Shell Canada Approves C$3.5-billion Athabasca Oil Sands Project

Shell Canada Ltd. (Calgary, AB) has approved the C$3.5-billion Athabasca Oil Sands Project (AOSP), which will undergo an immediate start of construction, and is set to begin producing 155,000 bbl/d of synthetic crude by late 2002.

Shell has a 60% interest in the project; Other partners are Chevron Corp. and Western Oil Sands Ltd., each with a 20% interest. The mining part of the joint venture will be called Albian Sands Energy Inc. and will be managed in Fort McMurray. An additional C$600 million will be spent for a pipeline, and C$200 million for a cogeneration plant, bringing the overall project cost to C$4.3 billion. According to a Reuters report, the project was delayed when Broken Hill Proprietary Ltd., an Australian natural resources producer, dropped out earlier this year. Executives from BHP left the company, formed Western Sands, and attracted C$900 million in capital. Western Sands plans a public offering next year.

AOSP is located in the northeastern Alberta region—near Shell's Scotford refinery, which is also getting a significant capital injection. Other oil sands ventures in the area are Syncrude Canada Ltd. and Suncor Energy Inc., which have expansion plans of their own. Shell has another refinery in Sarnia, and Chevron has refineries at Salt Lake and Burnaby. Once the AOSB project is up and running, Shell already plans to more than double its capacity. Tim Faithfull, Shell Canada's CEO, told a news conference that advances in oil sands processing technology allow syncrude to be produced at C$10-11/bbl, making the project profitable even at low world oil prices. "This is an exciting opportunity for Shell Canada," said Faithfull. "It will be the largest capital investment Shell Canada has ever made—in a growth business that will more than double our liquids production." The environmental aspects of the project will include managing CO2 emissions, and seeking offsets for the emissions.

cost C$1.7 billion and the upgrader C$1.8 billion. The 280-mile (450-km) pipeline, to be owned and operated by BC Gas Inc. (Toronto), has a C$600-million cost. Calgary-based ATCO Ltd. (Toronto) will build the mine's cogeneration power plant and a gas line to supply its fuel.

Components of AOSP are: (back to top)

• The C$1.8-billion Muskeg River Mine, to be constructed on Lease 13, 70 kilometers north of Fort McMurray, AB. The Muskeg River Mine will use trucks and shovels to excavate the oil sands, as well as advanced extraction technologies to separate the bitumen from the sands, to produce 155,000 bbl/d of bitumen starting in late 2002.

• The C$1.7 billion Scotford Upgrader to be constructed next to Shell's existing Scotford Refinery north of Fort Saskatchewan, AB. The Scotford Upgrader will use hydrotreating technology to convert the bitumen to lighter syncrude. The Upgrader will be operated by Shell.

• The C$600-million Corridor Pipeline, which will transport diluted bitumen from the Muskeg River Mine to the Scotford Upgrader, and connect the Upgrader with refinery and pipeline terminals in the Edmonton area. Corridor will also provide oil storage facilities for the Project. This investment of approximately $600 million will be made by Corridor Pipeline Ltd., a wholly owned subsidiary of BC Gas Inc. The pipeline will be operated by another BC Gas subsidiary, Trans Mountain Pipe Line Co.

• About C$400 million in modernization projects will by undertaken by Shell Canada on its own to ready the Scotford refinery for the AOSP syncrude.

• The ATCO Power Canada Ltd. Muskeg River Mine gas-fired cogeneration plant, which will provide steam and electricity to meet the needs of the Muskeg River Mine, as well as additional electricity for Alberta consumers. This 170-megawatt cogeneration facility and associated heat recovery equipment will cost approximately $200 million. ATCO Ltd. is a Calgary-based energy company.

Contractors (back to top)
One contractor already making out well with the project is AGRA Monenco, which, together with a 50-50 partner, Fluor Daniel Wright, which has been awarded a C$175-million contract for engineering, procurement and construction management at Muskeg River. It has already completed a C$7-million front-end engineering and design project, and is slated to provide C$14 million in engineering and other services for the ATCO cogeneration plant. Other contractors selected so far include another AGRA subsidiary, AGRA Earth & Environmental Services, GKO Engineering and Colt Engineering Corp.

Environmental aspects (back to top)
According to Shell Canada, the environmental controls at the Scotford Upgrader will offer performance advantages:

• It will make the best use of the bitumen produced at the Muskeg River Mine, with more than 100 barrels of upgraded crude oils produced for every 100 barrels of bitumen processed
  
• It will produce dramatically lower levels of sulfur dioxide emissions
  
• High carbon coke will not be produced as a byproduct of production
  
• The synthetic crude oil produced will enable refiners to produce very clean, high quality refined products, such as gasoline and diesel fuel, with low levels of aromatics, particulates and sulfur
  
• The synthetic crude produced will replace declining crude oil production and reduce dependence on imports
  
• The Upgrader will use electricity and steam produced from the Scotford gas-fired cogeneration plant

About 4,000 construction jobs will be created, and 1,000 permanent jobs, according to Shell Canada.

By Nick Basta

For more information:
Shell Canada Limited
400 - 4th Avenue S.W.
P.O. Box 100, Station M
Calgary, Alberta
T2P 2H5
(403) 691-3111