- The Observer, Sunday 28 February 2010
- Article history
A protester wearing a mask of Canadian prime minister Stephen Harper brandishes a barrel of oil over protesters dressed as penguins outside Canada House in Trafalgar Square, London. Photograph: Teri Pengilley
British companies spearheading the drive to exploit the Canadian tar sands will come under renewed assault this week from an increasingly vocal group of shareholders and environmentalists who are planning to turn the forthcoming BP, Shell and Royal Bank of Scotland annual meetings into a referendum on these controversial operations.
The Co-operative and the Fair Pensions lobby group are releasing a special briefing paper designed to counter recent statements by the oil companies that sought to justify their involvement in carbon-intensive oil extraction in Alberta on the basis that it was needed to meet rising oil demand.
Friends of the Earth, Platform and other green groups are publishing a new report, Cashing in on Tar Sands – RBS, UK Banks and Canada's Blood Oil, which claims RBS has provided loans of $7.5bn (£4.9bn) in the past three years to companies carrying out this kind of mining in North America.
There are signs the oil companies and the Canadian government are becoming increasingly concerned about the reputational damage that could be inflicted on them: a special "tar sands day of learning" was held at the headquarters of the Royal Bank of Canada in Toronto on 1 February to bolster the confidence of fellow bankers and investors.
The Co-op's investor briefing, designed to rally further opposition, warns institutional investors with highly diversified portfolios that allowing BP and Shell to pursue their costly tar sands extraction could undermine their holdings in other areas of the economy.
"The issue for many large investors is not just whether the macroeconomic conditions necessary to ensure the profitability of oil sands production are in place, but whether the continued expansion of oil sands production could aggravate climate change, thereby putting at risk gross domestic product growth and the performance of their portfolio as a whole," says the new document.
Fair Pensions last week announced the establishment of a new web tool allowing individual pension holders to lobby their fund managers, who are big investors in BP and Shell. More than 1,200 people have taken advantage of it on www.countingthecost.org.uk.
The Friends of the Earth and Platform report is being released tomorrow, on the day a coalition of non-governmental organisations seeks a judicial review against the Treasury over its willingness to allow RBS to finance companies alleged to be exacerbating climate change and disregarding the human rights of local indigenous peoples. RBS is now largely publicly owned and the NGOs believe the government could stop it from acting in ways that are counter to its climate-change policies.
Tar sands oil has soared up the investment, political and environmental agenda since the Copenhagen climate change summit highlighted the need for a clampdown on the most carbon-intensive activities that are the biggest threat to global warming.
Shell, a leader in the tar sands business, had shown signs of backtracking in recent months, with new chief executive Peter Voser saying: "We look at them as being developed, but at a much slower pace." But the company will still go ahead with plans to increase production by 100,000 barrels a day, which it is said will raise CO2 emissions from its current level of 3.7m tonnes a year to 5m by 2015.
BP is more bullish than ever: chief executive Tony Hayward said it could be getting 100,000-200,000 barrels a day from tar sands by 2015 and was already preparing two US refineries specially to process this kind of crude.
Despite mounting opposition from politicians, as well as some investors and non-governmental organisations, Hayward is convinced: "Canadian heavy oil is going to be a very important part of America's energy."
But not if the Co-op and Fair Pensions can help it. They have had a resolution accepted for BP and Shell's AGMs, asking both companies to undertake reviews on the risk of tar sands extraction, with reports to be made to the 2011 AGMs.
The BP resolution wants details of "assumptions made by the company in deciding to proceed with the Sunrise [tar sands] Project regarding future carbon prices, oil price volatility, demand for oil, anticipated regulation of greenhouse gas emissions and legal and reputational risks arising from local environmental damage and impairment of traditional livelihoods".
Both BP and Shell insist that they can extract oil from tar sands in a responsible way, with the latter arguing that CO2 emissions can be minimised by using carbon capture and storage (CCS) techniques. Shell says a planned CCS plant in Edmonton, Alberta would take more than 1m tonnes a year out of the atmosphere by 2015 and could be expanded in future.
Tar sands, or oil sands, are deposits of sand and clay saturated with bitumen, which is oil in a solid or semi-solid state. The region where they have been found, in the ancient forests of Alberta, is said to cover an area bigger than England. When the bitumen is close to the surface it is excavated in an opencast mine. The land is cleared and the bitumen-soaked sand is dug out with mechanical shovels and loaded on to trucks to be taken to a separation plant.
BP stresses it does not get involved in such controversial strip-mining, but bringing the oil out from deeper deposits has its own serious problems: it requires power and steam-generating plants that use a lot of energy and water. In some cases, steam has to be injected into wells to encourage the bitumen to flow.
BP claims the method of production used in the Sunrise Project only emits 5% more greenhouse gases than commonly imported conventional fuels. But the Co-op says the Jacobs report, which is quoted by the oil company in support of these figures, is "subject to challenge" because it has not been peer-reviewed.
"Peer-reviewed studies and US government studies show that the relative emissions of oil sands are much higher than BP claim," says the briefing paper, which questions the companies' assumptions that global oil prices will remain high enough in future to justify the heavy investment costs of bringing oil out of the ground in this way.
Analysts at Deutsche Bank recently pointed out that continuing high oil prices – currently close to $80 per barrel – could trigger a permanent switch to more efficient oil use and low-carbon alternatives: "The value of high capex [capital expenditure] intensity, long lead time, currently undeveloped oil such as undeveloped Canadian heavy oil sands … could be far lower than the market expects."
The involvement of a major investor such as the Co-op in the campaign against tar sands is relatively new, but back at its 2008 annual meeting Shell was accused by an individual shareholder of "selling suicide on the forecourt".
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