PLATFORM Unravelling the CarbonWeb
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Unravelling the Carbon Web is a project by PLATFORM. We work to reduce the environmental and social impacts of oil corporations, to help citizens gain a say in decisions that affect them, and to support the transition to a more sustainable energy economy.

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Download "BP & Shell: Rising Risks in Tar Sands Investments"

Preventing an industrial tipping point

BP, Shell & the Canadian tar sands 

Under the pristine boreal forest in Northern Alberta lie the Canadian tar sands, a vast carbon time bomb that if ignited will dramatically increase the chance of passing a climate change tipping point. While a rational approach to this threat would be to step back from the edge and freeze development, the contrary has been taking place. Over the past decade Shell, and then BP, have dramatically ramped up investment in the province. However, calls are growing for the shareholders of these companies to halt the tar sands expansion, and a new report by Greenpeace and PLATFORM is adding to this chorus.

While referred to by the industry merely as ‘unconventional oil’, tar sands are in reality a mix of bitumen, sand and clay. They are present in three distinct deposits in Alberta – Athabasca, Peace River, and Cold Lake – the combined area of which is greater than that of England and Wales. Around 20% of these sands are close enough to the surface to be mined, in huge opencast pits, busy with mechanical shovels the size of trucks and trucks the size of houses. The remaining 80% lie too deep and can only be extracted by ‘in-situ’ methods. This involves injecting steam underground below the tar sands - in effect boiling the heavy bitumen out of the ground.B

oth mining and ‘in-situ’ projects leave a devastating impact on the forests. Trees are clearcut for the opencast areas. But also with in-situ methods, trees are felled in long lines for seismic testing and uprooted to make way for steam pipes, fragmenting the habitat. Meanwhile, highly contaminated water is left in vast toxic tailing ponds large enough to be seen from space. The surface water run-off from the extraction finds its way into the rivers. High levels of pollution have now been linked to growing health problems in the First Nation communities in the region.

But it is the carbon dioxide emissions of the tar sands developments that mark them out the most. Once the bitumen has been extracted it is ‘upgraded’ to remove impurities, and make it possible to refine the resulting synthetic crude, or syncrude. Combined with the gas required to steam the bitumen out of the ground, extracting a barrel of oil from the tar sands is three to five times more energy intensive than extracting a barrel of oil from a conventional well. Thus, the move by the industrial world to exploit these resources means a move toward a dependency on highly carbon-intensive fuels, at precisely the time when we need to be rapidly de-carbonising our economies. Developing tar sands threatens to ‘normalise’ unconventional oil, creating a potential industrial tipping point.

A desperate search for reserves

Alberta’s tar sands have been tentatively extracted since the 1950s, but on a small scale. However, the last decade has seen a sudden rush into the province, led initially by Canadian companies but followed by the oil majors – in particular Shell and BP. Shell began ramping up investment from 1999 onwards – and has now set itself on course for tar sands to make up 30% of its total oil reserves. Meanwhile BP, which shunned the province in the early 2000s, made a dramatic u-turn in 2007 when it announced a $5.5 billion joint venture in the Sunrise project during the Bali Climate Conference.

Both companies find themselves under the same pressure – how to replace oil reserves as they extract crude. In 1979 international oil companies controlled 70% of the world’s oil production, yet now they control below 10%. The oil majors are increasingly being locked out of existing oil provinces. The Russian state pressured Shell to relinquish a substantial part of its stake in the Sakhalin II gas and oil project. BP has had to re-negotiate assets in Venezuela and Bolivia, and remains in a long struggle to retain its position in TNK-BP in Russia – which constitutes 25% of its oil production. Both companies have found it far harder to gain access to reserves in Iraq than was expected prior to the US-UK invasion. These perceived limitations are pushing the companies to invest in the apparently politically secure province of Alberta.

A changing investment climate

However, the sheer scale of the tar sands venture, and the complexity of its chain of production, make it tricky for investors. To extract and upgrade the bitumen uses huge quantities of natural gas – 800 million cubic feet per day between 2005 and 2007, enough to heat around half the households in Canada. Canada’s conventional gas fields are in decline, so the gas demanded is leading to the exploitation of supplies previously considered out of bounds. These include coal bed methane in the mountains of British Columbia and possible fields in the Arctic Beaufort Sea.

Proponents of tar sands development enjoyed an investment tailwind from approximately 1997 to 2007, provided by a number of factors including a US presidency that shunned climate concerns and gave precedence to energy security and a lack of concerted international governmental and civil society opposition to the projects. However, this tailwind is rapidly becoming a headwind.

The political climate in the US is changing. In December 2008, a new law in California will progressively introduce a Low Carbon Fuel Standard (LCFS), constraining the market for tar sands-derived fuels, by assessing and limiting the full lifecycle emissions of any fuel sold. In June 2008, the US Conference of Mayors called for similar LCFS to be implemented, and a number of states look to follow suit. Barack Obama, US Presidential candidate, has called for a federal law implementing LCFS.

Elsewhere there is increasing opposition to other elements of this massive system. In  British Columbia there are strong protests against BP’s Mist Mountain and Shell’s Sacred Headwaters coal bed methane projects. In Ohio and Ontario residents have been battling against BP’s Whiting Refinery and Shell’s proposed Sarnia - both being equipped to specialise in handing syncrude from the tar sands. In Alberta itself, First Nations have been resisting tar sands extraction projects through the courts.

It is this shift of a tailwind into a headwind that is highlighted in the new Greenpeace/PLATFORM report – BP & Shell: Rising Risks in Tar Sands Investments, published in September 2008. The report, endorsed by a significant number of financial bodies such as the Co-op Bank, ECCR and Holden & Partners, asks investors in BP and Shell to call on the companies to halt further investment in the tar sands.