Tar sands investment and 'oil at any cost' threaten BP's future profitability

Posted by jossc — 3 February 2009 at 3:40pm - Comments

Alberta, Canada - contaminated water from tar sands oil production fills a 2 km wide 'tailings' pool

Alberta, Canada - contaminated water from tar sands oil production fills a 2 km wide 'tailings' pool © Greenpeace

Last month our Emerald Paintbrush award presented to BP highlighted how far the company, which previously styled itself as going 'beyond petroleum', has moved back to its traditional profit source at the expense of its alternative energy division, and most likely its long-term profitability.

Investors may have been patting themselves on the back yesterday as BP posted record profits for 2008, but they should be wary - a quick trawl through the figures reveals major flaws in the company's long term investment strategy. Massive profits during the first half of the year (when oil prices reached over $100 per barrel) were undermined by a collapse in the final quarter, when prices fell back to around $40 per barrel.

Attempting to cash in on historically high oil prices, in March 2008 BP announced a $5.8 billion investment in the Sunrise tar sands project in Alberta, Canada. Tar sands, for the uninitiated, are oil-bearing bituminous sands and clays found under pristine boreal forests. Extracting that oil has always been such an arduous and expensive process that they have never been economically viable. To produce one barrel of oil, up to four tonnes of rock and soil - plus the forest on top of it - need to be removed and four barrels of surface and ground water need to be used. The process is so energy intensive that tar sands produce up to five times more greenhouse gases than conventional oil.

BP's decision to move into tar sands at the expense of renewables at this point in time is evidence that "the company is wedded to a 20th century business model which is simply not flexible enough to cope with the twin challenges of global climate change and increasingly remote oil reserves," according to James Marriott of research and advocacy group Platform. Not only did oil prices quickly head southwards from their $100 peak, rendering dozens of tar sands projects uneconomic, but President Obama is lining up drastic changes to the political, environmental and regulatory sphere in which the company operates over the next few years.

BP has already admitted that any output from the tar sands project will be delayed until 2013 at the earliest. Realistically there will be no output until oil prices rise high enough to make it viable again, which could be as much as $80 per barrel.

Meanwhile, the investment pulled from their alternative energy division contributed to a loss of over $600 million during 2008, largely because "the alternative energy division has been left to wither on the vine despite the urgency of climate change", according to our chief climate advisor Charlie Kronick, who concludes that "these results prove that BP's investment decisions are going in the wrong direction," and that "the Canadian tar sands project is a clear threat to investors".

The scale BP's change of direction can be seen in the figures (pdf): in 2008, the company diverted 93 per cent of its 2008 capital expenditure towards oil and gas extraction, compared with just 1.3 per cent on solar energy, 2.6 per cent on wind and a similar amount on biofuels. Yet, during the same period, BP has continued to spend heavily on a worldwide advertising campaign which gives the false impression that alternative energy represents a core part of the company’s business.

So the message to investors is clear. Enjoy this short-term profit boom while you can, because without a radical re-orientation to embrace a renewable future, there aren't likely to be many similar pay days on the horizon in the years and decades to come.

About Joss

Bass player and backing vox in the four piece beat combo that is the UK Greenpeace Web Experience. In my 6 years here I've worked on almost every campaign and been fascinated by them all to varying degrees. Just now I'm working on Peace and Oceans - which means getting rid of our Trident nuclear weapons system and creating large marine reserves so that marine life can get some protection from overfishing.

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