August 26, 2010 / 3:55 PM / 9 years ago

UPDATE 2-Shell tests method to reclaim oil sands waste

* Atmospheric drying method aimed at speeding reclamation

* Wins approval for demonstration plant

* Tailings ponds a major source of controversy (Adds executive comments, details, background)

By Jeffrey Jones

CALGARY, Alberta, Aug 26 (Reuters) - Royal Dutch Shell Plc (RDSa.L) said on Thursday it was testing a new method of speeding up reclamation of toxic waste ponds at oil sands mines, which are a source of tension between oil companies, environmentalists and regulators.

Shell, which runs the 155,000 barrel a day Athabasca Oil Sands Project in northern Alberta, said it won regulatory approval this month for a commercial-scale test of what it calls an “atmospheric fines drying” technique for dealing with tailings.

It is one method the oil major hopes will help it and the rest of the industry solve the problem of expanding tailings ponds and meet newly tightened rules surrounding them.

In fact, Shell will offer its findings free to other developers with “no strings attached” as the industry seeks to show regulators and environmental critics it is doing all it can to solve the problem, John Broadhurst, Shell Canada’s vice-president of development for heavy oil, said.

The company sees it as one of many solutions it will use. It has spent C$100 million ($94 million) developing tailings technology since 2006, officials said.

“There’s no silver bullet. This won’t be the only option that we employ at the site. There will probably be a number of options over time,” Broadhurst said.

Tailings ponds are expansive man-made lakes that hold water, leftover bitumen, clay and heavy metals from the oil sands production process. They are a major source of friction in the battle over the environmental impact of developing Canada’s oil sands, the largest crude source outside the Middle East.

With Shell’s method — one of several now being testing by such industry players Suncor Energy Inc (SU.TO) and Canadian Natural Resources Ltd (CNQ.TO) — a barge collects mature fine tailings, or fines, from the pond at the company’s Muskeg River mine and moves them to a drying area.

The fines are mixed with chemical agents and placed on a slope to help speed up the release of water from the clay. The water runs down to a collection area and is returned to be reused in the production process.

The remaining deposits are dried further to meet reclamation requirements, the company said.

Tailings ponds made headlines in 2008, when 1,600 ducks were killed after setting down on one at Syncrude Canada Ltd’s operation in northern Alberta. In June, a judge found Syncrude guilty of the deaths.

Alberta’s Energy Resources Conservation Board has tightened regulations for tailings ponds, but environmentalists have criticized it for approving projects they say do not meet the new guidelines.

This week, green groups challenged the ERCB’s approval in April of Syncrude’s tailings management plan, saying it came up short of the new regulations, known as Directive 74.

Shell has submitted tailings management applications to the board for its Muskeg River and Jackpine mines.

John Abbott, executive vice-president of Shell’s heavy oil business, declined to say whether current technology allows any developer to meet the tailings reduction targets that the directive spells out in the early years.

“All of the oil sands operators accept the fact that Directive 74 is a very challenging directive and I think that’s the right thing,” he said. “It does need a suite of technologies.”

Shell owns 60 percent of the Athabasca Oil Sands Project. Its partners are Chevron Corp (CVX.N) and Marathon Oil Co Corp (MRO.N) with 20 percent each. (Editing by Rob Wilson and Peter Galloway)

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