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Disruptions Make Canada's Oil Sands Pitch Tougher

CALGARY, Alberta - Canada is striving to sell major consuming countries on the potential of its vast oil sands to help meet energy demand, but a recent string of output disruptions makes the job tougher, analysts said on Friday.

This week, as Prime Minister Paul Martin discussed Canada's oil potential with China's leaders, Suncor Energy Inc. said it will be at least six months before its oil sands plant is fixed following a Jan. 4 fire that halved production.

Meanwhile, operational problems at Shell Canada's oil sands upgrader have cut output to 65 percent of capacity since October.

These and other hiccups have reduced output by more than 200,000 barrels a day, nearly 10 percent of Canada's overall oil production, just as world crude supply is stretched thin.

"We have to be honest with ourselves that we have to convince everybody that we continue to be a very reliable supplier," said Gareth Crandall, a Calgary-based analyst with consultants Purvin & Gertz.

"A few of these instances make people question it a bit more, but reliability and maintenance programs and the amount of sophistication to make things failsafe are really about as good as you'll ever find."

Simultaneous outages at the multibillion-dollar plants are rare, Crandall said. But disruptions are felt quickly with synthetic crude feeding more refineries than ever.

In recent months, examining the potential of Alberta's oil sands to help meet China's insatiable thirst for energy has been a key issue for governments and industry.

Last week, Enbridge Inc. said it was close to deals with PetroChina and Sinopec that would help it advance an oil sands pipeline to Canada's West Coast. The C$2.5 billion ($2 billion) line would allow the growing supply to reach Asia via tanker for the first time.

This week, Prime Minister Martin and Trade Minister Jim Peterson signed agreements in Beijing aimed at boosting co-operation in energy.

The oil industry, which expects to shell out more than $20 billion in new and proposed projects in the coming years, is also working to access U.S. refining markets further south than its traditional customers in the Midwest.

Hence the focus on reliability of equipment already in operation. Upgraders are towers and tangles of pipes that take the tar-like crude mined from the oil sands and turn it into light oil, which is shipped to refineries.

Their northern locales mean they operate in extreme cold weather in winter and often hot temperatures in summer. As a fallback, the plants have multiple production trains, so a single disruption does not stop all output, Crandall said.

As more plants are built to tap Alberta's oil sands, which rival Saudi Arabia's conventional reserves in size, a few outages will not appear as critical, Peters & Co. Ltd. analyst Brian Prokop said.

"Once you get more of these out there, you get more standardization. When you have two or three million barrels (a day) and 100,000 or 200,000 go down, it's not as significant," Prokop said. "It becomes an issue now only because we don't have the critical mass yet."

For its part, Shell Canada expects its upgrader, which started up in 2003, to be back at its 155,000 barrel a day capacity by month-end, spokeswoman Jan Rowley said.

Other than the current outage, caused by ice that cracked some equipment, the plant has operated reliably, Rowley said.

"We're pretty optimistic that we got the design right. It had a square startup and performed very well until this last quarter when we had an extended period of difficulty," she said.

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