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5. Selected Biochemical Opportunities forAlberta

5.1 Introduction

The following section containsprofiles for the ten most promising chemicals and/ormarketareas where biochemicals could be sold. These were selected from the initial 40 chemicalsand 10 market areas investigated in phase ! of the study. These 10 profiles were developedusing industry input from telephone consultations and analysis of available publicliterature. The profiles are intended as a scan market factors. Further research would berequired to determine market and business feasibility.

5.2 Solvents

In this report, the term "solvents" refers to low molecular weight, organic substances thathave the ability to dissolve other organic substances. Most of these organic substancesbegin in a liquid state at room temperature and pressure-^ butevaporate to air due to theirhigh vapour pressure. This section describes the Canadian solvents market, in whichbiosolvents would need to compete, and then provides examples of activities related to themarket potential for biosolvents.

The 2012 demand for solvenl-type hydrocarbons in Canada is estimated to be between400.000 and 500,000 lonncs per year. A central estimate of 450.000 tonnes is used in thisreport. The estimates contained in this section arc intended to provide the order-of-magnitudc of quantities involved, the structure of the market and its various segments.Further research would be required, beyond the scope of this study, to develop estimateswith low uncertainties."'

Someof the solvents that comprise Canadian demand are also used as fuels and for reactiveuses, which account for the majority of total demand. Example of solvents used as fuelsand reactive uses in Canada include: ethanol used in gasoline; methanol used forformaldehyde production: and ethylene glycol used in polyethylene terephthalate (PET)resin production. The focus of this analysis is on the market for solvent uses, whichcomprise the minorportion of total demand for these hydrocarbons.

Propane and butane are notable exceptions, requiring higher pressure to keep in a liquid slate.Estimates provided in this report are largely based on previous analysis of the Canadian solvent markets

conducted by Cheminfo Services. These studies prepared estimates for supply and demands through reviewof publicly available production and trade (import and export) data, input from industry sources and somesolvent users, and literature sources. For this report, anecdotal input from some solvent industry participantswasobtained regarding the trends inthe industry as well as theposition ofand interest in bio-solvents.

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Table 16: Estimated Total 2012 Canadian Demand for

Solvent-Type Chemicals

Use Estimated Demand %ofTot8l

(kilotonnes)Tucl and reactive uses 3.000-3.500 85-90%

Solvent uses 400-500 10-15%

Total 3,400-4,000 100%

Source; Cheminfo Services estimates.

There are eight types of solvents that comprise the great majority (i.e., greater than 90%)of total demand in Canada. Alcohols, such methanol. ethanol, and isopropanol (IPA)account for about one third of the total use. Aliphatics. such as naphthas, hexane, andpentanes"'* arethe next most heavily used, with naphtha accounting formos( of thedemandfor this type. Aromatics include toluene, xylenes. styrene and heavy aromatics. Ethyleneglycol and propylene glycol are usually included as solvents since they are blended intopaints and coatings, and other formulations. However, they are also used in heat transferfluid formulations (e.g., antifreeze) and other applications. There are a variety of esters,ethers, ketones, halogenated and nitrogenated solvents ihat in total comprise about 10%ofCanadian demand.

Penlanes, natural gas condensates and other cliemicals used as bitumen diluent in Alberta is excluded fromthis analysis. There are substantial and increasing quantities of diluent used and further focused analysiswould be required to ascertain specific products used and demand for this "fuel" use.

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Table 17: Estimated Canadian Demand Pattern by Solvent Type

Solvent Type Pcrccnl ofTotal

Canadiiin DemandSpecific Solvents

Aliphatics 22% • Propane• Biitiincs

• Penlancs

• ilcxatic

• Naphlha.s (C7-Cia)

Aromaties 17% • Toluene

• Xyleno• Heavy aromaties (Aromatic 100. 150 and 200)• Stvrcnc

Alcohol 32% • Mcthanol

• Rthnnol

• Isopropanol (IPA)• Butuiiols (n-butanol. isohulanol)• Methyl isobutvl earbinol (MIBC)

Ketones 5% • Methyl elhyl ketone (MHK)• Methyl isobutyl keume (MIBK)

Glycols 17% • Elhylene glycol• Propvleiie glvcol

fithers and listers 7% • Glycol ethers, glycol ether cslers• Elhyl acclale• Prnpyl acetate

• But) 1acelales (n-butyl acetate, i-butyl acetate)• Oilier esters

llalogenated <1% • Trichloroethvlene

Nitrogcnaled <0.5% • Lthannlamines

• Morplioline

* List is no(exhaustive of the manysolvents within each categor>'.Source: Cheminfo Services eslimates.

The market for solvents is quite fragmented. There are hundreds of thousands of industrial(including construction), manufacturing, commercial (e.g.. restaurants, auto repair garages)and institutional (e.g., hospitals, academic and government laboratories) users, plusmillions of households that use solvents in pure form or in mixtures.

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Table 18: Major Canadian Market Segments for Solvents

Market Segments Appllcalioii examples Kstimated

2012 Use

%of

Total

(kilotonnes)Consumer and commercial

auto and similar products

Windshield washer fluid, antifreeze, variouspackaeed products

150 33%

Paints and coalings

Architectural, industrial/manufacturing,automotive, maintenance (bridges, building,etc.) uses (includes spary gun washes, othercleaners, diluents)

99 22%

Other industrial,

manufacturinR, conslruclionAdhesives. general cleaning, vegetable oilextraction

90 20%

PrintingFlexography. rotogravure, lithography,photocopy

44 10%

Household productsHousehold cleaners, air fresheners, sanitizers,dcizrcasers. clues, polishes

36 8%

Pesticides Liquid pesticides 9 2%

Personal care productsHair care products, fragrances, nail careproducts

8 2%

Other Dry cleaning, miscellaneous 13 3%

Total solvent uses 450 100%

Source: Cheminfo Services estimates.

Naphtha solvems. which are composed of a mixture of hydrocarbons, arc used in a varietyofapplication areas and are incorporated in great number of formulated chemical products,including: architectural paints and protective coatings; printing inks and printing presscleaners; other cleaning compounds; pesticidcs; degreasing formulations; and householdproducts. Sales to households or commercial (e.g., construction, commercial buildingcleaning contractors, garages, etc.) applications can use naphtha in "pure" form or as partofformulated products. Naphthas are of\en referred to as mineral spirits. Stoddard solvents,ligroine as wellas popularbrand namessuchas Varsol*. losol^. and ShellSol*. One reasonfor their broad base of use is that naphtha solvents are relatively inexpensive compared tomany single component solvents.

The largest solvent use for methanol is in windshield washer fluid (WWF) formulations,most of which arc used in the winter as de-icers. Methanol is also used in a variety of otherde-icing applications and formulated products (paints and coatings, adhesives and sealants,etc.). In these applications, it offers high efficacy (melting ice and snow), evaporatesquickly, and is usually the lowestcost solvent option. Ethanol and isopropanolare typicallymore expensive options for some applications.

Ethylene glycol is used for automobile antifreeze, winter plumbing freeze protectionformulations, and similar applications. Approximately 10% is used in de-icing fluids usedat airports. Aromatic solvents such as toluene, xylenes and heavy aromatics have a variety

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of applications including paints and coatings, adliesivcs and sealants, pesticides, priming(especially on plastic substrates), and in various formulated products. Other higher volumesolvents and example of applications are provided in the table below.

Table 19: Estimated Use for Major Solvents in Canada

Solvent Examples of Use Estimated

2012 Demand

%of

Total

(kilotonnes)Naphtha Cleaning, paints and coalings, adhesives, asphalt

cutbacks, prinlini!. household products80

18%

Methanol Windshield washer fluid, de-icine lluids, adhesives 75 17%

Ethylene dvcol Antifreeze, paints and coatinas 72 16%

Ethanol Persona! carc. household products 36 8%

Xvlene Cleanine, paints and coatings, adhesives, printing 30 7%

Isopropanol Printinc. de-icinu. adhesives. household products 30 7%

Toluene Cleaning, paints and coatines, adhesives. printing 25 6%

Heavy aromaiics Pesticides, wood treatment, paints and coatings 24 5%

Hexane Oilseed extraction, oil and gas. adhesives andsealants, resin manufaclurine

9

2%

MEK Cleaning, paints and coatings, adhesives. printing 10 2%

Other Above applications and many others 59 13%

Total 450 100%

Source: Cheminfo Services estimates.

The 2012 solvents market in Alberta is roughly eslimaied at 37,000 tonnes, or about 8% ofthe national total.-'̂ Uses in Alberta include paints and coatings, oil and gas industryapplications, de-icing formulations, and cleaning applications. Ontario and Quebec withlarger populations and manufacturing industries in total account for close to 70% of totalCanadian demand. In comparison to these provinces. Albertahas a smaller manufacturingsector(e.g.. lackof automobile manufacturing, smaller furniture industry, smaller printingindustry, etc.).

Thisexcludes diluent forbitumen, which is be much larger than all other solvent applications.

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Table 20: Regional 2012 Demand for Solvents In Canada(kilotonnes)

Markel Seemenls ilC Ait SK »ni ON 0( Ml NS PF. NI- ru 'I'olfll

Consumer and consmercial

nulo and similar oroducts 20 1$ 5 5 58 35 4 4 1 •> 0 150I'amis and coatines 8 7 2 2 54 21 2 2 0 1 0 99

OtliL-r industrial,

nianufaclurms. consiruclion 8 7 1 3 47 n t -> 0 0 0 90

ft inline 4 1 0.2 3 26 y 0 1 0 u 0 44

Mnusehold oroducis 5 3 1 1 13 9 1 1 0 1 0 36

I'cslicidcs 04 2 3 1 •> 0 0 0 0 0 9

Personal care nroducls 1 1 0.2 0 3 2 0 0 0 0 0 8

Other 1 1 0 1 0 7 3 0 0 0 0 0 13

Total solvent uses 4f> n 12 17 210 102 9 11 1 4 1 450

Source: Cheminfo Services estimates.

The solvents market is mature. Total Canadian use has been declining over the last decade.Environmental pressures and associated regulatory limits on volatile organic compound(VOC) content for formulated products have been key drivers in the solvents market. VOCsare precursors to ground level ozone (smog) fonnation. which is hazardous to humanhealth. Solvent industry' sources indicate that total Canadian demand in 2012 is about 15-20% lower than a decade ago. The general trend has been toward water-based and highsolids formulated products (lowersolvents). As a result, solvent use in paintsand coalings,adhesives and sealants, inks and many other formulated products has been reduced.Manufacturing facilities using solvents have also faced pressures to reduce VOCemissions, and as a result have installed VOC control and/or lowered solvent use.

Figure 3: Trend in Total Estimated Canadian Solvents Demand(kilotonnes)

600

500

. 40001C

o 300

200

100

0

1985 1990 1995

Source: Cheminfo Services estimates.

2000

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The pressures to reduce solvcnls that are VOCs contributing to ground level ozoneFormation has resulted in greater use for some solvents that are exempt from regulatorylimits for formulated products and/or have low VOC-ozone formation potential. Examplesof exempt solvents include: acetone, various fluorinated and chlorinated solvents (some ofwhich haveother environmental issues associated with them). In the United Slates, methylacetate and methyl esters may be exempt - depending upon state regulations.

5.2.1 Solvent Supply and Distribution

Solvents are used in hundreds of thousands of industrial, commercial and institutional

facilities across Canada in pure form and in formulated products. A complex distributionsystem exists to provide products to end-users. The distribution system features suppliersthat can be grouped in five categories, namely: (i) solvent producers, (ii) primary solventdistributors, (iii) sub-distributors, (iv) product formulators, and (v) recyclers. A newproducer of biosolvents in Alberta would most likely need to establish a relationship withone or more distributors to access customers in the market. Some of the key characteristicsof solvents distribution structure in Canada are as follows.

• The great majority of solvents production is sold to end-users through primarydistributors, sub-distributors, recyclers and formulators.

• A few large primary distributors handle the majority of solvent sales. Primarydistributors sell to large accounts, formulators and sub-distributors.

• Regional sub-distributors handle smaller accounts and specialty niche markets.• Chemical product formulators use solvents to make products (paints and coating, inks,

adhesives. cleaners, etc.). which are sold directly to end-users or through otherdistribution channels.

• Solvent recycling companies reclaim, purify and re-distribute solvents to numerousaccounts at a lower price than virgin solvent.

Canada's production of hydrocarbon solvents is mostly from petroleum refineries andpetrochemical plants. In addition to making solvents, petroleum refiners provide a varietyof fossil fuels, while petrochemical producers sell a range of commodity chemicals andpolymers. Solventsales are therefore usually a minor portion of the total salesof petroleumrefiners and petrochemical producers. Petroleum refineries as well as petrochemicalfacilities are capable of makingdifferent aliphatic (e.g., naphtha) grades, toluene, xylenesas well as heavy aromatic solvents. Shell Chemicals Canada is a producer of hexane andisopropanol. In some cases, petrochemical producers process raw materials that areupgraded to solvents. Examples include: use of methane to make methanol; and propyleneuse to make isopropanol. Methanol is derived from natural gas in western Canada, whileisopropanol is made from propylene in Ontario at one facility. Solvent ethanol is made infuel bioethanol plants,through additional processing of fuel ethanol to remove componentsthat can result in undesirable odours forsolvent applications. Notall bioethanol plants havethe capability to make ethanol for solvent applications,

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Table 21: Canada's Sources of Commercial Solvents

Main Canadian Supply Examples of Key Solvents Production

Crude oil refineries and

petrochemical plantsNaphthas, toluene, xylcnes. heavy aromatics, hexane

Dedicated solvents plants Methanol, isopropanol, cthanolMostly imported Ketones, packaged propane and butane, pentanes, butanols,

ethers, esters, nitrogen solventsSource: Cheminfo Services

Canada's major solvent producers are shown in the table below.

Table 22: Major Canadian Solvent Producers(May not include all Canadian solvent producers)

Company Locations Main Solvents Produced

Shell Chemicals Canada Corunna, ON

Scotford, AB

Naphthas, toluene, xylcnes.hexane, isopropanol

Imperial Oil Ltd. Sarnia, ON Naphthas, toluene, xylenes

SuncorInc. Montreal, QCSarnia, ON

Naphthas, toluene, xylenes

Greenfield Ethanol Chatham. ON Ethanol

Methanex Inc. Medicine Hat, AB Methanol

Brenntag Canada Ltd. Ajax. ON Ether

Source; Cheminfo Services

Primary distributors are companies that purchase most of their solvents from domestic andforeign producers. The larger primary national distributors that handle solvents in Canadaare Univar, Brenntag Canada Limited, Canada Colors and Chemicals (CCC), and Ashland.These companies supply a broad slate of solvents for many applications. There are alsosmaller distributors such as Apco Industries, Comet Chemicals and Quadra Chemicals thatmostly focus on supplying certain regions. Distributors typically have establisheddistribution agreements to resell the products of Canadian and foreign solvent producers.

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Table 23; Major Primary Distributors of Solvents

Companv Head Officc Location

Apco Industries Co Toronto. ON

Ashland Mississauga. ONBrenntag Canada Ltd. Toronto. ON

Canada Colors and Chemicals (CCC) Toronto, ON

Comet Chemicals Thombury. ONUnivar Burnaby. BC

Source: Clieniinfo Services estimates.

Sub-dislribuiors are companies thatpurchase the majority of their supply from the primaryCanadian distributors. Most are small, single-site operations, which often purchase indrums and may re-package in pails or bottles and distribute to smaller accounts within aregion. Some specialize in supplying selected market segments or niche markets such asoil and gas sector, laboratory chemicals, metal working shops, asphalt-paving companies,hospitals, auto garages, maintenance shops, food companies, etc. There are dozens ofsolventsub-distributors in Canada. This would not include suppliers of other products andservices, which purchase and/or may supply solvents for their customers.

Thesolvents market also includes solvent product bottlers. This group includes companiesthat will formulate their own products or custom blend for customers. Bottled productsinclude: windshield wiper fluids, paint thinners. cleaners; various aerosols and a greatmany other products. Some of the larger firms (e.g.. Recochem, Vulsay) make their ownplastic bottles. Major bottlers in Canada arc listed below. Most are located in easternCanada. Recochem, which is the likely the largest of the bottlers, has a facility in Nisku,AB to supply its western Canadian and US market.

Table 24: Major Canadian Solvent Product Bottlers

Companv Locations

RccocheniInc. Milton. ON; Nisku, AB; Montreal, QCVulsay Industries Ltd. Brampton. ONK-G Spray-Pak Inc. Vauyhan, ON; Mississauga, ONAssured Packaeing Inc. Mississauga, ONSource: Chcminfo Services Industry Interviews

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5.2.2 Bio-soivent Market Potential

Environmental pressures on ihe solvents industry have resulted in some suppliers olTering"environmentaliy-friendly". "green"" and/or "bio-based" products. These can feature oneor a combination of the follovving environmental benellts:

• Low VOC or ground level ozone formation potential;• Low VOC contcni (for mixed solvents);• Low vapour pressure VOC (LVP-VOC) - which may be exempt from VOC

regulatory requirements;• Exempt VOC status under government regulatory requirements;• Carbon contcnt from renewable resources (plant, animal);• Carbon contcni from plant resources (plant based - which may be preferable for

some customers to animal based carbon);

• Biodegradabilily (to carbon and water within short period of time -e.g., one month);and

• non-hazardous to human health or the environment (not necessarily a VOC).

Many solvent industry suppliers, and particularly chemical formulators that use solventshave adopted certain principles of "Green Chemistry". The US EPA documents 12 suchprinciples, which are available on following website (http://www2.epa.gov/green-chemistry). Some of these principles help increase the potential use of biosolvents. namely:

• Use renewable feedstocks; Use starting materials that are renewable rather thanfinite. The source of renewable feedstocks is often agricultural products or thewastes of other processes; the source of finite feedstocks is often fossil fuels(petroleum, natural gas. or coal) or mining operations.

• Design chemicals and products to degrade after use: Design chemical productsto break down to innocuous substances after use so that they do not accumulate inthe environment.^"

However, it should be noted that some of the other Green Chemistry principles may deteruse of solvents and other chemicals altogether.

US EPA, Basics of Green Chemistry. http;//w\vw2.epa.gov/greeii-chemistry/basics-green-chemistry#definition

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Many solvent cuslomcrs making formulalcd chemical products have developed "green"producl lines including biosolvents. (Olher products may be "green" for other reasons.)This would include bioethanol, which is well established in the Canadian solvents market.Other examples ol' biosolvents include:

• Soy methyl esters;• Corn oil methyl esters;• Canola oil methyl esters;• Palm oil methyl esters;• Ethyl laciale (ethyl alpha-hydroxy propionate);• Glycerol carbonate;• Succinic acid;• 1.4-biilancdiol; and

• Polyhydroxyalkanoates (PHAs).

The Canadian demand for these biosolvents is very low in comparison to conventionalpetroleum-based solvents. Challenges that might be preventing greater sales in Canadainclude:

• Higher prices than conventional solvents;• Lack of specific performance needed in various applications (e.g., evaporate rate,

solvency for polymers, etc.).• Lack of technical data on performance for various applications;• Odour issues;

• Lack of sufficient supply;• Lack of customer awareness of biosolveni product attributes;• Lack of final end-user demand for products containing biosolvents;• Established relationships with existing conventional solvent suppliers; and• Reduced solvent demand in favour of water-based, high-solid products.

Although there are market challenges for biosolvents. from a small base, demand has beengrowing. Various suppliers have been active in providing biosolvents. Most of thebiosolvent suppliers are new to the solvents industry. Suppliers of conventional petroleum-based solvents have been reluctant to develop biosolvents as this would further reduce salesand production from existing petroleum rcllneries and chemical plants.

Examples of activities by some identified biosolvents producers, solvent distributors,bottlers and product formulators in the industry are provided below. These provideanecdotal, but useful information on pricing, applications, promotional activities andproduct development. This material, which is largely borrowed from company websitesmay be promotional in nature, and therefore not fully descriptive of the product featuresand their suitability to the various applications identified.

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Vertec Biosolvents, based in Illinois USA produces etiiyl laciate (Cs - ethyl alpha-hydroxypropionate) from laclic acid derive from corn. Ethyl lactate is a clear and colourless liquidof low volatility with a natural distinctive odor. Vertec sells ethyl lactate as a pure solvent,but also blends it with other biosolvents (e.g.. soy methyl esters) as well as conventionalsolvents to meet specillc customer needs. Vertec promotes its biosolvents as olTering thenecessary performance, safety and environmental benefits (e.g.. organic origin, very lowtoxicity, and biodegradability). Some of its products are sold at prices comparable topetrochemical solvents, although usually they are higher priced. The company was oncesolely offering products for high-performance applications such as medical products andelectronics cleaning where there might have been less sensitivity to higher prices versusconventional solvents. It is now selling to a broader market, including specialty coatings,inks and cleaners. After more than a decade, the company has not reached sales volumesto sell in truckload quantities. Products are shipped in less than truckload (LTL), in drumspails and gallon bottles.

BioAinber - through its Bluewater Biochemicals subsidiary - based its first NorthAmerican biosuccinic acid plant in Sarnia. Ontario. The $80 million plant was to becommissioned late (November) in 2013. Using corn as raw material, ii will have an initialcapacity of 17,000 tonnes per year, later producing 35,000 tonnes/year of biosuccinic acid,some of which will be converted to produce 23,000 tonnes/year of 1,4-buianediol (EDO)using technology licensed from DuPont.

Canadian provincial and federal governments provided the company with $35 million ingrants and loans to locate in Sarnia. Support was secured from the Ontario Ministry forEconomic Development and Trade. Sustainable Development Technology Canada andthe Canadian Sustainable Chemistry Alliance."-'^"

Succinic acid is a naturally-occurring dicarboxylic acid that is used for many products andto make EDO. Examples of succinic acid applications BioAmber is promoting are asfollows:

De-icing: Use of succinate salts as ingredients in de-icing solutions. ElO-SA™brand succinic salts have a far better corrosion profile than potassium acetate,potassium formate and brine (sodium chloride) for use on roads, bridges, runwaysand walkways.Solvents: BIO-SA"^^ brand bio-based solvents offer economical, environmentally-friendly alternatives without compromising performance. They can be used as adrop-in substitute in inks, varnishes and paints.

.11 BioAmber, http;//www.bio-amber.com/Camford Chemical Report. Volume 4.1 Number 35 September 5,2011

" Tyler Kula, The Observer (October 2011) New bioindustrial plant announced for Sarnia. Available at:lulD:/^ww\v.lheobserver.ca^ArliclclJi!»nUiv.asnx?c-3277325&arcliive=lniL'.

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Heat Trsnisfer Fluids: Heal transferfluids or coolanls formulated using bio-basedsuccinic acid are water-based lluids. which include bio-derived dipotassiumsuccinate in concentrations of up to 50%.Lubricants: Bio-based succinic esters are promoted as environmentally friendlysolutions for the lubricants market as base oils and additives in industrial lubricantsand metal-working fluids, with improved flowability in cold temperatures andbetter prevention of oxidation and corrosion.Personal Care: BIO-SA'"'^ brand succinic esters are effective, all-naturalemollients and surfactants. Emollients are used in lotions, liquid soaps andcleansers to improve and moisturize skin, while surfactants are used in soaps, bodywashes and shampoos to allow easier spreading."

Gamma-butyrolactone (GBL): The BioAmber licensed hydrogenation catalysttechnology from DuPont that can convert succinic acid into bio-based GBL. GBLis used to produce a number of value added specialty chemicals, including 2-pyrrolidone, n-methyl pyrrolidone and n-vinyl pyrrolidone. Pyrrolidones aregenerally produced from the reaction of GBL with amines. GBL and thepyrrolidones can be used as extraction solvents in petroleum processing, coatingsand possibly other applications. The.se materials are also intermediates used in themanufacture of pharmaceuticals, fine chemicals and agrochemicals. Polyvinylpyrrolidone (PVP) polymers are used in pharmaceuticals, food, agrochemicals.cosmetics and personal care and detergent applications.

The majorusesof bio-based 1,4-butancdiol are in the production of tetrahydrofuran(THF) and polybutylene terephthalate (PBT). THF is used to produce spandexfibers and other performance polymers, resins, solvents and printing inks forplastics. PBT is a high quality thermoplastic used in automotive, electronics andother industries. "

Recochem Inc. is one Canada's largest bottlers of windshield washer fluid, antifreeze andsolvent products. The great majority of its solvents sales are conventional products,however, it offers its Bio Green Products line that includes:

windshield washer (ethanol based);de-icer fluid;car wash cleaner, auto glass cleaner;tire shine, rim & tire cleaner;carpet & upholstery cleaner:all purpose concentrate pressure washer fluid;vehicle & boat concentrate pressure washer fluid; andmulti-purpose degreaser. '̂̂

34 BioAmber, hHp://www,bio-amber.com/" BioAmber. hltp;//\vww.bio-amber.coni/^ Recochem Inc.. hltp://www.recochem.com/

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It is assumed llial ihese Recochem products contain higlier concentrations of bioethanol(versus methanol) and/or have other environmenlally friendly features or ingredients.Retail sales of these products, some of which are higher priced than conventional solvents,have been challenging. Major retail product-line buyers are very price sensitive, andreluctant to place new products on retail shelves to coniplele against traditional products.

Brenntag conducted a market analysis of sustainability and green chemistry in Europe,which indicated a "green" trend in all areas and industries. Brenntag offers its GreenProduct Line, which features environmentally friendly products for a range ofapplications.The distributor claims that it is not content to merely follow this trend, but wishes to setnew standards in green chemistry. Brenntag in Europe has chosen to orient its service andproduct offering to follow five (5) of the US EPA's 12 principles of Green Chemistry. Assuch, at least one of the following five basic principles has to be fulfilled for its productsso that they can be included in the European Green Product Line. The majority of productsfulfill between three and five of our basic principles.

Five Principles of Green Chemistry Adopted by Brenntag, Europe1. Use of renewable feedstocks

2. Safer solvents and auxiliaries

3. Less hazardous chemical syntheses4. Design for biodegradation5. Design for energy efficiency. '̂

Brenntag in Canada has yel to document a following of the European standard.

Univar claims it is proactive in sourcing 'green' and natural ingredients for customers thatwish to offer more sustainable solutions in their product ranges.'®

Stepan, based in the Northfield, Illinois is a large producer of surfactants, some solventsand other chemicals. It has plants across North America, including a surfactants plant inLongford Mills. Ontario. Stepan provides products for a broad set of industries. In oilfieldchemicals, it has products for drilling, production and stimulation. Stepan oilfieldchemicals include:

• Bio-based solvents;

• Surfactants: anionic, cationic, nonionic and amphoteric; and• Biocides: quaternary ammonium compounds and triazine.

•" Brennlag Europe. http;//www.brctmtag.com/en/pages/iimwelt/Europa/inclex.htmlBrenntag, (2013)Adding Value. Suslainabilily Report Brennlag AG.hltp://wwv.breniitagnorthamcrica.com/cn/di)\vnloads/12(M)75_DRr,_BkOSCl I RE_ADDINOVALUE_nnal.pdr

Univar, http://www.univar.com/canada

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Stepan olTers the following vegetable-derived nielhyl ester biosolvents that it claims canbe used in heavy duty degreasing.^^ It will also make chemicals to meet specific customerrequirements.

Table 25: Stepan's Vegetable-Derived Methyl Ester Biosolvents

Trade Name Biosolvent Type Cloud Point

(C)FreezingPoint (C)

STRPOSOL® ROE-W Canola methvl ester 2 -24

STI-POSOL® SB-W Soya meihvl ester 1 -6

STEPOSOL® SC Sova methyl ester / Ethyl lactate blend •3 -15

Source; Stepan, l)tlp://www.stepan.com/defaull.aspx

Bio-Solvcnts Inc. based in Cedar, M! is a small company that offers C14-C24 fatly acidmethyl ester solvents with applications in the asphalt industry. Some product featuresinclude:

• boiling point: 204 C;• vapor pressure (mm Mg): <5 mm HG @ 22 C;• evaporation rate: less than 0.005 versus (butyl acetate = I);• insoluble in water;

• appearance: light to dark yellow clear liquid; and• odor: light musty odor.""'

The Canadian biosolvents inarket features signillcant use of bioethanol. but relatively lowdemand forother biosolvents. Environmental pressures and the interest in green chemistryis encouraging some customers to use more biosolvents. Market segments for biosolventsinclude oil and gas applications, asphalt industry', coatings, inks other formulated products,degreasing. and cleaning applications. Various biosolvent suppliers are trying to competeagainst the conventional petroleum-based products. While their products offer someenvironmental benefits, there are a number of market challenges that biosolvents need toovercome lo increase their market penetration, including price competitiveness andperformance.

Additional information for some specific solvents examined in phase I of this study isavailable in the Appendix.

Stepan,liitp://www.stepan.com/default.aspxBio-Solvenis, littp://www.bio-solventsinc.coin/

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5.3 Glycerol Carbonate

Glycerol carbonate (CAS 931-40-8), also known as I,3-dioxolan-2-one, 4-(hydroxymelhyl)- is a clear, mobile liquid at room temperature. Glycerin carbonate is arelatively new substance among other organic carbonatcs. It is claimed to be 73% bio-based due in large part to the glyccrol used as a fccdstock. It has the unique characteristicof being a hydroxyl-funclionat carbonate with both carbonate and hydroxyl reactive sites.It is readily biodegradable and non-toxic."" Unfortunately, there are noharmonized system(HS) trade data codes available for glycerol carbonate, and therefore there data on importsor other methods for estimating annual Canadian or Alberta demand. Similar syntheticproducts include propylene carbonate (made from all synthetic material) and other alkyicarbonates.

5.3.1 Uses

Among the chemicals derived from glycerol. glyccrol carbonate is a high added-valuederivative that demonstrates low toxicity, good biodegradability. and high boiling point.With these properties, it finds use in several applications in different industrial sectors,such as: a polar high-boiling solvent/degreaser or intermediate in organic syntheses (i.e.,synthesis of polycarbonates and other polymeric materials; intermediate for makingglycidol, which is employed in textile, plastic, pharmaceutical, and cosmetics industries);as a precursor in biomedicai applications; and as a protection group in carbohydratechemistry.**- Glyccrol carbonate is also used as a non-volatile solvent in coatings,adhesives, paints and detergents.'̂ ^ '̂*"*'''̂ GC and other carbonates produced by Huntsmancan be used as more environmentally sustainable replacements to products such asmethylene chloride, acetone and aromatic solvents.

Glycerol carbonate finds use as a component in membranes for gas separation, instead ofethylene and propylene carbonates, in the synthesis of polyurethanes and in the productionof surfactants. As a chemical intermediate, it reacts readily with alcohols, phenols, andcarboxylic acids with loss of carbon dioxide as well as with aliphatic amine with carbondioxide recovery. Glycerol carbonate and its derivatives can also be used as electrolytes

•" Kob, Nicholas., el. al., Appliceilion ofGlycerine Carbonate in Novel One-Componem PolyurelhaneBlocked Systems.

Chiappe, Cinzia& Rajaniani. Suiiita. (October, 2011), Synthesis ofGlycerol Carbonatefrom Glyceroland Dimethyl Carbonate in Basic Ionic Liquids, published in Pure and Applied Chemistry.

Wang. Liguo.. et. al. (2011), Efficient Synthesis ofGlycerol Carbonate From Glycerol and Urea withLanthanum Oxide as a Solid Base Catalyst, published in Catalysis Communications." Herseczki, G., et. al. (2011). Enhanced Use ofRenewable Resources: Transesterification ofGI)verol, theByproduct ofBiodiesel Production, published in the Hungarian Journal of Industrial Chemistry.•" Reuters (March 9, 2009), Huntsman Launches XewBio-Based Glycerine Carbonate Product.

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and solvents in lilhium ion batteries, and it is considered to be a green substiUite forimportant petro-dcrivative compounds (cthylene carbonate or propylene carbonatc).""'

Due to its low toxiclty, low evaporation rate, low flammability. and moisturizing ability,glycerol carbonate is used as a wetting agent for cosmetic clays, in personal care productsand as a carrier solvent for medical preparations."'̂ ''"'

5.3.2 Canadian and Alberta Markets

There are no known producers ofglycerol carbonate in Canada. The small Canadian marketis supplied by imports, likely primarily from the United States. According to the ChemicalData Reporting website (ww\v.epa.gov/cdr) of the U.S. EPA. the only producer of glycerolcarbonate in the US appears to be Huntsman Corporation. Total aggregated glycerolcarbonatc production in the US in 2010 was withheld. Huntsman, which is one of theworld's largest producers of alkylene carbonates, can meet 50% ofthe global requirementsfor this alternative to volatile and hazardous solvents."'̂ In March 2009, l-luntsmanPerformance Products (a division of Huntsman Corporation) announced the commercialavailability ofJEFFSOL® Glycerine Carbonate. It is manufactured by Huntsman using theglycerine co-product of biodiesel.'" China and Japan appear to be theonly otherproducersof glycerol carbonate in the world with the following companies listed as suppliers:Hangzhou Dayangchem Co. (China), Andexin Industrial Co. (China), Nanjing ChemlinChemical Co. (China), and UBE Industries (Japan).''

As glycerol is a major input into the production of glycerol carbonate, the availability ofthis raw material from current and future biodiesel production facilities might provide someincentive to establish a glycerol carbonate facility in Alberta. Archer Daniels Midland(ADM) is in the process ofbuilding the largest North American biodiesel plant (265 millionliters per year) near Lloydminster.^- Another biodiesel production facility in Alberta beingconstructed is Kyoto Fuels Corporation's 66 million liters per year facility in Lethbridge.There are other biodiesel plants that have been proposed in Alberta, however they have notprogressed to the construction phase.

If a glycerol carbonate facility were established inAlberta, the main market for the productis expected to be as an oxygenated solvent for use in a variety of industrial applications.Although there are many applications cited by Huntsman Chemicals for GC. solvents is

^Chiappc. Cinzia & Rajamani. Sunita. (October. 2011). Synihe.tis of(JhverolCarhoiiaiefromGlyceroland DUmthyl Carbonate in Basic Ionic Ui/iiidy published in Pureand Applied Chemistry.

Oprescu. Elena-Emilia., et. al.. Synthesis ofdlycerol Carbonate over llyitrolalcile Catalyst,published inChemistry Magazine.

Huntsman Corporation, Technical Bulletin .leffsolt' Glycerine Carbonate.Accessed at the website of Huntsman Corporation

(http;y/\vwwJiunlsnian.com/perfortnance_prodiicts/a/Products/Carfaonates).Reuters (March9, 2009). Huntsman Launches A'fif Bio-Based Glycerine Carbonate Product.Accessed at the website ofGuideCheni. Available at: htlp://www.guidechem.com/cas-931/93l-40-8.hltTilArchers Daniels Midland (November 14.2011), .IDM lo BuildBiodiesel Plant in Lloydniinster. Canada.

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expected to be the highest volume potential use. There may be some demand for the otherGC applications such as curing aids and specialty reagents but they arc not cxpected to behigh volume and a large facility would need a large potential market to be viable. GC is ahighly polarmolecule and is likely to competewith other polar solvents. Polar, oxygenatedsolvents that might be displaced by glycerol carbonate include acetone, MIRK. iVlEK, andmethylene chloride. The solvents profile in this study can provide more perspective onsolvents markets in Canada. Contrary to all the solvents listed below, GC has very lowvolatility, which would limit its use in many paints and coatings and other applicationswhere volatility is required. The table below shows some eslimaled demand for solventsthat mightbe replaced by glycerol carbonate. Glycerol carbonate mightdisplace a fractionof the quantities shown.

Table 26: Estimated Demand for Potential Market Niches forGlycerol Carbonate in Canada

Solvent Examples of UseEstimated

2012 Use

% of Total

Solvents

Market

(kilotonnes)Ethanol Personal care, household products 36 8%

Isopropanol Printinn. de-icinu, adhesives. household products 30 7%

Acetone Chemical synthesis, industrial solvent, household product 12 2%

MEK Cleaning, paints and co.itini<s. adhesives. printinc 10 2%

MIBK Paints and coatings, printina. adhesives 1 >1%

Other Above applications and many others 59 13%

Source; Cheminfo Services estitiuues.

5.3.3 Supply and Value

In terms of its production, crude glycerol (raw material for the production of glycerolcarbonate) is a considerable by-product of biodiesel production. Glycerine byproductoccurs at approximately 0.9 kg/litre yielding a rough glycerine production estimate of 284kilotonnes of crude glycerine per year. Crude glycerine must be refined for use in thecosmetics, pharmaceutical, and other specialty applications. Refining the glycerolgenerally involves separation, neutralization, and washing. These additional processingsteps increase total biodiesel production costs, simultaneously reducing the quality of theglycerol obtained as a by-product. As glycerol is a key co-product of biodieselmanufacturing, increasing use of biodiesel may lead to much greater glycerol availabilityand lower cost. Much of the produced Canadian glycerol is currently shipped to the US tobe processed into various products such as propyiene glycol (a replacement for antifreeze).Other biodiesel producers may elect to sell their waste glycerol to anaerobic digesters to

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produce methane. As a result, iherc would be significant interest in a simple method totransform waste glycerol into a saleable product (e.g. glycerol carbonate).^^

There are several methods for the preparation of glycerol carbonate, based on the reactionof glycerol wilh phosgene, dialkyi carbonate or alkylene carbonate, urea, carbon monoxideand oxygen. Traditionally, cyclic carbonates have been prepared by reaction of glycolswith phosgene, but due to the high toxicily and corrosive nature of phosgene, alternativeroutes such as transesterification reaction ofdialkyi or alkykene carbonates to obtain cycliccarbonates have been explored.^"^ l-loweverihe more attractive methods are those utilizingglycerol as a renewable and cheap raw material. A typical method of obtaining carbonatederivatives of glycerol is its transcsterification with ethylene carbonate or dialkyicarbonate. Promising methods of glycerol carbonate preparation comprise the reaction ofglycerol with carbon dioxide or carbon monoxide and oxygen in the presence of Cu(l)catalysts. This method is ofparticular interest for Alberta and Canada since itwould presenta potential use for waste glycerol produced by the biodiesel industry. Another method forsynthesizing glycerol carbonaic is from glycerol and dimethyl carbonate using potassiumcarbonate as a catalyst.^^ The use of dimethyl carbonate can be considered an increase inthe sustainability of the process. Dimethyl carbonatc can be manufactured byenvironmentally safe industrial methods (potentially from carbon dioxide and renewableresources), avoiding the formation of the high-boiling ethylene glycol. However, theproposed potassium carbonate (or calcium oxide) -catalyzed process always requires thefinal neutralization step where an acid (e.g. phosphoric acid, sulphuric acid,benzenesulfonic acid) must be added to the system to neutralize the catalyst, whichproduces significant quantities of salts as by-products.

Although there may be potential for use of GC in Alberta, the current use is expected to bevery low in Canada and the US. It should be considered a chemical under developmentwith significant research still required to detennine a viable pathway to producing it fromglycerol. Adding to the complications of GC, the market in North America appears to bedominated by Huntsman Chemicals making it highly unlikely that a new plant in Albertacould capture enough of a market share to be considered viable. There may be potential inthe future if a use for GC can be demonstrated and if it can be easily produced fromglycerol.

Herseczki, G., et. al. (2011), Enhanced (Lie of HenewahkResources: Transesterification ofGlycerol. theByprodud of Biodiesel Production, published in the Hungarian Journal of Industrial Chemistry.

Oprescu. Elena-Emilia., et. al,, Synthesis ofGlycerolCarbonate over llydrolalcite Catalyst,published inChemistry Magazine.

Herseczki. G- et. al. (2011), Enhanced UseofRenewable Resources: Transesterification of Glycerol. theByproduct ofHiodiesel Production, published in the Hungarian Journal of Industrial Chemistry.

Chiappe. Cinzia& Rajamani, Sunita. (Oclober.2011).Synthe.sis of Glycerol Carbonatefrom Glyceroland Dimethyl Carbonate in BasicIonic Liquids, published in Pure and .'Ipplied Chemistry.

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5.4 Lubricants

Lubcicating oil is a general term that refers to liquid fractions produced at crude oilrcllneries that are heavier than liquid fuels and of a viscosity that is desired for providinglubricating performance for machinery and other equipment. The majority of lubricatingoils are directed towards lubricants production, which is known as the base oil (orlubricants) market. The following profile provides a brief description of the base oil (orlubricant) niarket in Canada. Information is provided on Canadian lubricant production andsales, and the major applications for lubricants in Canada. There is also an analysis of thechallenges limiting the markets adoption of bio-lubricants and a description of someopportunities where the strengths of bio-lubricants might be better exploited. Lastly, detailson legislative tools utilized in other jurisdictions that encourage or mandate the use of bio-lubricants for certain environmentally sensitive applications are discussed, as are somepotential strategies for bio-lubricani market development.

5.4.1 Lubricants Market in Canada

There are two main segments to the lubricants market - automotive and industrial.^^Automotive oils are not limited to consumer engine oil applications, but are used in avariety of mobile equipment. Automotive oils include:

• motor oils for gasoline powered cars;• heavy duty diesel oil for diesel powered on-road and off-road trucks, buses and heavy

duty equipment;• automatic transmission fluids for light duty cars and trucks, universal tractor fluids

commonly used in farm tractors and other off-highway mobile equipment, andhydraulic oils used in power steering pumps and shock absorbers; and

• heavy duty gear oils used in trucks and off-highway equipment.

Industrial lubricants include:

• hydraulic oils used in manufacturing plants and in supplementary equipment mountedon trucks, construction, and forestry equipment;

• turbine, bearing and circulating oils, used in steam turbine bearings, and in steelmanufacturing equipment;

• industrial gear oils;• lubricants used in range of manufacturing plant equipment, such as compressors,

refrigeration units, rock drills/air tool, and greases;• natural gas engine oils (natural gas compression and transmission);• marine and railroad engine oils: and• mctalworking fluids used for rolling sheet metal, treating casted metal parts, and

lubricating metal drilling, cutting, and grinding operations.

" MTN Consulting Associates, Ltihricaling OilsStudy, 2009.

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The remaining portion is consumed in non-lubricant applicalions, such as chemicals orsolvents. These applications arc referred toastheprocess oil market. Base oils and processoils are essentially identical, but may be produced to slightly different specifications andsold under different brand names into the two different markets. The majority of thedemand for lubricant products in Canada is for automotive lubricants.

Table 27: Canadian Lubricating Oils Consumption, By Type(million litres)

2006 % Total

Automotive 724 65%

Industrial 286 25%

Process Oil 120 11%

Total 1,130 100%

Source: MTN Consulling Associates, I.ubi icaiing OilsStudy, 2009.

The majormarketsegmentsusing lubricants are shown below. These segmentsincludeautomotive, industrial, and process applications, and show the widespread use oflubricants in the economy.

Table 28: Major Uses for Lubricants in Canada

Market Segment Use % Total

Transportation 204 18%

Mininy. Oil and Gas 130 12%

Manufacturing 303 27%

Forestry 24 2%

Construction 24 2%

Agriculture 47 4%

Public Administration 5 0.4%

Commercial and Other 393 35%

Total 1.130 100%Source; MTN Consulting Associates. Lubricaling Oils Sliidy. 2009.

5.4.2 Lubricant Supply

Thereare four lubricating oil production plants (petroleum refineries) in Canada, indicatedin the table below, with a total production capacity of 1.46 billion litres of lubricating oilannually.

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Table 29: Canada Lubricating Oil Production Capacity (2008)(million litres)

Company Production

Imperial Oil. Edmonton 119

Imperial Oil. Sarnia 356

Petro-Canada, Mississauga 843

Shell, Montreal 146

Totals 1.464

Source: 2008 Lubes 'N" Greases Guide to Global BaseOil Refining

The lubricants market has remained generally flat in North America over the last decade.^^Canadian lubricants production in 2006was 1.29 billion litres, with domestic consumptionof 1.13 billion litres. Canadian demand in 2012 was virtually the same as in 2006 at 1.104billion litres. A total of 192 million litres or 17% of20l2 Canadian sales were in Alberta.'''""Alberta's relatively high lubricant consumption is in large part due to demand for lubricantsin oil and gas production applications. A very small fraction of the total market issuppliedwith bio-lubricants.

The lubricant industry is relatively consolidated, with major brands such as Petro Canada(Suncor), Shell, Imperial Oil and a couple of other brands accounting for the majority ofthe market. These are largely sold through distributor networks that are contractuallycommitted to selling only the products produced by their parent brand.

5.4.3 Bio-Based Lubricants

Bio-lubricant products can be divided into two main categories: traditional bio-lubricantsand modern bio-lubricants. Traditional bio-lubricants are usually vegetable oil based, andare known to have issues with oxidative stability and cold operating temperatures. Manyof the first bio-lubricant productson the market were reportedly imported from Europe byparties largely involved in seed crushing and whodid not havea detailed understanding ofthe lubricant market.''' This unfortunately contributed to a negative image regarding bio-lubricant reliability.

Modern bio-lubricants are typically either based on synthetic esters or on vegetable oilscontaining additives. The additives may or may not be bio-based. Modern bio-lubricants

National Petrochemical and Refiners Association (US), www.npra.org''' Statistics Canada Catalogue #57-003-X (2006) Table 5-1, l)ttp://www.stalcan.gc.ca'pub/57-003-x/57-003-x2006000-eng.pdf

Statistics Canada Supply andDisposMon ofI'clroleuiii Products in CanadaCheminfo Services based on industry sources.

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are typically priced two lo llirec limes higher than their conventional oil counterparts.'*^However, ihey do not suffer from the same oxidative slability/cold temperature issuesassociated with traditional bio-lubricants, and can be formulated for use in manyapplications. These applications include industrial lubricants, hydraulic fluids, turbine oils,cutting oils, machining oils, assembly oils, corrosion inhibitors, high temperaturelubricants, a variety of greases, automotive engine oils/transmission oils, food gradelubricants and fuel additives. Industry has indicated thai bio-lubricant technology hasprogressed to the point where bio-lubricants can be synthesised lo replace any petroleum-based lubricant currently in use.''̂

Bio-lubricant products arc deemed lo havehigh future potential in the traditional lubricantsmarket according tobio-lubricant producers." The traditional lubricants market is so large,and Ihe current market penetration of bio-lubricants so low, that it is not yet possible toassign any kind of a market penetration figure or accurately-size the bio-lubricant marketin Canada.

S.4.3.I North American Bio-Luhricant Producers

This section provides information on the major North American players in the bio-lubricants market, identifies challenges to further market adoption faced by bio-lubricantproducts, and provides some of the potential strengths or opportunities that could beexploited by bio-lubricanls.

There are several major oil refining companies that are selling "green" product lines orsingle products. Some of these products are conventional pelroleum oil-based lubricantsthat contain limited quantities of biologically derived substances (such as canola oil) inconcentrations that can be as low as5%."^^ Additionally, major oil companies are promotinghydrogen-treated petroleum-based products thatarebiodegradable - as an environmentallypreferred product. '̂' Beyond large petrochemical companies, the businesses that aredistributing bio-based lubricants are mostly smaller companies that are focused on bio-lubricant products. This review describes some companies distributing or researchingpredominantly bio-lubricanl products in North America.

Renewable Lubricants, based in Ohio, is one of the largest bio-lubricant producers inNorth America. It produced vegetable oil based lubricants - relying on patents thai utilizebio-based additives to overcome some of the oxidative stability and cold weather issuesgenerally associated with vegetable oil based bio-lubricants. Several of the products claimto be usable at -40 C temperature, and some of their specially cold weather bio-lubricant

Cheminfo Services basedon industry sources."Ibid." Ibid,

Personal interview with DM's Bio-Based FluidSupply Inc.,October22,2013.industry Sources.

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producls claim pour points of -60 C. Tliey currently produce a range of lubricants that areused in on/offshore drilling, in hydraulic applications, in a wide variety of industrialapplications (drilling Huids. eompressor and vacuum pump oils, metal working fluids,greases, turbine fluids etc.). in high performance engines, in transmissions and in a varietyof other applications. Their products are distributed in Canada by DM's Bio-Based FluidSupply Inc., who in turn supplies several other companies (such as Linnaeus PlantSciences) with bio-based lubricant products/'̂ DM's Bio-Based Pluid Supply Inc. alsoowns the Canadian manufacturing rights lo Renewable Lubricants products in Canada, butdoes not believe the market is yet large enough to begin production. '̂"

Linnaeus Plant Sciences of Vancouver. BC proposes to develop and demonstrate anintegrated process lo produce value-added, renewable, biodegradable industrial oils andfeedstock from camelina and safTlower. The oils would be used for production of lubricantsand feedstocks for polymers used in foams and coatings. Linnaeus has been developingindustrial applications for oil seeds for more than a decade. The company has focused itsefforts on uses beyond fuels - including production of hydraulic fluids, greases andpolymers.'̂ '

Rustlick, a chemicals formulator (makes cleaners, lubricants, etc.) in Illinois USA, makesvegetable-based lubricants for metalworking applications. Its water-soluable oil productbranded ULTRACUT'' Green CF is a chlorine free (i.e.. not using toxic chlorinatedparrafins for flame retardancy). vegetable-oil based, bioresistant product suited for heavy-duty metalworking applications. It is USDA Certified as 81% bio-based. Rustlickcombines vegetable oils with emulsifiers and performance additives to produce aconcentrate thatcan be added to water before application in metal working applications.^"^

Ballard Biofuel in Seattle, WA ofTers a biodegradable anti-wear hydraulic oil that is a fullyformulated, thermally stable, non-zinc containing hydraulic oil made from soy oil. Thecompany claims it can be used in both high and low pressure hydraulic systems forindustrial and mobile application in and around environmentally sensitive areas, such asnational parks, streams or lakes, where use of oil containing toxic-heavy metals isrestricted. It was developed as a top-tier replacement to crude oil based hydraulic oilswhere good low temperature properties, improved oxidation stability, low-toxicity andbiodegradability are required or preferred."

Amyris Inc. of Emeryville, California (NASDAQ: AMRS) (formerly AmyrisBiotechnologies, Inc.) develops and provides renewable compounds for a variety ofmarkets. The company is seeking to provide alternatives to petroleum-sourced products

Cheminfo Services based on industry sources.Cheminfo Services based on industry' sources.Camford Chemical Report. Process would make lubricants, plaslic feedstocks from oilseeds. Volume 45

Number 14 April 15, 2013Rustlick, http://wvv\v.itwfpg,com/rustlick/biobased.hlml?gclid=CiDTwNSO-7gCFTFgMgodY.xQAYg

" Ballard Biofuel. Bio-Clear Bio Hydraulic Fluid. hltp;//www.ballardbioftiel.net/

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used in specially chemical and transportation fuel markets worldwide. It is targeting thecosmetics, lubricants, flavors and fragrances, polymers, consumer products andtransportation fuel markets. The companyrecently announced its intent to establisha jointventure with U.S. Venture Inc for the production, marketing and distribution of finishedlubricants for the North American market. The joint venture would market and selllubricants employing Amyris" renewable base oils derived from Biofcm. Biqfene isAmyris's brand of a long-chain, branched hydrocarbon molecule called farnesene (It^ns-B-farnesene). It is a tailor-made pure hydrocarbon. Biofene is one of thousands ofrenewable isoprenoid molecules made using a microbial platform.

Amyris is working on the production of a complete line of renewable lubricants, includinghydraulic, compressor, turbine and gear oils and greases, as well as oils for 2-cycle and 4-cycle engines. The product line would be designed to provide Compromise performanceand equipment protection equal or superior to that of existing synthetic lubricants, whileoffering such environmental benefits as improved biodegradability and low toxicitycompared to traditional petroleum-based lubricants. The company reported revenues of$74 million in 2012, with a net income lossof $205 million. The companyhad substantialresearch and development expenses.'-'̂ ^^"*

Greenland Corporation is a Calgary based company that produces vegetable oil basedbio-lubricants. They currently have approximately 14 products for applications such asturbine fluids, release agents, chain saw oils and pneumatic equipment lubricants. Themajority of their sales occur in B.C. and Ontario, and their business is focused largely ontheir hydraulic oils. Greenland has indicated that their customers buy their productsbecause they are working on environmentally sensitive land or near watercourses, andGreenland products are both biodegradable and non-toxic.

BioBlend High Performance BioBased Lubricants is a U.S. company that manufacturesand sells vegetable oil based lubricants and hydraulic fluids. They currently have originalequipment manufacturer (OEM) approval from ThyssenKrup Elevator and sell into thatniche market, as well as the drilling, mining, construction, agriculture, and marine marketsegments. Their products are vegetable oil basedas opposed to synthetic ester based.

5.4.3.2 Challenges and Opportunitiesfor Bio-Luhrlcants

Bio-lubricants may have inherent disadvantages or advantages that affect theirmarketability in certain applications. Issues such as price, reliability, and supplyconsistency become factors in whether or not a bio-lubricant may suitably replace apetroleum-based lubricant in any given application.

CIBC Investor's Edge; Amyris Inc, Company Overview." Camford Chemical Report, May 23. 2011" Amyris Inc.. hUp;//ww\v.amyris.com/Innovation/] 55/BreakthroughScience

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Input from industry representatives and a review of available literature indicate tiiat thereis currently a very limited market for traditional bio-lubricants. These products are pricedhigher and often do not have ihc performance characteristics of petroleum-based lubricants.Consumers and industrial customer are reluctant to pay premium prices for a product thatdoes not perform to the same standards as less expensive products with a history ofreliability, even though it may have some environmental benefits. While modern bio-lubricants do not suffer from the same disadvantages, and by some accounts haveperformance benefits, they are still priced approximately two to three times higher thanpetroleum-based lubricants, and have therefore achieved very limited market penetration.

The bio-lubricant industry is largely made up of smaller businesses trying to competeagainst large, entrenched, multinational corporations that are marketing lower pricedproducts that have proven to be reliable over a very long period of time. Many of thechallenges experienced by bio-lubricant producers are therefore typical of the challengesgenerally faced by small businesses trying to make an impact in a large and highlycompetitive market. These types of challenges include relatively limited advertisingbudgets, significant development/testing/certification costs, cost issues associated withsmall-scale production and costs related to patenting and protecting their investments.

The consolidated nature of lubricants supply, as well as the current distribution structurefor lubricant products also pose difficulties to bio-lubricant suppliers. Most of the bulklubricant distributors in Canada are contractually required to distribute only a certain brandof product. Any given distributor will be either a Petro-Canada (Suncor) distributor, anImperial Oil distributor or a distributor for another major brand. Therefore, when entitlessuch as mining companies, vehicle fleets, forestry companies or other major businesseslook for lubricants from bulk distributors, the bio-lubricant products produced by thesmaller companies are typically not available.

It is also challenging for bio-lubricant companies to bid on contracts released by businesseswith vehicle fleets (such as large bus companies) due to how the bid structure for lubricantsare often organized. Vehicle fleets structure bids for fuel/lubricant companies, andtherefore require any companies bidding on their lubricant contracts to submit a bid thatofTers to fulfill both their lubricant and fuelling needs. Since small bio-lubricant companiesdo not produce fuels, they are immediately shut out of the bidding process for many vehiclefleet lubricant contracts.'^

Additionally, there is currently some confusion regarding exactly what differentiates bio-lubricant products from petroleum-based products or "biodegradable" lubricant productsbased on petroleum. There is little standardization regarding the amount of biodegradableproduct content a lubricant must have before a manufacturer can call it "bio-based", orsimply give the product a name with the word "bio" in it. Bio-lubricant producers expressed

" Chetninfo Services based on industry sources.

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concern regarding programs such as "•EcoLogo*"". '̂' which they fell were accepting ofproducts that were damaging to tlie environment. '̂ Bio-lubricant manuraciurers point outtheexistence of products in the market thatcontain non-biodegradable additives or containvery litile (as low as 5%) biodegradable content and are marketed as "bio-based"products.'^'These products arc priced tower than bio-lubricants ihat meet recognizedASTM. OECD and CEN standards for biodegradabilily. This situation makes ii moredifficult for bio-lubricant producers tomarket their products, and also makes il problematicfor legislators when considering tools that might recognize the increased environmentalbenefits olTered by bio-lubricant products.

Another challenge for the bio-lubricants industry is that it is difficult to obtain OEMsapprove or use of bio-lubricant products. "Many OEMs prefer tried and tested lubricantsfrom mineral oil sources; these OEMs represent the biggest consumers in the lubricantmarket. When such OEMs are reluctant to use bio-lubricants because of performance andcost concerns, end users, who purchase products directly from these OEMs, lend to thinklikewise."^" While asituation in which a bio-lubricant producer has managed to be adoptedby an OEM has occurred (and will be discussed below), this situation is nol typical. Thechallenge or lack of OEM approval is doubly problematic due to warranty voiding issuesfor OEM products. The use of a bio-lubricant as opposed to a product or lubricant typeapproved by an OEM manufacturer may void Ihe warranty on a product. This is asignificant concern For vehicle fleet management, farming, or mining or forestry marketsegment work. Wider acceptance and use of bio-lubricants in the lubricants market areunlikely to occur until OEMs start approving more bio-lubricant products for use in theirequipment.

EcoLogo* is now part of UL Environment, a business unit of UL (Underwriters Laboratories),,http://www.ecologo.org/en/inthenews/pressreleases/" Cheminfo Services industry sources." Ibid

Ibid

Lubes 'n' Greases Magazine, Apu Gosalia - Head of Global Competitive Intelligence and ChiefSustainability Officer, Fuchs Petrolub SE, liiolubes: Hope or Hype?. October 2013,

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In summary, literature sources and input from bio-lubricant producers and potential bio-lubricant users/distributors have highlighted the following challenges or issues for wideradoption of bio-lubricanl products:

• High price - often two to three times higher due lo economies of scale,development/certification costs etc.;

• Limited access to traditional distributor networks and bidding processes - difTicultygetting products to bulk distributors or large scale customers;

• Lack of common standards - there are no universally accepted or governmentrecognized standards for both biodegradability and hazardousness to the environmentthat accurately show, in an easily understandable and quantifiable fashion, theenvironmental benefits of bio-lubricant products;

• Lack of spill cleanup cost advantages to using bio-lubricants - regardless of whether alarge scale or bulk consumer utilizes a bio-lubricant product or traditional petroleum-based product, the current regulatory climate dictates thai cleanup costs are identical,which leaves no quantifiable cost advantage for using bio-lubricants; and

• Lack of OEM acceptance or use - OEMs, which are large consumers of lubricants, arereluctant to use or recommend/allow (due to warranty issues) bio-lubricant products intheir equipment.

The challenges listed above have restricted bio-lubricants from achieving greater marketpenetration despite continuing technological development and a presence in the marketspanning over 20 years. Two market studies (a 1997 and follow up 2008 study) on bio-lubricants for the United Soybean Board both concluded that there is little market presenceand there has been low growth for bio-lubricant products in North America.'*'

5.43.3 Opportunities/Strengths ofBio-Lubricant Products

Bio-lubricants have two primary advantages. The first is that many are biodegradable andnon-hazardous to the environment and could therefore offer benefits to users in

environmentally sensitive areas where petroleum-based lube spills could be costly to cleanup. However, this strength is oflen negated due to current spill clean-up regulations that donot recognise ASTM standards on biodegradability and/or low danger to the environment.The associated challenge for regulators is a lack of coherent standards on which to baseregulations distinguishing clean-up requirements for bio-lubricants and petroleum-basedlubricants. Regardless of whether or not a lubricant is biodegradable and non-hazardous tothe environment, the same procedures (and therefore the same cost) are typically appliedwhen cleaning up the spill in order to avoid costly fines. However, input from distributorsrevealed that bio-lubricants are most often used by businesses that are operating aroundwatercourses or have heavy machinery operating within water, indicating that users are

Omni Tech International Ltd., for ihe United Soybean Board, Bio-lhised l.iihricants - A MarketOppornmity Sliidy Update, 2008.

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cognizant of the damage that petroleum-based tube releases to water bodiescan cause andare willing lo pay a premium for safer alternatives (where it may not be possible to cleanup the spill).""'̂ '̂ ^

Second, modern bio-lubricants can have lower volatility and fiammabiliiy than petroleum-based products, andare thereforebetter for high temperature applications that require thesesuperior performance attributes.Some consumers have also indicated that some of thebetter bio-lubricant products can last longer than traditional mineral oil products in non-high-performance applications. The University of Guelph tested soy based motor oils andfound that they extended the oil change life of each vehicle where it was used from 5,000km to 8,000

Discussions with bio-lubricant producers have indicated that some of their main customersare governments - primarily municipal governments in Canada, and universities.^'Additionally, in the United States, the US military remains a high volume customer due totheir operations in environmentally sensitive areas and their desire to lessen theirdependence upon foreign oil."^ Universities (especially Guelph in Ontario and Penn Statein Pennsylvania) also have agricultural programs (and vehicle fleets, landscapingequipment, etc.) that have been making the switch to bio-lubricants.'*'' Initiatives such asthe USDA's Bio-Preferred program (which requires federal government agencies topreferentially select products that have met certain requirements and have therefore beenlabelled as "bio-based") may increase the traction with which bio-lubricant products aresold to government.

5.4.3.4 Potential Strategiesfor Market Development

As discusscd previously, one of the main market challenges has been difllculty in gettingthe largest consumers of lubricants, namely OEMs, to adopt bio-lubricants. A singleOEMadopting a bio-lubricant for use in their products can make a large impact on a typicallysmall bio-lubricant company. A case in point for BioBlend was obtaining OEM approvalby ThyssenKrupp Elevator. BioBlend worked with ThyssenKrupp for two years to test andvalidate products for their elevator systems. This was an example of a focus on onecustomer, one product, and one niche application that translated into several hundred

" Cheniinfo Services based on industry sources." Ibid.

Ibid.

Lubes "n" Greases Magazine, Tyler Housel - Vice President of Lexolube Division. Inolex Inc., Biolubes:Ho/je or /type?. October 2013.

Ontario Grain Farmer, BioBasedLubricants - Buildinga Market Thai's Goodfor Fanners. Goodfor theEnviroimienl.

Cheniinfo Services based on industry sources.Cheniinfo Services based on industry sources.Penn State University, Penn State lixperiences: Bio-Based l.uhricanis, BlOO and SI'O - New England

Farm Ener^v Conference March 15-16. 2010. 2010.

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thousand gallons of annual sales in ihe U.S. alone.'"' Programs that encourage OEMs towork with bio-lubricant producers to lesi and certify bio-lubricants for their equipmentcould potentially make a significant impact for bio-lubricant prodiiction/usc in Alberta.Alberla bio-lubricant producers might consider identifying and focusing on some nichesegments of the market - e.g., specific oil and gas applications.

Ir.slablishing standards for both biodegradability and hazardous/loxicily (as a product canbe biodegradable but still be hazardous/loxic) for bio-lubricants could also help to addressthe lackofprogress bio-lubricants have made into the market. As it stands, there is an arrayof ASTM, OECD and other standards that address biodegradability, but not environmentalhazardousness. The existing standards are also designed specifically for petroleumproducts. '̂ The standardization would need to be accompanied by regulatory changes orlegislation that in some way recognizes the difference in between a release of a relativelybenign biodegradable/non-toxic lubricant and a mineral oil lubricant.

Lastly, simply mandating the use of bio-lubricants in certain high risk or releaseapplications is a strategy that is being increasingly applied in other jurisdictions. TheVessel General Permit Rule, for example, requires all ships operating in U.S. waters to useenvironmentally acceptable lubricants in all oil-to-sea interfaces.''" Similarly, Sweden hasregulations requiring "'environmentally adapted" hydraulic fluids'-'̂ and greases '̂' forcertain applications.

Further focused research would be required to identify and assess niche applications inWestern Canada where environmentally friendly bio-lubricants might be able to offer valueand an alternative to conventional lubricants. The oil and gas industry, which isconcentrated in Western Canada, may be an attractive segment for further investigation.There is already some vegetable oil use as lubricants in the industry (See OilfieldChemicals elsewhere is this report). Another market segment that may warrant furtherinvestigation is the agriculture market segment. Growers of canola and other crops mayhave interest to use products that are derived from their market segment - as this cancontribute to increased prices for their produce.

Lubes "n' Greases Magazine, (October 2013) Hioluhcs: Hope or Hype? Winen by Bill Smith - VicePresident. Sales and Marketing. Biosynthetic Technologies

Cheminfo Services based on industry sources."= U.S. EPA. Vessel General Permit Rule.

SP Technical Research Institute of Sweden. Hydraulic Fluids il'hich Meet F.n\'iroimie»lal RequirementsAccording to Swedish StandardSS 15 54 34.lutp:/Av\uv.sp.se/en/index/ser\ices/Lubricantiiig%20grcasc/Sidor/defaull.aspx

SP Technical Research Institute ofSweden, Lubricating Greases IVhich Meet EnvironmentalRequirements According to Swedish Standard SS 155470.lUtp;//wmv,sp.sc/cn/indcx/service-'v'Lubricanting%20grc3se/Sidor/default.aspx

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5.5 Surfactants

Surface active agents {orsurfactants for short) are chemicals that reduce the surface tensionof a solvent (usually water) or the interfacial tension between two phases (such as waterand oil or grease). Surfactants are organic chcmicals with hydrophilic (polar) andhydrophobic (non-polar) parts, and as such arc made from non-polar hydrocarbons andpolar chemicals. Chemicals that can contribute polar elements may contain sulphur,nitrogen, phosphorus, and oxygen atoms. These polarspeciesmay be part of alcohols (O),thiols (S), ethers (O), esters (0). acids (S, N. 0). sulfates (S), sulphonates (S), phosphates(P), amines (N), amides (N) and various metal complexes. The non-polar portion ofsurfactants contain mostly hydrocarbons (e.g.. 70%+). which can be derived frombioresources, crude oil and natural gas. The type and size (e.g., carbon chain length) ofchemicals used to make the surfactants are among the factors that determine theirfunctionality, production cost, and potential environmental footprint.

The surfactants "industry" does not have one specific NAICS code. As such, there are nopublic or other readily available statistics regarding the size and economic importance ofsurfactant manufacturers and blenders in Canada. Manufacturers of these chemicals mayclassify themselves as belonging to the following or possibly other NAICS codes.

• NAICS 32519 - Other basic organic chemicals;• NAICS 32561 - Soaps and cleaning compounds;• NAICS 32562 - Toilet preparations; and• NAICS 325999 - Other chemical products.

Raw materials for surfactants are petrochemicals and petroleum refinery products, as wellas oleochemical (natural) products. The basic oleochemical feedstocks are typicallyvegetable seed oils and animal tallow. In the United States about 60% of the feedstock forsurfactants is oleochemicals.*'̂ This percentage is unknown in Canada - one reason beingCanada's heavy reliance on imported surfactants. A large portion of oleochemicals are soy,coconut, and palm oilswhile canola may constitute a relatively minor portion. The industryhas moved away from using tallow.

According to one Canadian industry source, an important issue related to usingcanola oilas a raw material is that the constituent molecules are difTerent than soy oil. As a result,derivative chemicals made with canola oil are often not registered on the Government'sDesignated Substance List (DSL). The DSL is an inventory of approximately 23,000substances manufactured in. imported into or used in Canada on a commercial scale. TheDSL is the sole standard against which a substance isjudged to be "new"to Canada. Withfew exemptions, all substances not on this list arc considered new and must be reportedprior to importation or manufacture in order that they can be assessed to determine if they

' Omtii Tech internalional (2008), Surfactants:A MarketOpportuniiy Study Update. Cheminfo Services.

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are toxic or could become toxic to tlie environment or human health. It is crucial that

notifiers determine whether the substance to be imported or manufactured in Canada islisted on the DSL or on the Non-domestic Substances List (NDSL). Substances notappearing on the DSL are considered to be new to Canadaand are subject to notillcation.Substances listed on the NDSL are subject to notification but with rcduced informationrecjuirements.''® Reporting to the Government ofCanada and obtaining registration for newproducts can involve high costs, which in some cases prohibits the use of new raw materialsin the surfactant industry.

Examples of petrochemicals and refinery feedstocks are: ethylene (from petrochcmicalplants), n-paraffins and benzene (from petroleum refineries). Ethylene is used to makeethylene oxide (EO), which is used to make ethoxylated surfactants - for example. DowChemical makes EO at its Fort Saskatchewan. AB ciiemicais complex, the great majorityof which is used to make ethylene glycol. Ethylene can also be oligomerized (joinedtogether) to make paraffin feedstock for the non-polar portion of surfactant molecules.Benzene and n-paraffins are reacted (for example) to form linear alkylbenzene (LAB),which can be sulphonated to make linear alkylbenzene sulphonate (LAS). LAS is used tomake detergents. The figure belowprovides some illustration of the pathways to producingbiosurfactants.

Figure 4: Bio-Based Feedstocks for Biosurfactants

Spl^Mt

Glyccrol

Faayacid

meihylesters

AtAiMiUm

SiiUMMfl

Suifufittiica

Taicyalcohols

LtltnfictAo

eniHrmiio

Sul/tdeA

Ftiiy smirtei

i^cohol e;Jioxyl3te^^

alcohol

Eueri/levten

alcoholsFauy

$ulfonat&d oils•Cjc Suirun2£d oils

97D. J. Burden, Center for Crop Utilization Research. Iowa Stale University, Ames. Iowa.

Environment Canada, http;//ec.gc.ca/lcpe-cepa/dcfaul(.asp?lang=En&n=5F2l3FA8-l" Omni Tech [ntemational (2008), Sur/acianis: AMarket Opporitinily Study Update

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Surfaciants are usually classified as being anionic. cationic. non-ionic, and amphoteric.This relates to the charge on the head of the surfactant molccule (as opposed to ihehydrophilic tail). Anionics arc negalively charged, cationics positively charged, non-ionicshave no charge, and amphoterics can have positive or negative charge depending on thevv-ater conditions (e.g.. pM) in which they are used. Examples ofapplications for these typesof surfactants are provided below/. The charges and their magnitude, which depends on thechemicals used to make them, alTect surfactant functionality and cost to produce.

There are a great many surfaciants available. They are used in a variety of formulatedproducts, including but not limited to: soaps and cleaners; toiletries and cosmetics; paintsand coatings; inks; oilfield chemicals; and many other applications. The end-use marketfor formulated products containing surfactants is quite fragmented featuring millions ofhousehold users, tens of thousands of institutions, and hundreds of thousands of industrialand commercial facilities.

The industry includes large primary hydrophobe producers, secondary producers that mayreact hydrophobes with polar chemicals, and a broad base on formulator or blenders. SomeCanadian surfactant suppliers are listed in the table below. Most of the surfactants industryis located in Ontario and Quebec, while demand is spread out across Canada

Table 30: Canadian Surfactant Suppliers

Company Location

CEPSA Canada (Lineal alkyi benzene - LAB producer) Becancour OCChemtura Canada Co. Cie. Elmira ON

Colgate-Palmolive Ltd. Mississauga ON

Diversey Canada Inc. Candiac OCDivcrsey Canada Inc. London ON

Emery Oleochemicals Canada Ltd. Mississauga ON

Evonik Oil Additives Canada Inc. Morrisburg ON

Markham Chemicals Markham ON

Naico Canada Co. (An Ecolab company) Burlinftton ON

Rohm and Haas Canada LP Toronto ON

Scherin.c-Plough Canada Inc. Pointe-Claire OC

Siaico Materials Ltd. Delta EC

Stepan Company Longford Mills ON

The Procter & Gamble Company Brockville ON

Tri-Tex Co. Inc. Saint-Eustache QCNote; Some of these companies may be surfactant product formulalors rather than suppliers. Some may notbe producing surfactants in Canada.

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There have been some plant closures in the industry over the last 10 years, arid somesuppliers may now only be importing basic or more complex surfactants from affiliates fortheir own use and/or resell. The most recent case in point is Emery Oleochemicals Canada,which dosed it Mississauga, ON plant in September 2013.

The annual demand for basic surfactants in Canada is estimated to be between 300,000 and400,000 tonnes per year.'-'̂ This excludes the quantity of formulated products that usesurfactants and formulated products that are imported that contain surfactants. (Thesewould contain water and other ingredients.) Household laundry detergents, dish washingfornuilations, other household and personal care products have always represented thelargest end-use market segments for surfactants. The pattern of demand and some of thelarger end-uses in each market segment along with application examples are provided inthe table below.

Table 31: Estimated Pattern of Canadian Demand for Surfactants

Market Segment

% of Total

Canadian

Demand

(quantity basis)

Examples of Major Products

Household products 30-40%Laundry deiergeius. lighl-duty dish washingformulations, shampoos, conditioners

Personal-care products 15-20%Hand soaps (bars and liquid), shampoos, creams &lotions, shavimj creams

institutional, industrial,commercial

5-10%Janitorial supplies, commercial laundry products,rug cleaners, carwashcs

Oil/gas industry 5-10%Drilling muds, corrosion inhibitors, demulsifiers.paraffin dispersants, well servicing chemicals

Mining 5-10%Flotation chemicals, coal processing chemicals,extractive metallurav aids

Pesticides 5-10%Pesticide emulsions, wettable powders, sprayproducts

Pulp & paper 1-5%

Digester aids, defoamers. browstock washing, pilchdispersants. slimicides, deinking chemicals, feltwashers

Metalworking 1-5%Cutting fluids, forming compounds, metal platingchemicals.

Construction 1-5%Asphalt emulsions, cement and concrete additives,wallboard additives

Polymers and plastics 1-5%Plastics processing aids, polymerization additives(rubber, latex, etc.)

Miscellaneous 5-10%

Food additives (e.g.. lecithin), water treatment,textile softeners, lubricants, dyes formulation, paintsand coaiiniis, adhesives and sealants.

Source; Cheminfo Services estimates.

Cheminfo Services, based on: Omni Tech International (2008), Suifaclanis: A Market OpporiiinityStudyUpdate

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The quantities of siirfacianls produced in Canada arc not available from public sources,such as Statistics Canada. Il is reasonable to assume that production in Canada has beendecreasing over the last 20 years, as a number of surfaeumt plants have closed. Generally,Canadian surfactant production plants that closed were smaller than US facililies. whichhad better economy of scale. Kormulators in Canada have increased their use of lower-priced surfactants made in large-scale USplants.Asa result. Canadian imports of the mainbasic surfactants have been growing in Canada, as shown in the table below. Since 1990total Canadian imports of surfactants have been increasing at an average annual rale of4.4%. However, imports into Alberta have increased faster - at 7.2% per year on average,reaching 14.2 kilotonnes in 2012.

Table 32: Trend in Canadian and Alberta's Imports of MainSurfactants

Canada Canada Canada Canada Canada Canada Canada

1990 2009 2010 2011 2012 2012 2012

Canada

HS»

Code (kilolonncs) (kilolonncs) (kiloionncs) (kilotonnes) (ktlotonncsi (S million)

Anionic 340211 15.2 52.5 54-6 57.0 59-6 J120.1 S2.02Cationic 340212 2.0 5-9 7.5 7.4 8.1 $27.7 $3.41Non-ionic 340213 24.0 45.5 49.1 48.9 47-2 SI52.7 $3.23

Other (NESt* 340219 7.8 9.3 9.5 12.1 12.6 S33.2 $2.63

Total C'anada 49.0 113.2 120.6 125.5 127.5 S333.6 $2.62

Albert il Alberta Alberta Alberln Alberta Alberta Alberta

Albcria

IIS

Code 1990 2009 2010 2011 2012 2012 2012Anionic 3402II 0.95 3.4 4.6 6.0 7.0 $19.1 $2.74

Caiionic 340212 0.09 0.3 0.6 0.6 0.6 S1.9 $3.40Non-ionic 340213 1.43 4.4 4.9 5.2 3.4 S10.5 S3.06

Olher(NnS)* 340219 0.61 0.9 1.2 2.7 3.2 S9.7 S3.02

Total Albena 3.1 8.9 11.3 14.4 14.2 S41.2 $2.90Vt of Total Canada 8% 9% 12% 11% 12%

Source: Statistics Canada, lit{p;//www.statcan.gc.ca/trade-commerce/dala-donnee-eng.htm• HS stands for harmonized system. NES stands for "not elsewhere specified".

The total demand for basic surfactants in Alberta is unknown - as the sales quantities byCanadian producers to customers in Alberta is unknown. Another issue in estimatingAlberta demands is that many of the shipments from other provinces are in the formformulated products. Surfactants would be contained in partially or fully formulatedproducts such as cleaners, pesticides, oilfield chemicals, coalings, etc. The great majorityof imports come from the United States (i.e., over 90%). European and Asian countriesaccount for a relatively small portion of Canadian imports. It is interesting to note that theaverage unit value ($/kilogram) of surfactants imported in Alberta in2012 was higher than

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the Canadian average, by about 10%. This may in pail be a result of transportation costsfrom distant US producers.

The major importers ofsurfactants in Alberta include oilfield chemical suppliers - such asBaroid. Champion Technologies Ltd/Nalco Energy, M-l Drilling Fluids Canada,Engenium, and Baker Hughes. Agricultural chemical suppliers (e.g., Agrium and DowAgrosciences), and the major chemical distributors such as Univar and Dow Chemical alsoimport surfactants. There are many additional importers in Eastern Canada, which areinvolved in a broad spectrum of end-uses including; cosmetics, asphalt mixtures, rubbercompounding, coatings, consumer products, metal working fluids, etc.

Table 33: Major Canadian and Alberta Surfactant Importers

Company Name rih Pr«v>nre

Ajstiuni Alberta

DaLer Canada Coir^any Cal^rAr) Albeia

Bafoid Caljtafv Alberta

ChaiTT'O" TwhjwSoytcs l.ldNaIco Enffg* CaIkatv Albcna

rose tences Canada Inc Cal^ar> .^bena

DoM- Ch^itneat Cuudd I'lc Cal):a/v Alberu

M-l DfiUm^ Fluids Csfudo. Inc Calktirv Albou

Smith Ch«m Solutions Inc Cal(tA/> Albena

En^eniiioi (S^netchent International (iic,/Bririe*AddMuids) Calttatv Alberu

TAii*niaji Canada Cal^tarv Alberta

I'nivot Can.vla Ltd 1 (Iftwnion Alberta

Other ProvifKes

AVfti Ncvbel ChemKilf Ltd Oniarto

Apollo Af»dn<a«»yCar« <'onc()rd OniarkO

A^hland Canada Corp Ontario

BASF C'ajuda Inc Miui5uu^a Ontario

Ui3\er Crop^tence Inc Tonjnjo Ontario

Canil/fidT ChcnucaJ^ IfK OqLviII? Ontario

C8n,vta Colors And Ch«fnKals I.imncd 1oronio OnUfto

Charles 1 ennant & Company (Canada! Linirtcd Twonio ^'ario

Chcmii|a Inc Siidl>ur\ OniiTiO

Chrvslci Carvada In: \V'inilMjr Omarto

Copiis Canada Corporatiort Ontano

Coli:aie«Palniolt\e Ca;f^ Inc Toforio Oniario

Cto4a Cs3dd4).imiied (oiwnrti Oniatio

Cnkc Cwda Inc Na\ura Tails Ontano

D«bfo Cheoucds Inc flra/T^on Ontario

D«rrT^«>^ CorporaiDn lotonlo Onuno

Djvet$<v Canada. Inc OakxiHc Ontario

DSM Sut'tTioraJ PfOtfu<t$ Canada Inc Aw Ontario

EcoUb Co MismSuujcA Ontario

L$ie« Laudcr CosiTKtics Lid Ton^nio Oniano

Ii\onik GcUscKnu^l ButlinKton Onurio

Coodvcar C artada Inc Tofonio Onuno

Keidclbe^ Canada Graphic Eguipnvni l.mntcd Toninio Ontario

Kough(on Canada Inc Tonjnio Ontario

lom'ne fnc Mis5i^$au|ia Ontario

Ttimsij iCanads) Comply Kin^^ion Oniario

Jcmpjik Gk Inc Concord Ontario

KIK Canada Conc(ir4l Ontario

L V Lonias LimMed Brnntpton Ontam

McAsphaJi Indusirus Linticed Torimio Ontario

NtonKnii\'« P«rf6rinance MalcciAls CanAilu Ulc Matkhani Ontano

Naico Canada Co. Burlm^on Ontano

^exco Soljtwni Canada Co<p MisiJtsauKa Ontano

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{.'ompan)' Noinr cay rrct^Kr

PK Chcni lnJui(nv& LtJ nrampron Ontario

KhudiaCao^Li Ini; lornnio Ontario

Inc U)n^fbrd M)1l$ Orttat(i>

VSIiin rroprii:i3r> C'ustornrofniul»Corp OjUtlli

IH^lstlico IlK IX>llud-r>cvOtnkeau\ Quetxi

Qiodr.i l.t4 \'audfeuil*Donon QuchM

Knovslion PdcLa^rirj; |tK kmwicon Qufbcc

l.'OfMl Canjtia Inc MoniKjl Ouaw

I'cdc Moss lid ^airri'Mod^e Qudvc

r nirepns< i'lc^itiQue Monir«al-Oues) Oufb«c

Lntrctiei; Do 1 iJtv&i Inc Uvul QucbM

QuaJta CIkfthcaK l.hl VaudreuiI'Donon Oucl>cc

Irti' Daniiiou)!) K'uva Sc«Kiii

Citi Wc»4f;)lii^urbieC'ariocULtd Ualif3'< KoN'a ScotiB

Source: Cheminfo Services

The Canadian market for surfactants includes uses for many products. Some of the highervolume types of surfactants used in or contained in formulated products are listed below,with examples of uses provided in parenthesis:

linearalkylbenzene (LAB) sulfonales (laundry powders, light-duty liquids);fatty alcohol sulfates (personal care products);alcohol ether sulfates (light-duty liquids, laundry liquids):tall-oil and rosin soaps; (asphalt and latex emulsions);tallow and vegetable-oil soaps (toilet bars, laundry soaps);ethyloxylates. alkoxylates (pulp & paper, oilfield chemicals, coatings);lignosulfonates (concrete mixes, drilling muds);fatty alcohol ethoxylates (laundry powders, cleaners);fatty amines (metal ore processing, oilfield chemicals);ammonium quaternary compounds (fabric softeners, oilfield chemicals); andethanolamides (hair shampoo, light duly liquids)

There are more surfactant types sold in small quantities for many more uses. Somesurfactant producers custom make products to meet unique customer needs, which canchange. Siaico Materials in Delta, BC is a primary surfactant producer, who finds that ithas to change product formulations frequently. It tends to avoid making high volume, lowpriced products, and sometimes purchases these forcustom blendsor further processing. Itfocuses on makingspecialtysurfactants and blends to meet specific customerneeds. Siaicoalso provides customers with production services, such as: vegetable oil polymerization;cosmetic oil refining, bleaching and deodorization; cosmetic oil derivitization; specialreactions; and cosmetic ingredient reprocessing.'̂ ^

Siaico Malerials. hHD://sialco.com/.

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Siepan in Longford Mills. Ontario is another of Canada's surfactant producers. It can makealkoxylates, amides, sulfonates. sulfales, blends, and phosphate esters. The operations areowned by Stepan, based in the United States.'""

5.5.1 Potential for Biosurfactants

The surfactant industry and its users have been responding to environnienlal and healthissues and regulations for many years. Some of these pressures have provided opportunityfor increased use and production of vegetable-based biosurfactants. However, someregulatory requirements also presentmarketing challenges fornewchemicals. A challengeto newbioresource-based surfactants is the potential requirement for regulatory registrationof new chemicals.

In the case of consumer products, ingredients in soaps and detergents, disinfectants,sanitizers, household cleaning products, pest control and other products are governed byvarious regulations. Forexample, the Chemicals Management Plan (CMP), announced bythe Government of Canada in December 2006. began with the Industry Challenge Programto review 193highest priority substances, These substances were grouped into 12"batches"for review, to be completed over five years. The next phase of the CMP was announcedOctober 3, 2011, when the Government of Canada renewed its commitment to Canada's

world-leading Chemicals Management Plan. Approximately 1,000 additional substanceswill be reviewed in the next five years and the rest by 2020. including through theSubstance Groupings Initiative. More information on the Chemicals Management Plan, theIndustry Challenge and the Substance Groupings Initiative can be found at the Governmentof Canada website. Other regulations in the consumer products industry include; NewSub.siances Nolificafioti Regulalions (NSNR) under the Canadian EnvironmentalProtection Act, 1999 {CEPA. 1999); the Food & Drugs Acf, Pest Control Products Act(PCPA), administered by Health Canada. The Consumer Chemicals & ContainersRegulations (CCCR 2001) under the Canada Consumer Product Safely Act (regulatinglabelling).""

Stepan, http://www.stepan.com/default.aspx"" Canadian ConsumerSpecialty Products Association (CCSPA),http://www.healthycleaninglOI.org/english/OA.hlml

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In addition to consumer products, there are environmental pressures on industrial and othermarket segments for surfactants and formulated products. These include pressures to:

• reduce air emissions of VOCs:

• reduce releases to water and soils:

• use raw materials from renewable resources;

• reduce animal derived raw materials in certain products (resulting from concernsregarding bovine spongiform encephalopathy (BSE), commonly known as madcow disease);

• developing a better understanding of the environmental and human safety risks ofingredients;

• reduce workplace exposures to dangerous substances; and• enhanced product sustainability.

Many of the surfactants are based on vegetable oils, tallow, lignin (e.g.. lignosulphonates),and tall oil (from wood biomass), and as such a good portion are already bio-basedchemicals. Many of the formulators are offering and promoting a variety of"environmentally friendly", "environmentally responsible" and/or "green" products. Insome cases, this involves branding e.xislingproducts that were already bio-based. However,in addition to using ingredients that are from renewable sources, they can also ofieradditional environmental benefits (better biodegradabilhy, lower toxicity. lower VOC,etc.). Some surfactant suppliers have adopted environmental certification programs thatbrand products. The US EPA's Design for the Environment (DfE) and the EuropeanEcocert are two key examples adopted by some Canadian surfactant industry suppliers.

The US EPA's Design for the Environment (DfE) is a program that works in partnershipwith industry, environmental groups, and academia to reduce risk to people and theenvironment by finding ways to prevent pollution. For more than 15 years, throughpartnership projects. DfE has evaluated human health and environmental concernsassociated with traditional and alternative chemicals and processes in a range of industries.These encourage businesses to select safer chemicals and technologies. More recently, DfEhas been helping consumers and industrial purchasers make wise choices by identifyingsafer and effective products. It has evaluated and allowed more lhan 2,500 products to carrythe DtE logo. Us standards cover surfactants in cleaning products, solvents, processing aidsand additives, perfumes, and other products. For DfE. surfactants in cleaning products aredistinguished by their rate of biodegradation. degradation products, and level of aquatictoxicity. The DfE Criteria for Surfactants combine these hazard characteristics, andrequires that surfactants with higher aquatic toxicity demonstrate a faster rate ofbiodegradation without degradation to products of concern. Surfactants that meet theCriteria are acceptable for use in a DfE-labeled cleaning product; surfactants in productswhich typically by-pass sewage treatment must meet the Criteria for Environmental Fate

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8l Toxicity for Chemicals in Dircct Release Products.''̂ " Associated with DeF isCleanGredients. which is a database listing of surfactants, solvents, fragrances, andchelating agents. Key attribute data and the ingredient fonnulations are reviewed by anapproved third-party, and carried oul under confidentiality, providing verillcation ofclaimsfor the key ingredient attributes for ingredients without comproinising proprietaryformulations.'"^

Ecocert is a product and services environmental certification body, created in France andnow with subsidiaries in many other countries, including the United States. It hasestablished a set of standards to promote the use of natural ingredients from renewablesources (as opposed to petroleum based materials), reduce greenhouse gas emissions, andreduce environmental impacts for a variety of products and services (e.g.. golf courses,spas). Ecocert certifies more than 1.200products through 150committed companies. In thesurfactants Industry. Il has established standards for detergents, paints and coatings,cosmetics, andcleaningproducts. Itscleaningproducts standardwascreated In conjunctionwith stakeholders in the value chain. I.e. suppliers, manufacturers, distributors. Itsstandards also encourage producers to implement environmentally friendly productionpractices. Its natural ingredients standard includes: a minimum of 95% of ingredients fromnatural origin (maximum 5% of synthetic ingredients). There are other standardrequirements, Including butnot limited to specificingredients to beexcluded from productsand packaging (biodegradabllity or ability to recycle).'"''Below are some examples of suppliers and formulators offering of environmentallyfriendly or green product lines.

Ostrem Chemical Co. Ltd, headquarter In Edmonton. Alberta formulates a variety ofsurfactant-based chemicals (e.g.. cleaners, auto care products, water treatment, etc.) ItsNature's Own™ lineofenvironmentally responsible cleaning products consists ofproductsregistered with either The EcoLogo Program or Green SeaF" Program. Ostrem promotesits Nature's Own"'"''̂ EcoLogo registered cleaning products as not containing:'"^

• petroleum solvents;• d-llmonene;

• alcohols;

• phenol ethoxylates;• phosphates, silicates, nitrates;• EDTA (ethylenediamlnetetraacetic acid);• NTA (nitrilotrlacetic acid);• mineral acids; and

• caustic or butyl cellosolve.

US EPA, Design for (he Environment (DfE): A EPA Partnership Program.hliD:-Vcna.mn dfL' nubs'proiecls'iifcn^inticx.him

Cleanlngredients. hup://www.cleangredients.org/aboutEcoCert, http://w\v\v.ecocert,com/en/

"" Oslrem Chemicals Co. Lid.,http://www.ostrem.coni/natures/natures.htm

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Quadra Chemicals a chemicals distributor based in Vaudreuil-Dorion. QC. with severallocations in Alberta, other provinces and China, is committed to the promotion of theprinciples of sustainable chemislry, With this in mind, it has created its Green Producls thatare made only with ingredients that are certified by a third party, such as Ecocerl, DIE,and/or ClcanGredients®."'^

Table 34: Quadra Chemicals' Green Products

Ingredients for Personal Care and Cosmetics Ingredients for Household. Industrial andInstitutional Cicitning

Alciii Ammonium laureth sulfaic

Alpha-Tocopherol Ammonium lauroyl sarcosinate

Ammonium laureth sulfate Cocamidopropvl faclaincAmmonium lauroyl sarcositiatc Disodium cocoyl alutamate

Carracecnan Disodium/sodium cocoyl i>lulamateCastor isostearate succinate; Hydronenaled castor Linear alkylbenzene sulfonale acidCastor isosteareate beeswax succinaie Sodium laureth sulfate

Cocamidopropvl betaine Sodium lauroyl alutamateDisodium cocovl qlutamate Sodium lauroyl sarcosinate

Disodium/sodium cocovl glutamale Sodium lauryl sulfateFlaxseed oil Sodium linear alkylbenzene sulfonale

Inulin. oli&osaccharide Sodium xylene sulfonateLinear alkylbenzene sulfonale acidMicrocryslalline cellulose

Octyl dodecanol; Beeswax

PolyRlycer\'l-3 ricinoleate

Sodium al&inate

Sodium alpha olefin sulfonale

Sodium laureth sulfate

Sodium laurovl clutamate

Sodium laurovl sarcosinate

Sodium lauryl sulfate

Sodium linear alkylbenzene sulfonale

Tocopherols (mixed)

Source: Quadra Chemical.

Product brand names and certifications available at website.'

Quadra also wanted to highlight certain products that provide tangible environmentalbenefits despite not being certified by a third party, which is why they creatcd a BetterChoice list. The company created industry-specific criteria to qualify a product as anenvironmentally-friendly "better choice". Several criteria (for instance "sustainabiyproduced") are vague and would vary on a product-by-product basis. In these cases, itprovided justification (available upon request) for including these products. Its intent has

Quadra Chemical, http://www.quadra.ca/"" Quadra Chemical, http://www.quadra.ca/

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been lo produce a iransparent, honesi and dynamic list tliat reflects best industry practicesand to add new products over time that will provide customers with a variety ofsustainableoplions.'""

Croda International is a distributor of surfactants and otiicr chemicals. It believes that the

•'Green" movement is an important industry trend in cleaning, personal care and otherformulated chemical products. Croda points out that while at first, the theme was restrictedto the origin of the raw materials (e.g.. botanical extracts), it now includes more aspects ofa product - e.g., how it is sourced, how it is produced, and ultimately, how it degrades inthe environment. Croda is promoting its ability to supply ingredients that Fit many aspectsof the green trend, such as: botanical extracts with lEcocert qualification; natural oils andbutters that are harvested according to Forestry Stewardship Council (FSC) standards;"^'lanolin products and other natural oils that are super refined to remove potential irritatingby-products: ingredients with alternative preservative systems; and ingredients that are notpetrochemically derived. This list of green attributes is not exhaustive, and Croda continuesto grow as it investigates other innovative green technologies.'

There are factors favouring the market potential for increased use of biochemicals in thesurfactants industry. However, there are also barriers and challenges that need to beovercome. These include:

Positive Factors to Consider

• A large portion of basic surfactants are made from bio-based chemicals, and so arealready accepted in the marketplace;

• A large portion of the Canadian market is supplied by low-priced U.S. importsmade in large competitive plants, and sold through distributors. Canadian producersmight be able to offer competitive prices directly to customers, and pass along atransportation cost advantage - depending on location and distance betweencustomers and production plant;

• The trend to "environmentally friendly" and/or "green products favours increaseduse of renewable, sustainable resources.

Barriers and Challenges to Consider• The surfactants market is quite complex, presenting challenges to quantify and

delineate with respect to segments and specific products used;• The market features a few large customers and many small customers, whose needs

are constantly changing. This requires custom-made products for small surfactantproducers. This requires expertise in surfactant chemistry and production; and

• Goveniment registration ofnew products made from bioresources may be required,which can involve high costs.

Quadra Chemical, http://www.quadra.ca/FSC is an international certification and labeling system dedicated to promoting responsible forest

management ofthe world's forests. Forestry Stewardship Council (FSC), hups://ci!.fsc,org/w'ho-u-e-are.l86.him"" CnDda International Pic, http://www.croda.com/home.aspx?s= 157&r=400&p=2632

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Deieiinining the polciilial demand in any regional (e.g., western Canada) or marketsegment (pesticides, oilHeld chemicals, etc.) for new or existing bio-based surfactantsrequires close exainination of specific customer needs in the marketplace.

5.6 Isopropanol (IPA)

Isopropanol (also known as isopropyl alcohol, propan-2-ol. and IPA) is a clear, volatile,flammable liquid with a pungent alcohol odor. Most of the product is sold as 99% pure,while higher purity USP"' grade is also available.

The total Canadian market for IPA is estimated at 25,000 to 32,000 tonnes per year. Closeto half of the demand is for a variety of solvent applications in formulated products suchas paints and coatings, printing, inks, adhesives. and de-icing fiuids. The table belowprovides rough estimates of the Alberta, Canadian and the global demand patterns for IPA.

Table 35: Estimated Market Demands for Isopropanol, 2012

Industn' .Alberta C'ana ilu United Stales (;inbal

Total demand estimates (kiloionnos) 6-8 25-32 600-700 -2,(100

% of Alberta % Ciiniidian % I'SA % Global

A nnlications Demand Demand Demand Demand

Dc-iciutt fluids 75-85% 20-25%

Solvent applications(c.e- coatincs. adhesives. printinc)

5-10% 40-50%40-50% 40-50%

Cleaners, disinfectants, personal carcproducts

8-13% 25-30% 10-15% 10-15%

Pharmaccuticals 1-2% 5-10% 3-5% 3-5%

Feedstock for chemicals 0% 0% 30-»0% 30-40%

Acetone 0% 0% 1-3% 1-3%

Sourccs: Cheminfo Services cstinialcs for Alberta and Canada

For US and global eslimatcs DowChcniical, Proilucl SafetyAssessnwu (PSA): Isopropanol.Iiiin dow corn'OfiKlucls^ircu/riinier/iM' hlnv. ICIS. (2009) Chemical Profile IsoproiKinol,Imp ici>,com'ArliclL-s/-(H)')/| 17/Cliemical-DriiriTt.'-lMioriin,nu'l hlitil

Markets and Markets. (2013) Propiinol Market Kni-ili 274S.S KUotons byhllp://bel'oteilsnews.com/chenilrails/20l3W/propanol-market-worth-2745-S-kilolons-hy-20t8-24JI208.hlml

2(118 (ncwslinc).

In Canada, IPA is used in a variety of de-icing formulations. One such application is forde-icing natural gas pipelines, especially in Western Canada. IPA for this application maybe formulated with other solvents and chemicals, such as methanol, ethylene glycol. andethyl ether. In this application IPA also competes with methanol, which is the larger

nic U.S. Phamiacopeial (USI») Convention is ascicniillc nonprofilorgunl/iilioniliaiscis standards forihe ideniiiy. sircngth,quality, and purity ofmcdieines. lood ingredients, and dietary supplements manufactured, distributed and consumed worldwide.USP's drug standards are eiiforecable in tlic United States by the food and Drug Administration, ajid these standards aredeveloped and relied ttpon in more than 140 countries. USP sets scicntitkiiliy developed standards to ensure that ovor-lhccounter ajid prescription tiiodicines or healthcare products arc high quality and pure, (Sourcc; U.S. PhamiaeopoialConvention: http://wA\\v,usp,org/about-usp>

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volume de-icing chemical. A good portion of demand for ihis application is in Alberta,where the majority of Canada's natural gas is produced. Many natural gas pipelineoperators have automatic de-icing injection systems to prevent ice formation in theirpipeline systems. Demand for IPA and other de-icing chcmicals have recently beennegatively affected by reduced sales ofnatural gas (See Oiljlehi Chemicals section). Thereare other de-icing applications, with low amounts sold in bottles for applying IPA to frozenequipment to melt ice build-up. A portion of the demand for IPA is as a fuel additive toreduce the risk of ice build-up due to water contamination.

As a solvent. IPA is used in such applications as paints and coatings, cosmetics, personalcare products, inks, and adhesives. IPA is used in disinfectants and cleaners, sold toindustrial, commercial (e.g., restaurants), and institutional (e.g., government buildings,laboratories, hospitals) customers. Cleaners with greater than about 70% IPA havedisinfecting properties. In the printing industry, IPA is mostly used in lithographic printing.IPA can be used in higher-priced summer windshield wiper fluid - "bug-wash". Given thatit is more expensive than mcthanol, little if any IPA is used in winter windshield wiperformulations, which use methanol. In pharmaceuticals. IPA can be used as a mixing solventand in tablet coatings. In Alberta there is also a low amount of premium, very high puritycertided food-grade IPA used for sugar beet processing. Other applications include use asa cleaning and drying agent in the manufacture of electronic parts and metals, and as asolvent in medical, consumer products (e.g.. rubbing alcohol) and veterinary products.

IPA for food, pharmaceutical, cosmetic, personal care and similar products usually requirehigh purity USP grades. These are typically sold in lower volumes at a premium price toindustrial grade IPA.

IPA also serves as a feedstock for chemical synthesis. IPA is used in the production ofisopropyl acetate, methyl isobutyl ketone (MIBK) and isopropylamines. None of thesechemicals are known to be made in Canada.""'"^

Alberta demand for IPA is estimated to be 6,000 to 8.000 tonnes per year with natural gaspipeline de-icing use and other applications in the oil and gas industry making up a largeportion of demand. Other applications in Alberta include formulation of other coatings,cleaning formulations, printing, sugar manufacturing, and minor other uses.

Given that the IPA market has many applications and customers, distributors such asBrenntag. Univar. Canada Colors and Chemicals, and Altachem play an important role inreaching customer locations.

Mirasol. F. (2011). US Chemical Profile: Isopropaiwl. ICIS.com, Available aChtip://\vww.icis.com/Arlicles/2010/03/01/9338188/us+chemical+profile+isopropanol.html

Camford Information Services. (1997). Isopropanol. CPI Product Profiles.

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5.6.1 Supply and Value

The only Canadian producer of IPA is Shell Chemicals Canada in Corunna, ON. Its plantcapacity is 95,000 tonnes per year, it uses an abundant supply of propylene in Canada(much of which is exported) as feedstock. IPA production and sales data are not readilyavailable from Shell Chemicals Canada. Trade statistics indicate that Alberta makes up asizeable portion of total Canadian imports. It is evident that Shell Chemicals Canada needsto export a large portion of its production from the Corunna plant, as the Canadian demandfor IPA is estimated to be about 25-35% of Shell's plant capacity.

Trade statistics show that IPA imports to Alberta arc valued (S/kg) somewhat lower thanthat the average value ofall Canadian imports. This may be because the quantities importedinto Alberta are purchased in larger quantities by distributors (e.g., Brenntag). as well asDow Chemical - which has affiliated production capacity in the United States.

Table 36: Canadian and Alberta Imports of IPA

2009 2010 2011 2012

Cnnnda (lonnes) (SOOO) (lonnts) (SOOO) (lunncs) (SOOO) (tonn«s) (SOOO)

Imports 7,511 SI 6.074 9.877 $17,988 12.009 $22,655 10.744 $17,984

Value (S/kg) $2.14 $1.82 SI.89 $1,67

Alberta

Imports 2.827 54,786 4.127 S6.297 5.088 $8,090 4.622 $6,719

Value <$/kg) $1.69 $1.53 $1,59 $1.45

Source; Canadian International Merchandise Trade Database. HS: 2905120020: Propan-2-ol.

Table 37: Canadian Exports of Propan-2-ol (IPA) and Propan-1-ol

2009 2010 2011 2012

Canada (tonnes) (SOOO) (lonnrsl (SOOO) (tonnrs) (SOOO) (tonnes) (SOOO)

Ivxpiirts 68.923 S73.435 65.098 581.044 72.353 SI07.184 75.762 S95.I30

Value (S/kg) SI.07 SI.24 $1.48 $1.26

Source: Canadian International Merchandise Trade Database, HS: 29051200: Propan-l-ol (propyl alcohol)and propan-2-ol (isopropyl alcohol). No separate expon data was available for IPA. Mostof the exports areIPA.

The price of IPA is strongly influenced by the price of its propylene feedstock, which isestablished in the large US petrochemicals marketplace. Propylene prices are in turnaffected by raw material prices for natural gas liquids (e.g.. ethane) and crude oil, andtnarkel demand for other propylene uses, such as polypropylene resin. There have been

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large changes in IPA pricesover the last several years. The U.S. spot export price that wasclose to $1.15 per kilogram aroundJanuary 2010 rose by about 50% to $1.70 per kilogramin 2011, and then dropped 30% to about $1.20 per kilogram in the spring of 2012.

Table 38: Examples of Canadian Importers andDistributors of IPA

{Companies marked with an asterisk * were identified as importers IPA)

Company Type Location'" Province

Apco Industries Co. Limited Dislribiilor* Toronto ON

Brenntag Canada Inc. Distributor* Calgary AB

Canada Clean Distributor for cleaners, etc.* Ottawa ON

Colt Chemical Distributor* Innisville ON

Dow Chemical Canada ULC Distributor*, user Calgary AB

Esso Chemical Canada Distributor*, user Toronto ON

Quadra Chemicals Ltd Distributor* for cleaners Vaudreuil-Dorion QCUnivar Distributor Vancouver BC

Canada Colors and Chemicals Distributor Brampton ON

Altacheni Ltd.Distributor, Oilfield &industrial chemicals

Edmonton AB

Recochem (BC) Inc.Bottler, fornuilator,distributor

Nisku AB

Soiirccs; Canadian Importers Database, h»p://uuu.it: uc.caVicSiic t.'iJ-dic.iist'eiiit/homcChcininib Sei%'ices. Note I: One location siiown. Soino dislribulors have man> sales olTice locations across Canada.

5.6.2 Bio-Production Supply Activities

There was no identified supply or use of bio-based IPA in the Canadian market.

There is considerable research into the bio-based pathway for isopropanol production withGenomatica and Mitsui actively conducting research. Mitsui Chemicals (Japan) received apatent in 2010 for a method to produce isopropanol from a modified bacterium when fedwaste plant biomass."'' This method may prove to be a productive use of Alberta's surplusagricultural waste. California-based Genomatica is also reported to be in the research anddevelopment stages for a similar bio-based isopropanol process, but their main focusremains on butanediol and butadiene."-''

Mascoma Corporation is in the process of developing a cellulosic-based ethanolproduction facility in Drayton Valley. Alberta. The facility will use Aspen biomass to make

US Patent: 20100311 135 A1. (2010) Isopropyl alcohol-producing bacleriuniand mmhod ofproducingisopropyl alcohol using the same.

Genoinatica. (2013). Broad inlelleclualproperly, enabling strong product pipeline. Available at;http;//www.genomatica.com/technology/ip/

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elhanol, along with !PA as a co-product. The IPA avaihible from the facility will beapproximately 4,300 tonnes per year, while ethanol production will be approximately 80million litres per year (63,000 tonnes/year). The plant is expected to be in production withinseveral years, contingent upon financing. The plant's production for IPA process is unique,featuring enzymes to break down the cellulosic components of the wood and biologicalconversion of the by-product acetic acid (a two carbon molecule) to form IPA (a threecarbon molecule). The acctic acid by-product that would normally wind up in the wastewater, is converted to bio-based IPA. which is an added environmental benefit. A potentialtechnical advantage of bio-based IPA is that the biological synthesis route is specific tomaking IPA. as such there may be opportunity to obtain high purity IPA with very lowconcentrations of by-product contaminants.

5.6.3 Market Potential in Bio-Based IPA

Input from a limited number of industry sources involved with distributing and using IPAwas generally positive with respect to market factors for bio-based IPA and productscontaining bio-based IPA. However, they also indicate that IPA is a commodity chemicaland as such needs to be priced to be competitive with conventional IPA and solventalternatives. It is unlikely lhat bio-based IPA would be able to command a price premiumrelative to conventional IPA. With price, performance and product quality consistencybeing equal to conventional IPA. bio-based IPA provided by a reliable local Canadiansupplier in Western Canada should be able to attract customers. There would likely beinterest in high purity USP grade bio-based IPA for food, cosmetics, personal care andsimilar products. However, this is a minor portion of the total IPA market in Canada andmost of the Canadian USP demand is concentrated in Ontario and Quebec.

Table 39: Industry Input on Factors Influencing Potential Marketfor Bio-based IPA

Company Locations Market Segment,Products

Input on blo-bflsed IPA

Recochem Inc.Milton, ON,Nisku, AB

Canada's largestbottler of windshield

wiper fluid,antifreeze, solvents,mineral spirits, etc.

• Very low amount of IPA used in summer bug-wash formulations.

• Bio-based product lines do not sell well loretailers lhat are very price sensitive.

• No price premium likely for bio-IPA. Bio-IPAwould be a "lough sell" to retailers.

• Environmentally-friendly products can be apositive marketing feature.

Ostrem

Chemical

Edmonton,AB

Cleaners, degreasers.industrial,commercial,

institutional market

• Good interest for bio-based cleaners for

institutional (e.g.. government) customers with"green" purchasing policies.

• Bio-IPA would be favoured to conventional IPA.

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Company Locations Market Segment,Products

Input on bio-bascd iPA

Mike's Oilfield

Services

Lloydminster,AB

Oilfield services

provider. Distributesand applies de-icinglluids {and otherchcmicals) for use incustomers' gaspipeline svstems.

• Low interest in bio-based IPA.

• Reluctant to alter ingredients in de-icingformulations.

Altachem Ltd.Edmonton,

AB

Distributor of manyoilfield chemicals,cleaners, degreasers.etc.

• Methanol is usually favoured to IPA in de-icingformulations due to methanol's low price andhigh efficiency.

• Environment friendly products (e.g., BioSolproduct lines) that work as well as conventionalproducts are favoured in the market, even if theyare priced slightly higher.

• Bio-based may offer cost benefits in related tospills (e.fi.. mav not need to remediate).

Lantic Sugar Taber, ABSugar from sugarbeets

• Use low amounts of very high purity iPA that iscertified as food-grade.

• May be interested in bio-based IPA if it wascertified as food-erade.

Cheminfo Services based on industry sources.

5.7 Hexane

Hexane is an alkane of six carbon atoms, and has a chemical fotrnula of C6H14. The term"hexane" may refer to any of the five structural isomers within the formula, or to a mixtureof those isomers. At standard temperature and pressure, hexane is a clear and colourlessliquid, with a mild petroleum-like odour detectable at 65 to 248 ppm."''

The following profile discusses the hexane market In Canada. It provides information onindustries that use hexane (namely the oil and gas industry and the natural oil extractionindustry) and the challenges or possible benefits associated with substituting hexane forbio-based alternatives.

Canadian Council of Ministers of the Environment, Canadian Soil Quality Guidelines for n-Hexane:Proleclion of Environmental and Human Health — Scieniijic Supporting Document,http://www.ccme.ca/assets/pdf/pn_1454J)exane_sqg_supp_doc.pdf.

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5.7.1 Hexane Market in Canada

Canadian demand for hexane is estimated between 15 and 20 kilotonnes per year.

Table 40: Canadian Demand for Hexane

Application % of Total Canadian Demand*

Oil and gas .^0-50%

Adhesives and Sealants, Coatinus 20-40%

Natural Oil IZxtraclion 15-20%

Resin Manufacturinn 10-15%

Tapes 1-5%

Total (kilotonnes, 2010) 15-20

Source: Cheminfo Services estimates, based on industry input.* Does not include hexane in hydrocarbon mixtures

There are various uses for "pure" hexane in the Canadian oil and gas industry includinguse in oilfield chemicals. Hexane is also found in bilumen diluents used in Alberta(comained in hydrocarbon mixtures). (A section of the Appendix describes the diluentmarket.) Other hexane uses are adhesives. sealant, and coatings formulations. MajorCanadian adhesives and sealants producers include companies such as 3M Canada, RPMCanada (Tremco), and Helmitin. No producers of adhesives, sealants and coatings thatmight utilize hexane in their processes vv'ere identified in Alberta, although someformulation of these products is likely to exist in the province.

Hexane is used in the extraction of oils from seeds of various types, such as canola, flax,mustard seed, peanuts, safflower seed, and corn. The following table shows the ten majoroilseed extraction facilities in Canada, three of which are located in Alberta.

Table 41: Oilseed Extraction Facilities in Canada

Companv Name Ckv Prov

Canbra Foods Ltd. Lethbridgc AB

ADM Aeri-lndustries Llovdminster AB

ADM As:ri-lnduslries Windsor ON

Buni!C Canada Port Saskatcliewan AB

Bunge Canada Altona MB

Bunge Canada Harrowby MB

Buntje Canada Hamilton ON

Bunec Canada •>^ipawin SK

Buncc Canada Dixon SK

Cargill Limited Clavel SK

Source: Environment Canada, Cheminfo oilseed plant interview.

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The three oilseed plants in Alberta process primarily canola. ADM Agri-IndustriesLloydminster plant processes canola and exports much of the resulting oil to Asia for foodapplications and Europe as a biofuel feedstock."^ The Bunge facility claims to be thelargest processor of canola in Canada.'"'

Mexane is also used as a solvent in resin production. The only facility in Canada ideiitiHedas utilizing hexane for resin production was the Lanxess facility in Sarnia. Ontario. Theyuse hexane in the manufacture of halobutyl rubber from butyl rubber. In their process, thebutyl rubber is chlorinated or brominaled to make halobutyl rubber. The halobutyl rubberreaction usesa solventthat is a mixture of 60% n-hexane and 40% Ce hexane isomer, likelymethyl pentane. However, there are no facilities that use hexane to produce halobutylrubber in Alberta."''

Mexane has uses as a special-purpose solvent and cleaning agent (degreaser) in suchindustries as textile manufacture, shoe and leather making, and furniture manufacturing. Itis used in the printing industry as a cleaner and as a component of some ink fonnulations.Facilities that use rotogravure printers (facilities that produce catalogues, magazines,••glossy" newspaper inserts,or telephone directories) or similar rotogravure or fle.xographictechnologies (for labels, gift wrap, metal foils, llexible packaging materials, and some Ooorcoverings) are more likely to use hexane.'-" These uses represent a relatively minor shareof total Canadian hexane use. and very little demand in Alberta. Further research intofacilities making products in Alberta that may or may not use hexane was nol pursued.Known hexane demand in Alberta is largely in the oil and gas industry and for oilseedprocessing. Other demands for hexane in Alberta are assumed to be limited and requirefurther research to confirm.

5.7.2 Hexane Supply in Canada

There are two facilities in Canada that currently manufacture hexane, namely the solventplants at Imperial Oil in Sarnia and Shell Scotford in Fort Saskatchewan. No data on howmuch hexane they produce per year was available. Hexane is produced at these facilitiesthrough the fractional distillation of raffinate. Raffinate is a by-product resulting from theremoval ofaromatics from catalytic reformates at oil refineries. Raffinate may be processedfurther (through fractional distillation) in a solvents plant to produce hexane and otherproducts.

Between4.5 and 6 kilotonnes of hexane were imported into Canada annually between 2009and 2012. Alberta constituted between approximately 30% and 78% of total Canadian

ADM Agri-Industries Website, hup: www.adm.coin en-US worlihi'ide'Canada l'ages defaiill.asp.x."" Bunge Canada Websile, htip: www.btingenoiiltaincricacom our-biisinesses bimge-osp index.xhiiiil."" Chemiiifo Services. I'olalile Organic Compound (I'OC) Emissionsfrom the UseofSolvents in Canada -Invenlor}-Improvement and Trends Compilation, 2007.

Agency for Toxic Substances & Disease Registry. n-Hexane - Production, Import'Exporl. Use andDisposal, htfp://www.atsdr.cdc.gov/lo.xprofiles/lpl 13-c4.pdf.

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imports (1.5 and 4.25 kt). Much of these imports arc expected to have been used inAlberta's three oilseed extraction facilities. However, use of hexane as a component ofbitumen diluent in Alberla's oii and gas industry might account for some of the hexaneimports (this needs to be confirmed through further research).

Table 42: Canadian and Alberta Hexane Imports

2009 2010 2011 2012

Canada (tonnes) (5000) (tonnes) ($000) (tonnes) (SOOO) (tonnes) (SOOO)

4,523 S7.897 6,098 S9.530 5.409 S9.380 5,442 S8.414

Alberta

3.313 S4,I92 4,25.5 $5,524 3.463 S4,988 1,558 $1,958

5.7.3 Bio-Based Hexane

No commercial bio-based hexane production was identified, either in Canada or elsewhere.However, one company claims to have developed a method to produce bio-hexane,although it is not commercially producing any. BGT Biogasoline. based in Raleigh. NorthCarolina, has developed a two-step process for manufacturing bio-hexane and bio-heptanone. The first step very closely resembles the traditional production of ethanolthrough the fermentation of sugars. Instead of ethanol. however, butyric acid is produced.The butyric acid is converted into hexane via Kolbe Electrolysis and heptanone via apacked bed reaction. The following diagram shows BGT Biogasoline's process forproducing bio-hexane.

Figure 5: BGT Gasoline's Blo-Hexane Production Process

Sugan I cntnix't Reuuhir En/\inct

F.n/Mncs

00Fcnneniatiun

-O Kfllbc BceimKui

nBult nc Acul

Source: BGT Biogasoline's Website

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5.8 Guar Gum

Guar gum is a powder derived from the ground endosperm of the elusier bean (Cyanmopsi.sleira^onoloba). consisting of a polysaccharide ol'the sugars galactose and mannose. It is ayellowish-white water soluble powder and forms a thick and viscous solution in water. Itis used primarily as a thickening agent and possesses 5-8 times the thickening propertiesof corn slarch. Guar gum is utilized in food processing, oil/gas drilling, papermanufacluring. textiles, printing, metal processing, general emuisifiers, and thickeners.Guar guin is primarily grown in India and Pakistan where it is used as food for livestockand people.'-' Theexport of guarfor use in foreign oil production has made it an importantcrop in these countries. Other producers of guar include Australia, China, and parts ofAfrica and the United States. The total demaiid for guar has been recently growing due toincreased demand in oil production, specifically hydraulic fracking.

5.8.1 Uses

In hydraulic fracking and oil drilling, guar gum is used as a viscosity enhancer aiding inlubrication. It also had the added benefit of removing cuttings from the drill bit. It is alsoused as a "carrying" agent in hydraulic fracking to hold the sand or proppant in suspensionand to force it into the fissures in the rock formation. Fracking is expected to be the largestdemand for guar along with oil/gas drilling.

In food production, guar gum is referred to asa hydrocolloid and shares similar applicationswith substances such as comstarch, xanthan gum. and other plant based gums. Guarfunctions as a thickening agent, stabilizer, and binding agent. In the US, it has beenestimated that 45 kilotonnes of guar gum are used as thickening agents for products suchas ice cream, cream cheese, barbecue sauce, and orange juice.'"

5.8.2 Canadian Market

Canadian demand for guar gum is estimated at 9 kilotonnes for 2012, with two third beingused in Alberta - largely in the oil and gas industry. The table below provides someestimated market 2012 demands for guar in Canada, US and globally.

De Guzman, D., (2013). Developing Guar gum Allcriialives. Green Chemicals Blog. Available at:http://greenchemicalsblog.eom/2013/02/20/developing-guar-gum-allernatives/

West Texas Guar Inc. Available at: http://www.\vesttexasguar.com/

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Table 43: Estimated Market Demands for Guar Gum, 2012

Iiul ustrv Alberta Canada USA Global

Total demand estimates

(kilotonnes)6 9 270 -480

Applications% of Alberta

Demniid

% Cnniuiinn

Dcmiiiul

% USA

Demand

% Global

Demand

Oilfield chemicals 80-90% 65-75% 50% 40%

I'ood ptccessinij 5-10% 40-50% 20-30 40-50%

Textiles -0% -0% 10-20 10-20%Source; Canadian Inlemalional Merchandise

t'hcniinlb Sorviccs based on indusir>' sources.I'rade Database. ilS 1302320010: Guar Gum.

The 2012 global demand for guar gum has been eslimaied to be roughly 480,000 tonnes; asignificant increase since last decade. The largest global importer of guar gum is the USwith 270.000 tonnes followed by Gennany. Mexico, and Italyat about 25.000 tonnes each.In 2008. the US imports were only 80,000 tonnes. The surge in use is largely due to guargum use in hydraulic fracking. There are predictions that the guar gum market will regressas companies shift to alternatives but it is still expected to remain much higher than thepre-2000 demand levels.'-^-'-"'

Guar gum's use as a component of drilling fluids for hydraulic fracturing has boomed inrecent years causing a number of oil companies to purchase and stockpile large quantities.This led to a large price increase on guar gum in early 2012, forcing India's ForwardMarkets Commission to close physical guar contracts in 2012 in order to avoid a foodshortage. The price for guar gum nearly quadrupled from 2011 to 2012 to $25 per kg.Recently, prices have fallen due to the trade restrictions imposed by India. Some oil andgas exploration companies have soughtalternatives to guar gum such as natural polymers,carboxymethylcellulose (CMC), and xanthan-based products in order to avoid this pricevolatility.'-'

5.8.3 Canadian Supply and Value

There is no known production of guar gum in Alberta or Canada but there is someproduction in Texas and Oregon. Indiaproduces 80-90% of the world's guar with Pakistanas the second major producer and the other countries to contributing ~2% of the globaldemand. India is by far the largest exporter of guar gum with production estimated to beroughly 1 million tonnes per year and exports in the 400.000 tonne range. Other leading

Agricultiirai & Processed Food Products Export Developmenl Authority (APEDA). Available at:littp://agriexcliange.apeda.gov.in/producl_proflle/prd_profile.aspx?catcgorycode=0502

DcGuzman, D., (2013). Developing Giinrgum Altaniaiives. Gruen Chemicals Blog. Available at:http;//grcenchemicalsbiog.com/20I3/02/20/developitig-guar-gum-allemativcs/

De Guzman, D.. (2013). Developing (jtiar gum Alicrnulives. Green Chemicals Blog. Available at:http://grcenchemicalsblog.eom/20I3/02/20/developitig-giiar-gum-aliematives/

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guar gum exporters include Pakislan. and the US but their exports are dwarfed by India's.The guar grown in ihe south-western US was reportedly sold at a market price and enjoyedno premium from US companies compared to the guar imported from South Asia. Thesame scenario is likely to be expected for hypothetical Alberta-based guar producers.

Guar gum is not expected to grow well in Canadian climates due to factors such as a shortergrowing season, colder temperatures, soil type, and precipitation. American production ofguar is concentrated in the hot, dry regions of Texas. Oklahoma, and New Mexico. Canadaimports most its guar gum from Indiaand Pakistan and over 50% ofthose imports typicallygo to Alberta. The table below illustrates Canadian and Alberta trade in guar gum for theprevious 4 years, The chiefapplication in Alberta is expected to be fordrilling fluids.'"^

Table 44: Canadian and Alberta Trade in Guar Gum

2009 2010 2011 2012

Ciinudii (Iniinvs) (SOOO) (tonnes) (SOOO) (lonncs) (SOOO) (tunnes) (SO(IO)

Imports 2.873 S8.34I 5.582 $13,386 8,631 $30,374 9.254 S97.XI5

Value (Vtonni;) $2,894 S2,39« S3.5I9 $10,570

Aiberlii

Imporls 1.535 $3,735 3.587 S7,936 5.812 $20,345 6,462 $71,453

Viilue (S/tonnc) $2,433 52.212 S3.50I $11,057

Source; Ciinadinn Imcrnutioiial Merchandise Trade Database. HS 1302320010: Guar Gum.

Note; l^xpon dala wius not available for lliis chemical.

The price for guar gum before 2012 was approximately 2 $/kg. In 2012. due to a boom infutures purchases, the price rose to $10.50/kg with some prices reported to be as high as25$/kg and forcing the Government of India to put a halt on guar trading. Since then, theprice has dropped significantly and has returned to the $2-4 level and appears stable. Theprice inflation was likely a temporary glitch since the current crop is expected to be enoughfor a 2 year supply. The inflation was mostly due to speculation by some companies(Halliburton and Baker Hughes) hoarding guar gum in order to secure sufficient quantitiesto drive the fracking industry in the US.'-'

The following companies are listed by Industry Canada as importers of guar gum intoCanada. These six companies represent 80% of Canada's total imports. Alberta imports alarge portion of Canada's guar gum. which is used largely for drilling fluids. As expected,half of the companies listed below are oil and gas or related companies.

Clieminfo Services based on industry sources.Cheminfo Services based on industry sources.

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Table 45: Companies Importing Guar Gum to Canada

Company Cilv Province Business Arcn

Cambrian Chemicals Inc. Oakville Ontario Chemical distributor

Diversity Technologies Corporation IZdmonton Alberta Chemical distributor

liconomy Mud Products Company Houston Texas Oilfield drillinii chemicalsSchlumberger Well Services Calaary Alberta Oilfield drilling chemicalsSynerchem International Inc. Calvary Alberta Oilfield drilling chcmicalsUnivar Canada Ltd. fidnionton Alberta Chemical distributor

Source: Industry Canada, Canadian Importers Database. HS 1302320010- Guar Gum

5.8.4 Market Potential in Alberta for Guar Gum

The polenliai for the domestic production of guar gum in Alberta is limited for two reasons.The first being that since the price of guar appears to have stabilized back to the 2-4$/kglevel, competition with production in India or Pakistan would be challenging. Productioncosts in Canada would likely be much higher than in Asia. Even the guar alternatives suchas Exxon's synthetic guar replacement will likely be kept as backup products in the eventof another price inflation. The second reason is due to poor expected crop performance inCanada.'-^ Guar gum requires a hot arid climate and fares poorly in cold regions andregions with too much precipitation. While it may be that parts of Albertaare dry enoughto grow guar, the temperature is expected to be too low. As a general rule, guar beans donot grow well north of the 35''' parallel. Some guar is grown in Texas due to its climate.However most areas lo the north or east/west of Texas tend to be too cold or wet. it is

possible that the plant may grow in other areas such as Alberta however the quality of thefinished product will be likely be lower and not competitive with the product from IndiaorTexas. West Texas Guar Inc. is the largest US producer of guar and its farms areconcentrated in Texas, Oklahoma. Mexico and New Mexico. Projects have been identifiedin several states including Missouri. Colorado, North Dakota, South Dakota, and Tennesseebut none have shown acceptable results. Even if guar cultivation were possible in Canada,in order to be competitive, a large cultivation area is required. The yields for guar is '/:ton/haon dry land or I ton/ha for irrigated soil. Of the harvested crop, only 30% by weightis guar gum while the remainder is husk and animal feed. For this reason, an economicalguar operation needs a large cultivated area coupled with a large processing plant. It isunlikely to be feasible in Alberta despite its growing oil and gas industry. Guar crops alsoface competition from more lucrative plants such as mung beans in Australia, which isgrown as a food crop for sale in India and south Asia.'-^

Cheminfo Services based on industry sources.Cheminfo Services based on industry sources.

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Table 46: Industry Input on Factors Influencing Potential Marketfor Domestic Guar Gum Production

Industry ContactDc.scription

Input on bio-bascd Guar

Provincial Governmenl

Contact

• There is some interest in academic circles to conduct tests on guar^rowthin Canada, particularly Saskatchewan and Alberta. The research is in anearly stage but there maybe interest for a local supply ofguar if reasonableprices can be achieved.

Oilfield chemical

distributor

• There was some interest in growing guar in Saskatchewan.• The use ofguar in Alberta is almost strictly for oil/gas drilling.• Limited potential for production in Alberta due to price stabilization and

the expected high costs of production in Canada vs. Asia.• Guar alternatives exist such as CMC, xanthan gum, and other plant based

gums. Many are currently being used and the choice depends more onfunctionality for a specific task.

• There would be interest in locally sourced guar but there is no interest ina price premium tor it. Guar from the US is competitively priced with guarfrom India.

Guar Supplier • The guar plant needs a warm, arid climate in order to grow. US productionis restricted to parts of Texas, Oklahoma, New Mexico, and Arizona.

• Projects have been set up for guar in a variety of other slates such asMissouri, Montana, North Dakota, South Dakota, and Tennessee but nonehave been successful. The climate in Alberta is likely too cold.

• The plant may grow in these regions but the produced guar gum will be ofinferior quality.

• Guar production requires a large cultivated area. The yield is Vt ton perhectare for dry land and I ton per hectare for irrigated soil. Ofthis, 30% isthe guar gum fraction and the rest is husk or animal feed.

• Guar gum replacements appear to be inferior in performance compared toguar uum

Industrial gum supplier • Halliburton is currently conducting research on genetically modifiedvarieties of guar in an effort to discover a modified variety that might growin North America.

• The Guar produced in Texas is of fair quality but it is not on par with guarfrom India due the climactic variations. Despite this price spike, priceswill return to their lower levels. As such, any production in North Americawill have to be capable of producing a low cost product.

• The bis&est use for euar gum is for hydraulic fracking.Source: Cheminfo Services Inc. (2013). Industiy Sources

5.8.5 Alternatives

Guar gum can be replaced in some applications such as food, mining, and oil and gas byolher planl based or bio-derived substances. These substances typically include other plant-based polysaccharidcs such as CMC and xanthan-based products that exhibit similar water-

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retention and thickening propciiies.'-" Some other patented replacements have beendeveloped for use in drilling fluids such as PermSlim. a guar replacement developed byMalliburton.'̂ ' The composition of this product remains a guarded secret but the1-lalliburlon factsheet claims that "PermStim''^' fluid is based on a derivatized natural

polymer that does not contain insoluble residue."''- A natural polymer might refer toanother type of plant starch/colloid or some cellulose derivative. These replacements areunlikely to compete with guar gum when the price stabilizes but it may provide insulationfrom another price spike.Costs for these substances have been estimated at around 8$/kgwhich is double the current price of guar. Ilowever. if another guar shortage forces theprice to rise above 8-! 0$/kg, the alternative substance will become competitive and allowdrilling companies to avoid paying theexorbitant prices for guar that were seen in2012.'̂ ''Trican. a Canadian hydraulic fracking and oil drilling company, has developed its owncellulose-based guar replacement called Novum.'̂ ^ Despite several guar alternatives indevelopment, the high volume of demand (180-270 thousand tonnes/year in the US)suggests that production of most replacements would not likely be able to match thisdemand in the short term.

Xanthan gum is a bio-based viscosifier produced by bacterial fermentation ofsugars. It canbe used as a guar replacement in some applications because it possesses similarproperties.'̂ ^ It is currently produced in the US by CP Keico and some other companiesbut has only recently seen growing use in the oil and gas sector.'̂ ^

5.9 Carboxymethylcellulose (CMC)

Carboxymethylcellulose (CMC) is a derivative of ccllutose. the main chemical constituentof plant fibres. Cellulose is a polymer of glucose and is produced solely from biomass bya specialized pulping processes of wood or cotton. It has been speculated that alternativecellulosic crops such as hemp, switchgrass. and willow may be suitable for CMC andcellulose derivative production. These plants are fast-growing crops that grow well inCanada and might be used as feedstock for CMC production insteadof the traditional woodpulp.'̂ ^ Cotton linter cellulose tends to be used in the production of high purity refined

""Guzman,D.E., (2013). Developing Guargum.illeniciiivex. Green Cliemicals Blog. Available al:hltp://greenchemicalsblog.com/2013/02/20/dcvelopiiig-guar-gum-allcrnatives/

Halliburton. PeniiSiim Fracturing Sen-ice. Available ai;hHp://www.halliburton.com/public/pe/contenls/Brochures/Wcb/H09347.pdf

Ibid

DiLallo, M. (2013). 2 Fracking higreclieius You Should Know. Available at:littp://www.fooi.com/investing/general/2013/02/05/2-fracking-ingredients-you-should-know.aspx

Cliemiiifo Services based on industry sources.Trican Well Services Lid. (2013). Novwu Fraduring Get Syslem. Available at:

http://www.trican.ca/Services/technologyfracturing_noviim.aspxCheminfo Services based on industry sources.Cheminfo Services based on industry sources.Cheminfo Services based on industry sources.

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grades of CMC while wood pulp is used for technical grades (such as oil drilling CMC).CMC is usually sold as colourless, odourless, and non-toxic powder. It is soluble in waterbut insoluble in many organic solvents. When dissolved in water, it forms a gel-likecolloidal suspension with thixotropic (shear-thinning) properties. CMC is one of severalsimilarcellulose derivatives referred to as cellulose ethers. Othercommon cellulose ethersinclude methyl cellulose, hydroxyethyl cellulose, and hydroxypropyl methyl cellulose. Allcellulose ethers tend to have similar properties and all contain a common cellulosebackbone. They are differentiated by their functional groups, which in turn change theproperties of each ether. The structure of CMC consists of a backbone cellulose chain with0.4-1.5 sodium carboxymethyl (-ClbCOONa) groups In the place of the hydroxylhydrogen atoms. It is formed by the reaction of alkali cellulose with sodiumchloroacetate. The addition of carboxymethyl functional groups increases the polymer'ssolubility in water. These carboxyl groups also serve to increase the polymer's resistanceto bacterial degradation and to increase the fluid's resistance to divalent salts such ascalcium (Ca^""). The figure below shows the chemical structure ofcarboxymethylccllulose.

Figure 6: Structure of Carboxymethylcellulose

Source; The Dow Ciieniical Company. CarboxymethylceUuhse.

littp://\vww.dow.com/dowwollT/en/industrial_so!utions/pol>'mers/carboxymelhylcel!ulose/

5.9.1 Uses

Carboxymethylcellulose has a wide range of uses due to its ability to fonn colloidalsuspensions, its uses include food manufacturing (e.g., ice cream to control crystal growthand texture), oil drilling fluids, mining, soaps and detergents, textile and paper sizing, latexpaints, pharmaceuticals, cosmetics, and adhesives. The Dow Chemical company producesCMC under the brand Walocel™ and lists three specialty applications: adhesives for hardporous surfaces, binder for battery anodes, and as a binder in ceramics.'""^ In Canada, alarge use forCMC isas a flotation agent inpotash mining. Mosaic Potash in Saskatchewanis listed as one of the top ten Canadian importers of CMC according to the Canadian

Rose. A., Rose, E., (1966). The Condensed Chemical Dictionary, 7"' ed. Reinhold PublishingCorporation.

The Dow Chemical Company. l('ALOCn/.''^CRT.

http://www.dow.com/dowwolff^n/industrial_solutions/product/walocel.htm

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Importers Database. CMC is also used as a flotation aid in other types of mining such asnickel.'-"

In Alberta, the demand is expected to be skewed heavily towards oilfield drilling fluidswith some demand in paper sizing. In drilling fluids, CMC is used as a viscosity enhancerand fluid loss prevention aid by forming a film around the outside of the wellbore thatprevents fluid from seeping into the well bore.

Globally, there has been a recent increase in demand for CMC from the food sector due tothe increase in health conscious consumers and strong demand for low-fat foods. In lowfat foods. CMC replaces the consistency and texture imparted by fats and oils. The sectorrepresents the largest and fastest growing application market for CMC but it is not expectedto constitute a large demand in Alberta due to the absence of large industrial food productsmanufacturing facilities.'"*^. Interestingly, CMC is touted bysome food/cosmetics chemicalproducers as a good substitute for guar gum users concerned with the volatility of guarprices. Potash mining and drilling fluids may represent potential markets for any CMCplant established in Alberta.'"'̂

5.9.2 Supply and Value

Bulk purchased CMC is typically delivered as a dry white powder in 50 pound bags (22.6kg). Drilling fluid suppliers may supply the CMC in powder or as a premixed liquidsolution. Premixed solutions are ideal for drilling sites that are remote and may not haveappropriate mixing equipment. Some suppliers may also supply CMC in a solution ofmineral oil which facilitates homogeneous addition of the CMC to the drilling fluid,

There are no known CMC production facilities in Canada. Although yearly figures havefluctuated significantly, Alberta represents a sizeable portion of Canada's total CMCimports: 20% in 2012 and 50% in 2011. According to industry interviews, the importfigures for CMC into Alberta might be misleading. The raw data suggests that Albertaimported 1,381 tonnes in 2012 or 20% of Canada's imports. It is expected that Albertaactually imports roughly 50% or more or Canada's total imports. The reason the declaredStatistics Canada numbers appear low may be because some CMC shipments receivedfrom overseas are delivered to ports in the US. British Columbia. Quebec, or another portlocation. This can cause the import data to differ from the actual provincial use figure. Therevised demand for CMC in Alberta is likely between 3.500 and 4,500 tonnes per yeardriven largely by oil and gas drilling.

'•*' Clieminfo Services basedon industry sources.Global Industry Analysis Inc. (2012). Global Carhoxymethy! Cellulose Market to Reach 892.14 Million

Pounds by 2017. According to Xew Report bydlohul IncliistryAnalysis, Inc. Available at;http://www.prwcb.coni/rcleases/carboxymethyl_cellutose/CMC_food_bcverages/prweb9246544.htm

Camford Information Services Inc. (1997), Cl'l Product Profiles: Carhoxynicthylcellulose

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The value ofCMC has lliiclualcd in rcccnt years but tends to remain in the $3,500 to $4,500per tonne range. The value of the substance appears to be consistently lower in Albertacompared to the rest of Canada. This may be due to the predominant importofalrge volume"induslrial" grades of CMC for use in drilling fluids. Other regions in Canada import ahigher percentage of food or cosmetic-grade CMC in lower quantities, which are moreexpensive. The import value of CMC in 2012 was $2,866 per tonne and $3,886 per tonnein 2013 indicating the guar gum shortage did not result in a spike in CMC values (or importquantities). This tends to support the idea that although the two substances are used in asimilar manner, they are not necessarily interchangeable. Higher grades of CMC forfood/cosmetics can cost up to $10,000 per tonne but tend to be used in small-volume,specialty applications.

Table 47: Canadian and Alberta Trade in Carboxymethylceilulose

2010 201! 2012

Cnnitdn (SUUU) (lonnc.s) (SOOO) (tonnes) (SOOU) {lonnrsi (SUUOl

Imports :,y35 $l3.2y7 6.659 $23,521 7.495 $27,820 7.075 $24,027i'xnons 24 $110 3 $22 32 J102 48 $247

Value ($/tonnc) $4,530 $3,532 S3,7I2 $3,3%AlhcrlH

Imnons 503 $l,f)57 2,452 $8,373 3.572 SI 3.355 1,381 $.3.95KValue ($/toiMic) $3,2y4 $3,415 S3,637 $2.86(i

Source: Canadian International Mcrcliatidise Trade Database, HS: 39123100: Carboxymeiliylcellulose andits salts, in primary forms

Canadian imports of CMC have increased from 2,935 tonnes in 2009 to 7,075 tonnes in2012. This increase is largely attributed to the increased use in the oil and gas and foodindustries. According to Statistics Canada, in 2012 CMC was imported primarily from theUnited States (40%). Italy (15%). the Netherlands (15%). and China (10%). The companiesresponsible for importing CMC in Canada are mostly split between chemical distributorsand oilfield chemical companies. The following companies are listed by Industry Canadaas importers of CMC into Canada. These nine companies represent 80% of Canada's totalCMC imports.

Table 48: Companies Importing CMC to Canada

Comnanv City Province Business Area

Bio Aerl Mix l.n "loronto Ontario Animal feed additives

Cambrian Chemicals Ine Oakvillc Ontario Chemical distributor

Canada Colors und Chcmicals l.imiicd "loronlo Ontario Chemical distributor

Canadian Rncrcv Scrviccs l.n Calearv Alberta Oilfield drilline chcmicals

Chevron Phillip.s Chcmieal Canada Calsarv Alberta Oilfield drilling

Diversiis Technolouics Corooralion Lilmonton Alberta Chemical distributor

FMC Corporation lluustan Texas Pesticides

Maxccsvii Calearv Alberta Chemical distributor

Mosaic Potash Coloiisav IJlc Colonsav Saskatchewan Potash mininc

Univar Chcmical distributor

Source: Industry Canada. Canadian Importers Database. HS 3912310000 - Carboxymelhylcellulose and ItsSalts- In Primary Forms

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5.9.3 Canadian Market

CMC is primarily used in oil and gas drilling (largely in Alberta) and in potash mining(largely in Saskatchewan). There are smaller demands in food, paint, paper, detergents, andpharmaceuticals. Globally, the largest use for CMC is as a food additivc/thickener (34%)with other applications each comprising about 10-15% of demand.

Table 49: Global and Domestic Uses for Carboxymethylcellulose

liulustr>' Clubal US Canada .Alberta

Total demand estimates

(kiloloimes)-400 50-60 7-8 5

Application % Global

Use

% US use % Canadian

Use

% Alberta

Use

Oilfield drilling fluids 18% 25-30% 40-50% 80-90%

Food/beverace 34% 25-30% 10% 5-10%

Detergents 4% -5% 5-10%

Paper sizing/textiles 14% -5% 1-5%

Pharmaceuticals/cosmetics 10% -5% 1-5%

Mining -25% 25%

Miscellaneous includingadiiesive. thickener, paints,mining

20% 1-5% 1-5% 5-10%

.Sourccs: ICIS.com. (200S). Chemical Profile: CMC. Available al. hup icis.com/Articles/2008/10/20/9164244/chtfinical-prol'ilc-cmchtml. Camford Informalion Services Inc. (1997) Cl'l l'n>dua I'rojiles: Carboxymelhylcellulose: Canadian IniemalionalMerchandise Trade Database, HS 3912310000 -Carboxymclhylccllulosc and lls Sails- in ftimai^' Forms: CheniinfoSeni iccs based onindustry sources.

5.9.4 Market Potential for Alberta Production

CMC is already derived from bio-resources as it is produced from cellulose - a constituentof wood and other plants. Alberta has some pulp and paper mills that produce a variety ofproducts but the cellulose required to produce CMC is referred to as dissolving pulp: ahighly purified (>90%) form ofcellulose. Dissolving pulp is largely produced by the sulfiteprocess, which has a yield of 30-35%.''"' Production of CMC in Alberta would requireeither a specialized pulp mill to produce dissolving pulp or the expansion of an existingmill to incorporatea sulfite pulping process (which is unlikely). The total Canadian demandfor CMC is roughly 7 kilotonnes and a small mill might produce 10 kilotonnes essentiallysatisfying all the current domestic demand. This would require a potential mill in Albertato compete with the much larger ones in Europe, the US. and China.According to someindustry contacts, the production of CMC would require a dedicated mill and retrofittingan existing mill would not be feasible.

Biennann, C. J., (1996). Handbook of Pulpingand Papermaking(2nded)Clieniinfo Services based on industry sources.

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The useofCMC as a renewable, bio-based chemical may be of some inicresl as a marketingtool for end-users. The association of CMC use with a lifecycle greenhouse gas emissionreduction could be used to positively promote a process or product. Alternatively, thebiodegradability of the substance could be used to improve process safely and to reduceenvironmental risk compared to a synthetic alternative. Given these potential benefits, asmall premium (10 ccnts per bag) might be acceptable in certain industries compared to anequivalenl synlhetic substitute for CMC. There may be interest by Canadian purchasers ofCMC fora domestic supply if the cosl was reasonable. The advantage of locally producedCMC is thai the shipping time would be greatly reduced and orders could be completedfaster.'*"^

By virtue of being a natural polymer, CMC and other cellulose ethers readily biodegradeover lime, which makes well closure and environmental cleanup simpler. Syntheticthickening agents and substitutes such as polyacrylamides will not biodegrade in this way.Typically, enzymes are added to the drilling fluid in order to assist in its decompositionafter it is no longer required.

Table 50: Factors Influencing Potential Market for DomesticCarboxymethylcellulose Production

Sourcc of Input Inout on C-MC Market Factors to Consider

Oilfield chcmicals

supplier• CMC production requires essentially a dedicated mill and il not a flexible

process. Given that Canada's demand is roughly 7 kt. a small 10 kl plant wouldreplace the entire domestic demand but it would still be small in comparison toplants in Europe, the US and China.

Specialty chemicals,cleaning productssupplier

• CMC is purchased from private distributors and the origin of the substance isusually unknown. As a commodity chemical, price is the only real driving forcefor the company's purchases. This is expected to be a common sentimentespeciallv amone smaller users.

Oilfield chemicals

supplier• The might be some interest in a local supply of CMC because il would reduce

the shipping delay incurred when purchasing from China or Europe.• The bio-based nature of CMC can be more desirable than a comparable synthetic

replacement because CMC is readily biodegradable and contributes to a simplepost-drillins cleanup.

Industrial drillingmud ingredientssupplier

• Most CMC is produced in the US. Europe. China but there might be potential fora North American production plant to supply (he large North American oilfieldmarket.

• A plant located in Canada would likely need to produce 15,000-20,000 tonnesper year and supply markets in Canada, the US, South America, and Europe.

Source; Clieminfo Services based on industry sources.

' Chcminfo Services based on industry sources.

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5.9.5 Alternatives

Other natural viscosifiers such as guar. starches, xanthan gum, and other plant-based gumsperform similarly but each has their own niche use. Each type of gum has a particularrheology profile and each has its own particular niche use regardless of the application. Foroil drilling, the main criterion tends to be low cost and the most common products arecheap natural viscosifyers such as starches, xanthan gum, and other natural gums. Inhydraulic fracking, there are different requirements on the fluid performance. Orten,fracking fluids are cross-linked synthetic or natural polymers that have increased viscosityand gelling properties.

Xanthan gum is viscosifyer produced by bacterial fermentation of certain sugars thatprovides good viscosity at low shear stresses. It was believed to cause formation damageand reduce production effectiveness and thus its use decreased approximately 20 years ago.It is being used increasingly recently as companies have found certain uses for it and canuse it more effectively.'" The table below provides a brief overview of some CMCalternatives for oilfield drilling in particular.

Table 51: Alternatives to Carboxymethyicellulose

Name Description

Other Celluose Ethers Similar to carboxymethyiceiiulose but with different functional groups alongthe cellulose chain.

Xanthan Gum Polysaccharidc formed from bacterial fermentation of sugars. Produces aviscous, shcar-lhinning Huid used in food and oil-drilling. Its properties aresimilar to ixunr and locust bean gum.

Locust bean gum Similar (o guar gum. locust bean gum is derived from the seed of the carobtree, which is urown mainlv around the Mediterranean.

Starches Starches arc a type of polysaccharide that form viscous solutions in water(com starch is a household example). Many plant-based starches can be usedin oilfield drillini; operations as a cheap viscosity-enhancer.

Polyacryiamides Polyacrylamidc (PAM) is a synthetic, water-soluble polymer. In its linearform, it forms a viscous solution in water and can be used as a thickeningagent for pesticides, oilfield drilling, and water treatment. I( can also be soldas a cross-linked form which forms a soft eel in water.

Haliburton PermStim'"" A proprietary synthetic thickening agent being marketed as a guarreplacement by Malliburton. The Halliburton data sheet for the substance toutsit superior performance. The chemical identity of the substance is still aclosely guarded secret.

Source: Cheminfo Services based on industry sources.

Cheminfo Services based on industry sources.

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5.10 Alpha Oiefins

Linear alpha oiefins (LAO) are a subset of linear hydrocarbons with one double bond atthe terminal (or alpha position on ihe molccule). They are chemical intermediates that areused as polyethylene comonomers, indetergent manufacturing, specialty lube oil blendingand otherapplications. Alpha oiefins can refer to hydrocarbons with carbon chain lengthsfrom C3 to Cis. or even higher. For the purposes of this study, the linear alpha oiefinsconsidered are summarized in the table below.'*"'

Table 52: End-Use Applications for Linear Alpha Oiefins

Name Carbon

chain

length

Description

l-buiene C4 A colourless gas produced by separation from crude refinery C4 streamsor by the dimerizatioii or ethylene. It is an important comonomoer in Iheproduction of linear low density polyethylene (LLDPE), methyl ethylketone. butvl alcohols, and nolybutene.

1-liexcne C. I-Hexeneis a clear, water-white mobile liquid. I-Hexene enters intoallreactions typical of alpha oiefins. It can be used as a comonomer inpolyoiefins andas an intermediate in the production of 0x0 alcohols,hexyl mercaptans, organicaluminum compounds and synthetic fattyacids.

1-octene Cs l-Octene is a clear, water-white mobile liquid. 1-Octene enters into allreactions typical of alpha olellns. It can be used as a comonomer inpolyoiefins andas an intermediate in the production of 0x0 alcohols,octyl mercaptans, amines, organicaluminum compounds, synthetic fattyacids and hvdroeenated olinomers.

Decene Cio Polvalpha oiefins for synthetic lubricants

Dodecene.tefradecene

C,2-C,. Detergents, surfactants

Hexadecane.octadecene

CI6-CI8 Lubricants additives, drilling fluids

Oligoniers/Producls/#Linear-Alpha-Olefins-LAO

Alpha oiefins are predominantly produced by the oligomerization of ethylene (C2H4) intoC4-C20 and higher linear hydrocarbons. Canada's only LAO manufacturing occurs at theINEOS facility located at the Nova Petrochemical Complex in Joffre. AB. Using ethylenefeedstock from Nova, the facility synthesizes a range of linear alpha olefin (Ce" to C20+°)liquids, Certain linear alpha oiefins are produced at oil refineries or chemical facilities inCanada. These alpha oiefins are typically C? and higher molecules sold as intermediates in

ineos Oligomers. (2013). Available at: lntp://www.incos-coin/en/businesses/INEOS-Oligomcrs/Products/

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the production of lubricants, poly-alpha olefins. and polymer additives. The Imperial Oilfacility in Sarnia produces C7-C12 olefins and blends thercof.''̂ ^ '̂ "

Table 53: Global Producers of Linear Alpha Olefins(kitotonnes/year)

Company Location CapacityShell Geismar, Louisiana, US 920

ChevronPhillips Cedar Bayou. Texas, US 705

Shell Slanlow. UK 330

INEOS Feluy. Belgium 300

INEOS Joffre, Aibcrta, Canada 250

Sasol SasolbuiTZ. South Africa 230

Nizhnekamskneftekhim Nizhnekamsk. Russia 186

SABIC Al-Jubail. Saudi Arabia 150

Sasol Sasolburg. South Africa" 96

Idcmitsu Petrochemical Ichihara. Japan 63

Mitsubishi Chemical Kurashiki. Japan 60

Beijing Yanhua Yanhua. China 50

Dow Chemical Tarrayona. Spain" 50

Q-Chem Mesaieed. Qatar 47

a. Only octane. 1-hexeneSource: ICIS.com (2008) Chemical Profile: Alpha Olajlm.

The INEOS process for LAO synthesis is based on the chain growth of ethylene on airiethylaluminium (TEA) base to produce a mixture of longer-chain aluminium alkyls. Afirst-stage reaction of ethylene with TEA in an olefin diluent builds tri-linear alkyl groupson ihe aluminium base. After flash separation of excess ethylene and diluent, a second-stage reaction with excess ethylene restores the TEA by displacing the linearalkyl groupsas a linear alpha oiefin mixture. The mixture of linear alpha olefins is separated intocomponent products by distillation and routed 10 aboveground tanks for final productstorage.'̂ ' The figure below shows some typical end-use applications for LAOs ofdifferentchain lengths.

Thereare several other proprietary methods for producing LAO, each licensed by the largeproducers. Each process typically produces a slightly different distribution of LAO chain

Ineos Oligomers. (2013). Available at: littp://w\vw.ineos.coni/en/businesses/INEOS-Oligomers/Prodiicts/

Camford Information Services Inc. (1999). CPI I'rodiicl Profiles: l.inear AlphaOlefinsC'iienisyslems. (2013). PERP Program, Developments in I.AOComonomer Technologiesfor

Pdlyelhylene. Available at:liltp://www.cliemsystems.com/about/cs/news/items/PERP%200607_5_AlphaO!efins.cfm

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lengths and some are belter suited to different applications. Despite the difTerent processdesigns and catalysts, virtually all LAOs are produced using cthylenc from natural gas asa feedstock.'-"'- The largest global producers of LAO are Shell, ChevronPhillips, andINEOS. The INEOS plant in Joffre is the firth largest producer in the world.

Figure 7: Ineos Alpha Olefin End Use Applications by Chain Length

Source; Ineos Oligomers website. http://wwvv.ineos.coni/en'biisincsses/INEOS-Oligomers/Prodiicts///Linear-A!plia-Olefins-LAO. INEOS docs not make l-butene in Alberta.

In Canada, and even more so in Alberta, the end use pattern for LAO is highly skewedtowards polyethylene comcnomers due to the large polyethylene industry and smallcustomers for other chemical products (e.g.. surfactant manufacturing). Another importantAlberta-specific use for LAOs is in oilfield drilling fluids.

Table 54: End-use Patterns for Alpha Olefins

Uses % of Aibcrta

Use

% ofCiinada Use %orGlDbal

Use

Polyelhylene comonomers 95-98% 90-95% 43%

Detei^ent alcohols1-4% 2-5%

17%

Polvalphaolefins (synthetic lubricants) 12%

Plasticizer alcohols 7%

Oilfield drillinti Ruids 1-4% 2-5% 6%

Other uses (inclndinjj dlkylincfliyluiiiincA, siirfacidiiia. faiiy aciils. 1-4% 2-5% 15%

Source; ICIS.com (2008) Chemical I'rofile: Al/ilui Olefm tor gloha!. C'liominib Scrviccs estiinnlos Ibr Canpcln andAlberla.

Chemsyslcms. (2013). I'ERP I'rograin, Davelopmenis in LAOComonomer TechnologiesforPolyethylene. Available at:http;//www.cl)enisystems.coni/about/cs/news/items/PERP%200607_5_AlphaOleflns-cfm

ICIS.com (2008) Chemical Profile: Alpha Olefms. Available at;hnp://www.icis.com/Articles/2008/02/l8/910l 114/cheinical-proflle-alplia-oleflns.html

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There are several polyethylene producers in Canada that use LAOs, namely: NovaChemical in Joffre, AB, and Corunna, ON; Dow Chemicals in Fort Saskatchewan, AB; andImperial Oil Ltd. In Sarnia. ON. (sec Polyethylene section in Appendix). INEOSproduction in Alberta exceeds domestic demand, so a high portion of its production isexported.

The following table describes the Canadian trade in LAO and it is evident that the mostimportant chemicals are 1-butene. l-hexcnc, and 1-octene. The vast majority of theseLAOs are imported into Alberta where the dominant use is comonomer in the productionof polyethylene. Export data in the table arc for Unsaturated Acyclic Mydrocarbons nes -i-lS 29012900. The great majority of these are from Alberta, and it is reasonable to assumethese are largely from the INEOS LAO facility.

Table 55: Canadian and Alberta Trade of Alpha Olefins

20l><) 2009 2UUI 2010 2011 2011 2012 21)12

Imports (tonnes) (SOOO) (tonnes) (SOOO) (tonnes) (SOW) ((onneii) (SOOO)

l-Uulcn«

C^iiKidii 39.300 S47.402 3K..^2'> S55.9I.1 37,807 S52,5I7 ,34.110 S56,0!I5

SI.21 S1.I5 SI.65 SI ftl

AltKnn 35.402 $42,761 33.6'>l Sl';,23l 33,178 S54.<W 28.045 515,852

l-Hcxriic

Ciin:ul.i 50,823 S74.')')4 35.513 S59.227 31,591 S50.712 32,113 559,912

VnliKtS'lu) SI 48 Si.67 SI.92 Sl,8r>

Albcno J6,4.^2 S67.239 ?.VlJr> SSS,685 28,392 S34.54I I2,6S6 523,173>uncn(«

C'aiio<U 7.630 S4.0S0 3,306 S4,094 8,972 SI7.376 6,521 SIII.086

SO.53 SI.22 SI 9.1 $1 55

Albcna SI

l-<>ctrnc

C'anaih 16.692 $19,037 31.874 S35,885 32,947 S45,4,32 25,213 S37,773

VnliK iSLtil SI 14 SI.13 SI .'8 $1 50

•\lbcna 16.6SS SI9.033 31.712 S35.722 31,591 S43,4I5 17,149 S25,6I8Other l.ineiir Alolu OTcfins

4.141 SS.6.39 5.892 S9.II2 .3,314 56,162 4,468 S8.5li3Vnliw iS Vi!i SI SI.55 SI.86 SI 92

Atticita •80 SS96 1.225 S2.202

2009 2009 2010 2010 2011 2on 2012 2012

Exports: UnsamnitcdAcvcllc llvdrocarbons. nes

(tonaea) (SODO) (tonnes) (S(H>D) (toaQfs) (SOOO) (tonnes) (SOOO)

Oiianiitv Value Oiianlilv Valiie OuatiliTs* Value Ouantin' Valiio

Cannda n5,023 SI39,723 140,543 SI95J25 133,451 5197,678 142.180 S20«,195Value (S/iA) $1.21 SI.39 Sl,48 S1,41

AlbMta 109,222 SI33,97I 134,550 SI89,I26 124,944 S182.531 137.763 SI95,303

Source C'jiiadimi Inlotnalioiiai Mcrchaiidisc Tr.idc Djtababi;. ll.S2y()l2WI)l'>. I.iiitar AlphaOlefins, unmi\ed, ncs. IIS 2')012'W0I9:Olher l.inear Alpha Olelms, unmixed Caniiiiian Inlemuliomil Merclundise Trade Oaiabasc, HS 29012911, nonenes. CanadianInlernummal McrcliandiseTrade Database, IIS 29012991. nonenes. Canadian International Merchandise Trade Database, IIS 29012912,l-hcxcnc Canadian International Merchandise Trade Database. liS 290123 10, l-bjtcne NES stands lor notelsewhere speeitledNote: Hxportdata are tor Unsaturated acyclic hydrocarbons, ncs - IIS 29012900

Since about 1990. the oil and gas extraction industry has been developing new oleaginous(oil-like) base materials from which to formulate high performance drilling fluids. Ageneral class of these fluids is calledsynthetic materials, which include linearalphaolefins.

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polyalphaolefins (POA). synthetic paraffins, ethers, vegetable esters, other esters, linearalkylbenzcncs. and others. Other oleaginous materials have also been developed for thispurpose, such as special grades of mineral oils and non-synihetic paraffins. Industrydeveloped synthetic-based fiuids with these synthetic and non-synthetic oleaginousmaterials as the base lo provide the drilling performance characteristics of traditional oil-based fiuids but with the potential for lower environmental impact and greater workersafety. Synthetic based muds (SBM) have lower potential toxicity, lower polycyclicaromatic hydrocarbons content, faster biodegradability. lower bloaccumulation potentialand in some drilling situations decreased drilling waste volume.'̂ "* Similar to oil-basedmuds (OBM). SBM can be reconditioned for reuse. Synthetic muds have been adopted foroffshore drilling in Canada and are used at a small portion of onshore wells drilled. Water-based muds (WBM) and OBM are predominant types used for onshore drilling.

5.10.1 Potential for Renewable Alpha Olefins

There has been some interest in producing alpha olefins from renewable resources. Onesuch process uses oleic acid lo produce olefins via a selective ethenolysis process.'̂ ^Another produces linear alpha olefins from lactones and unsaturated acids derived frombiomass.No pilot plants or test facilities producing bio alpha olefins were identified andit appears that this technology is in the very early stages of development. As such, there isno current market for linear alpha olefins derived from renewable resources in Canada.

Bio-LAO would be challenged to achieve sales in the Canadian polyethylene industry. InCanada, this industry requires high purity 1-butene, l-hexene and 1-octene, which needsto be purchased at low prices. Deliveries are made to Nova Chemicals in Joffre via pipeline,while other customers receive LAO in railcars and trucks.

There may be better market potential in low volume LAO applications, such as surfactants,lubricants, and oilfield chemicals. Some of these application areas may make products thatare more Interested Inenvironmentally friendly products and associated raw materials fromrenewable sources. Identifying smalt LAO customers in these areas and providing productsto meet their specific needs is expected to be challenging since the market is fragmented.Most of this market is located in Eastern Canada, although the oilfield chemicals segmentIs concentrated in Alberta and other Western provinces.

U.S. Environmental Protcclion Agency (2000). Profile of the Oil andGas Extraction Industry, Preparedby ihe OtTice of Enforcement and Compliance Assurance.

Van der Kils. F., et al. (2012). Renamthle linear alpha olefins by selective ethenolysis ofdecarhoxylatedunsaturatedfatty acids. European Journal of Lipid Science and Technology

Wang, D.. (2013). A hifihly selective route to linear alpha olefins from biomass-derived laclones andunsaturated acids. Clieiiiicai Communications.

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5.11 Oilfield Chemicals

The oil and gas industry is quite large and important to the Canadian cconomy. especiallyin the western part of Canada. The value of oil and gas production from Canada's industrywas approximately $110 billion in 2007.'̂ ^ The industry is also an important market forchemicals used in exploration and production, including bitumen and synthetic crude oil(SCO) production. The industry is concentrated in Western Canada, much of it in Alberta.Over 70% ofthe natural gas, and all of the bitumen and SCO production are in Alberta. In2012. 43% of conventional crude oil was produced in Alberta. Demand for oilfieldchemicals is tied to well drilling activity and production. Since 2008, Canada'sconventional oil and natural gas production have decreased, while bitumen and SCO haveincreased substantially.'^" "^"'''

Table 56: Trend in Canadian and Alberta's Oil and Gas

Production

Canada t'nits 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012

Crude oilMilUon

\1.' 81 80 84 85 82 79 78 81 78 71 71 73 76

Ditumen and

Svnthelic OilMilliiiti

\IJ 35 38 43 50 57 56 65 69 70 78 84 93 101

Natural casBillion

M.l 206 209 208 202 205 206 208 204 196 182 177 174 169

Albcria

Crude oilMillion

M3 44 42 38 37 35 33 32 30 29 27 27 28 32

Svnthciie oilKtillinn

35 38 43 50 57 56 65 69 70 78 84 93 101

Natural mislliKlon

M? 167 164 161 158 159 I6U 159 158 149 138 132 123 120

AlbrrtH % of

Tola! CflnKdM

Crude oil 54% 52% 46% 43% 43% 42% 40% .18% 37% 38% 37% 39% 43%

Synthetic oil 100% 100% 100% 100% 100% 100% 100% !0()% 100% 100% 100% 100% 100%

Natural i;as 81% 7S% 77% 78% 77% 77% 76% 77% 76% 76% 74% 71% 71%

Sourcc; Caniidiiin Associalion of Petroleum Producers (CAPP) (September 201.3) S'ltilisiicni Handhnokfor Canada'sUpsireum I'elrokum /«rfi/.5f/>'.liltp:/A\\v\v.capp.ca/libra!>/slaiistics'handbook/pai:i;s/slalistiearrables.aspx?sectioiiNo=3

Oilfield chemicals can be split into two groups, namely: exploration chemicals used fordrilling, hydraulic fracturing, completion, etc.); and production chemicals that are appliedafter the oil and gas is flowing to the surface.

This total includes production from conventional and unconvenlional oil wells, and oil sands production.Canadian Socio-economic Information Management System (CANSIM). Table 281-0024, NAICS 2111.Statistics Canada (2009), Oil and Gas Extraction • 2007. Table 4.

"^Canadian Association of Petroleum Producers (CAPP) (September 2013) Statistical Handbook forCanada's Upstream Petroleum Industry.liltp://ww\v.capp.ca/library/statistics/handbook/pages/statislicalTables.aspx?seclionNo=3

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Demand for oilfield exploration cliemicals is related lo drilling activities. Since 2000, anaverage of about 19,000 wells have been drilled annually in Canada with an average ofabout 22.000 kilometres drilled per year.'"'

Table 57: Trends in the Oil and Gas Wells Drilled and Depths

BC BC AB AB SK SK Cuniida ('anndn

Wells Metres Wells Metres Wells Metres Wells Metres

2000 846 1 351 010 13 543 14 821 473 3 839 3 759 404 18 480 20 257 318

2001 934 1 572 371 14 975 15 435 493 3 571 3 520 662 19 752 20 889 321

2002 580 99-1 700 12 989 13 543 517 3 401 2 937 711 17 182 17 768812

2003 1 032 I 880 562 17 873 17 855 802 4 179 3 409 918 23 365 23 536 884

200-J 1 117 I 923 003 19 365 19 538 053 4 104 3 576 631 24 874 25 399 670

2005 1 202 2 211 953 21 599 24 211 705 3 781 3 873 079 26 951 30 701 467

2006 1 313 2 349 465 19 800 21 971 316 4 029 4 299 405 25 811 29 339 526

2007 827 1 682 655 16 238 16 079 296 3 689 4 336 664 21 210 22 649 323

2008 805 1 951 670 14 969 15 060 899 4 037 5 327 344 20 203 22 879 946

2009 667 1 778 962 6 894 7 780 524 2 126 3 401 060 9 987 13 498 463

2010 554 1 868 013 8 537 11 889 897 2 669 4 308 180 12 343 19073418

2011 568 1 941 488 9 651 15 519 241 3 275 5 273 750 14041 23 705 455

2012 363 1 400 055 8 862 14 225 233 3 243 5 237 672 13 080 22 010 762

Source: Canadian Association of

http://www.capp,ca/Pages/default,aspxPetroleum Producers (CAPP), (2013). Available at

In 2012, nearly two thirds ofdrilling activity occurred in Alberta. Almost 9,000 wells weredrilled, with a total depth ofmore than 14.000km. The depths drilled relate to the quantitiesof drilling fluids and other chemicals needed. Deeper wells require more fluids due lo thevolume of the boreholes. There are differences in terms of the average depth per well drilledon a regional basis. In Alberta, the average well depth drilled was 1.6 km in 2012. Thedeepest land-based wells are found in British Columbia with an average deplh of 3.6kilometres.'^-

Oilfield production chemicals are used at a great many oil and gas sites. There are nearly200,000 wells producing crude oil and natural gas in Canada, and 10,000 to 30.000 wellsare drilled every year. Producing wells feed approximately 22,000 batteries where an initialseparation of water, oil. gas, condensates, and other well components is carried out - oftenusing chemicals. The crude oil is transported via pipeline or by bulk trucks to petroleumrefineries for processing into gasoline, diesel, other fuels and other products (e.g.,lubricants, asphalt). Gaseous components flow to about 5,500 natural gas gathering systemstations and eventually pipelined to about 700 gas processing facilities where sulphur isremoved, and natural gas liquids (i.e., NGLs - ethane, propane, buiane) and heavier

Canadian Association of Petroleum Producers (CAPP) (September 2013) Slalisliccil HandbookforCanada's Upstream Pelroleiim.

Canadian Association of Petroleum Producers (CAPP) (September 2013) Sialislical HandbookforCanada s Upslream Pelraleum Induslr}-.

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components - i.e., condensate (C5+) are separated Tor transportation via pipeline or truckfor sale.'^^

5.11.1 Overview of the Oilfield Chemicals Industry

The exploration group of oilfield chemicals includes a broad set of organic chemicals,minerals (e.g., bentonite, bariie), water-soluble polymers, mineral oils and synthetic oils,and other chemicals thai are used in the drilling process (i.e.. drilling fluids or muds),hydraulic fracturing (also called "fracking") processes, and other activities involved withexploration and stimulation of oil and gas wells. Oilfield production chemicals includesformulated or specialized organic and inorganic chemicals that are largely used at oil andnatural gas production facilities, after the wells have been drilled and completed, and theoil and gas are flowing.

The total Canadian demand for all oilfield chemicals used in the upstream oil and gasindustry is roughly estimated at $1.0 to $1.4 billion peryear.""' Demand has changed overtime largely in line with the number and depths of wells drilled, and oil and gas productionlevels. Over the last several years, demand in the natural gas segment of the industry hasbeen lower as a result of reduced gas production. Chemical demands at bitumen and SCOfacilities have increased.

Oilfield production chemicals are largely purchased by the oil and gas producingcompanies, which use these chemicals as part of on-going daily production of oil and gasat or near well sites. Some oil and gas producers use the oilfield service companies topurchase and apply chemicals as well as provide other services (e.g.. maintenance).Exploration chemicals are also eventually paid for by the oil and gas explorationcompanies, while they may be ordered and handled by drilling mud suppliers, drillingcontractors, and well service companies on behalf of the oil and gas companies.

The industry supplying oilfield exploration chemicals is fragmented, as there is a largernumber of distinct chemicals needed for drilling, completion, stimulation, fracturing,workovers and other uses. A range of chemicals are made by a large number ofmanufacturers and delivered to well sites by the manufacturers themselves, distributors(sometimes referred as wholesalers in the industry) and/or mud suppliers. Water-basedmuds are often formulated at the well sites by mud suppliers or the oil and gas companies.Oil-based and synthetic-based muds are more likely to be delivered already blended (ormostly blended) to the drilling site. Oil-based and synthetic based muds are more expensiveand a portion of them is reused. In addition to mud suppliers, well drilling and servicecompanies can also be involved in supplying these chemicals. These firms can also providespecial formulations (e.g., unique drilling muds, or drilling mud additive packages, etc.) as

Canadian Association of Petroleum Producers (CAPP), NationalOH and Gas GllG Inventory 2000,Volume 1, Table A and Table 11.1

Cheininfo Services estimate bnsed on industry sources.

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well as some oilfield production chemicals. The table below provides some key marketfeatures for Oilfield Chemicals in Canada.

Table 58: Summary of Key Market Features for OilfieldChemicals

Typical features - there can be exceptions.

Lxnlonitinn Chcmicals (Examples for ingredients) Oilfield Production Chemieuls

Main cuslomcn • Oi! and [ias prodiiclion companies.• Woil scrvicc providers.

• Oil and gas production companies.• Well services providers

Product pricc levels(wllli cxccplluns)

• i.owcr priccd• (c.i:-, 0.01S/lilrc or kilogram)

• Higher priced• (e.c.. 3-10 $/liirc).

Main pniducl.s,ingredients

• Waicr-hasyd muds (WBM): water, benionite. barite. water-soluble polymers.

• Oil-basal muds (013M): mineral oils, water, barite.cMiulsifcrs. oilier iiddilivcs.

• Synllictic-bascd muds (SI^M): Aipba-olefins, water, barite..lurliiclants.

• Completion and fracturing: waiter, hydrochloric acid,nota.ssium chloride, elc...

• Demulsiflers

• Corrosion inhibitors

• Scale inhibitors

• Hiocides.

• Surfactants

• 1lydrocarbon solvents

Location and (ype ofmanuracluringchemical site

• Oii-.site blending of WBM (at well siles).• Central facility blending of OBM, SBM• Chemicals, polymer, etc. manufacturing facilities across North

America shipped to well sites for use.

• Central blending (formulating)facility close to oil and gasproduction wells in WesternCanada.

Level or lype oftechnical services

provided

• Ixiwer level of technical support pro\ ided by chemicalmanufacturers or distributors. Technical formulating providedbv "Mud Kncinccrs". well ser\'icc specialists.

• Higher level of technical service tosupport sale of blended products

.Main

manufacturers ur

suppliers(i.e., These are

customers for bio-

based ingredients inolirield chcmiculs)

• Mud suppliers.• Wholesalers, distributors for manufacturers.

• (Minor role for oilfield production chemical manufacturersand other fomnilators.)

• Baker Pcirolite.

• Champion/Nalco (Kcolab)

.-\bililv to quantifymarket size

• Market is difncuk to quuntifv due to lack ofcentralmanufacluring sites, multitude ofchcmicals that can be used,and manv suppliers.

• Market can be quantilied throughmajor manufacturers.

Changes in demand • Demand changes with drilling activity, and stronglyinlluenced by crude oil and natural gas prices.

• Changes with oil and gasproduction and reflects aging wellswith increased produced water.

Supply structure • Numerous companies involved in supplying a variety ofdrillini! muds and other chemicals.

• Relatively tew conipanies accountfor the ureut maioritv ofsupply.

'Typical features of exploration and oilfield production chemicals, however there can be exceptions.Source: Cheminfo Services Inc.

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The above and additional complcxiiies resuli in difficulties for delineating and estimatingthe size of the oilfield chemicals market. Some very rough estimates are provided below.

Table 59: Total Annual Estimated Demand for

Oilfield Chemicals, 2008(order-of-magnitude estimates, Includes water in formulations)

Quantity Value

(cubic metres) (S million)Oilfield production chemicals 110.000-150.000 $500-700

Exploration chemicals

Water-based drilling muds(mostly composed of water)

600.000-1.000.000

Oil-based drilling muds 70,000-90,000

Synthetic-based drilling muds(includes water)

10.000-12,000 $500-700

Fracturing fluids(mostly water. proDoant-sand)

8,200,000-10.000,000

Acidizing chemicals(mostly water, hydrochloric acid)

200,000-300,000

Completion fluids(mostly water - brines, excludes wellsusing only water as completion fluid)

90,000-130,000

Total 9,250,000-11,682,000 SI.000-SI.400

Sources: Cheminfo Services files based on industry input.

5.11.2 Drilling Mud and Other Exploration Chemicals

Following is a list of the drilling mud chemical functional groups identified on thePetroleum Services Association of Canada's (PSAC's) "Mud List".

Table 60: Typical Functional Groups in Drilling Muds

Weighting Materials Foaming Ai^ents Defoamers

Lubricants Alkalinitv (pFl) Control Biocides

Surfactants Filtrate Rcduccrs Calcium Removers

Viscosifiers Surfactants Shale Control Inhibitors Corrosion Inhibitors

Ernulsifiers Lost Circulation Material Polymer Stabilizers

Thinners/ Dispersants Flocculants Polymer BreakersSource: Petroleum Services Association of Canada (2005). Drilling Fluid Procliicl l.ixliiifi for I'olenlialToxicily Information.

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Generally the ingredients of drilling muds include:

• water (used for all water-based muds (WBM), most oil-based muds (OBM) andsynthetic-based muds (SBM));

• hydrocarbon medium {e.g., mineral oil, synthetic chemicals) (in all OBM and SBM);• weighting materials (in most muds all types)• viscosificrs (in most muds - all types);• corrosion inhibitors;

• surfactants (in most muds - all types); and• variety of other additives (in most muds - all types).

Examples of chemicals used for these functions, some of which might be derived in partor in whole from renewable sources are provided below. Chemicals from renewablesources compete with other organic chemicals, and in some case minerals and inorganicchemical options.

Providing lubrication to the drill bit and drillstring'̂ ^ iscritical to the success of the drillingoperation. Common lubricants, mostly used in aqueous-based drilling fluids, include oils,other hydrocarbon mixtures, glycols, modified vegetable oils, fatty-acid soaps andsurfactants,'^''"'^'^''A typical dosage for lubricants in water-based muds is 5 kg/m^ ofmud,although the requirement can vary.'̂ ^

Viscosificrs provide viscosity to the fluids and keepweighting agents suspended. Bentoniteclay (sodium montmorillonite) is commonly used as a viscosiFier for water-based muds.Special grades of bentonite can be used in oil-based muds. Without sufficient viscosity, aweighting agent will not stay suspended in the drilling mud, and the mud will be lesseffective in removing cuttings from the wellbore. Both of these situations can lead to severedrilling problems, such as a clogged wellbore.'™ Viscosificrs, such as bentonite, can beadded at 0 to 40 kilograms per cubic meter of mud made.'̂ ' Bentonite has a high affinityfor water and when dispersed in fresh water, swells as much as 20 times its dry state. Highmolecular-weight, water-soluble polymers have been substituted for clays in somesituations and are effective at concentrations of 0.1-0.5% in the drilling mud.'̂ ^ Sodium

The combination of the drillpipe. Ihe bottomhole assembly and any other tools used to make the drillbitturn at the bottom of the wellbore. Source: Schlumbcrger \iwv.g1o5sar> oillleld sibcom/Display crm'T<;mi=<jnlistring

Schlumberger, Oilfield Glossary (http://\vww.glossary.oilfield-slbxom/).Canadian Association of Petroleum Producers (2001), Technical Report - Offshore Drilling Waste

Manaficnmu Review.Schlumberger. Oilfield Glossary (http://www.glossary.oilfield.slb.conj/).Industry source.Canadian Association of Petroleum Producers (2001), Technical Repon - Offshore Drilling Waste

^^un^^gemen^ Review.Cheminfo Services based on industry sources.Canadian Association of Petroleum Producers (2001), Technical Report - Offshore Drilling Waste

lUanagenwnl Review.

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carboxymethylcellulose, attapulgite clays, and subbentonhes (all colloids) are also used asviscosity builders for fluids to assure a liigh viscosity-solids relationsinip.'̂ ^

A walcr-inud einulsifier is a chemical used in preparation and maintenance ofan emulsionmud, which is a water-based mud containing dispersed oil (or a synthetic hydrocarbon).Numerous types of einulsifiers will disperse oil into water muds, including sulfonatedhydrocarbons, ethyoxylated nonylphenols, alkali-metal fatty-acid soaps, lignosulfonate,lime, lignite and lignin at high pM. Even clays, starches and carboxymethylcellulose canaid emulsion mud stability. An oil-based mud emulsifier is a chemical used in preparationand maintenance of an oil- or synthetic-based drilling fluid thai forms a waier-in-oilemulsion (invert emulsion). An oil-mud emulsifier lowers the intcrfacial tension betweenoil and water, which allows stable emulsions with small drops to be formed. Emulsifierscan be calcium fatty-acid soaps made from various fatty acids and lime, or derivatives suchas amides, amines, amidoamines and imidazolines made by reactions of fatly acids andvarious ethanolamine compounds. These emulsifiers surround water droplets, like anencapsulating film, with the fatty acid component extending into the oil phase.""'

Thinners and dispersants act to modify the relationship between the viscosity andpercentage of solids in a drilling mud. Tannins, various polypbosphates. lignite andlignosulfonates materials are chosen as thinners, or as dispersants, since most of thesechemicals also remove solids by precipitation or sequestering, and deflocculationreactions.Chemical thinners may be required to lower the viscosity and maintain therequired flow properties of a drilling fluid. In aqueous-based drilling fluids it is commonfor drill cuttings to hydrate, resulting in high viscosity (thick) drilling mud. Drilling mudsthat become too viscous require more pump pressure to circulate, thus increasing thehydraulic pressure on the formation. In some situations, the combination of drilling muddensity and hydraulic circulating pressure can exceed the fracture gradient ofthe formation,propagating the loss of whole mud. Dispersing agents, which typically are anioniepolymers (highly negatively charged) with a molecular weight under 50.000 atomic massunits, or lignosulfonates, are used to control mud viscosity inwater-based drilling muds."'

The hydration of drill cuttings and the wellbore surface that occur with aqueous-baseddrilling fluids does not transpire in non-aqueous invert emulsions (an emulsion of waterdroplets in the non-aqueous base mud) because the drill cuttings are exposed to the basemud and not water. Thus, thinners are not required for these systems. On the other hand,cuttings may be ground mechanically into fine particles, which can build up to an

Resource Technology, Incorporated (1986), Drilling Time and Cost Evaluation - User Manual.Schlumberger, Oilfield Glossary (littp://www.glossary.oilfield.slb.coni/).Resource Technology, Incorporated (1986), Drilling Time and Cost Evaluation - User Manual.U.S. Envirotimetital Protection Agency (2000), I'rojile ofthe Oil and Gas Extraction Industry, Prepared

by the Office of Enforcement and Compliance Assurance.Canadian Association of Petroleum Producers (2001), Technical Report - Offshore Drilling Waste

Management Review.

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unacceptable level in the mud system. When this occurs, the (Ine-solids mud system mustbe diluted to an acceptable range using additional base mud even in non-aqueous muds.''**

$.11.2.1 Foaming Agenis

Foaming agents are sometimes used to reduce fluid toss IVom drilling fluids in relativelyshallow, lovv'-temperature formations. They do this by reducing drilling lluid density andthus the hydrostatic pressure exerted by the drilling fluid, which facilitates productflow tothe surface. Foams can also reduce erosion of poorly consolidated formations and increaseborehole stability. The high apparent viscosity of foams makes them ctTective in liftingdrill cuttings (as well as product during production) to the surface. Commonly usedfoaming agents include alpha-oletln sulfonates and alcohol ethoxysulfates.'^^

Oil-based and synthetic-based drilling muds are two product areas where hydrocarbonsfrom renewable resources may find use. Oil-based drilling muds are used when formationstability is important, since it is unlikely to be absorbed by hydroscopic clays (i.e., claysthat easily absorb water) or wash away sensitive shale formations. Oil-based muds need toprovide good lubrication to the drill bit and reduce the likelihood of a stuck drill-pipe.These drilling fluids are typically more expensive than water-based mud. Theycan also bemore difficult to disposeof. since theyare basedon petroleum products.Operators reuseOBM that is not lost during drilling operations and separation/removal of rock cuttings.(Mud losses are typically in the range of 5 to 30%. or more for some wells.) The OBM canbe cleaned, oil added to attain the suitable oil/water ratio, and more additives can be addedlo achieve the function and physical properties required. The "'reconditioned" OBM canthen be reused one or more times (usually less than five times).""

Since about 1990, the oil and gas extraction industry has developed many new oleaginous(oil-like) base materials from which to formulate high performance drilling fluids. Ageneral class of these fluids is called synthetic materials, such as linearalphaolefins, polyalpha olefins, synthetic paraffins, ethers, vegetable esters, other esters, linearalkylbenzenes, and others. Other oleaginous materials have also been developed for thispurpose, such as special grades ofmineral oils and non-synthetic paraffins. Synthetic-basedfluids were developed with these synthetic and non-synthetic oleaginous materials as thebase to provide the drilling performance characteristics of traditional oil-based fluids butwith the potential for lower environmental impact and greater worker safety. Syntheticbased muds (SBM) have lower potential toxicity, lower polycyclic aromatic hydrocarbonscontent, faster biodegradability. lower bioaccumulation potential and in some drilling

Canadian Association of Petroleum Producers (2001), Technical Report - Offshore Drilling WasteManagement Review.'" E&PMagazine. OilfieldChemicals • A Reference Guide.

Kireev, Mara! (2008), f/st'.v and Di.sposal Methodsfor Challenge PSSA Suh.stance.sfound in DrillingMud Addilives'Oil RecoveryAgents'OU Well Treating Agents, prepared for Environment Canada's Oii, Gas& Alternative Energy Division.

Cheminfo Services based on industry sources.

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situations decreased drilling waste volume.'®^ Similar lo OBM, SBM can be reconditionedfor reuse. Synthetic muds have been adopted for offshore drilling in Canada and are usedat a small portion of onshore wells drilled. Water-based (WBM) and OBM are thepredominant types used for onshore drilling.

5.11.3 Chemicals Used for Oilfield Production Formulations

Oilfield production chemicals include demulsillers. corrosion inhibitors, paraffin/wax andasphaltcne control agenls. scale inhibitors, dc-icing fluids, biocidcs, foaming agents,antifoam agenls and a variety of other chemicals. Crude oil production/separationprocesses usually require more chemical treatment than natural gas production processes.Reasons for this are: water content is higher in crude oil; crude oil emulsions with waterare harder to break; and crude oils contain more solids, paraffins and asphaltenes.Processing the walcr/oil mixtures as ihey are produced requires chemicals such asdemulsifiers. scale inhibitors, corrosion inhibitors, clariflers, and other chemicals. Whilemost crude oil production requires ail types of oilfield chemicals, natural gas productionmostly requires the use of corrosion inhibitors, scale inhibitors and de-icing chemicals.Natural gas separation requires lower use of other chemicals and rarely any use ofdemulsifiers.'̂ ^ However, chemical consumption is dependent on the conditions of the oiland gas field, individual wells, and batteries.

Table 61: Estimated Demand for Oilfield Production Chemicals

Used in Canada, by Type of Product, 2008

Natural Gas Oil Total

Quantitv

% of Total

Quantitv

Total

Value

(million lures) (million litres) (million lures) (S million)

Corrosion inhibitors 24 8 32 20% $175

Demulsifiers (emulsion breakers) 1 30 31 25% $125

Paraflin/asphaltene (wax) control 6 12 18 15% S9I

Scale inhibitors 1 9 11 8% $58

Foatner 5 0 5 4% S25

Defoamers 0 6 6 5% $26

Biocides 1 5 6 5% S51

All other* 9 6 15 12% S46

Total 48 77 125 100% S597

Source: Cheminfo Scrviccs flics bastd on industo' sources.• Includes, but is nol limiicd lo: hydrogen sulphide (HzS) scavengers, hydrate inhibitors, de-icing lluids. clariflcrs. etc.Very rough estimates, lisliinatos shown as zero may be less tluin0.5 inilliim litres rounded to zero.

U.S. Environineiital Protection Agency (2000), Profile ofihe Oil and Gas Extraction Industry, Preparedby the Office of Enforcement and Compliance Assurance.

Glycols are used in ciosed loop systems to dehydrate gas streams at batteries or gas processing plants.

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Alberta. Saskalchevvan and British Columbia account for close to 90% of total use of these

chemicals in Canada. Demand for oilfield production chemicals in Newfoundland andNova Scotia is mostly all for offshore production. Small quantities are used for onshoredrilling in that region.

Oilfield chemicals are often custom-formulated for each producing reservoir, well and/ortreating facility (i.e., battery) since each site has its own oil/gas product characteristics.Formulations may often change over lime due lo the changing conditions of the reservoir,well, or mix of flow lo the battery. Product characteristics affecting chemical requirementsinclude water content, brine conlenl. condensate content, crude-oil/water emulsioncharacteristics, hydrogen sulphide content, hydrocarbon constituents of the products andother factors (e.g.. solids, paraffins, asphaltenes). Oilfield chemicals are used at thousandsof sites where wells, batteries, and pipelines are present. There are therefore thousands ofdifferent formulations, which differ with respect to active ingredients, type ofcarriers/solvents and ratio of ingredients.

5.11.4 Exploration Chemical Suppliers

5.11.4.1 Mud Suppliers

There are about 30 companies in Canada that specialize in supplying drilling muds. Severalcompanies are referred to as wholesalers/distributors, the rest are referred to as retailers.Identified "wholesalers" provide a broad range of mud ingredients. These companiespurchase basic chemical from manufacturers, carry inventory, and distribute ingredients tothe mud "retailers". Drilling mud "retailers" supply the oil and gas producers (customers).Some of the larger retailers may also be integrated with basic chemical manufacturing. Themud suppliers also provide technical support as well as other products and services (e.g.,equipment, etc.). The scope of the products and services these companies can providevaries, and can include (but not be limited to):

• chemicals used in drilling muds and other applications ;• oils and synthetics used in drilling muds;• specialized chemical packages for drilling muds;• partially formulated drilling muds;• fully formulated drilling muds;• equipment (for sale or rent);• preparation of oilfield production chemicals; and• technical services for mud and other oil and gas activities.

Drilling mud suppliers work closely with oil and gas companies to define drilling mud andother chemical needs. The majority ofmud suppliers have Canadian offices in Calgary, ABnear their oil and gas customers. Mowever, there are also regional sales offices, technicallaboratories, and mixing facilities across Western Canada and on the east coast. The largerdrilling mud suppliers, such as Baroid and M-1 SWACO, tend to be foreign owned with a

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global business scope, while the smaller firms operating in Canada tend lo be Canadian-based with businesses focused on Western Canada.

For the mosl part, mud suppliers blend chemicals to make standard or custom formulationsfor drilling and other purposes. They are not typically involved in any basic chemicalmanufacturing in Canada. Blending may be carried out at the well site oral central facilitieswith delivery to the well site via bulk truck. The water-based drilling muds are typicallyblended at the well site, while oil and synthetic-based muds arc typically blended at centralmixing plants.

Table 62: Examples of Canadian Drilling Mud (Fluid) Suppliers

Companv Location*

Wholesalers of Mud Ingredients

Bri-Chem Supply Ltd Acheson, AB

Di-Corp CalgaryFederal Wholesale Drillina Mud Calgary

Mud "Retailers"

Advantage Mud Systems Ltd Calgary

Baker-HuRhes CalgarvBlackstone Fluids Ltd. CalgarvCheni - Add Fluids Ltd. CalgaryBronco Mud Inc Calgarv

Canadian Encrav Services LP CalgaryDMK Drillinsi Fluids Ltd Calgarv

Dynamic Driiiins Fluids Ltd Calgary

Halliburton (Baroid) Calgary

HiTech Fluid Svstems Ltd Calgarv

Marquis Alliance Energy Group Inc CalgarvMatrix Drilling Fluids Ltd CalgarvM-l SWACO CalgarvMud Master Drillina Fluid Services Ltd CalgarvMudco Services Lid CalgarvNewpark Drillinii Fluids Calgarv

Nalco-Champion Calgary

Pinnacle Fluids Ltd CalgaryPrairie Mud & Chemical Service Ltd Estevan. SK

Q'Max Solutions Inc CalgarvRheotech Drilling Fluid Services Inc Calgarv

Southwest Oilfield Products (Alta.) Ltd EdinonlonSources: Canadian Oilfield Services and Supply Database; hup i »\\\\ cos';d omi'scarLli ;i>oCanpages: Imp cjnnaucs cj/. Industry sources. Pciroleuni Scr\ iccs Association of Canadahtlps //mcmhtfrsnsae ca'S^nl^ce/^1cml^^Jr '̂n>^lL^^>lH^.^l<^r^S«llch dm * Additional locations may exist

(PSCA):

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5.11.5 Oilfield Chemical Suppliers

The Canadian oilfield production chemical market is supplied by two large firms and somesmaller companies. The iwo major Canadian oilfield production chemical suppliers areBaker-Petrolite (resulting from the merger of Baker Hughes and Petrolile), and Nalco-Champion, which was recently acquired by Ecolab. Hcolab is a large US-based supplier ofmany other chemicals including: cleaners, degreasers, water treatment chemicals, andmany other products. It is well known in the industry that together, these two companiesarc estimated to supply approximately three quarters of the Canadian market, a largeportion of the U.S. as well as the global market for oillleld production chemicals.'*"* Thesecompanies would be major target customers for bio-based ingredients used in oilfieldproduction chemicals.

Table 63: Major Manufacturers of Oilfield ProductionChemicals in Canada

Companv Locations*

Baker-Petrolite Corporation Eastfield AB

Baker-Petrolite Corporation St. John's NF

Nalco-Champion Grand Prairie AB

Nalco-Champion Calgary AB

Nalco-Champion Lloydminster AB

Nalco-Champion Nisku AB

M-1 SWACO Nisku AB

Caradan Chemicals Inc Nisku AB

Chemicals by Sterling Ltd Estevan SK

Innovative Chemical Technologies Canada Ltd. (ICTC) Edmonton AB

Multichem Edmonton AB

Q'Max Solutions Inc. Calgary AB

Chemserv Products Inc., A Weatherford Co, Nisku AB

^Companies may have additional locations. See company websites.

Oilfield chemicals arc often custom-formulated for individual batteries (or processingfacilities) as each producing reservoir and associated wells can involve a distinct type ofoil or gas stream. Formulations for individual sites often need to be changed due to thechanging conditions of the reservoir or well (especially if it is a new field). Productcharacteristics affecting chemical requirements include water content, brine content,condensate content, crudc-oiI/water emulsion characteristics, hydrogen sulphide content,hydrocarbon constituents of the products and other factors. Oilfield chemicals are used at

Source: Oilfield production chemical suppliers.

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thousands of sites where wells, balleries. and pipelines are present. There are thereforethousands of different formulations, whichdifferwith respectto ratioof active ingredients,carriers/solvents and other ingredients.

5.11.6 Chemical Distributors

There are at least halfa dozen large primary chemical distributors in Canada and a muchgreater number of sub-distributors that purchase from the primary dislribulors and sell tofinal users. Canada's major chemical distributors include Univar. Brennlag. and CanadaColors and Chemicals. These and other companies tend to sell commodity products thatare not formulated to specific customerrequirements (such as would be required formanyoilfield production chemicals). Theysell thousands of chemical and related products (e.g.,polymers). Solvents, minerals, and inorganic chemicals are among the chemicals sold inthe oil and gas industry.

5.11.7Transportatton and Storage of Chemicals

The following summarizes transportation and storage information for exploration andoilfield production chemicals.

Exploration Chcmicals• The chemical ingredients to make drilling muds and other exploration chemicals are

transported to the well site in bags (25-100 kg), pails (25 L), drums (210 litres), totes(1,100 litres), semi-bulk trucks(e.g.. 3-10,000 litres), and bulktrucks(e.g..20-30,000litres).

• The chemical ingredients are typically mixed at the well site with water by the mudsupplier or "engineer".

• Oil-based muds and other oil-based chemicals are mostly blended at central mixingfacilities, and transported to well sites in semi-bulk or bulk trucks. They are stored inlarge metal tanks at the site.

Oilfield Production Chemicals

• Prepared at central blending facilities of suppliers.• Transported to the well sites in pails (25 L), drums (210 litres), totes (1,100 litres),

semi-bulk trucks (e.g.. 3-10,000 litres), bulk trucks (e.g., may have multiplecompartments, 20-30.000 litres).

• Stored the well/battery sites in a variety of different size containers.

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5.11.8Biochemicals Used In Oilfield Chemicals

There are a number of ingredients used in oilfield chemicals thai are already bio-based.Somesuppliers are promoting these and also developing additional bio-based products forthis industry and related applications, There is also an increasing awareness ofenvironmental and sustainability considerations in this market. The table belowprovides apartial list of chemicals used in drilling muds, other exploration chemicals, and oilfieldproduction chemicals that are or could be derived from bioresources. This list and theChemical Product Category to which the substances belong have been developed from theliteratures sources documented at the bottom of the table. Many more non-bio-basedchemicals used In this indu.stry are available from these reference sources.

Table 64: Biochemicals Used in Oilfield Chemicais

Clieniicnl Protlucl

CategoiT

Chcmicnl Nsinic

Surfacc Active Agents

Water-Based Fluids Polvoxvelhvlene sorbiian mono-tall oil esters

Rosin aminc-alkvlene oxides condensation productsOil-Based Fluids Refined tall oil fatty acids

Carboxv modified amines and beiaines

Lecithin

Air Foams Fatty alcohols and alcohol sulfate saltsSulfated polyoxyethylated alcohols

Fluid Loss and

VIscositv Control

Cellulosics and

Guar Gum

Polysaccharides and caboxymethylcellulose

Water-soluble salts of carboxymethylcelluloseCarboxymethyl-hydroxyelhyl mixed cellulose ether

Celiuosics, guar guni. polyacrylamide hydrolyte and vinyl-maleic copolymers

Modified liuar sum

Polysaccliaride cross-linked with polyelectrolyle ligand-inetal ion

Starches Heat modified starches

Modified starch - dextrin

Oxidized starch

Dialdehyde starch and inorganic chromate

lodinized starch

Cyanoelhylated starch

Lignin Derivatives Chromium and iron complexes of sulfite liquorZinc complex of lisnites

Polymeric zinc complex of coniferous tree barkMetal sulfate treatment of sulfite liquor

Sulfoalkylated tannin and chromium salts

Buffered lianosulfonates

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Chcmical Product

Cateaorv

Chcmical Name

Plicnolation and sulfonaiion of lignosulfonate

Siilfoiiaied lisnin-alkylolphenol reaction productsChlorinated lignin

Siilfonated lignin from spent sulfice liquorOxidized lignin, polvphosphate and potassium saltsFatty alkvl ammonium lienosulfonale

Humic acid-tall oil-polvaminc reaction productsLiiinin-amine reaclion products

Acidizinc Chcmicals Acetic acid

Other Additives Castor pomace

Sulfonated extract oil

listers of tall oil pitch and polvoxyethvlene compoundsChromic iiluconate

Glycerol carbonateClay Treatments Graft copolymers of acrylic acid and modified cellulosics

Raw fluor

Genera] Asbestos and water-soluble salts of carboxymethylcelluloseLost Circulation and

Sealing MaterialsFlexible flakes, flexible fibres and walnut eranuiesPhcnolic treated wood fibre or glass fibreOyster shells

Fibre-nutshell compositionLubricity Agents

Antisticking AdditivesExtreme Pressure

Additives

Lubricants

Acrylic acid-acrylamide copolymers and dextran

Decanal

Sulfonated tall oil pitch

Sulfurized tall oil

Tall oil soaps

Oleic acid and tall oil

Aliphatic fatty amines

Canola oil. other veeetable oils.Sources; McDermotl. J. (1973). Drilling Mud and FluidAdditives. Noyes DataCorp; Park Ridge, USA.Azar, JJ., Samuel. G.R. (2007). Drilling Engineering. PennWeM Corporation; Tuisa, USA.Kelland, M. (2009). Production Chcinicalsfor the Oiland Gas Industry. Taylor & Francis Group: Boca Raton,USA.

Sjoblom, J.. ed. (2001). Ilncydo/wdic Handbook ofEmulsion Technology. Marcel Dekker, Inc.:NewYork.Ash, M.. Ash. I. (2003). Handbook ofSolvents, second edition.

5.11.9 Potential for Bio-Based Oiifield Chemicals

Someof the chemical suppliers to the oil and gas industry in Canada have product lines orproducts that are marketed as environmentally friendly. Some of these may be bio-basedor they may be sold as environmentally friendly products since they do not harm theenvironment during use. disposal (e.g.. on land), or spilled. There has been increasinginterest in environinentally friendly products as some consumers and shareholders havebegun to value the environmental performance of companies. It is not possible to estimatethe size of this demand in Canada due to the wide variety of products, bio-basedreplacement chemicals, and fragmented nature of the industry. Below are some

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perspectives regarding bio-based chemicals for the oil and gas industry. These have beengathered from a few industry consultations and company websites.

Di-Corp, based in Calgary is one of the largest wholesalers/distributors of drilling fluidchemicals in Canada. A large portion of its products are imported. The company does seesome demand for environmentally friendly or green products. These products can offerenvironmental benefits and/or worker safety benefits. Part of the drive toward moreenvironmental friendly products in Alberta has been the Government of Alberta's EnergyResources Conservation Board (ERCB) requirement for toxicological data on specific mudadditives used by the oil and gas industry. The toxicological data must comply with themost current (May 2, 2012) ERQIi Directive 050: Drilling Waste Managementrequirements."'̂ Safety is also an important consideration in the upstream oil and gasindustry. Companies strive to ensure their workers are not exposed to hazardous chemicals.Environmentally friendly chemicals arc generally viewed as being more worker-friendlythan conventional chemicals. Part of Di-Corp"s marketing strategy will be to re-brand someof its products to position them as being more "worker-safe'" and/or environmentallyfriendly. (Whether these are bio-based chemicals is unknown.)

As a wholesaler/distributor Di-Corp is interested in sourcing more environmentallyfriendly or green products - possibly made from renewable resources. However, thesetypes of products are viewed as being more expensive, and customers in the oil and gasindustry are generally reluctant to pay higher prices - especially during periods of weak oiland gas industry activity. The company has previously examined and would be interestedin sourcing locally produced biochemicals that provide appropriate functionality, qualityand price. Environmental benefits would be value-added features.

Emery Oleochemicals produces and markets a wide range of oleochemical productsderived from natural raw materials, such as palm oil. palm kernel oil. other vegetable oilsand tallow. These products are used in the manufacture of oilfield chemicals and in manyother industrial applications.""'''®^ In Canada, the company was making bio-based fattyacids in Mississauga, ON. until the plant recently shut down in September 2013. Sales inCanada will be supplied by production facilities in the United States, Germany andMalaysia.

Emery's ester-based DEHYLUB® brand is an example of a biochemical product line usedin theoiland gas industry. The DEHYLUB'*^ brand, which was developed over many years,is a vegetable ester-based product for drilling fluids (oil well drilling mud conditioner orOMC). It is promoted by Emery as providing outstanding safety and technicalperformance, even under extreme borehole and formation conditions. Emery claims "'It isdesigned for customers seeking environmentally conscious alternatives... offers

PSAC. htlp://www.'psac.ca/resources/mud-iist/Emery Oleochemicals, hUp://www.emeryoleo.coni/corporale.phpCamford Chemical Report, July 13, 2009

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compliance with EPA regulations and greater environmental protection. Capable ofimproving solids control, often a major factor in the success of any drilling program - theOMC is crediled for its rhcology. mitigating toxichy. and is biodegradable. EmeryOleochemicals" drilling fluids is one of the only few natural-based solutions approved foruse in the Gulfof Mexico."

In addition to chemicals, Emery offers technical capabilities to customize formulations forspecillccustomerneeds. Itsservices include evaluating production or fracturing challengesto determine the most effective products that enable both environmental protection andimproved oilfield production."''*

Chemfax, based in Calgary, AB offers a range of cleaning and other chemicals to the oiland gas as well as many other industries. Its Enviroline® product line includes a variety ofchemical products that are promoted as environmentally friendly. Somecontainingredientsthat are from renewable sources (e.g.. canola oil), while others provide favourablebiodegradability or other environmental benefits. There are also benefits associated withworker safety when handling and using these products. The costs for manufacturingEnviroline® products are usually higher than the company's conventional product lines,and as a result ihey are priced higher. Nevertheless, the sales trend has been positive withincreasing customer interest and sales in Enviroline'̂ products over the last several years.

Nalco-Champion, with locations in Alberta, isoneof Canada's largest oillleld productionchemical suppliers. Oil and gas customers have had some requirements for"environmentally friendly" products, but these have tended to be used in nicheapplications. It points out that many of the oilfield chemicals use surfactants that arealready bio-based. Nalco-Champion points out that "environmentally-friendly" productdoes not necessarily mean bio-based chemicals. One example is chemicals used foroilsands processing to make bitumen. Some oilsands producers are seeking chemicals thatdo not accumulate in tailing ponds, water from which is recirculated back into the process.There are also examples of products being used (i.e., for offshore drilling) that provideenvironmentally benefits (e.g., biodegradability) sometimes with a sacrifice inperformance. Government regulations aretypically required to force adoption of chemicalsthat provide the necessary environmentally benefit in the oil and gas industry. Thesesituations involve niche applications. For the most part, oil and gas customers are seekinglow-priced chemicals that function as required. One reason is that in the case of oilfieldproduction chemicals, releases to the environmental are low with most of the chemicalscontained in the oil and gas streams - in low concentrations.

In general, oilfield chemical users, which are petroleum producing companies or provideservices in the industry, are not interested in products derived from raw materials thatwould replace oil and gas they produce. Furthermore, end-users, which do not sell directlyto consumers, have only had minor interest in chemicals from renewable sources from a

Emery Oleochemicals, lntp;//www,emeryoleo.cotn/corporate.php

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promotional perspective. They are generally more interesied in purchasing chemicals withsuitable functionality and low price. Nalco-Champion indicates that sales of•'environmentally friendly" oilfield chemicals are likely to continue to be used in nicheapplications, especially in the absence of regulations (which would be very difficult toenvision) or incentives to encourage adoption of such products.

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