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Abandon oil sands, urges big investor

  • The Observer, 
  • Sunday September 14 2008

One of Britain’s biggest investors will launch a campaign this week to persuade Shell and BP to drop their plans for heavy investment in oil sands and shale projects in North America.

Co-operative Asset Management is concerned that the huge environmental costs of producing crude from oil sands or shale could change the economics of these so-called ‘unconventional’ fuel sources, putting the oil companies and their investors at risk of a huge wasted investment.

Paul Monaghan, head of sustainability and social goals at the Co-op, points to research showing that extracting oil from shale creates eight times as many emissions as conventional oil production, while oil sands produce three times as much. While these sources are economic at current oil prices, a fall in crude or a rise in the price of carbon under the trading system could make them much more expensive.

‘The worry is that, within five years, it will be unstoppable,’ said Monaghan. ‘I think it is stoppable now.’

The Co-op will enlist the support of other large institutional investors at a seminar outlining the issues this week. Niall O’Shea, a responsible shareholding analyst, said: ‘We believe that companies investing heavily in unconventionals are too focused on short-term profit and their strategy is too defensive. They are becoming increasingly expensive to produce.’

Shell is already committed to a $16bn (£8.9bn) project aimed at generating 15 per cent of its production from unconventionals, while BP’s investment is around $6bn. The amount of oil available is huge – the Canadian sands alone, situated largely in the province of Alberta, have around twice the total reserves of Saudi Arabia.

The companies say that the higher emissions will be mitigated by carbon capture and storage schemes, but O’Shea says these will not be in operation until 2020. ‘Oil sands [production] will be out long before that.’

The exploitation of the oil sands is controversial even within North America. According to polls, some two thirds of Albertans support a moratorium on new projects until new environmental standards are in place. But the state government in Alberta is keen to attract investment from oil companies, leaving them to largely determine how to regulate their activities. As a result, critics say, the environmental rules are lax and loosely enforced.

In the US, legislators have proposed a law which could restrict imports of the most polluting types of fossil fuels, such as that from oil sands. But Greg Stringham of the Canadian Association of Petroleum Producers dismissed this move as ‘rhetoric’: ‘I do not think the US is in a position to choose what kind of oil it gets. The US has spoken a lot about energy security, so it will not want to jeopardise supplies from Canada – a safe, close, and growing source.’

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