Shell Canada Outlines Further Oil Sands Expansion
25 January 2007
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| Overview of oil sands production (mining) process. Click to enlarge. Source: Shell Canada. |
Shell Canada is planning to expand its minable oil sands production to approximately 770,000 barrels a day—more than four times the current output—and also increasing upgrading capacity to approximately 700,000 barrels a day.
In April 2005, Shell Canada announced an incremental expansion strategy designed to increase minable bitumen production and upgrading capacity through a series of expansion projects. Shell Canada’s first 100,000-barrel-a-day expansion, AOSP (Athabasca Oil Sands Project) Expansion 1, was approved in November 2006 with full start-up expected in 2010.
OSP Expansion 1 will increase production to 255,000 bpd, up from 155,000 bpd at a cost of between C$10-C$12.8 billion (US$8.8-US$11.3 billion)—an increase ranging from 42% to 83% over the company’s 2005 estimate last year of C$7 billion. (Earlier post.)
Beyond AOSP Expansion 1, Shell Canada plans additional oil sands expansions that could potentially increase minable bitumen production to approximately 770,000 barrels a day. This is about 200,000 barrels per day more than previously projected as the top end.
In addition to existing regulatory approvals and expansion plans, Shell Canada’s growth strategy includes Jackpine Mine Expansion and an additional mine, called Pierre River Mine, on the west side of the Athabasca River.
Bitumen upgrading capacity could also potentially be increased to about 700,000 barrels a day through a series of Shell Canada-owned upgrader projects in the Fort Saskatchewan area, east of Edmonton. New upgrading facilities would process Shell Canada’s share of future Athabasca minable bitumen production as well as bitumen from the company’s in situ oil sands developments. As previously announced, heavy oil upgrading and refining options in Ontario are also being considered.
We are issuing these Public Disclosures so that we can start the process of our next phase of oil sands development. Shell Canada has major land holdings in the Athabasca region and we estimate that our minable bitumen resource base could ultimately support 770,000 barrels a day of production. This will provide a secure source of energy and economic benefit for Canadians for decades to come.
—Clive Mather, Shell Canada President and CEO
The regulatory review process for the expansion begins with the issuance of the Public Disclosure document. Shell Canada is working to prepare regulatory submissions for this project, and public consultations will be ongoing through 2007 and 2008.
With bitumen production and upgrader production increasing, Shell will face a significant increase in greenhouse gas emissions. Shell Canada plans to design its upgrader expansions to be carbon capture ready.
Implementation and use of CO2 capture technologies depends on the establishment of appropriate government policy and supporting framework, as well as project economics.
—Upgrader Public Disclosure Document
Shell Canada has set two targets for greenhouse gas emissions: one for its total business, one for the oil sands component.
In 2005, Shell Canada’s emissions from its base businesses were 7.6 million tonnes, 217 thousand tonnes less than in 2004 and 5.6% below its 1990 level. The company’s target for 2008 is 7.567 million tonnes.
Oil sands emissions in 2005 were, however, 3.68 million tonnes, 5% more than estimated emissions at start-up. Shell has set a 2010 target for oil sands emissions of 1.750 million tonnes.
Shell Canada holds a 60% interest in the Athabasca Oil Sands Project (AOSP), a joint venture with Chevron Canada Limited (20%) and Western Oil Sands L.P. (20%). The AOSP consists of the Muskeg River Mine located north of Fort McMurray in northern Alberta, and the Scotford Upgrader near Edmonton, Alberta. Shell Canada also has in situ bitumen operations near Peace River and Cold Lake in Alberta.
Chevron Canada Limited and Western Oil Sands L.P. have the option to participate with Shell Canada in the development of the Jackpine Mine Expansion and the Pierre River Mine.
The day before the announcement, the board of Shell Canada had agreed to a C$8.7-billion buyout offer from Royal Dutch Shell (RDS). RDS already owns 78% of Shell Canada, and wants to buy the rest. On Monday, RDS upped its offers from C$40 per share to C$45. That deal now goes to the shareholders.
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Considering the near future massive arrival of Hybrids, PHEVs and BEVs + the current unacceptable high GHG level in Canada (specially in Alberta), this may not be a very good decision.
Canada DOES NOT NEED more oil from the tar sands. The current oil surplus does not have to be increased for export to (..... + .... + ...., specially from high pollution sources such as tar sands.
In the long run, Canada has all the land area (and more as climate warms up) required to produce enough biofuels such as cellulosic ethanol and butanol to meet the national requirements and export large qunatities to our neighbours.
Posted by: Harvey D. | 25 January 2007 at 07:14 AM
If Shell were to spend $8.8 billion (US) in pilot BTL plant(s), they could have comparable, or better ROI. They could get 100-200k bpd crude equivalent from such an investment vs 100k bpd from bitumen. This entails setting up a collection system, and using dry forestry and agri waste as feedstock.
Posted by: allen_xl_Z | 25 January 2007 at 08:09 AM
Unacceptable to who? If it was so unacceptable to the Canadians, they would put a stop to it. As far as them not needing the extra oil, maybe you are right, but so what? Perhaps they would like to have the money they could earn by selling the surplus - most people would rather have Canadian oil than Middle Eastern oil. And near massive arrival of Hybrids and BEVs? Where are they? Most of what I have seen on this site are concept vehicles. I'll believe you when I can walk into any auto makers dealer and purchase something like that, not just a handful of them, as large as the manufacturer may be. We are always "near" something......
Allen, why didn't Shell think of that? You should call their Ivy League trained Accounting and Finance departments and explain it to them!!! Comparable or better ROI........give me a break.
Posted by: Joff | 25 January 2007 at 08:45 AM
It is a no brainer for anyone. Of course it is economical and makes sense as most other oil sources are either at their peak production or already declining. The total supply cannot increase and we will be lucky to simply maintain the current total oil supply.
Meanwhile you have ever increasing car production (China) and no effort to downsize (SUVs in NA).
Regarding the new car technology, it is still progressing slowly and not being moved to production phase. There are still few options and/or very weak applications (so called soft hybrids). Their prices are still too high and only affordable to NA. And so on.
Eventually cars will switch to the new technology away from gasoline/diesel, but not until price shocks wake up people and cause a couple of depressions for good measure. Meanwhile all oil suppliers will be bathing in money and this project will do very well indeed.
Posted by: q | 25 January 2007 at 09:26 AM
For the tar sands production, count with me ...
Current production is 155,000 bpd times 365 days divided by roughly 7 barrels of crude (specific weight of crude slightly less that 1): so about 8 million metric tonnes per year in oil produced.
To produce/upgrade this, they now declare emissions of 3.68 million tonnes of greenhouse gas (GHG).
Suppose this 3.68 million tonnes is the result of molecules consisting mainly of H2C subsets (approx atomic weight of 14) being burnt into CO2 (approx atomic weight of 46) + H2O (not a GHG). This gives an ratio of 14 units of oil to to produce 46 units of GHG.
So, to account for the 3.68 million tonnes of GHG, you need to burn approx 1.1 million tonnes of oil, producing/upgrading 8 million tonnes of oil in the process.
Even though the up-front number of 3.68 million tonnes of GHG seems huge, think what is produced when the resulting 8 million tonnes of product is burnt. In that light, the 8-for-1 cost even seems to become acceptable.
Posted by: lambreja | 25 January 2007 at 01:40 PM
Joff, you are onto something with your comments. The only PHEV available now is the Tesla Roadster, which there are a total of a few hundred of $100,000. The earliest possible mass production PHEVs will be in 2 years. Even then, how long until they are ubiquitous enough to actually decrease the TOTAL OIL used by Americans, much less the amount of oil used by fast progressing economies like China and India. And in case anyone has forgotten, there are over 2 billion Indians and Chinese!!! If by 2020 there is 20% car ownership in those countries, that's like adding more cars to the world than there are in 2 United States. Hmmm.
Tech of today will ease transitions for tomorrow, but total world oil use isn't going to decrease until I'm old and gray. BTW I'm only 28 right now.
Posted by: DB | 25 January 2007 at 05:47 PM
DB -
I don't mean to nitpick, but the Tesla Roadster is not yet out and is a BEV design. There is no ICE at all in that vehicle.
As for the rapid motorization of China and India, I'd argue that it is precisely why it's risky to continue powering all vehicles everywhere using refined fossil hydrocarbons. Long before you are old and gray, there will be tensions, possibly military conflict between the major fossil hydrocarbon consumer countries if someone doesn't come up with alternative technology pretty darn quick. The urgency is the result of the long lifespans of vehicles and the caution with which auto makers adopt innovations.
The US and China already fought a proxy war over oil in Sudan, which has led directly to the genocide in Darfur. Iraq/Iran is next, the President issued orders today to kill or capture Iranian operatives in Iraq. China is Iran's biggest customer. In addition, India and Pakistan want to build a pipeline for Iranian natural gas. The EU wants a natural gas pipeline into Northern Iraq and ultimately into Iran as well. Et cetera ad nauseam.
If Allen's comment that BTL is just as profitable as tapping into new fossil hydrocarbon sources sounds wildly optimistic, perhaps that's because we pay the price for access to this energy wealth in terms of our environment/climate, political dependency on autocratic regimes and/or military expenditure. None of these directly affect the bottom line of any oil company, nor prices at the pump. But then, you do also pay taxes, don't you?
Posted by: Rafael Seidl | 26 January 2007 at 10:17 AM
Money money MONEY!!!!!its money thats talking and ALOT of it.
And this has nothing to do with suvs or the us. Its simply that now people can make quite alot from tar and so tar is being mined faster nad faster. Even if the us was running on 100% fat white guy sweat the oil wouls still be made for shipment to china.
Posted by: wintermane | 26 January 2007 at 10:18 AM
lambreja:
The current oil extraction from the Alberta tar sands is a bit over 1 million barrel/day going up to something beteewn 3 to 5 million barrels/day by 2020.
At the current rate, it is already a very messy business. The size and number of new chemical ponds-lakes is unbelievable. By 2020 an area almost the size of Florida will be a dirty mess for many generations.
If the nearby Athabascan River (collecting the polluted water) would flow South instead of North, a lot more people would take notice.
Almost 50% of all GHG produced in Canada come from Alberta with only 10% of the population. That is not an acceptable situation. It will get even a lot worse when tar sands oil production is increased fourfolds. At that rate, Alberta may produce about 75% of Canadian GHG by 2020-2030.
Assuming that it can be done, who will pay to clean up this huge mess? The end users? (95% USA) The oil companies? The Canadian taxpayers? (the remaining 5%) The American taxpayers? All of us?
The royalties (about 5 cents/gallon) paid to the Alberta Heritage Fund will never be enough to cover the downstream clean up cost. The latest estimates are 20 to 30 times more. This indicates that a special clean up fund of up to $1/gal should be created. Unfortunately, oil would have to be over $100/barrel to generate enough profits to pay for the downstream cleanup cost.
A massive progressive switch to PHEVs + BEVs is a much better.
Posted by: Harvey D. | 26 January 2007 at 11:33 AM
From what I have read the end game cleanup should be simpler then many they deal with. The test will come when the first site runs dry and they reclaim it.
Posted by: wintermane | 26 January 2007 at 03:10 PM
Harvey:
Annual Canadian GHG emissions from combustion of fossil fuels is close to 760 million tons of CO2 equivalent. Alberta oil sand exploration emits annually about 29 million tons of CO2 for production of about 1 million barrel/d.
It is about 3.8% .
Posted by: Andrey | 26 January 2007 at 11:11 PM
"The US and China already fought a proxy war over oil in Sudan, which has led directly to the genocide in Darfur."
Noo-o-y, Rafael.
It is all because of Global Warming.
Posted by: Andrey | 27 January 2007 at 05:57 AM