Oil sand extraction a ‘toxic’ investment
Taking oil from tar sands could prove a 'toxic' investment for international oil companies amid falling oil prices, experts say
The warning followed a new report questioning the long term profitability of ‘unconventional oil assets’ such as tar sands, which are difficult and expensive to extract, process and transport.
The UK’s Co-operative Financial Services head of social goals and sustainability, Paul Monaghan, said: “Investors need to be fully aware that the business case for these toxic fuels is fragile.
“Relying on a high oil price, low carbon price and lack of intervention is not prudent. As this report clearly shows, new investment in tar sands could be a toxic investment.”
Tar or oil sand, also known as extra heavy oil, is deposits of bitumen, forming dense black, viscous oil.
They are found around the world but the largest are in Canada and Venezuela.
The report, Shifting Sands: How a Changing Economy Could Bury the Tar Sands Industry, co-authored by Greenpeace, paints a bleak picture for international oil companies (IOCs) amid forecasts of falling oil demand.
It says: “The fall in oil prices following the $147 peak in July 2008 has undermined their viability – these projects need strong oil prices to generate a profit.”
Those intent on investing in Canada’s “environmentally destructive” tar sands industry face a “significant emerging risk”, its authors say.
It singles out Shell as being vulnerable to oil price changes “as over 30 per cent of the company’s total resources are concentrated in the Canadian tar sands”.
“Shell has invested very heavily in the long term production of bitumen that will take huge quantities of energy to lift,” it said. “No other oil company has staked its future on this resource to the same extent.”
OPEC has revised its 2025 oil demand forecast down by 12 per cent within the past four years, the report authors point out.
Lorne Stockman, main author, said: “The investment risks associated with tar sands projects are increasing almost daily.
“Investors should be aware that the assumptions they made just one year ago could now be well out of date, and they should think carefully before committing to projects that require a consistently high oil price to break even.”
The report says ‘resource nationalism’ and conventional resource ‘depletion’ means most of the oil left to IOCs to exploit is in “marginal resources” such as tar sands, deep water and the Arctic.
All are expensive to produce, take a long time to develop and often have “controversial” environmental and social effects that “cost more to ameliorate”.
“The expense of bringing much of this oil to market means that the sustained oil price needed to do so is dangerously close to a ‘break point’ price beyond which oil demand is constrained via changes in consumer behaviour and reduced economic growth.”
To read the report, by campaign groups PLATFORM, Greenpeace and Oil Change International click here.
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