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The Globe & Mail (Canada): Shell sees soaring costs

The Globe & Mail (Canada): Shell sees soaring costs

“Shell Canada Ltd. now expects the next phase of expansion at its Athabasca oil sands project in northern Alberta to cost about $7.3-billion, nearly twice as much as estimates released last fall.”

Posted Wednesday 10 August 2005

Canadian Press

CALGARY — Shell Canada Ltd. now expects the next phase of expansion at its Athabasca oil sands project in northern Alberta to cost about $7.3-billion, nearly twice as much as estimates released last fall.

Calgary-based Shell said Tuesday its first major expansion at the Athabasca project, still targeting a 100,000 barrel daily production boost, would now include “over-building” of common infrastructure to make further expansions cheaper and easier.

“The scope and scale of the expansion has been modified to include pre-building of infrastructure and utilities to support our longer-term goal of 500,000 barrels per day,” Shell spokeswoman Janet Annesley said Tuesday.

Athabasca is expected to produce an average of 150,000 barrels of oil-laden bitumen daily in 2005.

But the company has a long list of de-bottlenecking projects and expansions planned for the megaproject that would double this output by the end of the decade alone.

Last September, when Shell unveiled its far-reaching expansion plans, the rough cost estimates for the first phase were “in the range” of $4-billion.

Along with the larger scope for the project, the higher costs for steel and super-heated demand for labour in Northern Alberta will significantly boost the expansion price tag.

“While cost estimates will not be finalized for another year, it is clear that there is a significant upward trend in construction costs due to the heated global market for engineered equipment and bulk materials,” the company said in a statement.

The company said costs for the first expansion “could be up to $200 per annual barrel of production.”

In comparison, the original Athabasca project cost about $100 per barrel of yearly production.

“That was a different project at a different time,” Ms. Annesley said in an interview with The Canadian Press.

But even the original project endured massive cost overruns.

Originally priced at $3.8-billion, Athabasca’s final bill was 50 per cent higher at $5.7-billion — blamed primarily on engineering costs and a labour shortage in the booming Fort McMurray, Alta. region.

Shell is the operator of the Athabasca project with a 60 per cent stake. The other two partners with 20 per cent each include Chevron Canada and Calgary-based Western Oil Sands.

In anticipation of this major expansion at Athabasca, Vancouver-based Terasen Inc. announced earlier this week that it will start initial work to double capacity on its Corridor pipeline, which connects the oil sands project to Shell’s refinery on the outskirts of Edmonton.

Terasen did not give cost estimates for the Corridor expansion, saying only that it would be “a significant capital investment,” likely significantly higher than the $700-million spent building the original line between 1999 and 2002.

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