Engineering News

Shell Scraps Sarnia Refinery Plans
Tuesday, July 8, 2008

Royal Dutch Shell PLC (RDSA) said Tuesday it is scrapping proposals to build a new heavy oil refinery near Sarnia, Ontario, blaming current market conditions and inflationary pressures.

In 2006, the Anglo-Dutch major said it was considering building a facility able to process up to 250,000 barrels a day at its existing Sarnia Manufacturing Center near the U.S.-Canada border.

The decision comes "after a comprehensive assessment of all aspects of the proposed project, including the current project execution environment, market conditions and the current inflationary pressures across the oil and gas industry," Shell said in a statement.

Surging material costs and a global squeeze in key parts and labor contributed to Shell's decision, along with forecasts of future demand, rather than the recent credit crunch, said Graham Boje, vice president at Shell Canada.

"There was no one thing that you can say was a predominant factor - we're continually assessing our projects ... and we decided that this project at this time is not right," Boje said.

The existing facility, located 10 kilometers south of Sarnia in St. Clair, will continue to process about 72,000 barrels a day, he added.

The turmoil that gripped financial markets last summer has tightened credit availability for other projects, leading to delays. Privately-held North West Upgrading Inc. has halted construction on its C$4.2 billion oil sands processing plant as it ekes out existing funds, likely delaying start-up by a year to 2012.

Newfoundland & Labrador Refining Corp. said in March tight credit conditions could also slow the progress of Canada's first new refinery in more than two decades.

Earlier Tuesday, Shell Canada Country Chair David Collyer said the company could scrap plans for a C$27 billion oil sands processing facility in Alberta, instead retooling its U.S. west and Gulf coast facilities to handle it instead. The Sarnia decision is entirely unrelated to these proposals, spokeswoman Denita Davis said.

Source: Dow Jones Newswires

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