Shell forced into oil sands U-turn
Created: 27 January 2010 Updated: 28 January 2010 Written by: Daniel O'Sullivan
Royal Dutch Shell chief executive Peter Voser cannily chose the safe ground of an exclusive interview with the Financial Times to finally admit the all-too-obvious - the Canadian oil sands development Shell has touted as a major growth driver is instead a costly distraction, on which time is now being called. Mr Voser said the massive expansion the company had previously planned for its Athabasca Oil Sands Project (AOSP) - envisioning growth from the current 155,000 barrels per day (bpd) capacity to an eventual 770,000bpd - was now '"clearly scaled down" and would be "very much slower".
Over the past few years Shell has emphasised heavy investment in so-called 'unconventional' hydrocarbon sources, both Canadian oil sands and gas-to-liquids projects elsewhere, as a substitute for the new conventional oil and gas resources the company has been notably lacking since its reserves-booking scandal of 2004. But the relatively high costs of new oil sands developments in particular mean scant profits with oil prices anchored stubbornly in a $70-$80 a barrel trading range. As recently as November, Shell oil sands head John Abbott indicated the in-construction $14bn (£8.69bn) AOSP Expansion 1 project, coming onstream later this year to boost total AOSP output to 255,000bpd, needs oil prices around $60 per barrel just to break even. And new investments would require higher prices.
Two previously-slated medium-term expansions of 100,000bpd each are on ice indefinitely, and any serious AOSP growth beyond de-bottlenecking, which could add perhaps some 100,000bpd in small increments by 2020, seems moot. Mr Voser was not questioned on what this strategic U-turn means for Shell's resource base, defined as its portfolio of hydrocarbon exploitation opportunities not yet migrated into developed reserves. But the effective scrapping of further large-scale AOSP growth will presumably have a material impact - while oil sands currently account for 8.4 per cent of proved Shell reserves, totalling 11.9bn barrels-of-oil-equivalent (boe), they were previously thought to account for perhaps a third of Shell's total resource base, estimated at 66bn boe.
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