The oil sands in Canada’s province of Alberta constitute the second largest oil resource in the world, after Saudi Arabia. With only 2% developed so far, they clearly have the potential to provide more of the world’s energy over the coming decades. To realise that potential, the costs of building and running oil sands operations will need to come down. So will their environmental and social impacts so that the cumulative effects of further growth can be responsibly managed. This will depend on further improving the technology and on finding a pace of development that is sustainable for Alberta’s labour market and local communities.
Our first minable oil sands operation, the Athabasca Oil Sands Project (60% Shell share), was built between 1999 and 2003. The labour market in Alberta was tightening even then, and has become much tighter since. So we have had to work hard to keep costs down. The current operation has capacity to produce 155,000 barrels of oil a day, at an average operating cost in 2008 of $38 a barrel. We also produce around 25,000 barrels a day (Shell share) from a number of smaller in situ oil sands operations that use conventional wells and heat to extract oil too deep to be mined.
According to an independent study for National Resources Canada, petrol from minable oil sands emits on average approximately 15% more CO2 than petrol refined from conventional oil when measured from “well-to-wheel” (so including the emissions when drivers use the fuel). We have a voluntary target to halve our current operation’s GHG emissions by 2010, compared to the original project design. We are on track to meet it through a combination of buying offsets and making operational improvements in the project.
Mining oil sands requires a lot of water. However, our current withdrawals are less than 0.2% of the river’s average annual flow. As more oil sands operations are built over the coming decades, the importance of making production less water intensive will grow. We limit the amount of fresh water we take from the river, and minimise withdrawal of water at periods of low river flow. We also recycle water from the “tailings” – the mix of sand, clay and water left over after the bitumen has been removed. In 2008, we completed construction of a nearly $100 million pilot project at the mine to test a new technology for extracting more water from tailings. If successful, it would help increase the amount of water we extract, slow the growth of our tailings ponds (which in 2008 covered approximately 12km2) and speed up reclamation of the mine site. We are also supporting the development of new regulations to restrict cumulative water withdrawals from oil sands operations and protect the Athabasca River during sensitive low-flow periods.
PACING DEVELOPMENT
The long construction boom in Alberta has more than doubled the cost of new oil sands projects over the past five years. Faced with this cost escalation, and uncertainties about the new fiscal regime, we decided to slow the pace of our investment in oil sands.
We will complete the current expansion of our oil sands mine and bitumen upgrader, of which construction began in late 2006. Production is expected to start ramping up in 2010–2011, adding 100,000 barrels a day of capacity (up to 60,000 barrels a day Shell share).
However we have delayed any decision on a further expansion of our mine. We have permits to expand bitumen production by a further 215,000 barrels a day, which would bring total capacity to 470,000 barrels a day (Shell share up to 280,000). We have also applied for approval for a further 300,000 barrels a day of capacity (Shell share up to 180,000).
Slowing down now makes business sense. It could also help the labour market for skilled tradespeople in Alberta cool off and help give local governments and communities more time to prepare to manage future growth in the oil sands region. Longer term, we continue to believe the world will need the oil sands and that they can be developed economically, even in a world with CO2 pricing. We remain determined to operate our oil sands projects in economically, environmentally and socially responsible ways.
