Entire Oil Sands Group Getting Slammed on This Athabasca
cost-escalation news.
Cost of Athabasca could hit $20-billion
Price of Shell's three-stage oil sands project has soared 50 per cent in one year
DAVE EBNER
From Thursday's Globe and Mail
CALGARY — Costs to expand Shell Canada Ltd.'s Athabasca Oil Sands Project have soared 50 per cent in just one year, which means the roughly $7.3-billion price tag for the first phase could rise towards $11-billion.
The cost of the full three-stage expansion, pegged at about $13.5-billion last year, now might come in at more than $20-billion.
"Intense demand for construction labour, material and supplies . . . have resulted in unprecedented increases in capital costs. This demand is further intensified in Alberta by the development of multiple oil sands projects," said Western Oil Sands Inc. in a press release late yesterday. Western, along with Chevron Corp., is a minority partner in Shell's Athabasca operation.
The announcement is the loudest statement yet that development in the oil sands north of Fort McMurray in northeastern Alberta is coming unhinged and that the demand for steel and workers is reaching untenable levels.
The news came hours after the price of crude oil reached a record close of $75.19 (U.S.), up a third from about $53 a year ago -- a steep gain that has fuelled inflation throughout the energy business around the world.
Pressure in the oil sands also means that initial production from the Athabasca expansion won't occur until 2010, Western Oil Sands said, a year behind schedule.
Shell said the expansion plan has "great potential" but senior vice-president Brian Straub added, "In this heated marketplace, cost and schedule control is the top priority."
Every player with an oil sands project in the planning stage -- including the world's largest energy companies such as Exxon Mobil Corp. -- is feeling the bite, and those involved say some proposals won't hit their targets.
"Current industry pressures from a significant number of competing projects could impact project timing," said Enerplus Resources Fund in a May statement. Enerplus is the minority partner in the major project proposed by Total SA of France, which wants to be producing 100,000 barrels a day in 2011.
Citizens of Alberta are reacting to the increasingly wild nature of development. Yesterday, the Alberta Energy and Utilities Board began public hearings in Fort McMurray.
The hearings will assess a proposed expansion by long-time oil sands miner Suncor Energy Inc.
The Regional Municipality of Wood Buffalo, which includes the completely overheated town of Fort McMurray, has decided for the first time to intervene in such a hearing, arguing that the area's infrastructure is stretched to the limit and not able to handle more action north of the town in the epicentre of the oil sands. The region wants a "redefined relationship" with industry and the federal and provincial governments.
Former premier Peter Lougheed has said recently that the pace of development must be slowed.
The provincial NDP yesterday called for an immediate creation of a commission to "review all aspects of tar-sands development." Brian Mason, NDP leader, said the province badly needs a "long-term development strategy" that balances prosperity and the environment.
At the regulatory hearing in Fort McMurray, the Oil Sands Environmental Coalition, led by the Pembina Institute, asked that the Suncor application be denied. The coalition argued that rapidly increasing greenhouse gas emissions, the worsening air quality and the destruction of the boreal forest were major issues and said if the project is approved, stringent conditions were required.
"Suncor's plan would place another huge burden on the climate," said Chris Severson-Baker of the Pembina Institute.
Western Oil Sands and its partners have conducted a year-long review of their planned expansion and though it is not yet complete, they said "there are very significant upward pressures on capital costs." The partners have never put out precise development costs but Shell last year suggested the first stage could total about $7.3-billion (Canadian). Western, in separate statement last year, said three stages could cost $13.5-billion.
If completed, the companies hope to produce more than 500,000 barrels of bitumen a day at Athabasca, compared with as much as about 180,000 b/d in its current form.
Each stage would add about 100,000 b/d, with the first expansion stage involving more effort and dollars as it would lay groundwork for the subsequent two stages.
Cost overruns are nothing new in the oil sands but they are reaching new extremes. The budget for the existing Athabasca operation was $3.8-billion, a figure that rose 50 per cent to $5.7-billion by the time it was done. |
