Credit crunch hits capital investment in the oil sands
Oil sands developers are putting out signals that fresh starts on new projects will slow down even if stock markets and oil prices stage speedy recoveries.Time outs are being called to see if inflated construction costs will drop, and to await delayed decisions on federal greenhouse gas emissions policy.
Cautious notes are being sounded everywhere including celebrations such as plant openings. “We need to see a little bit of stability,” Nexen Inc. president Charlie Fischer told a fall ribbon-cutting event that officially launched production by his firm’s Long Lake partnership with OPTI Canada Inc.
A decision on building planned additions that will double output by the plant south of Fort McMurray, originally planned for this fall, has been postponed until further notice, Fischer and OPTI president Sid Dykstra confirmed. “We’d rather be prudent,” Fischer said.
“The current crisis makes little real difference,” Fischer said. “We were already waiting on the federal government’s carbon-dioxide policy.” Prime Minister Stephen Harper put off critical decisions that will affect oil sands economics and technology by calling the Oct. 14 election, Fischer observed. Time out is also needed to establish reliable performance by the $6-billion first stage of Long Lake and obtain regulatory approvals for additional bitumen extraction, he added.
The ribbon-cutting event kept alive a sometimes embarrassing industry tradition of rough starts. Fischer and Dykstra acknowledged reminders by their operation that oil sands technology is anything but easy to make run smoothly. Turning on Long Lake’s bitumen upgrader was delayed by technical glitches among six plants in its production line. Minor but annoying power outages made the ceremony stage rely on backup power supplies for lights and video projectors.
Stumbles are routine in starting up large oil installations everywhere Nexen operates from the North Sea to northern Alberta, Fischer said. At Long Lake, “we’re not finding any things that are show stoppers.” Hitting the first-stage production target of 60,000 barrels per day of premium synthetic oil could take more than a year, Dykstra and Fischer indicated.
Dykstra estimated Long Lake’s operating costs will be as little as $20 per barrel, or $10 below the industry average thanks to a technical breakthrough that replaces natural gas with synthetic fuel extracted from bitumen. “We can stand very low oil prices,” the OPTI president predicted.
Other bitumen belt operations made announcements that, while slowing down the overall industry development schedule, stood out as cases of resilience by historical standards. Fort McMurray veterans noted there are no new counterparts to the spectacular deaths of the bygone Alsands and OSLO megaprojects after oil prices hit the skids in the 1980s and early ‘90s.
Suncor Energy Inc. announced a budget of $3.6-billion for its Voyageur plant expansion project in 2009 alone, although the firm will cut total spending by about one-third next year to $6 billion. “Our aim is to ensure we are living within our means during a time of market uncertainty, while also making strategic spending decisions that will allow us to continue on our growth path,” said Suncor president Richard George.
Petro-Canada, UTS Energy Corp. and Teck Cominco Ltd. said they will continue planning bitumen mining and extraction parts of their Fort Hills megaproject but delay making a decision on a synthetic-oil upgrader. The move postpones about $10 billion in forecast total construction costs, but keeps planning work going on an estimated $13-billion to $15-billion majority of the development.
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