Shell halts Carmon Creek oilsands project over price, Canadian crude pipeline

Oil sands are a few of the highest-cost producers of crude in the world, and have been hard hit by lower prices. Most of these projects need oil to fetch $80 a barrel to be profitable.

Royal Dutch Shell will halt construction of its Carmon Creek thermal oil sands venture in Canada due to “uncertainties” facing the project, including a lack of infrastructure.

“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 stated. “This is forcing tough choices at Shell”, CEO Ben van Beurden said in a release.

The US benchmark is sitting just above $45 a barrel, down 57 percent from its high previous year.

A digger extracts oil sands crude from the Athabasca Oil Sands Project in Alberta, Canada, in this 2009 photo. According to Lorraine Mitchelmore, President of Shell Canada, to have profit, Brent needs to be around $70 per barrel. “At $100 a barrel it was a big concern”.

Shell shocked the energy industry last month when it announced it would stop exploring for oil in Alaska’s Chukchi Sea. In Alaska, Shell had spent $7 billion searching for oil before making the decision to pull out. Green groups have long opposed Canadian oil sands development for similar reasons.

Energy producers are cancelling or delaying projects as a crude price slump forces them to prioritize spending. The tarry mud-like substance must be mined or melted out of the ground, then thinned with chemicals and natural gas so it can flow through pipelines.

“With this new Shell announcement, 18 future oil-sands announcements have been delayed this year”, Jackie Forrest, vice-president of Calgary-based ARC Financial Corp., said in a phone interview.

A truck carrying a full load drives at the Shell Albian Sands oilsands mine near Fort McMurray, Alta.

It marks another retreat for the European major from northern Alberta. Given that much of the construction for new projects was scheduled for the coming years, the decreased work is expected to crimp Canada’s gross domestic product growth past 2020. Norway’s state-owned oil giant Statoil SA last fall shelved a multibillion-dollar development for at least three years, pointing to rising costs and the lack of pipelines. Since the start of this year, it anticipated problems related to cost and design of the project.