Tar Sands - The Energy Industry Equivalent Of Sub-prime Debt  

TreeHugger has a post on the future pitfalls awaiting investors in companies invovled in extracting oil from tar sands - Tar Sand Investments Could Be Oil Industry’s Version of the Sub-Prime Meltdown

We’ve covered the environmental risks of tar sands many times. However, a new report co-authored by Greenpeace and PLATFORM outlines the possible financial risks faced by companies such as Shell and BP which invest heavily in tar sands to offset shortfalls in their conventional oil reserves.

The Guardian quotes Mark Hoskin, senior partner at investment advisors Holden & Partners as saying, “There is a good chance that tar sands could be to the oil industry what sub-prime lending was to the banking sector.”

The main points that BP and Shell: Rising Risks in Tar Sands Investments cites as factors which threaten the long term profitability of tar sands investment are as follows:

* Low Carbon Fuel Standards Legislation
* Labor Shortages
* Reliance on Untested Carbon Capture Technology
* Future Litigation Risk and Site Clean-Up Costs
* Climate Change a ‘Reputational Challenge’

Mark Hoskin, again from the Guardian:

The recent banking crisis has shown how the financial markets can totally misjudge both the risks and values inherent in company balance sheets. 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.

Greenpeace chose an even more stark viewpoint to promote the report:

"The idea that oil sands will enhance energy security is delusional," said Andrew Dlugolecki, Director of Andlug Consulting in the UK. "Investors should do all they can to challenge this misguided use of shareholders' money, which will make global warming worse, and instead call for a new approach that is based on the reality of climate change."

If the long term profitability weren’t enough to question the wisdom of tar sands investment (ignoring entirely the environmental issues), the report also highlights that tar sands should not be seen as a quick fix for reserve shortfalls:

The perception that ‘there is no where else to go other than unconventionals’ is leading to a distorted perspective from management and messages to investors and industry alike, are lacking transparency. Significant extraction expansion decisions are being made at precisely the time when the political and economic environment is shifting against these carbon intensive fuels.