Shell delays Carmon Creek project

November 28, 2008 CALGARY -- Shell has withdrawn its application for regulatory approval for its Carmon Creek oil sands project in Canada.

The company had originally submitted an application for government sanction in December 2006 and now plans to resubmit it at a later date in order to reflect changes in the project. No estimates as to when the new application will be submitted have been offered by the company.

Shell will now carry out a review of the Carmon Creek project to look for opportunities to reduce costs and improve profitability, according to Calgary-based spokesperson Adrienne Lamb. Under the original project plans, Carmon Creek was to have been a 100,000 barrel per day (b/d) expansion of Shell's 12,000b/d Peace River oil sands development and it could still reach that size. We expect Shell to make an investment decision on Carmon Creek in 2010.

This is the second such development the company has postponed in as many months as the effects of the global financial crisis continue to make themselves felt in the industry, particularly at the margin. On October 30 Shell announced that it was delaying a planned expansion of its Athabasca oil sands project. The company is currently in the process of completing a CAD12.8bn project to raise output from 155,000b/d to 250,000b/d. Plans to expand by a further 100,000b/d in 2009 have now been put on hold, however, while the company assesses the viability of the scheme in the light of inflated labour costs and raw materials prices. The sharp correction in oil prices, coupled with declining oil demand in the US, has called the economics of several oil sands projects into question, with French major Total recently saying that it needed an oil price of US$90/bbl to make an acceptable return of 12.5% on its oil sands projects. We expect to see further announcements of delays and cancellations of oil sands developments in Canada while oil prices remain depressed and the global financial crisis continues to goad fears over declining demand.

© 2008 Business Monitor International.