Imperial Oil plan meets heavy traffic

CALGARY — The Globe and Mail

Imperial Oil is rolling out an elaborate and costly plan to get a massive shipment of stranded equipment back on the road in Idaho, amid a dispute that illustrates the growing friction over oil sands development.

Huge pieces of equipment, shipped from South Korea and destined for Imperial's Kearl oil sands project in Alberta, have spent months sitting in an Idaho port. The company's plan to truck 205 giant modules through Idaho and Montana has been stymied by delays in transportation permits. A quasi-judicial hearing for Imperial and its opponents remains a month away, scheduled for April 25.

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To prevent construction delays at the $8-billion Kearl oil sands project, Imperial has started taking apart some of the huge modules, which are sitting in the Port of Lewiston, to make smaller and lighter truckloads. This would allow the company to take an alternative route that is clear of overpasses.

The modules are pieces of equipment that will form part of the bitumen-processing unit, which prepares heavy crude to be shipped by pipeline. The largest module and its accompanying trailer and trucks would weigh 266 tonnes - smaller than Imperial's original plans, but downsized to meet new weight restrictions on a bridge in Idaho. The maximum height would be nine metres, with a width of seven metres.

Imperial's struggle highlights how oil sands companies are facing an expanding constituency of opponents and risks resulting from the large scope of oil sands projects, and shows the lengths energy companies will go to in order to keep their projects on track.

Imperial, which is controlled by Exxon Mobil Corp., is spending about $500,000 per module to disassemble, transport and reassemble the pieces at its Kearl site. The extensive transportation effort is pushing up the cost of the project and prompting the company to redesign some of the components necessary to build the mine.

"There are a lot more risks than people think [for companies developing oil sands projects]" said Laura Lau, an energy and resources fund manager at Sentry Select Capital Corp. in Toronto. She said companies and investors usually expect problems in the form of "Greenpeace, carbon dioxide and dead birds."

Opponents of the Idaho-Montana route - which is free of overpasses, making it an attractive passageway for huge loads - are upset about traffic delays and worried about potential danger to sensitive areas such as the Lochsa River, among other concerns. Imperial does not expect to encounter backlash regarding the alternative route because it is not unusual for the interstate highways to host oversized loads, and the modifications Imperial is working on will put its truckloads in line with permit rules.

Part of Imperial's pitch to use its preferred route, which involves U.S. Route 12, involved making highway improvements, considering environmental hazards, and scheduling frequent stops to let traffic pass. However, its pitch may be hampered by ConocoPhillips, after that company scraped a rock outcropping in February as it used the highway to move massive pieces of equipment for a refinery in Montana.

"At significant cost and complexity in terms of technology and engineering, we're dissembling these modules such that they could be transported via interstate," Pius Rolheiser, a spokesperson for Imperial, said in an interview. "At the same time, we're continuing to pursue the permit process [for our preferred route]in Idaho and Montana."

If Imperial has to rip apart and reassemble all 33 modules currently sitting in Lewiston, it will increase the number of truckloads from 33 to 60. Some of the 205 modules on order from South Korea have been redesigned to make them small enough to truck on interstate highways, thus avoiding controversy and dismantling. About 13 of these smaller modules have already arrived at the Kearl site, Mr. Rolheiser said.

The change of plans will ensure Kearl's timeline is not thrown off track, he added. Imperial started its backup plan in the beginning of March.

Roughly half of the modules are still being manufactured in South Korea, and about 80 per cent of the rest of Kearl's pre-manufactured equipment is being built in Alberta.

Soaring labour costs burned the oil sands industry during the boom in 2007 and 2008, and inflation is once again a worry.

Despite its woes - it would cost about $16.5-million if all 33 modules in Idaho had to be shipped on the alternative route, and an unknown amount more as the remaining equipment arrives from South Korea - Sentry Select's Ms. Lau does not think it will seriously hurt the Calgary-based energy company, arguing that it has one of the strongest balance sheets among any of the oil and gas players. However, she does believe this delay and its associated costs are part of the reason why Imperial has not provided a recent budget update for Kearl.

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Imperial Oil
IMO-T
54.46 -2.349 % 1,420,175