TPT January 2009

Oil & Gas News

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

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J anuary 2009

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