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Oil Sands Riskier than Gulf Spill, Say Investor Groups

Matthew O. Berger

WASHINGTON, May 17 2010 (IPS) - As the oil leaking into the Gulf of Mexico destroys habitat and livelihoods, the extraction of oil from Canadian oil sands deposits is having a similar impact on fragile ecosystems and communities deep in the North American interior.

Canada'a oil sands extraction led to the razing of boreal forests and fouling of water supplies. Credit: Chris Arsenault/IPS

Canada'a oil sands extraction led to the razing of boreal forests and fouling of water supplies. Credit: Chris Arsenault/IPS

The dramatic impact of oil sands expansion should give the companies involved and their investors pause, cautions a new report commissioned by Ceres, a coalition of investors and environmental groups, and authored by the financial risk management group RiskMetrics.

Oil sands development is “kind of like the gulf spill but playing out in slow motion”, said report co-author Doug Cogan, director of climate risk management at RiskMetrics. He called it a “land-based” version of the gulf disaster.

The value in the oil sands is bitumen, a thick, heavy form of petroleum with a tar-like consistency that requires energy-intensive processing to separate it from clay and sand. The bitumen is not drilled for but mined, and that mining has led to the razing of boreal forests and fouling of water supplies in parts of the 140,000 square kilometres of Alberta in which the oil sands are found.

Cogan drew the connection between the huge amount of seawater being polluted in the Gulf of Mexico and the huge amount of freshwater that is polluted in the course of extracting oil from the oil sands.

It takes up to four barrels of water to obtain one barrel of oil, as opposed to one barrel of water to one barrel of oil for more conventional oil extraction.

That water is then left in tailings ponds that currently cover 80 square miles. Those toxic ponds pose a hazard to migrating birds, risk contaminating nearby soil and water resources, present health problems to downstream communities and, the report notes, pose the risk of “a catastrophic breach”.

The particulates in the mining waste take decades to settle out in the ponds. “After 40 years of production, no oil sands companies have yet fully reclaimed tailings ponds created by development,” says the report.

The report also notes how expansion of oil sands in Alberta is turning one of the world’s largest carbon sinks – the province’s vast boreal forests – into a fast-growing emitter of carbon dioxide.

It argues the water- and energy-related risks – combined with the added costs of emerging climate change regulations and the potential for litigation from affected communities – should make expansion of oil sands development unappealing to investors.

The argument is not a new one. While environmental and indigenous groups have campaigned against the impacts of oil sands development, numerous reports from institutional investors have pointed out the risks to shareholders in the companies involved.

Ceres’ report, titled “Canada’s Oil Sands: Shrinking Window of Opportunity”, comes in the midst of a slew of company annual meetings. Like in past years, a number of shareholder resolutions calling for greater disclosure of the financial risk tied to oil sands investments have been filed with companies including BP, Shell, ExxonMobil and ConocoPhillips.

These companies, said Cogan, “may need oil prices approaching 100 dollars a barrel to justify [oil sands] expansion, but not more than 120 dollars a barrel in order to sustain consumer demand”.

This financial fine line is difficult to walk, especially given the huge capital commitments that developing the oil sands requires. These large initial investments can lock shareholders’ investments in for decades, leaving that money vulnerable to future lawsuits and regulations.

As in offshore drilling, then, an increased thirst for oil has brought an increased potential for disaster – environmentally and financially.

In the wake of the explosion on one of its offshore oil rigs in the Gulf of Mexico Apr. 20 – and the ever-ballooning oil slick that has resulted – BP has lost about 30 billion dollars in market value and seen its share price dip to a six-month low.

Ceres says that oil production from the Gulf of Mexico and Canada’s oil sands has doubled in recent years to 3.9 million barrels a day, and that it now supplies nearly a quarter of total U.S. oil needs.

“All oil is getting dirtier and more difficult to find, as the disaster in the Gulf of Mexico illustrates,” noted Bob Walker, vice president of sustainability at Canada-based Northwest and Ethical Investment.

His firm has criticised companies like BP and Shell in the past for doing a poor job of disclosing to shareholders the risks tied to oil sands investment.

“Producers are optimistic that they can double oil sands production over the coming decade, and more than triple output by 2030 to produce more than 4 million barrels per day. That is more than double current oil production in the Gulf of Mexico,” says the Ceres report. They are already producing 1.3 barrels a day.

The long-term impact on the people and environment in Alberta are “arguably greater” than the headline-grabbing disaster still unfolding in the gulf, it says.

Andrew Logan, director of Ceres’ oil and gas programme, said the gulf spill “underscores that all oil development carries risk and potentially large costs…These risks will only grow” as companies turn to increasingly risky oil development opportunities.

“The report’s findings are our wake-up call,” he said.

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