TPT January 2009

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Oil & Gas News
67 January 2009 ›
Canadian oil sands development is stymied by
rising materials costs, weakening oil prices
Royal Dutch Shell PLC, Europe’s largest oil company, is delaying a
planned expansion of a major oil sands project in northern Alberta,
Canada, joining other major Canadian oil sands developers who are
cutting back on spending in response to soaring costs and weaker
oil prices. The Canadian Press (CP), Canada’s national news
agency, reported that, despite reporting a 22 per cent jump in net
profit for the third quarter, Shell on 30 October said it would hold off
on a decision to expand the Athabasca oil sands project near Fort
McMurray.
The British-Dutch company will go ahead with an initial expansion
at Athabasca to raise output there from 155,000 barrels per day
(bpd) to more than 250,000 bpd by the end of 2009. The further
expansion, now shelved, had production of 500,000 bpd as a
goal. After excavation at the mine, the ore is processed and its
tar-like bitumen content liquefied with the use of solvents. This is
transported by pipeline to the Scotford Upgrader refinery near
Edmonton, where the bitumen is converted into synthetic oils and
later into a variety of fuels.
As reported by the Calgary Herald (4 November), other Canadian
oil sands producers with uncertain prospects include Petro-Canada,
which may have to postpone the upgrader portion of its 140,000-
bpd Fort Hills project. The company said the price had risen by 50
per cent, to $21 billion, from a year-earlier estimate. Suncor Energy
has delayed its $20.6 billion Voyageur expansion by a year. And
partners Nexen Inc and Opti Canada Inc have put off a decision
on the twinning of their $6.1-billion Long Lake integrated thermal oil
sands project.
Elsewhere in oil and gas . . .
■ China National Offshore Oil Co (CNOOC) announced 28
October that its net oil and gas output in the third quarter of 2008
rose by 15.2 per cent over the same period of 2007. As reported
by Xinhua, the official press agency of the People’s Republic
of China, the state-owned producer said that its unaudited total
revenue was $4.5 billon for the quarter, representing a year-on-
year increase of 69.1 per cent. This was achieved on total net
daily oil and gas production of 549,589 barrels of oil equivalent
(BOE) in the quarter, including 480,857 BOE per day offshore
China and 68,732 BOE per day overseas. For the first nine
months of 2008, China’s largest offshore oil producer reported
unaudited total oil and gas revenue of $12.4 billion with a year-
on-year increase of 65.3 per cent, a reflection of the soaring
price of oil worldwide over that period.
■ Legislation moving through Mexico’s Senate and Chamber
of Deputies is intended to halt and reverse the sharp drop in
the country’s production over the last five years. The new laws
would free the state-owned oil monopoly Petróleos Mexicanos
from many government controls and allow the company greater
flexibility in the signing of contracts. The hope is that a more
nimble Pemex can find and produce more crude oil.
In 2008, Pemex’s crude oil output dropped 10% through late
October; exports had fallen even faster, by 18 percent. Mexico
has slipped from its position as the second-largest supplier of
crude oil to the United States, after Canada, to fourth place.
Mexican critics of the proposed legislation claim that it does not
address the main problem: the barriers to private investment
that have closed Mexico’s oil industry away from foreign capital.
■ Andy Inglis, chief executive of BP Exploration and Production,
said 18 October that world reserves are sufficient to support
expected consumption of oil and gas for 40 years and 60 years,
respectively. Speaking at Rice University, in Houston, Texas,
Mr Inglis said: “The really big strategic issue for all oil and gas
companies is matching the earth’s resource endowment on the
one hand, with the capability – technology, skills, and know-
how – required to bring those resources to market on the other.
I think it is true to say that we may have reached a period of
‘peak capability,’ at least in the short term.”
As reported 18 October by Ian Forsyth in the Aberdeen
(Scotland) Press and Journal, the BP energy expert warned
that, for international – and, increasingly, national – oil
companies, new resources are harder to reach and tougher
to produce. Lying at greater water depths, under conditions
of higher temperature and pressure, these resources call for
complex drilling and completion designs. “Bringing them into
production is going to be difficult,” said Mr Inglis. “It will require
that capability gap to be filled.”
■ To strengthen its presence in Asia’s fast-growing liquefied
natural gas market, British gas producer BG Group has agreed
to buy Australia’s Queensland Gas Co for US$3.4 billion. The
Australian company said on 28 October that BG will pay an 80
per cent premium to Queensland’s last traded price and will take
energy retailer AGL Energy’s 22 per cent stake in Queensland,
with AGL to receive $723 million.
In other news of Australia, Woodside Petroleum, which
produces about 40 per cent of the country’s oil and gas, is being
urged by the government of East Timor to support a plan to
base a multi-billion-dollar oil and gas plant in that impoverished
nation rather than in the Northern Territory city of Darwin, as
proposed by Woodside. East Timorese plans call for a pipeline
and petrochemicals facility to process oil and gas from the
Greater Sunrise field, an offshore deposit estimated to be worth
up to $90 billion. The field lies in waters claimed by both East
Timor and Australia, and the licensing agreement stipulates
that neither country may develop the field without authorization
from the other. The two nations moreover must finalize a
development plan within five years (Mercer Report [Sydney],
31 October).
Photo courtesy of Witt Gas