Tar Sand Investments Could Be Oil Industry's Version of the Sub-Prime Meltdown


photo: Rob Baxter

We've covered the environmental risks of tar sands many times. However, a new report co-authored by Greenpeace and PLATFORM outlines the possible financial risks faced by companies such as Shell and BP which invest heavily in tar sands to offset shortfalls in their conventional oil reserves.

The Guardian quotes Mark Hoskin, senior partner at investment advisors Holden & Partners as saying, "There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector."The main points that BP and Shell: Rising Risks in Tar Sands Investments cites as factors which threaten the long term profitability of tar sands investment are as follows:

Low Carbon Fuel Standards Legislation

Low carbon fuel standards under consideration by US presidential candidate Barack Obama and already implemented in California threaten to close sections of the American market to products derived from tar.

Labor Shortages
Acute labour shortages and the rising cost of delivering gas to the tar sands threaten to stifle the planned expansion of the sector.

Reliance on Untested Carbon Capture Technology
An unrealistic reliance on untested carbon capture and storage (CCS) technology risks leaving the companies with huge stranded assets in the future, as international climate change regulations are strengthened at Copenhagen next year.

Future Litigation Risk and Site Clean-Up Costs
The extensive clean up operation and potential future litigation from local communities carry significant brand risk.

Climate Change a 'Reputational Challenge'
The greatest risks arise from the climate impacts of tar sands. Given the significant impacts of developing Canada's tar sands on the climate, a substantial reputational risk could extend to BP and Shell's shareholders.

Mark Hoskin, again from the Guardian:

The recent banking crisis has shown how the financial markets can totally misjudge both the risks and values inherent in company balance sheets. Oil companies depend on oil reserves 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.

Greenpeace chose an even more stark viewpoint to promote the report:

"The idea that oil sands will enhance energy security is delusional," said Andrew Dlugolecki, Director of Andlug Consulting in the UK. "Investors should do all they can to challenge this misguided use of shareholders' money, which will make global warming worse, and instead call for a new approach that is based on the reality of climate change."

If the long term profitability weren't enough to question the wisdom of tar sands investment (ignoring entirely the environmental issues), the report also highlights that tar sands should not be seen as a quick fix for reserve shortfalls:

The perception that 'there is no where else to go other than unconventionals' is leading to a distorted perspective from management and messages to investors and industry alike, are lacking transparency. Significant extraction expansion decisions are being made at precisely the time when the political and economic environment is shifting against these carbon intensive fuels.

:: Greenpeace and :: The Guardian
Tar Sands
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Tar Sands Less Damaging Than Coal, Shell Says: But They Sure Are Profitable

Tags: Alternative Fuels | Canada | Energy | Oil