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Tensions simmer in Syncrude ranks Operator and largest shareholder unable to agree on timing for C$15 billion expansion of world’s largest synthetic crude plant Gary Park For Petroleum News
An apparent rift among owners of Syncrude Canada, the world’s largest single synthetic crude operation, is stalling plans to increase capacity by 250,000 barrels per day to 600,000 bpd by 2020.
First announced in February 2010, the C$15 billion expansion proposal has operator Imperial Oil (69.6 percent owned by ExxonMobil) and Canadian Oil Sands, the largest stakeholder, at odds over the timing.
The original plans called for an initial 50,000 bpd “debottlenecking” followed by a two-phase hike in bitumen production of 100,000 bpd each in 2014 and 2020, placing about 115,000 bpd of excess raw bitumen supply on the open market.
But a spokesman for Imperial, a 25 percent owner, has told reporters that his company no longer believes the expansion will take place this decade, although he said it would be “premature to talk about specific project plans or timing or sequencing.”
However, he said Imperial remains committed to “the economic development of the entire resource at Syncrude.”
A spokeswoman for Canadian Oil Sands, whose stake is 36.74 percent, countered that all of the partners agreed to the last strategic plan, suggesting that Imperial was simply “putting out their own view.”
She said there has been talk about cooperation between Syncrude and the nearby Kearl project, a joint venture by Imperial and ExxonMobil to build a 110,000 bpd mine at a cost of C$10.9 billion.
The spokeswoman said the discussions have involved sharing labor and some of the project management, but the Imperial spokesman insisted his company views Syncrude and Kearl separately.
The other Syncrude partners are Suncor Energy 12 percent, China’s Sinopec 9.03 percent, Nexen 7.23 percent, Murphy Oil 5 percent and Mocal Energy 5 percent.
ExxonMobil hired 4 years ago Following a series of unplanned outages, the Syncrude partners hired ExxonMobil four years ago to improve operations and reduce per barrel costs.
Currently, two processing units at the upgrading plant are offline, including a 100,000 bpd coking unit.
Imperial insists that its immediate priority is to improve reliability of the base operations.
FirstEnergy Capital analyst Michael Dunn said in a research note he has reduced capital spending forecasts for Canadian Oil Sands after indications by other partners — “either subtly or directly” — that expansions will not come on line this decade.
“Since major expansions require unanimous partner approval, we have reduced our cap-ex estimates materially in the 2012 to 2015 time frame.” Dunn wrote.
He said a spending cut could be positive for Canadian Oil Sands by easing the strain on its balance sheet and allowing it to maintain dividend payments.
Suncor has been less than emphatic when asked about the future of its Syncrude stake and the role of Sinopec, which acquired ConocoPhillips’ 9.03 percent interest for C$4.65 billion last year, has yet to take shape.
Export vs. value-added Most observers believe Sinopec wants to pursue exports of raw bitumen from Syncrude to its refineries in China, which is inconsistent with the Alberta government’s goal to see more of the value-added end of the oil sands remain in Alberta. But achieving the province’s objective of upgrading 66 percent of bitumen production compared with 58 percent last year is not a simple matter.
Todd Hirsch, senior economist at ATB Financial, said that building more refineries and upgraders in Alberta would satisfy those “who believe we export too much raw resource when we should keep those jobs at home.”
“But that doesn’t solve the main problem of cost, which is the primary reason industry is not racing to build refineries in Alberta,” he said.
Alberta currently has 1.2 million bpd of upgrading capacity and expects to add 270,000 bpd by 2016, but it is likely to be outstripped by the growth in bitumen output to 3 million bpd in 2016 from 1.6 million bpd in 2010.
In the process, the cost of labor, steel and other materials is expected to increase inflationary pressure, making an uneconomic aspect of the oil sands sector even more expensive.
C$5 billion upgrading project The biggest upgrading project on the table is a C$5 billion joint venture by North West Upgrading and Canadian Natural Resources to build a 150,000 bpd refinery near Edmonton in three equal stages.
The Alberta government has already agreed to provide 37,500 bpd of feedstock bitumen to the plant from its royalty-in-kind program.
North West Upgrading Vice President Jerry Crail said a final investment decision is targeted for late this year or early 2012 as the partners try to head off rising capital costs.
He said a final plan is in place and private investors and financial institutions have pledged funding.
Canadian Natural Resources, which is expected to supply 12,500 bpd of bitumen, has indicated it hopes to gain board approval for the project in 2012.
Crail agreed there are operational and financial risks associated with building a refinery, but noted that substantial work has already been completed for initial conceptual studies and detailed engineering is due to start in March 2012.
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