Canadian Tar Sands Projects Stumble Under Weight Of Runaway Costs

[hatrack]

A LEADING investor in Canada’s bitumen deposits has given warning that runaway costs could jeopardise development of oil sands, casting doubt on the future of a resource that is one of the hottest spots in the global energy business. The promise of billions of barrels of crude oil locked in tar sands, a resource compared to the oil reserves of Saudi Arabia, may be too costly to extract at the rates promised by some companies, according to Murray Edwards, vice-chairman of Canadian Natural Resources, a leading oil sands investor.

Royal Dutch Shell, ExxonMobil and Total plan multibillion-dollar investments in oil sands mining projects in northern Alberta, but soaring costs of labour, materials and the energy needed to turn bitumen into useable fuel are testing the economic viability of a business hailed as an answer to concern about dwindling reserves of conventional oil. Speaking this week at a business forum in Banff, Mr Edwards said: “These projects, long term, need prices higher than US$50 per barrel.” The billionaire investor, who transformed a $100,000 (£52,000) investment into a stake worth more than $500 million today, reckons that some of Canadian Natural’s rivals will struggle to cope with costs that have doubled in five years. “What I am saying is the challenges of costs make you start wondering at what point projects are still economic,” he said.

The government of Alberta points to some 300 billion barrels of oil in the bitumen deposits that lie just below Alberta’s peat bogs, known as muskeg. What is recoverable depends on technology, which is rapidly improving, and costs, which are soaring. Canadian Natural’s Horizon project focuses on a lease over 115,000 acres of land north of Fort McMurray, the Alberta oil sands boomtown. The company hopes to produce 232,000 barrels per day by 2011 in a three-phase project costing C$10 billion (£4.7 billion).

Shell invested early in oil sands and is already producing 155,000 barrels per day from its Athabasca project at costs per barrel in the low twenty dollars range, but the group recently reconfirmed that it would go ahead with an expansion project that has suffered a cost explosion. Originally estimated at C$7.3 billion, the Athabasca expansion project is now expected to cost C$11 billion, according to Western Oil Sands, Shell’s partner.

EDIT

http://business.timesonline.co.uk/article/0,,9072-2371121,00.html

[Javaman]

1. I have been following this fairly closely since the "boom"..

in oil sands. Not only does it cost a fortune to extract and refine, but the amount of water, in our ever drying planet due to global warming required to remove the oil from the sands will devastate the surround environment.

Until the develop a method by which the oil can be used and refined without it being extracted from the sands, it will be nothing but a very expensive fools paradise.

[CHIMO]

3. For An Idea

Of the water and the environment, use google world and input "Fort McMurray, Alberta", then go a bit North to about 56 degrees, 58 minutes and East to 111 degrees and 31 minutes. Approach from an elevation of about 15 miles.

The cost is a bit of BS. To obtain approval for projects the price is low, and then once investments are committed the prices rise.

However, the royalties are written such that they really don't have to pay royalties until their capital costs are covered. Thus there are no incentives to contain costs.

Russia is dealing with this situation now. But water will really determine what happens with the Tar Sands.

[hunter]

2. Coal is probably cheaper.

Easier to dig out of the ground, easier to make into synthetic fuels once you commit to the process.

All of these things, coal, oil sands and shales, cause tremendous environmental damage. It would be best to leave them in the ground.