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Here’s How Shell Can Restart Its Tar Sands Projects In Canada

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Exploring for new oil has now become a difficult task for the oil majors. Oil and gas are now mostly situated in the deep-waters, Canadian tar sands and the Arctic waters where the cost of exploration and production is very high. These high costs coupled with the lower crude oil prices make the task difficult for oil companies.

Crude oil prices last week fell again following claims by Iran to double its production if a nuclear deal was reached. The US benchmark for crude oil, West Texas Intermediate (WTI) which had gone high at $60 per barrel, has plunged again to less than $45 per barrel.

Saturday at 17:14 EDT, WTI was down 0.08% at $52.74 per barrel, while the global benchmark for crude oil, Brent was up 0.20% at $58.73 per barrel.

As reported by the Financial Post, the up Marvin Odum of Royal Dutch Shell plc’s (ADR) (NYSE:RDS.A) upstream director in the US, believes that in order for the company to start its oil sands project in Canada, the price of crude should touch the $80 per barrel mark. Mr. Odum said: “It probably needs to be in the $80 range to be interesting.” “It is a two-piece variable equation.”

In the recent wake of the falling crude oil prices, energy companies have found ways to become more efficient and significantly reduce their costs of production. However, Mr. Odum argues that Shell’s Canadian tar sands projects are way back in line as the company currently has other priorities.

Shell recently finalized its $70 billion deal with the Reading based BG Group plc. (ADR) (OTCMKTS:BRGYY). The deal still requires regulatory approval. The deal is an indication that Shell at the moment wants to invest more in Liquefied Natural Gas (LNG) rather than the Canadian Tar sands.

Mr. Odum, as reported by the Financial Post, said: “There is no particular driver to make that expansion happen right now as we look at other parts of the portfolio. He also indicated that the company’s oil sands expansion “is further back on the burner in terms of where we are investing now.”

Shell has suspended its Carmon Creek oil sands project in Canada by two years. The project was expected to have a capacity of 80,000 barrels per day. Other than the Carmon Creek project, Shell has also decided not to go ahead with its Pierre River Project. This particular project had a daily capacity of 200,000 barrels per day. Shell has also yet not approved its Jackpine expansion on which it is working in collaboration with Chevron Corporation (NYSE:CVX) and Marathon Oil Corporation (NYSE:MRO) Canada. The Jackpine expansion has a capacity of 100,000 barrels per day.

Shell has indicated that if the merger with BG Group is approved, it would look forward on divesting assets worth $30 billion. But despite claiming the tar sands project in Canada not to be a top priority, Shell pointed out that Canada holds great importance for the company. Mr. Odum said: “Canada remains extremely important country in the Shell portfolio, and it is hard to see anything changing.”

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1 Comment on “Here’s How Shell Can Restart Its Tar Sands Projects In Canada”

  1. #1 John Day
    on Jul 18th, 2015 at 19:16

    This is the way Shell would re-start the project of Carmen Creek Oil Sands Project.
    Shell is engaging two engineering companies to competitively bid against each other to lower the capital cost. Lowering cost will include tactics of reducing safety and health & safety safeguarding provisions.

    The Shell project organization and engineering organizations within the company are in charge of lowering SAFETY standards, and are rewarded to take short cuts, to get the project going.

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