UPI Energy Watch

China suspends $3.8B Canadian oil sands project

China National Petroleum Corp. plans to discontinue its $3.8 billion oil sands project in Canada, Song Yiwu, vice general manager of its unit CNPC International Ltd., was quoted saying in local news reports.

CNPC's PetroChina secured a memorandum of understanding with Canada-based pipeline company Enbridge Inc. on the project as early as April 2005.

Enbridge has pipelines that span as long as 8,400 miles and transport fuel oil and solids of more than 2 million barrels.

The oil sand project consisted of a petroleum export pipeline and a solid import pipeline as well as terminal facilities, according to the project plan of Enbridge.

The project was supposed to become operational in 2009 or 2010, and the transport capacity of crude oil is expected to reach 40,000 barrels per day, while half of the crude was to be transported for CNPC, but the daily supply volume cannot exceed 25,000 barrels.

Instead, Enbridge suddenly announced in November last year that it will postpone the operation of the project to 2012 and 2014 and focus on boosting pipelines to the U.S. market since the company had signed a cooperative agreement with U.S. oil giant ExxonMobil.

In January 2007 CNPC secured the right to exploit 11 blocks in Alberta, where the asphalt content is expected to reach 2 million barrels. This is also the first oil sand project obtained by a Chinese company with the main exploitation right.

But project delays forced CNPC to suspend the exploitation of oil sands in Alberta.

China National Offshore Oil Corp. and CNPC also agreed to invest in Canadian oil sand companies MEG and Northern Lights.

But high exploitation cost was a major factor in CNPC's decision to suspend its investment in the oil sand project. Other factors included high labor cost, law cost and environment cost.

After the withdrawal from the project, CNPC said it will shift the focus to two heavy oil production devices in Venezuela.

Shell net profit climbs 18 percent

Royal Dutch Shell reported Thursday an 18 percent increase in second-quarter profits.

Gains from Shell's refineries were able to offset the impact of pumping out less oil than last year.

The company saw a profit to $8.67 billion from $7.32 billion in the same period last quarter. Revenue rose to $84.9 billion from $83.1 billion.

Violence in Nigeria has led to a 2 percent drop in production to 3.18 million barrels of oil equivalent.

Due to what Shell called the "security situation," 195,000 barrels of oil a day were shut in, while it experienced less demand in Northwest Europe due to continued warm weather, the company said.

It sold its oil for $63.92 a barrel -- almost the same as last year -- while gas prices fell 2 percent.

Shell, however, benefited from strong refinery margins, with an unusually high number of refinery outages in the industry as well as continued gasoline demand keeping prices high.

Mexico to invest $76.5B in oil, gas projects

The Mexican government plans to invest $76.5 billion in its oil and gas industry in the next five years to slow declining production rates and find new oil reserves.

The figure represents 32 percent of the entire 2007-2012 national strategic plan.

State-owned Pemex also plans to increase investments to conduct oil and gas exploration and develop new fields in the Gulf of Mexico as current oil production is predicted to dwindle.

The new Mexican administration aims to minimize the decline in Mexico's oil output from last year's highs of 3.25 million barrels per day to 2.5 million bpd in 2012.

The government also wants to maintain natural gas production at around 5 billion cubic feet per day to feed growing domestic demand. Development of the remaining oil reserves in the large Cantarell and Ku-Maloob-Zaap fields is a major part of Mexico's investment plans.

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Closing oil prices, July 26, 3 p.m. London

Brent crude oil: $77.28

West Texas Intermediate crude oil: $76.88

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(e-mail: AMihailescu@upi.com)