Royal Dutch Shell PLC is scrapping a massive steam-driven oil sands project, blaming the collapse in oil prices and a lack of pipelines to move crude from Alberta to global markets.
The Anglo-Dutch major late on Tuesday said it would halt construction of the 80,000 barrel-per-day Carmon Creek project located in the province's northwest, becoming the latest company to walk away from a major growth project as the rout in U.S. and global oil prices shows few signs of easing. Shell said the move will result in a $2-billion (U.S.) charge on its third-quarter results.
"We are making changes to Shell's portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices," chief executive officer Ben van Beurden said in a statement. "This is forcing tough choices at Shell."
The move is fresh evidence that some of the world's largest energy companies are rethinking growth prospects in Alberta's oil sands, as pipeline shortages and weak prices hamper financial returns in one of the priciest extraction zones in global oil.
It marks another retreat for the European major from northern Alberta. Earlier this year, it mothballed a 200,000 barrel-per-day oil sands mine called Pierre River, joining a long list of companies that have slammed the brakes on big-ticket growth projects to cope with plunging commodity prices.
Shell said its decision reflects, in part, "the lack of infrastructure to move Canadian crude oil to global commodity markets." The company said it would continue to study options for the asset but offered no new timeline for development.
In recent years, the energy industry has blamed protracted delays to export proposals for sapping billions of dollars from government and corporate coffers. Several multibillion-dollar plans for Canadian oil, including Enbridge Inc.'s Northern Gateway and TransCanada Corp.'s Keystone XL, are awaiting necessary clearances to start building, years after they were first discussed.
Meanwhile, U.S. oil prices remain pressured by oversupply concerns and tepid demand. U.S. crude on Tuesday slumped 78 cents to $43.20 per barrel, retracing lows last seen in August and well under levels analysts say are needed to justify investment in high-cost oil sands projects.
Shell joins companies such as Cenovus Energy Inc., Norway's Statoil ASA and Total SA of France, in scrapping investments in the province, which has been rocked by the plunge in commodity prices and the resulting slide in energy royalties.
On Tuesday, NDP premier Rachel Notley said the provincial deficit would reach $6.1-billion (Canadian) this year, with energy payments forecast to drop to $2.7-billion. A year ago, the provincial royalty haul was $8.9-billion.