On October 30, 2020, the Alberta government unveiled the Alberta Petrochemicals Incentive Program (APIP), an initiative intended to attract $30 billion in new investments by 2030 in Alberta's natural gas-based petrochemical sector.

Following the release of Alberta's Recovery Plan, and building on the low-carbon chemical manufacturing focus set out in the Natural Gas Vision and Strategy, APIP reflects the province's continued drive to diversify Alberta's economy and develop a new energy strategy.

The Alberta Industrial Heartland Association has identified that prior to COVID-19, Alberta's chemical and manufacturing sectors contributed over $16.2 billion to the economy. With APIP, Alberta is leveraging off its prodigious stores of cheap and readily available feedstock including natural gas liquids and refining by-products, its existing transportation infrastructure and strong research and development sector, to position the province as a compelling destination for investment in world-class petrochemical manufacturing facilities.

Program Details

APIP is administered by the Alberta Department of Energy. Its purpose is to help grow the petrochemical sector by providing financial incentives through grants in order to drive investment in the development of new or expanded petrochemical manufacturing facilities to produce petrochemical, hydrogen, fertilizer and fuel products. The grants will be worth 12 percent of a project's estimated total eligible capital costs of the project (i.e., manufacturing and processing capital expenditures). There are no specific targets on the number of projects to be developed, and there is no cap to the program. The government will report on expected costs each fiscal year based on applications received and project approvals (see: October 30, 2020, Press Release).

The government has announced that the operation of APIP is intended to take "an open and transparent approach", whereby if a project meets the program criteria, it will receive grants on the commencement of operations and consumption of feedstock (see: APIP Webpage Overview). APIP opened applications on November 1, 2020, and the program will close on November 1, 2030.

APIP replaces the government’s Petrochemical Diversification Program (PDP). Projects that were approved to receive royalty credits under PDP may transfer their projects to APIP. Companies will have six months from the launch of APIP (on November 1, 2020) to select the program they would like to proceed under.

Eligibility

Eligible projects must meet the following criteria, as well as those further outlined in the Program Guidelines:

1. The project must be physically located in Alberta.
2. The capital investment must be at least C$50 million.
3. The facility must use natural gas, natural gas liquids, or petrochemical intermediaries (such as ethylene, propylene, benzene, etc.) in the manufacturing of its own products. Projects using eligible feedstock to produce hydrogen are eligible.
4. The project must create permanent jobs in Alberta.

Facilities with a capital investment between $50 million and $150 million must be in-service by November 1, 2025, and facilities with a capital investment greater than $150 million must be in-service by November 1, 2030, in each case in order to be able to receive grants.

Petrochemical projects associated with any of the following activities are ineligible to participate in APIP:

• Projects that have a technology readiness level 8 or lower
• Routine maintenance and turnaround activities associated with existing petrochemical plants
• Facilities associated with transportation, processing, storage or other activities in the midstream sector
• Facilities associated with the extraction or processing of hydrocarbons at a refinery, upgrader or partial upgrader
• Liquefied natural gas facilities, or
• Facilities that manufacture end user consumer products, as defined in the program.

Proponents may only apply once to qualify a project, and any one project may only qualify once. Proponents will be required to submit regular reports to the Department of Energy describing the status of the project, including capital costs to complete the project.

Stages

Proponents interested in participating in APIP will follow a three-stage process:

Stage 1: Advance Notification

The advance notification stage is intended to inform proponents on whether their project is eligible for the program and provide an estimate of the grant funding they may be entitled to receive.

Proponents will be asked to provide the following, in addition to other information:

• Company information
• Project summary (e.g., location, type, estimate of total project costs and an estimate of eligible capital costs, each with a breakdown of the assets, construction schedule, initial economic impact and job creation), and
• Most advanced engineering cost estimates available, with a minimum of a Class 5 estimate.

At this stage, the Department of Energy will provide its decision on whether the project is eligible, or not, and the amount of grant funding that the project may receive. Eligibility, however, does not represent a guarantee of funding at this stage.

Stage 2: Qualification and Grant Agreement

At this stage, the proponent will be required to provide more information about the proposed project, including:

• Business Plan
• Project Timing
• Technology Configuration
• Proponent’s Capability
• Economic Benefits to Alberta
• Environmental Performance, and
• A changelog with amendments to project scope relative to documentation provided in the Advance Notification.

In addition, a minimum of a Class 3 capital cost estimate will be required. This estimate will be used to calculate the amount of the grant. If the project’s capital costs calculated in Stage 2 increase as the project goes through construction, the size of the grant will not be increased. However, if the project comes in under budget, the size of the grant will be decreased proportionally to the lower cost.

The APIP Committee (led by an Assistant Deputy Minister) will confirm if the project qualifies under the program and will be offered a grant agreement. If the project is deemed eligible, the Government of Alberta will then enter into a grant agreement with the company (the company has 30 days to sign the agreement once provided). The grant agreement will set out, among other terms, the amount of time given to the project from the date the agreement is executed to achieve agreed milestones, and the company's reporting requirements.

Stage 3: Payment

The payment schedule will depend on the size of the project:

• Projects with total capital investments between C$50-150 million must be operational within five years of the opening of applications. These projects will receive the full amount of the grant in a single payment after the facility is continuously in operation and consuming eligible feedstock for a 12-month period.
• Projects with total capital investments greater than C$150 million must be operational within 10 years of the opening of applications. These projects will receive grant payments over three years, each year receiving 4 percent of the agreed upon eligible costs. The project must be continuously operational and consuming eligible feedstock for 36 months, with the instalment of the grant payment made after each 12-month period of operation.

In each case, the proponent must provide evidence for the volume of feedstock consumed or products produced (i.e., a minimum of 60 percent of the design for consumption/production), and permanent jobs created in a 12-month period since the in-service date to validate the operation of the facility. If the project is not for a new facility, other criteria will apply.

The criteria for when a project is considered complete and operational is further outlined in the Program Guidelines.