Extracting bitumen from materials variously called tar-sands or oil-sands, is highly demanding in terms of energy costs, specifically natural gas and also in the amount of water that the process uses. In Shell's annual report published on Monday, it is noted that the operating costs of the Athabasca Oil Sands project in Alberta, Canada have risen by around 50% since 2005, and yet the actual production of bitumen has no more than levelled-off and may have fallen to some extent.
The profits fell sharply last year as a result of a fire which caused a temporary decline in the output of a degrader - an apparatus that turns the crude bitumen into synthetic crude oil. This led to a decrease in earnings from the project from $651 million to $582 million, and overall production was down from 95,000 barrels a day in 2005 to 81,000 barrels in 2007. The operational costs of the project have risen from $664 million in 2005 to $967 million in 2007.
Oil-sands represent 10% of Shells' total holding of 11.9 billion barrels. Shell is keeping quiet about the development costs of the oil-sands, which also include an enlargement of the operation to produce another 100,000 barrels a day from them. Shell's finance director, Peter Voser, has commented that there was an overall internal inflation of around 10% per year, imparting an operational cost of $20 - $25 a barrel of synthetic crude oil.
Shell has stated that it has managed to replace entirely its oil and gas production from 2007 with new reserves, which remain at 11.9 billion barrels according to its Chief Executive, Jeroem van der Veer. The company added 1.5 billion barrels to its holdings last year, which amounts to a reserve replacement of 124%, and is higher than the average for five other major oil players, which is 108%. A considerable amount of that increase is from gas-reserves, particularly in Qatar, a nation with huge reserves of natural gas, and which Britain aims to provide 20% of its gas-requirement from, in liquid form and transported to the giant gas-depot at Milford Haven in South West Wales.
Other sources are from the Australian North West Shelf and the Norwegian Ormen Lange field in the North Sea.
"Shell counts rising cost of squeezing oil from sand in Canada," By Carl Mortishead, Timesonline. http://business.timesonline.co.uk/tol/business/industry_sectors/natural_resources/article3572646.ece