalty credits to proponents of two propane dehydrogenation and polypropylene manufacturing facilities. The royalty credits would be earned by the successful proponents once their facilities begin operation. The amount earned is determined based on the annual amount of eligible feedstock consumed by the projects. Once earned, the project proponents would be able to market those royalty credits to upstream producers in order to realize the value of the royalty credits.
The proposed legislationindicates that round two of the PDP would be expanded to allow applications for ethane-consuming projects in addition to those that consume propane and methane. Alberta Energy press release indicates the intent is for the province to provide an additional $500 million in royalty credits, spread across four years beginning in 2020-21. Alberta Energy has not yet released updated guidelines addressing program eligibility and application timelines.
New Petrochemicals Feedstock Infrastructure Program
The second pillar of the proposed Energy Diversification Act would be a Petrochemicals Feedstock Infrastructure Program. The proposed legislation does not provide any additional detail on the scope of this program. However, an Alberta Energy press release implies that the program would aim to attract investment in the midstream sector to "encourage industry to move forward on the facilities and infrastructure needed to capture more natural gas liquids ("NGLs") required for value-added development." The intent is to encourage investment in natural gas processing facilities and/or straddle plants that would extract NGLs during transportation.
Alberta would commit up to $500 million in loan guarantees and grants, spread over three years beginning in 2021-22. The government has not yet specified how its commitment for this program would be divided between loan guarantees and grants. Alberta Energy has not yet released guidelines addressing program eligibility or application timelines.
New Partial Upgrading Program
The third pillar of the proposed Energy Diversification Act would be the Partial Upgrading Program, which the province says would "help support the full-scale commercialization of partial upgrading technologies through the construction of two to five facilities, representing up to $5 billion in private investment…" To achieve this goal, the Government of Alberta intends to allocate up to $1 billion over eight years, beginning in 2019-20, made up of $800 million in loan guarantees and a further $200 million in grants. Again, Alberta Energy has not yet released guidelines addressing program eligibility or application timelines.