Getting to Market – new report by Platform, Oil Change Int. and Greenpeace UK highlights investor risks in the tar sands

14 Dec 2011 james

The global oil price wavers around $100 a barrel as traders are split over whether Brent Crude is about to plummet due to the Eurozone disaster getting worse, or about the spike due to a renewed Middle East crisis. It is snowing in Fort McKay, in Nothern Alberta, and the temperature of -6 feels like -11 with the strong north westerly wind. The long winter of the boreal forests has settled in. Production continues at Shell’s open cast Albion tar sands mine on the lands of the Athabascan Cree around Fort McKay, for with the world price at one hundred dollars, it’s a profitable exercise. But questions are being raised over Shell’s longterm prospects in the province.

Getting to Market: Emerging investor risks in the tar sandsPlatform, in collaboration with Greenpeace UK and Oil Change International, have just published Getting to Market – Emerging Investor Risks in the Tar Sands, written by Lorne Stockman. The industry plans to increase production by 138% from todays level in the next fifteen years. But the report shows that this growth in the extraction from Alberta is being put at risk by the inability of producers to get the resources, dug or steamed from beneath the forests, out to the world markets. With the Canadian province entirely land locked, and the market for oil products in the US Mid-West becoming saturated, projects in Alberta will increasingly depend on being able to get tar sands derived crudes out to the oceans of the world. Expanding projects along the steep growth curve that producers have planned depends on being able to transport the bitumen from the tar sands to the refineries of US coast of the Gulf of Mexico or the refineries of East Asia via the tanker terminals on the Canadian West Coast. The tar sands industry had long assumed that such pipelines would be relatively easy to build. But these assumptions have been overturned by the great upwelling of opposition by farmers, First Nations and environmentalists in the the US against the planned Keystone XL Pipeline – to the US Gulf Coast – and by First Nations and environmentalists in Western Canada against the Gateway Pipeline – to the coast near Vancouver. Both of these projects have been delayed and their future, against all expectations, is suddenly in doubt.

This doubt raises questions over the financial viability not of current tar sands projects, such as Shell’s Albion Mine, but over future projects. The current projects can use the capacity of the export pipelines that already exists, but the future projects need the extra capacity that Keystone and Gateway promised in order to get tar sands out to the world. As the infrastructure around the Albertan province requires such vast amount of capital and such long lead-in times, the delayed pipelines are raising questions over the viability of tar sands projects that companies have been intending to bring onstream in ten or fifteen years time.

These questions are particularly relevant for companies who have invested heavily in the future development of the Albertan province and foremost of these is Shell. The company has plans for a large number of SAGD projects and indeed 30% of Shell’s longterm global reserves are located in the tar sands. Consequently, the civil society opposition to Keystone XL and Gateway, poses a significant financial risk to Shell, and fundamentally to the institutional investors in Shell.

It is to these shareholders, such as pension funds and insurance companies, that Getting to Market is addressed. In the New Year, Platform and Greenpeace in the London, and CERES in the US, will be meeting with institutional investors and discussing with them the implications on their portfolios of the pipeline delays, aiming to encourage asset managers and analysts to communicate to the board of companies such as Shell investors concerns over the tar sands. For these projects are not only destructive only of communities – such as the First Nations in Alberta – and of the environment – such as the watershed of the Athabasca River – but also threaten investor assets.

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