The energy giant has delayed starting up the project till 2019. “At $45 a barrel, that is a far larger percentage (of revenue) and is likely the difference between profitable and unprofitable on numerous assets”, CAPP President Tim McMillan said in September, referring to the discount.
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Shell said that the decision to scrap the project was due to “uncertainties”, including “the lack of infrastructure to move Canadian crude oil to global commodity markets”.
Shell has abandoned the project after careful review of the potential design options, updated costs, and the company’s capital priorities. “This is forcing tough choices at Shell”, said Chief Executive Officer, Ben van Beurden.
Still, the company would need a rebound in oil prices to make the project viable, a rebound that never came. Brent crude, the worldwide benchmark, has traded below $50 a barrel in recent months, down by more than half from its 2014 peak.
A digger extracts oil sands crude from the Athabasca Oil Sands Project in Alberta, Canada, in this 2009 photo.
In February 2015, Shell withdrew its application for the 200,000-bpd Pierre River oilsands mining project to focus on the projects that were already under development, such as Carmon Creek, for which the company had already made a positive final investment decision.
Shell has also cited $70 a barrel as the point at which oil drilled in the Alaskan Arctic could compete in global markets.
Supporters of the controversial pipeline, which would see Alberta oil sands travel to the U.S. Gulf Coast, argued that the project would have no effect on carbon emissions because the oil sands would be developed with or without Keystone XL.
The company’s outlook expects prices of $60 per barrel through 2017 and officials said that they could remain below $70 per barrel into the early 2020s. In Alaska, Shell had spent $7 billion searching for oil before making the decision to pull out. The Oil-Sands projects are expensive, taking much time for construction. Analysts this week are projecting weaker third-quarter results for the Canadian energy sector, which kicks off its earnings season late Wednesday.
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“A lot of that slowdown in the growth profile of the oil sands is not happening until later, the end of this decade and beyond”, Mike Burt, director of industrial economic trends at the Conference Board of Canada in Ottawa, said in a phone interview.
