Tar sands - the new toxic investment
It's no secret now that financial market is undergoing 'technical difficulties'. But according to investors in Shell and BP, if they continue to involve themselves in unconventional energy production in areas such as Canada's oil sands, it will be the environmental equivalent of crash of the financial markets for the natural world.
The criticism came as a report was released yesterday warning of the potential financial risks of tar sands, and members of the UK Social Investment Forum met in London to consider a Co-op Investments campaign on halting oil industry involvement in the carbon-intensive oil projects.
The report, BP and Shell, Rising Risks in Tar Sands Investment, co-authored by Greenpeace and fellow campaign group Platform, argues that oil majors are trying to make up a shortfall in conventional reserves by an irresponsible dash to extract oil from bitumen and other sources.
Mark Hoskin, senior partner at the ethical investment advisers Holden & Partners, expressed concern about the increasing focus on tar sands at a time when oil companies are being shut out of traditional drilling areas such as Russia and Venezuela.
"The recent banking crisis has shown how the financial markets can totally misjudge both the risks and values inherent in company balance sheets," he said. "Oil companies depend on oil reserves for their market values. BP and Shell are two of our most trusted UK stocks, but it is a shocking fact that 30% of Shell's oil reserves are in tar sands.
"This report unveils how dangerous this approach is. There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector."
The report lists trends moving against investment in this area, not least the decline in the price of oil at a time when the cost of developing tar sand schemes is rising, something highlighted recently by the boss of French oil group Total.
The price of crude has plunged on world markets, with Brent blend briefly yesterday below $90 a barrel, down from nearly $150 in July, as traders fear that ructions on Wall Street following the collapse of Lehman Brothers will spread into the mainstream economy and drag down oil demand.
It is now becoming clear that tar sands are a real risk to the climate and the bottom line of most companies' energy strategy.
Greenpeace and Platform say in their report that other risks to tar sands developments come from elections being held in Canada that could affect the regulatory climate, given that the opposition Liberal party is a strong supporter of a carbon tax. The NGOs also point to an "unrealistic" reliance on untested carbon capture and storage technology, which has been highlighted by Shell as a means for reducing CO2 emissions.
The Canadian tar sands are estimated to contain as much as 180bn barrels of oil but the environmental groups warn that extracting bitumen and upgrading it to synthetic crude oil is three to five times more greenhouse gas intensive than conventional oil extraction.
The growing demand for energy leaves consumers with little to no choice other than to look towards areas like the tar sands for energy sources.