Shell delays Alberta oilsands upgrade

Royal Dutch Shell PLC said Thursday it is delayingthe expansion of its Athabasca oilsands project in Alberta because of falling crude prices and ongoing financial turmoil.

The huge Dutch-based oil multinational said it will finishanupgrade to increase the amount of crudesqueezed out of provincialbitumen to 250,000 barrels a day by the end of 2009, up from the current 150,000 barrels.

But Shell will not undertake subsequent improvements that would double its oilsands output to half a millionbarrels of oil production, said company chair Jeroen Van der Veer in a conference call concerning Shell's third-quarter earnings.

"We had in mind to decide on the second expansion in 2009. But at this moment, if you look at the combination of inflated labour costs and raw material prices in the form of equipment, we felt that we had better delay that," he said.

Falling prices

A barrel of crude is worth less than 50 per cent of its value in July when oil prices peaked at approximately $147 US.

One analyst estimated that oilsands projects that include a mine and an upgrader, which processes the bitumen produced by a mine, need a long-term oil price of $100 a barrel to break even financially. Those that use steam injection to extract crude and do not include an upgrader require $70 a barrel.

Shell is merely the latest in a growing list of firms delaying or stoppingplanned developments in Western Canada because of slipping global oil prices.

• UTS Energy, Petro-Canada and Teck Cominco said theydelay upgrading a refinery as part oftheir $24-billion project in Fort Hills, Alta.
• Nexen Canada and Opti Canada will slow the completion ofa project in Long Lake, north of Edmonton.
• Suncor Energy Inc. said it cut its capital spending program by one-third from $6 billion.
• BA Energy is delaying a proposed oilsands refinery also near Edmonton.

Oilsands production constitutes about 50 per cent of Western Canada's total crude supply, representing approximately 1.2 million barrels per day, according to a June forecast supplied by the Canadian Association of Petroleum Producers.

Under one price scenario, oilsands output would rise to 3.5 millions barrels per day, almost 80 per cent of the Prairies' oil production by2020. the association said.