Shell Backs Out of Alberta Oil Sands Project

Royal Dutch Shell's recent announcement may speak volumes for the future of the Alberta tar sands -- at least for now. On Monday, the oil company announced that it was pulling the plug on its massive 200,000-barrel Pierre River mine project, which also happens to be the largest of its kind in the Alberta oil sands.

Pierre River isn't the only oil sands project the company operates, however. It also runs the Muskeg River mine and the Jackpine mine, which together account for 17 percent of Canada's oil production. The Athabasca oil sands project, which contains these mines, is a joint development between Shell, Chevron and Marathon Oil.

On Monday, Shell Canada President Lorraine Mitchelmore downplayed the significance of the decision. "The Pierre River Mine (PRM) remains a very long term opportunity for us, but it’s not currently a priority.” Mitchelmore also serves as a vice president of heavy oil for the company. "Our current focus is on making our heavy oil business as economically and environmentally competitive as possible. We will continue to hold the leases and can reapply in the future when the time is right."

Analysts have drawn significance from the timing of the announcement, which came the day before President Barack Obama vetoed the controversial Keystone XL bill. The president warned that he would veto any Congressional bill that moved the pipeline project forward before environmental impact studies were completed. The pipeline, a permanent conduit for oil produced in the Athabasca, would cross states that serve as the U.S. breadbasket for food production and skirt the eastern edge of the Ogallala aquifer, a water source for 2 million residents of eight states.

But Shell's pullout also comes at a time when the company is under increasing environmental scrutiny. In January, the Dutch company agreed to pay $83.4 million to residents in Niger Delta for two 2008 oil spills that devastated the town of Bodo, Nigeria. It is the largest oil spill payout in Nigeria's history. The settlement follows years of negotiations and will cost Shell considerably more than the $6,000 payment it initially offered the town of 15,000 residents.

It also follows Shell's decision to cut 300 workers from its oil sands bitumen projects, a reflection of plummeting oil revenues at the pump.

"It’s no secret the oil sands industry has been facing challenges for some time," Simone Marler, who serves as a spokeperson for the Shell Albian oil sands project, told Fort McMurray Today last month. "Recent oil prices have added to that pressure. We’ve been making tough choices along the way."

According to Shell, however, "Employment impacts [of the withdrawal from Pierre River] will be very limited."

This isn't the first time that the company halted the Pierre River project. In February 2014 it put a hold on the project, saying it needed to reassess its direction. Although Pierre River was approved by the Canadian Environmental Assessment Agency as being in the public interest (a necessary green flag for this project), the company faced an uphill battle with  both environmentalists and the government. At the same time, it was under challenge by Metis and First Nation communities, who said they would be affected by the company's attempt to mine out 21 kilometers (14 miles) of the Muskeg River.

In January of this year, the federal government rejected a First Nation band claim that it didn't have adequate consultation in the proposed expansion of the Jackpine mining development. We'll be waiting to see whether Shell's hopes for expansion of these projects increase now that its Pierre River endeavor is out of the way.

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