REFILE-Shell tests method to reclaim oil sands waste

(Refiles to fix typo in headline)

* Atmospheric drying method aimed at speeding reclamation

* Wins approval for demonstration plant

* Tailings ponds a major source of controversy

CALGARY, Alberta (Reuters) - Royal Dutch Shell Plc said on Thursday it was starting up a demonstration project to test a new method of speeding up reclamation of toxic waste ponds at oil sands operations, 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 received regulatory approval this month for a commercial-scale test of what it calls an "atmospheric fines drying" technique for dealing with tailings.

Tailings ponds are expansive man-made lakes that hold water, leftover bitumen, clay and heavy metals from the oil sands production process. They have become 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.

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

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

With Shell's method -- one of several being testing by industry players -- a barge collects mature fine tailings, or fines, from the pond at the company's Muskeg River mine and moved 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.

Shell owns 60 percent of the Athabasca Oil Sands Project. Its partners are Chevron Corp and Marathon Oil Co Corp with 20 percent each. (Reporting by Jeffrey Jones; editing by Rob Wilson)