This article was first published in Platform’s Carbon Web newsletter, issue 11.

The collapse in the oil price in the autumn of 2008, tumbling from $147 to $40 per barrel, saw a corresponding rout in one of the most high-cost oil provinces in the world – the Canadian tar sands. From September to April, week after week saw announcements of extraction plans deferred, upgrader projects delayed, pipeline schemes cancelled. Several smaller companies, focused primarily on their tar sands ventures, went to the wall, whilst the oil majors all had to make substantial cut backs.

Shell and BP were caught up in this full-scale retreat. In the autumn Shell announced it was delaying the investment decision on the Scotford Upgrader 2. Tony Hayward slipped into BP’s Fourth Quarter Results presentation in February that the Sunrise tar sands field would not come on-stream until 2013, a one year delay. He successfully confused his audience by sending out mixed messages over the sanctioning of the project, saying that a final decision to sanction the project would not be made until 2010, despite it having been widely assumed that the December 2007 announcement of the joint venture with Husky constituted a sanctioning of the Sunrise scheme.

In their communication with investors, the management of Shell and BP are trying hard to argue that these delays are only a short pause in proceedings while the oil price languishes below $50, and that once it begins to climb again, business will resume as normal.

However, the companies cannot step into the same river twice. If and when the push back into tar sands accelerates again, BP and Shell will not be re-entering the same business environment. The slowdown creates a gap into which a number of external forces are rushing, which will dramatically alter the business and political landscape. These include the new US administration, the growing number of legal cases against tar sands, the rising tide of civil society opposition and the prospect of international climate agreements.

As described in Carbon Web Issue 10, the Athabascan Tar Sands projects in northern Alberta rely on a larger transcontinental ‘tar sands system’. The difference between tar sands and crude oil means that Albertan extraction is only one piece in a larger jigsaw that includes the gas fields of the Arctic, the gas pipelines from the Arctic to Alberta, the upgraders, the dedicated syncrude pipelines, the re-tooled refineries and a ready market for the tar-sands-derived fuel.

The Obama administration is enacting legislation that threatens this last piece of the jigsaw. Washington looks set to implement projects to radically reduce the USA’s dependency on imported crude – through improved public transport and tighter fuel standards legislation, restricting the overall market for imported crude. Stricter legislation includes the Low Carbon Fuel Standards legislation already in force in California, likely to be adopted by the 13 North Eastern States, and possibly across the entire US. This legislation puts prohibitive constraints on the sale of fuel derived from high-carbon resources, such as the tar sands. BP faces the prospect of Sunrise coming on stream in 2013 in a world where the primary market for its product has been closed down.

Meanwhile, delays in projects are allowing time for those bringing cases against tar sands schemes to make their claims before ground is broken on new schemes. There are  several court cases, many brought by First Nations groups, in Alberta, British Colombia and Ohio. The Beaver Lake Cree, backed by the UK’s Co-op Bank, are pursuing the province of Alberta on the grounds that the granting of tar sands licences is in violation of their constitutional rights. The lawyers in the case believe that if successful, the ruling could overturn all the licences in the province.

Critical civil society has used the slowdown to redouble its efforts, with strong involvement in the US, Canada, UK, Norway & elsewhere collaborating to stop the climate-madness of tar sands proceeding.  A combined US & Canadian campaign applied heavy pressure on Obama not to go soft on his election promises when he took his first trip abroad and met the Canadian Prime Minister Harper in mid-February. Harper came away from the meeting without the public blessing for tar sands that he’d publicly desired. Meanwhile PLATFORM, together with Greenpeace UK and Oil Change International, is in active collaboration with a wide range of investors in BP and Shell – in the UK and US – arguing that the tar sands are destructive of investor assets as well as the ecology of Alberta and the world’s climate.

Finally, the international debate around climate change has intensified. Despite deep flaws, a new agreement is likely at Copenhagen that will see an extension of Kyoto and a requirement for significantly stronger cuts in global CO2 emissions. Currently, Canada is failing to meet even its Kyoto-level emissions cuts – entirely on account of the emissions of tar sands extraction. BP and Shell plan to expand tar sands extraction exponentially, while Canada’s allowable emissions are likely to be far smaller under a post-Kyoto agreement than now. These two trajectories are set for head on collision. Both domestic Canadian and international pressure will force Ottawa to find a way out of this clash. Failing to sneak expanded emissions into a baseline and with full production (and thus emissions) now only scheduled for the 2020s, the companies look likely to be caught out.

To understand the scale of this headache for Shell and BP, we need to remember why the companies decided to plunge into tar sands at this pace. Shell had been investing in Alberta since 1998 – after a quarter century lull – but dramatically increased capital spend in the province after the 2004 reserves crisis. The tar sands push was widely seen as Shell CEO Jeroen van der Veer’s way out of reserves problem. Similarly, Tony Hayward came to his position as CEO of BP in 2007 determined to mark a break with the era of his predecessor, John Browne. Part of that break was demonstrated by the decision to invest in the tar sands, a move that Browne had publicly decried 4 years previously. For Hayward the drive into Alberta was intended to balance the quagmire of difficulties in BP’s Russian investments.

Unless oil prices rise soon and fast and the constraints on the tar sands described above vanish, the plan to invest in Alberta will look increasingly weak and will threaten the architects of that strategy.