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Shell to review Canada oilsands project

By Bernard Simon in Toronto
Thursday Jul 6 2006 19:00
Labour shortages and soaring equipment costs have raised a question mark over the future of one of northern Alberta's biggest oilsands projects, controlled by Royal Dutch Shell.

Shell's Canadian unit and Western Oil Sands, a minority partner, said they were reviewing the first phase of a planned C$13.5bn (US$12.1bn) expansion of their Athabasca oilsands project.

The review comes amid mounting concern about the cost of extracting and refining the bitumen-like oilsands.

"The oilsands players have a tough issue in front of them," said Martin Molyneaux, analyst at First-Energy Capital in Calgary. "On one hand we're approaching $80 oil. On the other, the inflationary pressures are immense."

The Canadian oilsands are estimated to contain reserves of 179bn barrels of oil, a figure exceeded only by Saudi Arabia.

The surge in oil prices has attracted a frenzy of new investment. According to the Canadian Association of Petroleum Producers, a total of C$60bn has been earmarked for new projects over the next five years.

The association estimated recently that oilsands output would grow from slightly more than 1m barrels a day this year to 3.5m barrels in 2015 and 4m in 2020, making up 80 per cent of total Canadian oil output.

Brian Straub, head of Shell Canada's oilsands operations, said the first phase of the Athabasca expansion, estimated last year to cost C$7.2bn, "has great potential and has to be seen as a stepping stone in the broader expansion plan for the Athabasca project".

But "in this heated marketplace, cost and schedule control is the top priority", he added.

Western Oil Sands said that, on the basis of preliminary estimates, the expansion could cost 50 per cent more than last year's projections. ChevronTexaco is a minority partner in the project.

A decision on the first phase is expected towards the end of the year.

The investment would add 100,000 barrels a day of capacity as well as infrastructure for expansion.

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