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Syncrude consortium trying to keep a lid on gas prices Natural gas consumption of nearly 150 million cubic feet a day accounts for 20 percent of oil sands plant’s operating budget Don Whiteley Petroleum News Contributing Writer
Having just added C$2.1 billion to the capital cost of its Athabasca oil sands expansion project, the Syncrude consortium is now hoping to keep a lid on natural gas prices.
In a conference call with analysts on June 21, Syncrude CEO Charles Ruigrok said the C$7.8 billion price tag for the massive project would likely hold within 5 percent either way. But that comes after bumping it by $2.1 billion just last March. Syncrude arranged the conference call to discuss the results of its 2003 sustainability report.
Of concern to the consortium now is the rising price of natural gas, which has driven up operating costs at the existing operation as well as threatening to do the same for the expansion.
Gas consumption at Syncrude is nearly 150 million cubic feet per day, representing 20 percent of the plant’s operating budget. In 2003 it cost the consortium C$350 million. Gas prices have increased dramatically since 2002, rising by nearly 70 percent.
Overall energy costs at Syncrude in 2003 averaged nearly $4.50 per barrel of production, up 24 percent over 2002. Natural gas can be extracted from bitumen Syncrude Chief Operating Officer Jim Carter told the analysts’ conference that technology allows the extraction of natural gas from the bitumen, assuming a relatively high price for natural gas. High prices for natural gas threaten a Syncrude commitment to the consortium’s partners to lower production costs by 15 percent.
Natural gas for oil sands extraction has been a controversial topic in the last year or so, as Alberta has ordered gas wells shut in to ensure maximum oil production from the oil sands.
One of the biggest engineering projects in the world, the Syncrude expansion is making good progress, according to Ruigrok. “The upgrader expansion project will be close to 50 per cent complete at the end of June and we expect it to be about 70 per cent complete at the end of the year,” he told the conference.
The existing operation shipped 253,000 barrels of oil per day in its last quarter — the best first quarter production performance on record. The gain reversed a 7.8 per cent decline in 2002 to a total of 212,000 barrels per day, amid unscheduled production interruptions and downtime for maintenance.
Production from Syncrude equaled 9 percent of the crude oil produced in Canada in 2003. The 2004 target is 86 million barrels, or 235,000 barrels per day. The consortium hopes to achieve the gains through improvements in operating reliability and more efficient maintenance turnarounds. 2004 capital spend will approach $3 billion Capital spending for 2004 will approach $3 billion with $2 billion for the upgrader expansion project at Fort McMurray. The construction workforce currently stands at 5,500 — matching the 4,000 permanent employees and 1,500 contract workers at Syncrude’s current operations.
“All of the large prefabricated modules that were fabricated in the Edmonton area are now in Fort McMurray, and we’ve got about 100 of the 945 or so left to install,” Ruigrok said in the conference call. “The focus then will really be on tidying up the piping work, instrument and electrical work to complete the project.” Ruigrok told the conference call that a proposed $1.8 billion railway between Edmonton and Fort McMurray may not be necessary. “The jury’s still out on the railway,” the Syncrude CEO said. The idea for a railway was put forward by Alberta Premier Ralph Klein as a means of improving the shipment of industrial goods between the two communities. But road transportation appears to be sufficient to get the job done.
When the project is completed in 2006, Syncrude production will increase to 350,000 barrels per day of higher-quality Syncrude sweet premium blend. Syncrude is a joint venture of Canadian Oil Sands, Imperial Oil, Petro-Canada, Nexen, Mocal Energy and Murphy Oil.
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