Green Groups Urge Oil Company Holders To Ditch Tar Sands Over High Cost

Dow Jones, July 26, 2009, LONDON--A coalition of three environmental groups is urging investors in the world's largest oil companies to reconsider their backing for unconventional oil projects like Canadian tar sands, which they say are unlikely to be profitable at an oil price the economy can sustain.

The move signals a change of tack for green groups, who have long opposed such projects on environmental grounds, to persuade investors that costly unconventional oil projects are unlikely to yield good returns.

"(Investors) should think carefully before committing to projects that require a consistently high oil price to break even," such as tar sands and resources located in the Arctic or very deep water, said Lorne Stockman, the principal author of the report from Greenpeace, PLATFORM and Oil Change International.

Research from consultancy Douglas Westwood last month showed that since the 1970s the U.S. economy has tipped into recession each time the total expenditure on oil has risen above 4% of gross domestic product, equivalent to around $80 a barrel in 2008 dollars.

This puts the long-term oil price at which Canadian tar sands give a 10% return on investment, equivalent to $65-$80 a barrel in 2008 dollars, "close to the ceiling at which oil prices could be sustained by the economy," the report said. "That is why 85% of non-OPEC oil project cancellations since October 2008 are tar sands projects," it said.

Ever-stricter curbs on carbon dioxide emissions, which are more intense from oil produced from tar sands than conventional oil, will put further pressure on the economics of these projects, the report said.

"An increasing proportion of international oil company reserves are concentrated in oil fields that will need...oil prices that can only be sustained for short periods of time due to the impact on demand," the report said.

Royal Dutch Shell PLC (RDSB.LN) is particularly exposed to Canadian tar sands, with over 30% of its total oil resources concentrated in the area, the report said. BP PLC's (BP) large investment to upgrade U.S.
refineries
to process synthetic crude from tar sands may also be vulnerable, it said.

"Relying on a high oil price, low carbon price and lack of intervention is not prudent. As this report clearly shows, new investment in tar sands could be a toxic investment," said Paul Monaghan, head of social goals and sustainability at ethical investment group Co-operative Financial Services.

The report will be sent to over 200 institutional investors including Barclays Capital, HSBC, Citigroup and the pension funds of British Telecom, British Airways and the U.K. Royal Mail.