The environmental impact of extracting oil from tar sands has been catalogued before on Celsias. In his excellent article The Most Destructive Project on Earth: Alberta's Tar Sands, Jeremy Williams documented the ecological devastation caused in Alberta by the incessant greed for new sources of fossil fuels. Yet despite the environmental cost and even a warning from a former chief executive of BP that the entire venture would be economically impractical, some oil companies seem unable to alter course.
Now, a report issued jointly by Greenpeace and Platform has prompted investment advisers to warn that oil derived from tar sands could prove to be the sub-prime lending of the oil industry; that is, a huge financial disaster as well as an environmental one. The report details many existing and emerging risks that major oil companies face from their investment in Canadian tar sands. The authors of the report believe that the risks are "significant for BP and Shell shareholders" and are calling for investors in the companies to scrutinize more closely their expansion into tar sands.
The report came on the same day that members of the UK Social Investment Forum met in London to discuss supporting a Co-op Investments campaign to end oil industry involvement in such carbon intensive projects. Many in the investment world are worried about the reliance of major oil companies on the tar sands project. "This report unveils how dangerous this approach is. There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector," says Mark Hoskin, a senior partner at the ethical investment advisers, Holden & Partners.
The report highlights that trends are moving against investment in tar sands. Oil prices are dropping, yet the cost of developing tar sands is increasing. Oil companies risk being shut out of large sectors of the U.S. oil market should new, low-carbon fuel standards, already adopted by California, be introduced throughout the country. Upcoming elections in Canada could prove disastrous for tar sand development as concerns about its contribution to Global Warming drive renewed calls for a carbon tax. Greenpeace has long warned of the environmental impact of tar sands, "... now it's becoming clear that they're a risk to the bottom line as well," says Greenpeace executive director John Sauven.
Shell and BP argue that they will be able, in the future, to dramatically reduce the high greenhouse gas emissions inherent in producing oil from tar sands. And just how are they going to achieve this? Well, by using Carbon Capture and Storage (CCS) technology, of course. However, experts disagree. They believe that CCS will prove too expensive to be economically viable. Others point out that CCS is an untried technology that has never been attempted on such a large scale and could be technically unworkable.
Lord Browne, the former chief executive of BP, deemed tar sands to be too costly and dismissed the endeavour. However, BP's current chief executive, Tony Howard, seems set to ignore the prevailing wisdom. Why? "Oil companies depend on their oil revenues for their market values. BP and Shell are two of our most trusted UK stocks, but it is a shocking fact that 30% of Shell's oil reserves are in tar sands," says Hoskin. "The recent banking crisis has shown how the financial markets can totally misjudge, both the risks and values inherent in company balance sheets."
So are BP and Shell going to be left in the dust, or rather the sand? Or will they follow other energy companies and wake up to the threat posed to their stock by investing in tar sands? Platform is calling on BP and Shell to reconsider their entire energy strategy. Co-op Investments has called for a halt to new licensing of tar sands projects, which it believes will tip the world into irreversible Global Warming, a position supported by research conducted jointly with the World Wildlife Fund.
Further Reading:
