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Shell-led oil sands project strikes early hiccup Alberta’s third full-scale synthetic crude operation hit by fire and explosions in first week of start-up process, but partners confident of rebounding and happy with technology Gary Park PNA Canadian Correspondent
Shell Canada Ltd. and its minority partners had a baptism of fire in embarking on the production phase of a new oil sands venture in Alberta.
Within a week of extracting its first bitumen from a 5-billion-barrel reserve, the Athabasca Oil Sands Project was idled by an early-morning fire and “minor” blasts Jan. 7, a fresh setback to a C$5.7-billion (US$3.6 billion) project that had already been rocked by a series of cost overruns of about 50 percent.
The project entered 2003 with bitumen production from its Muskeg River mine at 50,000 to 60,000 barrels per day and was shipping the oil-laden tarry substance in diluted form to Shell Canada’s upgrader near Edmonton.
Production of synthetic crude was expected to peak at 155,000 barrels per day later in 2003.
In a statement Jan. 7, Shell Canada said repairs should not materially affect the scheduled start up of the first synthetic crude from the Scotford upgrader, although the full extent of the damage and needed repairs are still being assessed.
A spokeswoman for Athabasca told PNA that the partners had been “really pleased" with the way the greenfield technology had been operating in the first week.
Mishaps not unknown Mishaps are not unknown in the challenging process of extracting bitumen, separating it from sand and upgrading the resource to a marketable commodity.
The oil sands pioneers — Suncor Energy Inc., with 24 years’ experience, and Syncrude Canada Ltd., now entering its 25th year — have had their full share of setbacks from fires, explosions and technical breakdowns.
Syncrude’s most recent large-scale mishap was an explosion in October 2000 which slashed output for the year by 18.5 percent to about 74 million barrels.
But Shell Canada remains determined to parlay its hard-earned experience in the oil sands sector into a series of expansions and new projects that could generate up to 525,000 barrels per day during the next decade.
Budget overruns common Like all other oil sands ventures currently under way, Athabasca has been rocked by budget overruns blamed on a shortage of skilled labor, engineering challenges and rising materials costs.
The project was estimated to cost C$3.8 billion for a mine, pipeline and upgrader when originally unveiled in 1999, but the partners — Shell Canada 60 percent and Chevron Canada Ltd. and Western Oil Sands Inc., with 20 percent each — swallowed an extra 50 percent, still less than the 70 percent hike in the cost of a recent Suncor expansion.
Undeterred, Shell is already moving the next pieces into place to exploit what Neil Carmata, senior vice president oil sands, describes as a “world-class resource with 9 billion barrels. Ultimately, we can push this resource over 500,000 barrels per day.”
Next phase already in works The next phase, already before the Alberta Energy and Utilities Board, is targeted at boosting Athabasca output to 225,000 barrels per day between 2005 and 2010.
That is due to be followed by a new standalone mining and extraction project at the Jackpine lease, with bitumen production of about 200,000 barrels per day at a cost of C$2 billion. The mine would be built by 2008 at the earliest.
A further Jackpine phase is also on the books to add another 100,000 barrels per day.
Carmata said the timing will depend on factors such as market conditions and the outcome of the regulatory process.
If all of those stages proceed, analysts have speculated that Shell Canada will have added reason to favor accelerated development of Mackenzie Delta gas, where its wholly owned Niglintak field is projected to have a 15-year reserve life index, with a productive capacity of 180 million cubic feet per day.
At 225,000 barrels per day, the Athabasca project is expected to consume more than 140 million cubic feet per day of gas. An expansion of 200,000 barrels per day would require 125 million cubic feet per day, for a combined total almost 50 percent greater than Shell Canada’s output from the Delta.
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