bp and shell: rising risks in tar sands investments - Oil Change ...

HEROIC PROSPECTS
OR DESPERATE
MEASURES?
IN DECEMBER 2007, LEW WATTS, PRESIDENT OF GLOBAL ENERGY CONSULTANCY PFC ENERGY, SPOKE OF THE
CURRENT INTEREST IN TAR SANDS AS ‘EVIDENCE OF ANOTHER NAIL IN THE CLOSING COFFIN FOR THE
INTERNATIONAL OIL COMPANIES… FOR RESERVES OF THIS SIZE, THEY’VE REALLY GOT NOWHERE ELSE TO GO…
THAT IS WHY THEY ARE WILLING TO TAKE ON THE ECONOMIC AND ENVIRONMENTAL RISKS’. 9
WHAT ARE THE CONDITIONS THAT ARE DRIVING
THESE RISKS?
In 1979, the major international oil companies (IOCs) controlled
around 70% of global oil reserves. Thirty years later that figure has
dropped below 10%. 10 This is largely due to the decline of resources in
areas where the IOCs had significant reserves and increasingly
restricted access to new reserves due to increasing control over
resources by states such as Venezuela and Russia.
For example, for over a year BP has faced an increasingly challenging
threat to its 50% stake in Russia’s third biggest oil producer TNK-BP,
which in turn threatens the company as a whole. For TNK-BP
represents about 25% of BP’s global production and around a fifth of
its reserves. 11 This level of dependence on a single investment based
in a politically unreliable country explains much about BP’s late but
significant move into Alberta’s tar sands.
Since Shell’s reserves reporting debacle of 2004, the company has
worked hard to find new assets. There was serious concern that the
company’s partial ejection from the Sakhalin II project, after a long
battle with the Kremlin, would hamper this search to replace reserves.
However in March 2008 Shell reported its reserves replacement ratio
as 124%, with analysts observing that the loss in Russia had been
offset in Canada – by a costly acquisition. 12 In 2007, in a move
personally guided by CEO Jeroen van der Veer, Royal Dutch Shell took
full control of Shell Canada via a share purchase in which the parent
company paid above the market rate. 13 This mirrored an earlier
purchase. In 2006 Shell raised eyebrows in the industry by offering
C$2.4bn for Black Rock Ventures, which was expanding production in
the Peace River tar sands area. Shell’s price amounted to about C$4 a
barrel of reserves, compared with the C$1.25 that Total paid in 2005
when it acquired Deer Creek Energy. 14 Canadian tar sands now
constitute nearly one third of Shell’s proved reserves. 15
It is often repeated in the media that the Canadian tar sands
constitute a glittering prize. They are estimated by some to contain
173–179 billion barrels of recoverable oil, a resource second only to
Saudi Arabia and representing 12% of global reserves. 16 However
accessing this ‘unconventional oil’ represents a significant shift for
both BP and Shell. Both have tried to present the shift as an inevitable
progression.
Around the active promotion in the finance sector of ‘Shell Energy
Scenarios to 2050’ in February 2008, senior executives such as van
der Veer and James Smith (CEO Shell UK) repeatedly talked of ‘the
end of the era of easy oil’, emphasising tar sands as the new frontier
where a company like Shell had to go in order to avoid disappointing
global energy demand. 17
But this shift is neither an inevitable, nor smooth, progression.
Instead, it is a consciously chosen move into a high risk endeavour
with significant global impacts.
Canadian tar sands now constitute nearly
one third of Shell’s proved reserves. 15
6