The Calgary Herald: Shell details $27B oilsands refinery: 8,000 workers to build plant near Edmonton

Ashok Dutta, Calgary Herald
Published: Tuesday, July 31, 2007

The Royal Dutch/Shell Group is gearing up to tackle one of the biggest and costliest projects in oilpatch and Canadian construction history.

The company announced Monday that it has filed a regulatory application to build a new upgrader east of Edmonton to serve its oilsands expansion projects in northern Alberta and that the cost could run as high as $27 billion.

The Scotford Upgrader 2 will have a total capacity of up to 400,000 barrels per day and will be built in four phases, taking as long as two decades to complete. It will be located adjacent to Shell’s existing upgrader near Fort Saskatchewan.

At its peak, the project could employ as many as 8,000 workers — fuelling Alberta’s already superheated labour market.

Shell’s public-affairs manager Janet Annesley said a cost estimate of between $22 billion and $27 billion is preliminary, based on current industry trends.

“This is just an early assessment and not a detailed cost estimate,” she said.

Oilsands producers have been wrestling with soaring costs that have pushed the break-even point for many new projects past the $50 US a barrel mark. In June, Petro-Canada and its partners laid out plans for the $26-billion Fort Hills oilsands project near Fort McMurray.

Justin Bouchard, an analyst with Raymond James in Calgary, said Shell’s hydro-conversion process technology for its upgraders will come with a price.

“Compared with the coker technology used by two other oilsands operators, Suncor Inc. and Syncrude Inc, Shell uses the hydro-conversion process as it yields higher recovery rates,” he said, “but it is more expensive to build such facilities and added to it are operations cost.”

Shell’s decision to proceed with a new upgrader in Alberta comes as other Canadian developers look to the United States to process bitumen.

A rush of oilsands projects here has increased competition for labour and equipment.

EnCana Corp. formed a joint venture with U.S refining giant ConocoPhillips to process oilsands in the United States while Husky Energy Inc. plans to convert an Ohio refinery to process its oilsands production.

Premier Ed Stelmach has said the province will continue to “encourage” more upgrading and processing of raw oilsands in Alberta. Several other upgraders have been proposed for the Edmonton area to avoid the cost pressures in the Fort McMurray region.

“The new upgrader would mean

75 to 80 per cent of bitumen upgrading is done in the province,” said Greg Stringham, vice-president at the Canadian Association of Petroleum Producers.

“The Shell-2 facility will boost Alberta’s announced upgrading capacity to about 3.1 million barrels per day by 2015.”

Annesley said construction work on the first phase of development could start as early as 2009, pending regulatory approvals and final project cost.

“With all the four phases of development, Scotford Upgrader 2 could take about 15 to 20 years to build,” she said.

The second upgrader will draw bitumen feedstock from the 250,000-barrel-per-day future expansion of the Athabasca Oil Sands Project as well as Shell’s in-situ Peace River and Cold Lake mining projects.

Shell has a 60 per cent interest in AOSP, with Chevron Canada Ltd. and Western Oil Sands Inc., each holding 20 per cent.

Financial approval to proceed with Scotford Upgrader 2 will depend on the outcome of regulatory processes, market conditions, final project costs and consultation with key stakeholders, Shell said.

Analysts said the biggest challenge that Shell is expected to face in the implementation of the project will be a shortage of workers.

As a rule of thumb, 3,000 to 4,000 workers are needed to build a stand-alone mine and upgrader in the province. At peak construction, demand could soar to 8,000 workers.

“However, their decision to build capacity in four phases is prudent, as it will make the process manageable,” Bouchard said.

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Projected capacity of Alberta upgraders by 2015

Project Capacity (bpd)

Albian-Shell Scotford 1 155,000

Husky-Lloydminster 59,000

Husky-Lloydminster

expansion 65,600

Suncor 260,000

Suncor expansion 287,000

Syncrude 350,000

Syncrude expansion 160,000

Albian-Shell Scotford expansion 135,000

Shell Scotford 2 397,000

BA Energy Heartland 163,200

CNRL-Horizon 232,000

Nexen-Opti Long Lake 173,000

Statoil 250,000

Northwest Upgrading 231,000

Petro-Canada 85,000

Fort Hills 282,000

Total E&P — Phase 1 130,000

PRO-Bluesky 50,000

Total 3.46 million

Source: Canadian Association of Petroleum Producers; Calgary Herald

© The Calgary Herald 2007

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