Shell abandons oil sands project in Canada, takes $2bn charge

The move, said the company, comes after a review of the project’s design and costs and where it stacks up against other projects Shell has in its portfolio.

“We are making changes to Shell’s portfolio mix by reviewing our longer-term upstream options world-wide, and managing affordability and exposure in the current world of lower oil prices. This is forcing tough choices at Shell,” the company’s CEO Ben van Beurden said in a statement.

The decision reverses a March announcement, in which the European energy giant warned it would slow down the development of Carmon Creek, an 80,000 barrel-per-day project, as a consequence of low oil prices.

But now Shell is saying that given its updated cost estimates and its overall plans for capital spending, Carmon Creek “does not rank in its portfolio at this time”, meaning that it felt it had more attractive places to commit the funds.

Difficult market access has long been an issue for Alberta’s oil sands producers, but Shell is one of the first companies to publicly cancel a project as a result of pipeline constraints.

The decision also comes as US President Barack Obama continues to delay his decision on whether to approve the Keystone XL oil pipeline, which would transport crude from Alberta to the Gulf of Mexico.

While Obama has not ruled it out, analysts believe he may never make a decision either way, in spite of pressure from Republicans and the oil industry. He has cited environmental concerns as one of the reasons for the long-dragged process.

Meanwhile, proposed pipelines inside Canada, such as the Energy East project heading east from Alberta and the Northern Gateway heading west, have faced relentless opposition from local communities.

Carmon Creek is the second large project Shell has cancelled since August, when it ditched a $7 billion effort to drill for oil in the Arctic Ocean north of Alaska.