Shell moves to slow Canadian oil sands project

CALGARY, Alberta (Reuters) - Royal Dutch Shell Plc RDSa.L is delaying another Canadian oil sands project, saying on Thursday it has withdrawn a regulatory application for its 100,000 barrel per day Carmon Creek thermal project as it looks to shave costs by revamping the project.

The delay is the latest blow to what had been an ambitious schedule of projects for Canada’s oil sands. The oil sands region of northern Alberta contains the largest oil reserves outside the Middle East, but they are technically challenging and expensive to extract.

Shell, one of the biggest players in the oil sands, last month delayed an expansion of its oil sands mining operation when costs rose and oil prices fell.

Adrienne Lamb, a spokeswoman for the company, said Shell is reviewing and redesigning the Carmon Creek project and plans to submit a new application to regulators. The company hasn’t yet decided when that will take place.

“The review is looking at opportunities to reduce costs and improve the profitability of the project,” Lamb said. “As a result of that we expect there will be some changes ... Rather than update the application we decided the best path forward is to submit a new application.”

Shell had been expected to make an investment decision on Carmon Creek in 2010. However Lamb said that will now be delayed because of the changes and the company hasn’t decided on a new schedule.

Shell had not released a cost estimate for the project, which was to have been built in two 50,000 barrel per day tranches.

Unlike the company’s mining operations, Carmon Creek would use thermal techniques to produce the reserves, pumping steam into the ground to liquefy the tar-like bitumen so that it can be pumped to the surface.

Along with Shell, Suncor Energy Inc SU.TO, Nexen Inc NXY.TO, Petro-Canada PCA.TO, Canadian Natural Resources Ltd CNQ.TO and others have said they'll delay or defer projects in the region because falling oil prices have squeezed profits while costs stay high.

A shortage of skilled labor in the remote region has helped push up costs as companies compete for a small pool of tradesmen and contractors.

Reporting by Scott Haggett; editing by Peter Galloway