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Financial Post: Shell may upgrade crude outside Alberta

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Shell is working on carbon capture-and-storage technology to reduce the impact on the environment of its oilsands projects.

May Upset Province; Ontario, U.S. possible options, executive says

Claudia Cattaneo, Financial Post 
Published: Tuesday, March 18, 2008

CALGARY — Royal Dutch Shell PLC is considering several upgrading options for its crude from Alberta’s oilsands, including sending it to Ontario, the U.S. Gulf Coast or California.

The strategy could upset the Alberta government, which wants more oilsands upgrading to be done in the province, but Rob Routs, in charge of the European oil major’s refining business, said one of the reasons Shell took out Shell Canada Ltd.’s minority shareholders for $8.7-billion last year was to optimize its infrastructure in North America.

“Now, rather than looking at upgrading in the Canadian environment, we look at upgrading across North America, which is not unlike what some of the competition are doing,” Mr. Routs said to analysts and the media attending a strategy meeting in London yesterday.

Mr. Routs said Shell’s ambition is to grow production from its mining leases in the Athabasca basin to 770,000 barrels a day. Shell also holds large leases in which oil can be recovered using in-situ technologies.

“We have identified a number of further options for upgrading to match future bitumen growth from mine expansions and from in-situ production,” he said. “We are looking at all those in detail. Ultimate decisions on these options will be guided by capital intensity, market access and transportation costs, taking into account the evolving market and regulatory environment.”

Some oilsands producers are upgrading bitumen outside Alberta to get away from the province’s overheated economy.

Shell could also decide to expand its Scotford upgrader outside Edmonton, where it is processing today’s oilsands output from the Athabasca project, or build capacity elsewhere in Alberta, Mr. Routs said. It could also build a 150,000 b/d to 250,000 b/d refinery near Sarnia, Ont.

Other options are to upgrade the U.S. refining system, in the Gulf Coast or in California, or to export to markets in the Pacific region, he said.

Shell would take into account California’s preference for low-carbon fuels before sending Alberta’s bitumen there, Mr. Routs said.

The Anglo/Dutch oil major, which is spending more than any other oil company to shore up its reserves, said the Shell Canada acquisition helped offset the loss from the sale of its controlling stake in the Sakhalin-2 oil and gas venture in Russia to Gazprom, the state-controlled natural gas giant.

Royal Dutch, which was strong-armed by the Russian government into giving up its controlling stake, said the Shell Canada buyout added the equivalent of 322 million barrels of proven reserves, while ceding half of its 55% interest in Sakhalin-2 resulted in the loss of 402 million barrels.

Shell chief executive Jeroen van der Veer said his company is rejuvenating its portfolio by building new legacy assets like the oilsands.

“We are building a portfolio of new options,” he said. “We have strong positions in Nigeria, Australia, Alberta heavy oil and North America tight gas.”

Shell is working on carbon capture-and-storage technology to reduce the impact on the environment of its oilsands projects, he said.

The company acquired its first leases in the oilsands in 1956, then added new ones in 2004 and 2005, resulting in 125,000 hectares holding more than 20 billion barrels of recoverable oil resources.

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