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Struggling with sands of time Supermajors agree sands output vital to security, at odds over environmental impact; Keystone backers annoyed by ‘dirty oil’ tag Gary Park For Petroleum News
Under attack for setting up operations in the Alberta oil sands, the global supermajors agree the resource is a valuable part of energy security, but they take different routes at that point.
ExxonMobil boss Rex Tillerson, caught May 29 in a heated shareholder debate over the company’s policy toward renewable energy and global warming, conceded he doesn’t have all of the answers on the underlying reasons for climate change, but showed no desire to demonstrate political correctness.
On the same day, Royal Dutch Shell Chairman James Smith agreed the oil sands are “not a good thing” for the climate, although they are a “good thing” from an energy security standpoint.
Those comments came on the heels of criticism from 11 U.S. and United Kingdom investors that BP has taken a “disturbing step backwards” by entering the oil sands.
Tillerson, concerned about the consequences to world economies of government policies that have an impact on fossil fuel development, told reporters ExxonMobil is spending billions to manage the environmental fallout from its operations, become more energy-efficient and support research to lower energy consumption.
But even 25 to 30 years from now the world will require “substantial fossil fuels … two-thirds of it coming from oil and gas,” regardless of advances in renewable, nuclear and biomass energy.
To not have a debate on climate change and for the industry to argue it knows everything it needs to about the issue is “irresponsible,” Tillerson said.
“Anybody that tells you they have got this figured out is not being truthful,” he said. “There are too many complexities around climate science for anybody to fully understand all of the causes and affects and consequences of what you may do to attempt to affect that,” he said.
“We have to let scientists continue their investigative work, unencumbered by political influences.”
Exxon won’t abandon Kearl For now, ExxonMobil, through its 69.6 percent Canadian subsidiary Imperial Oil, is not prepared to walk away from the C$8 billion Kearl oil sands project that has been tripped up by environment-related court rulings.
Tillerson said he is optimistic a water permit for Kearl will be restored “and we’ll be able to get back on track with very little loss to the schedule,” adding he understands the project has been given high priority by the Canadian government, which must decide how it will react to the court verdicts.
Royal Dutch Shell, which is similarly immersed in the oil sands, aiming at possible output of 700,000 barrels per day, is less certain about the oil sands.
Smith said the resource contributes 15 percent more carbon emissions “on a well-to-wheel basis” than conventional oil and gas.
But rising energy prices have enticed Shell to develop oil sands properties that were previously considered uneconomical.
“Oil sands from the point of carbon dioxide is not a good thing,” he said. “It is a step in the wrong direction, but not quite as large a step as some people suggest.”
Those who attach a “dirty oil” tag to the oil sands were rebuked May 28 by partners in the 600,000 bpd Keystone pipeline from Alberta to a ConocoPhillips refinery in Indiana and the Oklahoma trading hub at Cushing.
At a sod-turning ceremony to launch construction of Keystone, a $5.2 billion joint venture by TransCanada and ConocoPhillips, company executives fended off the “dirty oil” accusations.
TransCanada Vice President Steve Becker said the pipeline is a “valuable piece of infrastructure for the North American economy,” while Meg Yeage, pipeline division president at ConocoPhillips,” said the company would not be a “partner in the pipeline and an investor in the oil sands if we didn’t have confidence in their future.”
Environmental pressures taking toll on oil sands projects Those views aside, environmental pressures are taking their toll on projects, with France’s Total blaming a delay of more than six months in regulatory hearings — a claim rejected by the Alberta Energy Resources Conservation Board — for its already delayed Joslyn project.
The result will be a lost winter of construction, stalling the onstream startup to 2015 for an initial 100,000 bpd Total President Michael Borrell said earlier budget estimates of C$9 billion for the Joslyn mine and C$9 billion for an upgrader are likely to rise because of construction pressures in Alberta.
Joslyn also faces closer regulatory scrutiny than other oil sands projects based on comments by federal Environment Minister John Baird that the proposal will be subject to a public hearing and environmental review by an independent federal and provincial panel, rather than just a provincial hearing.
When it acquired the majority 74 percent stake in Joslyn in 2005, Total set an in-service date of 2010, which was pushed out to 2012, then 2014 as it worked on designs for an eventual 230,000 bpd operation.
StatoilHydro, North West Upgrader facilities also delayed Norway’s StatoilHydro has also said its planned upgrader in Alberta will be delayed from 2014 to 2016, partly because of U.S. regulatory issues related to the sale of crude derived from oil sands.
The company, which acquired 257,000 acres of leases from North American Oil Sands Corp. for C$2 billion and plans a 200,000 bpd operation, had an original price tag of C$9 billion each for its mine and upgrader, but concedes both are almost certain to rise because of construction pressures in Alberta.
A spokeswoman said a pilot project due to start producing 10,000 bpd in 2010, rising to 20,000 bpd, remains on schedule, but the upgrader needs more time.
North West Upgrader, a privately held company building a merchant heavy oil upgrader near Edmonton, has also been forced into the slow lane because of difficulties it has been having financing the C$4.2 billion facility.
Chief Executive Officer Rob Pearce said the planned launch in 2011 will be postponed because of a “very turbulent capital market,” adding North West is open to including a third-party partner to deal with the problems.
The facility was designed to grow in three stages to process 231,000 bpd of bitumen blend feedstock by 2015.
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