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By Dan Healing, Calgary Herald October 8, 2010 2:05 PM
Shell Canada has withdrawn its regulatory application to build a 400,000-barrel-per-day oilsands upgrader, a four-phase project estimated by analysts to have a price tag of around $30 billion.

Instead, John Abbott, executive vice-president for heavy oil, told reporters Friday morning the Canadian arm of giant Royal Dutch Shell plans a three-phase program to boost output from existing oilsands mining and upgrader facilities by 85,000 bpd.

“We have decided to withdraw the application for our new upgrading facility,” Abbott said in Calgary. “That was a proposed 100 per cent Shell equity, 400,000-bpd facility which could have been constructed adjacent to our existing facilities in Fort Saskatchewan (northeast of Edmonton).

“But I remind you Shell has existing licences for 290,000 bpd of bitumen upgrading capacity already at the Scotford upgrader and we already have approval for 400,000 bpd of what we call bitumen-blending facilities.”

Abbott said the company also has approvals for mining production of 470,000 bpd.

The news continues a trend by Shell to reduce its ambitions in the oilsands from the goal of tripling output to 750,000 bpd just a few years ago, and by oilsands companies in general to cancel upgraders.

“No, I’m not surprised,” said Bob Dunbar, president of oilsands consulting firm Strategy West.

“I think the upgrading economics right now are not that good at all with narrow heavy-light oil price differentials and … I think a lot of people in the industry are expecting the narrow differentials are with us for a while.”

He said that recent oilsands upgraders have cost in the range of $7 billion to $8 billion per 100,000 bpd, which would peg Shell’s project at around $30 billion.

In an update presentation posted on the Shell Canada website in the past week, Marvin Odum, Shell’s director of Upstream Americas, said the division plans to invest about $40 billion US over the next four years to boost oil and gas production by 40 per cent to one million barrels of oil equivalent per day, contributing to Shell’s 2014 worldwide goal of 3.7 million boe/d.

At least half of the jump would come from tight gas, the note adds, which would double in North America by 2015 to about 400,000 boe/d.

The note added that the Americas division is to raise $2 billion in 2010-11 by selling assets, part of Shell’s overall $7 billion to $8 billion disposals goal.

Shell’s first oilsands mine, Muskeg River, is designed to produce 155,000 bpd and its Jackpine Mine, which is just coming on stream, is rated at 100,000 bpd. Both are located north of Fort McMurray.

Abbott said the first debottlenecking phase is to cost about $2 billion and will add 35,000 bpd to the 255,000 bpd capacity of the mines as well as take up excess capacity at the Scotford upgrader.

The next phases would add 15,000 and 35,000 bpd but details on what they would entail and an estimated cost is not yet available.

The debottlenecking plan has not been formally approved but may be in 2011 or 2012, Abbott said. He said spending on the first phase would be focused mainly on the mines, with improvements to the bitumen froth treatment and extraction facilities, plus more trucks and heavy equipment.

Last winter, Royal Dutch Shell chief executive Peter Voser said the company will slow its oilsands expansion plans and shift focus to conventional exploration in other parts of the world, complaining that costs in Canada were still too high.

In 2008, Shell deferred a 100,000 bpd mine expansion plan. It mines are part of the Athabasca Oil Sands Project, which it operates and owns 60 per cent of with Chevron and Marathon Oil Corp. each holding 20 per cent.

In 2009, Shell made a revised application for its Carmon Creek thermal in situ oilsands project near Peace River, reducing its capacity by 20 per cent to 80,000 bpd, to be built in two phases.

Shell’s moves to rein in growth contrasts with other companies such as Conoco-Phillips, Total, Husky and BP, which have announced oilsands expansion projects.

The resource has also attracted big investments this year from national oil companies, including from China and Korea.

Environmental activists in Europe have criticized oilsands investments by majors such as BP, Shell and StatoilHydro, which they view as “dirty oil.”
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