(Corrects size of Surmont oil sands project in 17th paragraph
to 136,000 bpd from 100,000 bpd and in paragraph 18 corrects
capacity of Port Arthur refinery to 174,000 bpd from 225,500
* Total and Suncor re-evaluating Fort Hills, Joslyn projects
* Total Canada CEO says decisions to be made in second half
* Joint venture still active after Voyageur cancellation
By Jeffrey Jones
CALGARY, Alberta, March 28 This week's decision
by Total SA's and Suncor Energy Inc to abandon
a multibillion-dollar project to upgrade bitumen produced in the
Canadian oil sands before shipping it abroad won't be the last
rethinking of a capital-hungry oil sands project in a harsher
But the chief executive of Total's Canadian unit said on
Thursday he expects the problem of transport bottlenecks now
plaguing the northern Alberta oil sands to be ironed out by the
time his company starts up vast new mines in the region later
France's Total and Suncor, Canada's biggest oil producer,
pulled the plug on the Voyageur upgrader on Wednesday because
returns would not be high enough to justify the project, which
would have transformed tar sands bitumen into lighter oil that
can be more easily used by traditional refineries.
The companies have not said how much the upgrader would have
cost, but analysts pegged the project at more than C$14 billion
Total's Andre Goffart told Reuters that the partnership with
Suncor is still solid as the companies evaluate the remaining
projects in their joint venture: the Fort Hills and Joslyn oil
sands mines, which will now produce bitumen diluted with lighter
hydrocarbons instead of upgraded synthetic crude. The most
recent start-up estimate for Fort Hills was 2017.
"If you look at the short term, those projects would be
challenging because of the monetary netback we see right now
because of the pipeline constraints," Goffart said.
"However, within the time frame we're looking at for both
mines, we should have the logistical issue resolved, and we
should see a more normal netback for bitumen... Taking into
account those changes, both projects would be economically
The partners are expecting to make a decision on whether to
go ahead in the second half of this year, he said. Suncor has
said it will provide cost details by the end of June.
A decision to abandon these projects would raise serious
questions over the viability of new oil sands developments as
Canada strives to cement its role as a major world producer.
The Canadian oil sands are the third-largest crude oil
resource in the world after Saudi Arabia and Venezuela, and
rising output from the oil sands and from North Dakota and
elsewhere in the United States has allowed the United States to
reduce its reliance on oil from other foreign sources.
Bitumen production in Alberta is on track to increase by
more than half a million barrels a day in the next two years,
roughly a 50 percent increase from 2012, according to a report
this week by research firm Wood Mackenzie.
But the surging production has overtaxed pipeline networks
across the continent, creating a bottleneck that in January
pushed the price of Canadian heavy crude to more than $40 a
barrel under benchmark West Texas Intermediate.
The discount has shrunk steadily since then and was around
$15 under WTI on Thursday.
If TransCanada Corp's gets the green light to go
ahead with its controversial Keystone XL pipeline from Alberta
to Texas refineries, some of the pipeline pressures will ease.
The Obama administration is expected to rule on it this summer,
and if it is approved, TransCanada said Keystone XL could be in
service by 2015.
The next major tranche of oil sands output is slated for the
coming weeks with the start-up of Imperial Oil Ltd's
C$12.9 billion Kearl mining project, and the company has said it
has transport capacity and markets for the output.
ALREADY BIG PLAYERS
Suncor and Total already have large oil sands operations.
Suncor's main business produces up to 350,000 barrels a day,
more than 10 percent of Canada's overall oil output. It also has
a 12 percent stake in the nearby Syncrude Canada Ltd project and
produced about 123,000 barrels a day in the last quarter of 2012
from its Firebug operations.
Total produces bitumen from the 25,000 barrel a day Surmont
steam-driven project in partnership with ConocoPhillips
and is expanding that to 136,000 barrels a day.
Total has committed to capacity on Keystone XL so it can
ship bitumen to its 174,000 barrel a day refinery in Port
Arthur, Texas. It is also supporting the Enbridge Inc
Northern Gateway pipeline and Kinder Morgan Energy Partners'
Trans Mountain expansion, both of which would ship
Alberta crude to Canada's West Coast.
The ability to expand market access will dictate the
industry's growth plans, Goffart said.
"The main question will be the timing. The other question
will be between logistics and production capacity," he said.
Though more expensive to develop than a steam-driven
project, it is likely that Fort Hills will proceed, said David
McColl, analyst at Morningstar, but it's unclear if the 2017
startup estimate is realistic.
"I would be absolutely shocked if that was canceled. What we
really need with that project now is to understand the time line
a little bit better, and what it's actually going to cost,"
(Editing by Janet Guttsman; and Peter Galloway)