Quantcast

Report Finds Investments in Alberta’s Tar Sands 'Make Neither Economic Nor Climate Sense’

A total of $1.1 trillion USD earmarked for risky carbon-intensive oil sector investments need to be challenged by investors, according to a new report released today by the Carbon Tracker Initiative.

Photo credit:
Howl Arts Collective/ Flickr

The research identifies oil reserves in the Arctic, tar sands and in deepwater deposits at the high end of the carbon/capital cost curve. Projects in this category “make neither economic nor climate sense” and won’t fit into a carbon-constrained world looking to limit oil-related emissions, Carbon Tracker states in a press release.

The report highlights the high risk of Alberta oil sands investment, noting the reserves “remain the prime candidate for avoiding high cost projects” due to the region’s landlocked position and limited access to market. “The isolated nature of the [tar sands] market with uncertainty over export routes and cost inflation brings risk.”

Oil sands major Canadian Natural Resources Limited (CNRL), the company responsible for the mysterious series of leaks at the Cold Lake oil sands deposit, has the largest total exposure to high-cost and high-risk oil investments, valued at a potential of more than $38 billion between now and 2025.

Graphic courtesy of Carbon Tracker Initiative

Production forecasts, the basis of capital investment decisions, often rely on business-as-usual assumptions of economic growth and energy demand. But given potential changes in cost, fossil fuel consumption and emission constraints, industry demand projections may need to be reconsidered.

The report’s authors recommend such projections be “stress-tested” for a variety of future scenarios.

Recent efforts by socially responsible investment firms, such as Trillium Asset Management, to limit environmentally egregious investments, as well as the growing divestment movement throw the future of especially expensive and carbon-intensive oil reserves like the Alberta tar sands into question. They face the very likely potential of becoming “stranded assets.”

Previous Carbon Tracker research suggests about two-thirds of the world's proven fossil fuel reserves need to remain in the ground if international targets to remain under a two degree Celsius temperature rise are to be met.

“For the first time, this report bridges the worlds of oil project economics—in terms of both the marginal cost of supply—and carbon, allowing investors to gauge where risk lies, given a range of demand scenarios,” said Mark Fulton, adviser to Carbon Tracker Initiative and a former head of research at Deutsche Bank Climate Advisors.

“It makes it clear that investors have reason to engage companies on many high-cost and high-carbon-content projects.”

The report recommends investors identify companies investing the majority of their capital in high-cost projects, set thresholds for investor exposure and demand greater transparency and disclosure from industry.

Graphic courtesy of Carbon Tracker Initiative

The seven global “majors,” which include BP, Chevron, Shell, Exxon Mobil, Total, ConocoPhillips and Eni, represent the bulk of potential oil production and have high exposure to deposits in expensive locations with expensive-to-produce oil types, such as bitumen from the Alberta oilsands.

Several oil companies have taken steps to address their carbon investment risk. Most notably, Exxon Mobil recently announced they will begin reporting more fully on risky carbon assets in response to investor pressure.

Around $21 trillion of potential capital expenditure would need to be invested by the oil sector in high-risk projects by 2050 to keep the industry afloat, according to the report. But this investment “would not pay for itself in a world where demand is lower and that continues to take climate change and air quality seriously.”

“Many investors are concerned about the growing amount of capital that the oil companies have thrown at low-return, carbon-heavy projects,” Paul Spedding, a former-HSBC Oil &Gas Sector Analyst, said.

Major oil companies need to change their strategy, he added.

“As this report shows, returns are falling and costs are rising. To reverse this, a greater focus is needed on higher return, lower cost assets. If this means lower capital investment and higher dividends or buybacks, so much the better. This analysis is important as it provides the data investors need to challenge proposed investments on the basis of returns as well as carbon content.”

--------

YOU MIGHT ALSO LIKE

Koch Brothers Are Largest Lease-Holders in Alberta Tar Sands

Report Confirms TransCanada's Proposed Energy East Pipeline Will Export Tar Sand Unrefined

Alberta Doctors Reluctant to Treat Patients Who Draw Connection Between Tar Sands and Health

 

--------

Sponsored
David Willacy / EyeEm / Getty Images

By Dan Nosowitz

You'd think if you just supply plants with the right temperature, some sunshine and some water, you could farm pretty much anywhere—even the moon.

Read More Show Less
Pxhere

Climate change has been called the biggest challenge of our time. Last year, scientists with the United Nations said we basically have 12 years to limit global warming to 1.5ºC to avoid planetary catastrophe.

Amid a backdrop of rising global carbon emissions, there's a real case for pessimism. However, many scientists are hopeful of a way out.

Read More Show Less
Sponsored
Martin Luther King Jr. at steps of the Lincoln Memorial where he delivered his famous, "I Have a Dream" speech in 1963.

"Injustice anywhere is a threat to justice everywhere." Dr. Martin Luther King Jr.'s words and actions continue to resonate on the 90th anniversary of his birth.

As the country honors the life and legacy of the iconic civil rights leader today, we are reminded that the social justice and the climate movements are deeply connected.

Read More Show Less
A Massachusetts road coated with snow and ice following the winter storm which prompted Trump to mock climate change. Scott Eisen / Getty Images

President Donald Trump has once again contradicted the findings of the U.S. government when it comes to the threat posed by climate change. Days after a Department of Defense report outlined how climate-related events like wildfires and flooding put U.S. military installations at risk, Trump took to Twitter to mock the idea that the world could be getting warmer, Time reported.

Trump's tweet came in response to a massive winter storm that blanketed the Midwest and Northeast this weekend.

Read More Show Less
The fire that erupted after a pipeline explosion in Mexico Friday. FRANCISCO VILLEDA / AFP / Getty Images

A dramatic pipeline explosion in central Mexico Friday has killed at least 85 people, Mexican Health Minister Jorge Alcocer Valera said Sunday night, The Associated Press reported.

The explosion occurred in a field in the municipality of Tlahuelilpan as people rushed to gather fuel from the pipeline, which had been ruptured by suspected thieves. Many were covered in oil before a fireball shot into the air.

Read More Show Less
RoNeDya / iStock / Getty Images

By Ansley Hill, RD, LD

Mead is a fermented beverage traditionally made from honey, water and a yeast or bacterial culture.

Read More Show Less
U.S. Army member helps clear debris from Tyndall Air Force Base following Hurricane Michael. U.S. Army

The Pentagon released a Congressionally mandated report (pdf) that warns flooding, drought and wildfires and other effects of climate change puts U.S. military bases at risk.

The 22-page analysis states plainly: "The effects of a changing climate are a national security issue with potential impacts to Department of Defense (DoD or the Department) missions, operational plans, and installations."

Read More Show Less
The W. A. Parish Power Plant, owned by NRG Energy, is one of the largest coal-fired power plants in the U.S. Roy Luck / CC BY 2.0

Power plants across Texas are leaching toxins into groundwater, according to new research. A report released this week from the Environmental Integrity Project found that all of the state's 16 coal-fired power plants are leaching contaminants from coal ash into the ground, and almost none of the plants are properly lining their pits to prevent leakage.

Read More Show Less