It has been a brutal few weeks for Royal Dutch Shell.
By Charles Kennedy, Oilprice.com:
On October 27, the Anglo-Dutch oil major announced that it was pulling the plug on its Carmon Creek oil sands project in Alberta, Canada. The project was expected to yield 80,000 barrels per day in oil sands production, which was originally greenlighted in 2013.
However, the markets have turned against Shell. In March, the company said that it would alter the design of the project to “take advantage of the market downturn to optimize design and retender certain contracts.” The logic was that low oil prices are forcing cost reductions up and down the supply chain, potentially allowing the company to lower construction costs.
Still, the company would need a rebound in oil prices to make the project viable, a rebound that never came. “After careful review of the potential design options, updated costs, and the company’s capital priorities, Shell’s view is that the project does not rank in its portfolio at this time,” the company said in a statement.
But that is not all. Shell also included a very intriguing justification for cancelling the project. They said that the decision to scrap Carmon Creek “reflects current uncertainties, including the lack of infrastructure to move Canadian crude oil to global commodity markets.”
In other words, the 80,000 barrel-per-day project will not be completed because Canada does not have enough pipelines. For years environmental groups have been protesting the Keystone XL pipeline under the premise that blocking infrastructure would force oil companies to keep their reserves in the ground. Such a strategy could also help stop greenhouse gas emissions from rising.
Supporters of the controversial pipeline, which would see Alberta oil sands travel to the U.S. Gulf Coast, argued that the project would have no effect on carbon emissions because the oil sands would be developed with or without Keystone XL. If the pipeline wasn’t built, the thinking goes, the oil sands would find another way to market.
By Shell’s own admission, whether one agrees with the tactics of environmental groups or not, there was a great deal of logic behind blocking the pipeline and other projects like it.
Canada’s oil industry agrees. The Canadian Association of Petroleum Producers (CAPP), an industry trade group, has made increasing pipeline infrastructure a high priority.
Of course, low oil prices made the problem a lot worse. Lack of pipeline capacity have forced Canadian oil producers to sell at a discount, a disadvantage that is magnified with low oil prices. “At $100 a barrel it was a big concern. At $45 a barrel, that is a far larger percentage (of revenue) and is likely the difference between profitable and unprofitable on many of the assets,” CAPP President Tim McMillan said in September, referring to the discount. By Charles Kennedy, Oilprice.com
Get ready for some bad news and red ink. Read… Next Few Weeks Reveal Extent of Calamity in Oil & Gas Industry
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Alberta oil is trapped since a long time, Meanwhile eastern Canada is buying Brent oil from UK and Algeria at almost 50$ a barrel vs 30$ for the WCS. The trans Canada pipeline is not yet approved. This the only country stupid enough to do that. In fact its not a country, but ten provinces acting as countries rather than working together.
Praise the Lord….Harper got his ass kicked out from under him in Ottawa.
I am a Canadian. I also have many friends employed in the oil industry. My son used to work there, but chose to leave 2 years ago. Having said that, the surge in development has been bad for Canada as a whole. It would have been far better to have developed this resource in a slow a steady fashion. Instead, token royalties of 2% were collected by the Province which now shows its ugly result after this recent short downturn. Alberta is basically broke. Ft Mac,the epicenter of development, has always been broke…go figure. The people (workers) making huge dollars, thinking the gravy would flow forever, are broke…scrambling for any employment. The recently tossed out Conservative Govt., beholden to this industry for its support and power, muzzled its climate scientists, bullied Oil Sands opponents, and destroyed our credibility with the world, especially around Climate Change issues.
As for this statement: “In March, the company said that it would alter the design of the project to “take advantage of the market downturn to optimize design and retender certain contracts.” Folks, this means squeeze the contractors, suppliers, and workers to their advantage, pure and simple. No longer able to replace high priced Canadian Trades with foreign workers, (Philipino welders, electrians, Croatian ironworkers, etc), Companies like Shell hoped to switch this pressure onto Canadians, themselves, people hungry for any kind of work. I guess the pencil isn’t sharp enough to make this happen.
I always said to industry friends, “this is a good source of energy security…for Canadians. What’s the rush? Why does it have to be developed all at once as fast as possible.? What’s wrong with leaving most of it in the ground for future generations, or until there is a better and more benign way towards development”?
It isn’t Shell’s oil, or Exxon’s, Chevron’s, or any other multi-national trying to run our country for their own interests. Canadian’s will survive as we always have. The easy and big money is gone for awhile, but we will still be able to supply our energy needs as needed, and when needed…if needed. Meanwhile, a dose of reality and realistic expectations for all of us here are much needed and long overdue.
regards
Wow I was thinking it was only the folks down here in the states that were stupid enough to spend like the boom would go on forever. What do you call your Texans up there?
Paulo – Totally agree.
Just as the Keystone XL pipeline won’t be built (at least not for a long time) the Northern Gateway pipeline (through B.C.) does not stand a snowballs chance (in you know where), of being built.
Now that ‘King Harper the First’ and his government have been voted out, Canadian’s may now get back to living within their means. It remains to be seen how ‘Trudeau the Younger’ will handle the pressure from the oil & gas sector, for a continuation of the ‘Sweet Heart deals’ of the past.
If you really think that voting out Harper will change things, your as delusional as the rest of Canada. EVERY politician is the SAME no matter what side of the political fence they sit on. If you haven’t figured that one out yet, then there is no hope for you.
JT will start printing money and Canada will be in a QE soon enough.
Under Harper the CDN dollar was par to the US.
Under JT the CDN dollar will be worth 65 Cents to the US.
Under Harper Canada was prosperous.
Under JT the Welfare get their Welfare checks in the mail.
Don’t come crying to me when your GST goes back up to 7% and you enjoy the new Carbon Taxes, and a QE.
Harper was a treat compared to what Canadians are going to get from JT (the trust fund baby).
I agree – GST will be going up, fees will be going up and general prosperity will be going down. Debt, debt and more debt.. the new normal.
I don’t hate everything harper has done, but I can see how paranoia and lack of simple facts can make people delusional about governments.
It’s pretty easy to fact check that for the last 10 years debt has risen over a 150 billion in the last 7 years and it was erosion of surpluses from the previous government, not to mention it was during a decade of high commodity prices.
http://www.cbc.ca/news2/interactives/canada-deficit/
I won’t be so rigid to think deficits are bad, but when you make a point of it by ignoring pass instances, it shows where you extreme bias lies.
Let me guess, American GOP?
Anyway, Canada has never “printed” and QE has never even been offered as a solution to anything.
It was Harper that drove the Canadian dollar down… where on earth do you get your information on Canada (please share it with us).
Canada was officially in recession months ago, after ten years of Harper, who was a Big Oil hack who only ever budgeted for a balanced budget in election years… the rest were deficits to pay for the tax cuts for corporations and the wealthy .
He was also the only western leader to be a climate change denier… Trudeau is leading Canada’s delegation to the international conference and a huge majority of Canadians supported him for his firm commitment to champion the cause.
And btw, you do understand that a carbon tax is not paid by citizens… don’t you?
Carbon Tax = companies don’t pay taxes, they collect them. If you don’t think that all companies’ taxes are not included in prices, then maybe it’s time to put a little thought into it.
Climate change ‘denier’: don’t conflate climate change with climate change caused by humans; anyone giving a moment’s thought to the history of the planet as best as science is able to interpret it, understands that climate change takes place. Only 10,000 years ago Canada and north of the 40th parallel around the world was under a mile and a half of ice and the oceans were 400 feet lower than they are now. Then things started to warm up, notwithstanding the lack of industry, motor vehicles, and human population to make it happen.
“Harper” did not drive the dollar down; Canada is a resource-based economy, and all resource-based economies have had their currency decline relative to the US dollar.
And Shell would certainly give close attention to the activities and lobbying of special interest groups in protesting oil sands development. These groups are peopled by neurotics who would have been institutionalized a few generations ago; now they seem to run everything, infiltrating government and committees of every sort. And guess who complains the loudest about ‘greedy oil companies’ when the price of gas fluctuates by a penny or so – they even put great effort to create websites that monitor the price of gas by the minute, demonizing one of the most competitive industries in the world. Don’t forget; shortages cause price increases, and not providing now for the future means shortages will occur. Just imagine the outcry then: why didn’t ‘they’ build more capacity, etc etc.
how do you figure that citizens dont pay the carbon tax? consumers bear the tax through increasing prices from the corporations….nice try though
Canada prosperous under Harper?! Lay off the Scotch and pills before you post here-eh?
Harper voted out Oct 19th. Canadian dollar at 75 cents, October 19th. The dollar had been down for a year. He left us a freaking mess and a country divided.
I didn’t vote for Trudeau, either. I voted NDP, always have and always will. I work for a living, I don’t manipulate to get ahead.
I love this lively discussion. The science behind Canadian oil is that it’s the most costly tar to extract, ship and process. Then, as Harper was rearranging his best deck chairs, for his friends and not understanding much science, along came OPEC and blew a hole in the bow of his economic flagship. Canada wasn’t the only Country affected by this concussion. The oil industry is less than 3% of Canada’s GDP, so who gives a fracked shale.
Alberta’s friends to the south in Montana have wind potential second only to Texas, with accessible wind resources 370 times greater than the state’s electricity usage.” Maybe it’s time for Albertans to wind the windows down on their cars and feel the breeze of fresh air.