27 September 2014, News Wires – Norwegian energy firm Statoil said on Thursday it will postpone development of its 40,000 barrel per day Corner oil sands project in Alberta, Canada, for at least three years and cut about 70 jobs at its Canadian unit because of rising costs and limited pipeline space.
Corner would have been the second major development at Statoil’s Kai Kos Dehseh property in northern Alberta. The company said its existing thermal oil sands operation, the 20,000 bpd Leismer project, is not affected by the postponement.
Statoil said it decided to delay construction of the project because inflation was pushing up the cost of labor and materials, while tightness in pipeline space to the U.S. market was pushing down the price of its oil.
“Costs for labour and materials have continued to rise in recent years and are working against the economics of new projects,” Staale Tungesvik, Statoil’s country manager for Canada, said in a statement. “Market access issues also play a role, including limited pipeline access which weighs on prices for Alberta oil, squeezing margins and making it difficult for sustainable financial returns.”
Statoil is the first company in recent years to delay a thermal project in Alberta’s oil sands, the world’s third largest crude reserve, because of uncertainty over costs and oil prices. Thermal developments, which pump steam into the ground to liquefy thick bitumen deposits, are much cheaper to build than the large-scale mining projects also used in the region.
However, earlier this year Total SA suspended work at its C$11 billion ($9.9 billion) Joslyn oil sand mine as it looks for ways to cut costs at the troubled project.
While benchmark oil prices have dropped 15 percent over the past three months, Canadian crude prices have been relatively healthy throughout the summer, tightening to around $13 per barrel below U.S. benchmark crude in September, the narrowest differential in 14 months.
But with the West Texas Intermediate benchmark sliding to just above $90 per barrel earlier this month, the outright price of Canadian crude is nearing the breakeven cost for some oil sands projects.
Still, few of Statoil’s peers have noted that inflation is a concern and many have turned to crude-by-rail to ship their oil to refineries. However access to skilled labour remains an issue for oil sands operators, particularly those who do not have continuous expansion underway.
“With Statoil it’s been a while since they expanded so starting up from a standstill is harder than if you are continually expanding,” said Michael Dunn, an analyst at FirstEnergy Capital. “Between not having contractors lined up and not being first in the queue with your suppliers, it makes it difficult.”