Budget 2025: What It Means for Petrochemicals

Sector Impact Summary

Alberta's petrochemicals sector enters a pivotal period in Budget 2025, receiving continued strong support through the Alberta Petrochemicals Incentive Program (APIP) while facing significant headwinds from U.S. tariffs. APIP allocates $311 million over three years in capital grants to encourage value-added processing of natural gas in Alberta, with a heavily front-loaded profile of $181 million in 2025-26 declining to $61 million and $69 million in subsequent years as the Heartland Petrochemical Complex funding nears fulfillment.

The sector's most transformative development is private rather than public: Dow's $11.6 billion Path2Zero project, the largest private industrial investment in the province, is set to ramp up construction in 2025 and reach peak construction in 2026. This net-zero emissions ethylene and polyethylene facility represents a generational investment in Alberta's value-added processing capacity. Additional private sector projects including Wolf Midstream's NGL North System Phase 2 and Shell Canada's Polaris carbon capture project at the Scotford complex are also under construction.

However, the sector faces a serious near-term threat from U.S. tariffs. Petrochemical products face the full 15% tariff rate, not the reduced 10% rate applied to energy products. Chemicals are the largest manufacturing export category from Alberta to the United States, and unlike energy products where U.S. refineries have limited substitution options, petrochemical goods face competition from domestic U.S. production. The combination of strong incentive support and major private investment against a backdrop of trade disruption makes this a sector of contrasts in Budget 2025.

Key Budget Measures

Alberta Petrochemicals Incentive Program (APIP): $311 million over three years. APIP provides tax credits in the form of capital grants to petrochemical producers. The allocation is front-loaded at $181 million in 2025-26, declining to $61 million in 2026-27 and $69 million in 2027-28 as the Heartland Petrochemical Complex (Inter Pipeline/Brookfield) approaches fulfillment. (Source: Capital Plan Details by Ministry 2025-28)

Designated Industrial Zone Pilot Project: $38 million over three years ($18 million, $10 million, $10 million). This pilot aims to reduce red tape, streamline regulatory processes, and attract industrial investment including petrochemical facilities through the Environment and Protected Areas ministry. (Source: Capital Plan Details by Ministry 2025-28)

Dow Path2Zero project: $11.6 billion (private investment). The fiscal plan's economic outlook identifies this as the largest private industrial investment in the province, driving industrial building construction activity through peak construction in 2026. (Source: Fiscal Plan 2025-28, Economic Outlook, p.32)

Natural Gas Vision and Strategy. The government continues implementing the Natural Gas Vision and Strategy, which includes investments in lower-carbon petrochemical and hydrogen manufacturing and supports development of a plastics circular economy. (Source: Ministry Business Plans 2025-28, Energy and Minerals)

Energy and Minerals total expense: $1,122 million in 2025-26, up $65 million from the prior year. The APIP capital grants are a major component of the ministry's total expense. (Source: Fiscal Plan 2025-28, Expense, p.85)

Funding Changes

Item	2024-25 Forecast	2025-26 Estimate	Change
APIP capital grants	N/A	$181M	Front-loaded
Energy and Minerals total expense	$1,057M	$1,122M	+$65M
Designated Industrial Zone (new)	$0	$18M	New pilot
APIP 3-year trajectory	$181M	$61M / $69M	Declining

(Source: Capital Plan Details by Ministry 2025-28; Fiscal Plan 2025-28, Expense, p.85)

Capital Investment

Capital investment in petrochemicals flows primarily through APIP and the Designated Industrial Zone program:

• APIP: $311 million over three years ($181M, $61M, $69M). Capital grants incentivizing petrochemical facility investment, primarily supporting the Heartland Petrochemical Complex.
• Designated Industrial Zone Pilot Project: $38 million over three years ($18M, $10M, $10M). Streamlined regulatory zones attracting industrial investment.

Major private sector capital projects under construction or ramping up:

• Dow Path2Zero: $11.6 billion -- net-zero ethylene and polyethylene complex, peak construction in 2026.
• Wolf Midstream NGL North System Phase 2 -- natural gas liquids processing expansion.
• Shell Polaris carbon capture project -- at Scotford refinery and chemicals complex.
• Air Products hydrogen facility -- slated to come online in 2025.
• Imperial Oil Strathcona renewable diesel expansion -- slated to come online in 2025.

(Source: Fiscal Plan 2025-28, Economic Outlook, p.32; Capital Plan Details by Ministry 2025-28)

Risks

U.S. tariffs at 15% on petrochemical exports. Petrochemical products face the full 15% tariff, not the lower 10% energy rate. Chemicals are among Alberta's top manufacturing exports to the U.S. and are expected to be significantly impacted because domestic U.S. substitutes are available, making demand more responsive to price increases.

APIP funding declining. APIP grants decline sharply from $181 million to $61 million in 2026-27 as Heartland Petrochemical Complex funding nears completion. The future scope and design of petrochemical incentive programs beyond APIP's current commitments is unclear.

Rising input and construction costs. Tariffs and inflationary pressures could increase costs for imported equipment, catalysts, and materials needed for petrochemical facility construction and operations. A weaker Canadian dollar makes imported components more expensive.

Feedstock price volatility. Natural gas prices are forecast to more than double from C$1.20/GJ to C$2.50/GJ. While higher natural gas prices benefit royalty revenue, they increase feedstock costs for petrochemical producers.

Opportunities

Dow Path2Zero transformative impact. The $11.6 billion project will fundamentally expand Alberta's petrochemical capacity with the world's first net-zero emissions integrated ethylene cracker and derivatives complex, creating thousands of construction and permanent operating jobs.

Natural Gas Vision and Strategy. The government's continued implementation of the Natural Gas Vision and Strategy supports development of lower-carbon petrochemical manufacturing, hydrogen production, and a plastics circular economy, positioning Alberta for long-term value-added growth.

Designated Industrial Zones. The $38 million pilot project could streamline regulatory processes for petrochemical facilities, reducing development timelines and costs. If successful, this model could be expanded to attract additional industrial investment.

Shell Polaris carbon capture. The construction of Shell's Polaris carbon capture project at the Scotford refinery and chemicals complex enables lower-carbon petrochemical production, potentially providing a competitive advantage in markets that price or regulate carbon.

Abundant NGL feedstock supply. Wolf Midstream's NGL North System Phase 2 expansion increases natural gas liquids processing capacity, strengthening feedstock supply for petrochemical operations.

What's Missing

The budget does not articulate a successor incentive program to APIP once current commitments are fulfilled, creating uncertainty about the long-term incentive framework for petrochemical investment. There is no specific measure addressing the 15% tariff impact on petrochemical exports, such as temporary royalty adjustments or export diversification support. The budget lacks detail on how the Designated Industrial Zone pilot will be evaluated and potentially expanded. There is no mention of feedstock cost mitigation programs for petrochemical producers facing the sharp increase in natural gas prices.

Net Assessment

The petrochemicals sector occupies a unique position in Budget 2025: strongly supported by APIP incentives ($311 million) and transformative private investment ($11.6 billion from Dow alone), yet directly threatened by 15% U.S. tariffs on its primary export market. The near-term outlook is mixed, with APIP front-loaded and declining while tariff headwinds mount. The medium-term outlook is more favorable as major construction projects reach completion and production begins, though the absence of a post-APIP incentive framework creates policy uncertainty for the next wave of investment decisions.