Tag Archives: Shell Oil

Tar Sands Going the Way of the Dodo? – Energy companies canceling tar sands projects

Repost from OneEarth.org

Are Tar Sands Going the Way of the Dodo?

Energy companies are canceling their tar sands projects.

By Brian Palmer | March 6, 2015
Photo: O.F.E.

Shell withdrew its application to extract tar sands from Canada’s Pierre River mine last week. The cancellation is news in itself, but the oil company’s decision to walk away from a massive seven-year project says a great deal about the viability of tar sands generally. Last year, the Canadian Association of Petroleum Producers cut its 2030 tar sands production forecast by 400,000 barrels per day. Last week, the energy consultancy Wood Mackenzie predicted that cash flows from tar sands would drop $21 billion in the next two years. The industry is undeniably shrinking.

Tar sands won’t disappear tomorrow, of course—most of the expense comes in opening the mine, so producers will keep operating their existing mines for several decades. New mines, however, are economically unfeasible. It’s difficult to break even in the tar sands business at current low oil prices. Over the medium term, the lack of pipeline access challenges any prospects for profitability. (That’s why the industry is so desperate for the Keystone XL and Energy East pipelines.) Looking deeper into the future, the specter of carbon taxation is enough to scare energy executives away.

All this is good news for the climate. Tar sands are the most carbon-intensive form of energy on the planet, emitting three or four times more greenhouse gas than conventional crude oil (which isn’t exactly good for the environment either). Here’s a brief rundown of all the canceled or deferred Canadian tar sands projects in recent months, and how much carbon they could have pumped into the atmosphere.

Pierre River Mine
Company: Shell
Stated reason for withdrawal: “Our current focus is on making our heavy oil business as economically and environmentally competitive as possible.”
Projected barrels per day: 225,000
Carbon saved from the atmosphere each day, in tons: 21,000

Corner Oil Sands Project
Company: Statoil
Stated reason for withdrawal: “Costs for labor and materials have continued to rise in recent years…Market access issues also play a role, including limited pipeline access.”
Projected barrels per day: 40,000
Carbon saved from the atmosphere each day, in tons: 3,700

Christina Lake Expansion
Company: MEG Energy
Stated reason for withdrawal: None given
Projected barrels per day: 150,000
Carbon saved from the atmosphere each day, in tons: 14,000

Narrows Lake
Company: Cenovus
Stated reason for withdrawal: None given
Projected barrels per day: 130,000
Carbon saved from the atmosphere each day, in tons: 12,200

Grand Rapids
Company: Cenovus
Stated reason for withdrawal: None given
Projected barrels per day: 180,000
Carbon saved from the atmosphere each day, in tons: 16,800

Telephone Lake
Company: Cenovus
Stated reason for withdrawal: None given
Projected barrels per day: 90,000
Carbon saved from the atmosphere each day, in tons: 8,400

MacKay River Expansion
Company: Suncor
Stated reason for withdrawal: “Cost management has been an ongoing focus…In today’s low crude price environment, it’s essential we accelerate this work.”
Projected barrels per day: 40,000
Carbon saved from the atmosphere each day, in tons: 3,700

Joslyn Mine
Company: Total
Stated reason for withdrawal: “Costs are continuing to inflate when the oil price and, specifically, the [net profit] for the oil sands are remaining stable at best—squeezing the margins.”
Projected barrels per day: 160,000
Carbon saved from the atmosphere each day, in tons: 15,000

* * *

Tally that up and these canceled or postponed projects represent nearly 95,000 tons of carbon dioxide staying in the ground rather than floating into the atmosphere. That’s the equivalent of taking 6.6 million cars off the road. Murmurs in the energy industry suggest that several other projects will soon be deferred or canceled, as oil prices show few signs of recovering. Stay tuned.

Oil Majors Resist Call To Boost Leadership On Climate Change

Repost from Forbes.com
[Editor: This is a MUST READ report on unsatisfactory results of a great investor effort, called the Carbon Asset Risk (CAR) initiative, (coordinated by Ceres and the Carbon Tracker initiative, with support from the Global Investor Coalition on Climate Change).  – RS]

Oil Majors Need To Boost Leadership On Climate Change

5/29/2014  |  Mindy Lubber

Earlier this month, Shell became the latest oil major to respond to an international group of investors asking the world’s largest fossil fuel companies to assess the risks they face from climate change. These investors, managing trillions of dollars in assets, are motivated by concerns that companies in their portfolios are not adequately preparing for a future of lower demand for fossil fuels as the world transitions to cleaner energy sources. Not to mention climate-related physical impacts such as rising seas, stronger storms and more severe droughts.

Norwegian oil rig Statfjord A

Like its peers ExxonMobil and Statoil, which have also responded publicly to the request, Shell says it views climate change as a serious issue, and that the company invests in carbon-reducing technologies and incorporates a carbon price in business planning. And, like Statoil, Shell calls the current international goal to limit global warming to below two degrees Celsius “desirable.”

While it is good to see these companies publicly acknowledging climate change and the need to reduce carbon pollution, Shell and its peers appear to be preparing for a world of ever rising – not declining – oil demand. Indeed, ExxonMobil, Statoil and Shell all argue that oil demand will keep growing until at least 2030. They largely ignore the grim picture painted by the Intergovernmental Panel on Climate Change of what the world will probably look like if carbon pollution continues unabated, arguing that it is impossible to turn the tide in the timeframe scientists say is necessary. As a result, the companies reject the idea that they face any substantive financial risk.

Of course, these arguments are not surprising. In fact, the companies’ approach to shareholder engagement on this issue has been a constant refrain about the essential role they play in meeting the world’s insatiable demand for fossil fuels. This perspective is short-sighted and needs to evolve.

Shell and Statoil do provide some discussion of the International Energy Agency’s scenario that shows how the two-degree goal could be achieved, which shows oil demand peaking around 2020 and then declining. But they are quick to point out that even under that scenario, the world will continue to use oil and companies will need to make new oil discoveries to meet consumer demand. Statoil comes the closest to answering investors, saying, “In Statoil we are of the opinion that we have a fairly robust project portfolio, even in the event that global or regional climate regulations were to become much stricter than what we currently expect.”

Investors know that the world is not going to stop using oil overnight, and they aren’t advocating for that either. Rather, as smart stewards of capital, investors want to know what oil projects companies are betting billions on, which may be suspect down the road. These riskier, expensive projects – like deepwater drilling and oil sands – might make sense according to the companies’ bullish oil demand growth forecasts, but would be highly questionable in a world where some of that demand growth doesn’t materialize.

This is a critical question for investors, not just because they don’t want to finance oil projects that shouldn’t go forward in a world that takes the economic threat of climate change seriously, but also because oil demand destruction is a real risk. Companies know this, but are declining to discuss it publicly.

Recent research by the Carbon Tracker Initiative (CTI) shows that, over the last decade, capital spending by the 11 largest publicly traded oil companies has increased five-fold, while their production levels have remained essentially flat. Meanwhile, despite historically high oil prices, their returns have fallen below a 30-year average of 11 percent, leading firms like Goldman Sachs to raise questions about whether companies can generate enough cash to meet their dividend and investment commitments without oil prices rising even higher. Yet, CTI shows how, in a world that tackles climate change, lower oil demand could push oil prices down to around $75 per barrel.

In its response, Shell outlines an upstream capital investment budget for 2014, including exploration expenditures of $35 billion, with the “oil” element of that being an estimated $10 billion. Indeed, over the next decade, CTI shows that the oil industry has the potential to invest an estimated $1.1 trillion for high-cost oil projects that require oil prices above $95 per barrel to be profitable. Shell accounts for more than $63 billion of that. While such projects are economically marginal even at today’s oil prices of just over $100 per barrel, they could become uneconomic if oil demand were to decline by a relatively small amount. Shell openly admits that high oil prices are needed to make such projects viable.

Despite how much certainty these companies have expressed that strong international policies on climate change are unlikely in the next few years – and we have reason to believe they’re wrong – this isn’t the only factor that could dampen oil demand. We’re already seeing increasing fuel efficiency, fuel substitution and technological advances in clean energy and electric vehicles. The oil majors themselves are already seeing flat to declining oil demand in the U.S. and other developed countries due to these factors. They see virtually all of the demand growth coming from the developing world, and argue that meeting that demand is important to improve living standards for the world’s poor. It’s a fair point.

But what is the best way to meet that energy demand, considering that climate change disproportionately affects the world’s poor? Scientists warn that hundreds of millions of people will be displaced by the end of this century due to climate impacts, increasing the risk of violent conflict and wiping trillions off the global economy. Furthermore, how much oil will the developing world actually demand if prices keep rising? Given that oil prices are high now and the industry needs them to stay that way, oil alternatives would be a safer bet as developing countries reach for the living standards of the developed world.

It’s not only fair for investors to be asking companies for more transparency around their capital spending plans – it is the fiscally responsible thing to do. We have mistakenly invested in companies and markets that were ‘too big to fail’ in the past, and we have seen the catastrophic results. The fact is that the effects of the subprime mortgage meltdown on the global economy pales in comparison to what will happen if we do not change how we invest in energy. As major players in an industry the world relies on for so much, ExxonMobil, Statoil and Shell have not yet demonstrated the kind of leadership we need from them.

Martinez Shell Refinery to refine more light Bakken crude

Repost from Bloomberg

Shell Considers Retiring California Coker Amid Shale Boom

By Lynn Doan May 19, 2014

Royal Dutch Shell Plc (RDSA), Europe’s biggest oil company, is considering retiring one of two coking units at its only refinery in California as the company seeks to run lighter crude at the plant.

The company has applied to county regulators for a permit to shut the flexicoker at the 156,400-barrel-a-day Martinez refinery northeast of San Francisco, a move that would shrink the plant’s reliance on heavy oils and cut its greenhouse-gas emissions by 15 percent, Destin Singleton, a Shell spokeswoman, said May 16. The unit helps convert the denser crude into more valuable products such as diesel and gasoline.

Shell is considering the shutdown as hydraulic fracturing and horizontal drilling unleash record volumes of light oil from shale formations across the middle of the U.S. California’s refiners, lacking pipeline access to the growing crude supplies, are bringing in the most ever by rail as they work to counter shrinking production within the state and from Alaska.

“The reality is that we are looking at each individual refinery and making economic decisions as to what is the most optimal feedstock,” John Abbott, downstream director for The Hague-based Shell, said in an interview at Bloomberg’s headquarters in New York May 16. “This is one of the most competitive assets on the West Coast of the U.S. and in California.”

Industry refining margins on the U.S. West Coast, a rough indicator of profitability, averaged $7.62 a barrel in the first quarter, almost twice the $4.07-a-barrel coking margin on the Gulf Coast, Shell said in a statement April 30.

Train Deliveries

While the Martinez refinery doesn’t have the equipment to unload oil from rail cars, it receives crude by pipeline from a complex in Bakersfield, California, that takes train deliveries, Singleton, based in Houston, said by e-mail. The refinery would continue to receive oil by pipeline and vessel using existing infrastructure once the coker is shut, she said.

Heavy crude pumped from California’s San Joaquin Valley dropped 35 cents to $95.20 a barrel, data compiled by Bloomberg at 2:01 p.m. New York time show. Light crude from North Dakota’s Bakken formation gained 82 cents to $98.59 a barrel.

Crude Mix

“Overall, heavy crudes are a big part of our current mix,” Singleton said. “We’ll be processing the same crudes we refine today, but the mix will be lighter — meaning significant reductions in greenhouse gas emissions, less electricity use, and more efficient operations.”

A delayed coker, which was installed at the refinery in the 1990s, based on air regulatory filings, will remain in service, she said.

Refiners from Tesoro Corp. (TSO) to Valero Energy Corp. (VLO) are working to bring more shale oil to their plants on the U.S. West Coast by rail. Trains delivered 395,053 barrels of oil to California in March, a record volume for that month, the most recent data available from the state Energy Commission show.

Shell is seeking permits to build a rail complex at its Anacortes refinery in Washington state that would allow the plant to unload oil from as many as six trains a week, regulatory filings show. The company has also said that it’s carrying upgraded crude to the West Coast from its Scotford oil-sands upgrader in Canada.

Crude Imports

Martinez imported 903,000 barrels of medium-to-heavy crude in February from Canada, the most recent data available from the Energy Information Administration show. The complex already processes some lighter crudes, like Bakken oil, along with heavier feedstock from California’s Central Valley, Singleton said.

Contra Costa County regulators are expected to prepare a report on the environmental impacts of the coker retirement, and the public will have a chance to comment on the plan during that process, she said.

Chevron Corp. (CVX)’s Richmond refinery, west of Martinez, is also applying to local regulators for a project that would change its crude slate. The plan would replace a hydrogen plant and increase capacity at the fluid catalytic cracker’s hydrotreater and sulfur-recovery system to run higher-sulfur oils.

To contact the reporter on this story: Lynn Doan in San Francisco at ldoan6@bloomberg.net

To contact the editors responsible for this story: Dan Stets at dstets@bloomberg.net David Marino, Richard Stubbe