Shifting Sands: Greenpeace report reckons we’ve hit peak oil (sort of)

We know tar sands are destructive, bad for the climate, and expensive to exploit. But could they also be a colossal financial liability for BP and Shell?

If, in the runup to Copenhagen, you have a sneaking suspicion that world leaders might still be more attached to the realpolitik of energy than the green-tinged adoption of strong climate policy, a new report from Greenpeace, Platform and Oil Change International may provide a glimmer of hope.

The suspicion is that whatever grand statements are made by the Obamas, the Lulas or the Browns of the world as they thrash out their meta-climate policy at Copenhagen, for the moment they're going to remain much more motivated by ‘energy security' than greenhouse gas stabilization.

In the world of energy geopolitics, security is king. Up until now, from the point of view of the climate, this has played out pretty depressingly, because ‘energy security' has been a euphemism for ‘easy access to oil'. Hence when oil prices go up, Shell don't start building wind turbines. Instead, their corporate accountants click their heels with glee as they realize that with a higher oil price, some dirtier and slightly less profitable oil source has become economically ripe for the picking. Witness, for example, how Shell dropped their investment into renewables in favor of carbon-intensive tar sands because they could make more money cooking Albertan sludge than they could building wind turbines in the Thames estuary.

Tar sands may threaten to be a disaster for the climate, but they have been a new boom industry for the oil giants. Conventional wisdom stated that high oil prices were here to stay, and so now 30% of Shell's oil production resources are classed as ‘unconventional' - more expensive to extract oil from, and more carbon-intensive.

If you buy the mainstream thinking, that's great for them, because we're heading for a world where oil gets scarcer and scarcer, so a high future oil price is assured.

But it may be that, ironically, the oil companies are about to get shafted by their conservative approach. Perhaps in part motivated by a long hard look at what the climate's been up to lately, it's started to dawn on governments that to get energy security, you can do one of two things - either play the game as preferred by the oil producers, give in to rising demand and find ways to secure access to more and more oil for ever and ever, or you can opt-out from this resource rat race and try to find ways to use less of the stuff.

Rob Hopkins of the Transition Town movement compares extracting oil from tar sands as like trying to suck old beer out of the pub carpet when the bar runs dry. Imagining that we can keep on increasing supply to meet ever-rising demand is somewhere between slavish devotion to conventional economic orthodoxy and outright madness - tinged with a hint of desperation.

On the other hand, the less oil you rely upon, the more energy secure you're going to be. Cut oil use, and you're much less reliant on despotic regimes, costly military adventures in the Middle East, the vagaries of OPEC, or massive environmental destruction to get the oil you need. (I might also point out that by cutting oil use you help avoid a climate-changed world where ensuring security of any kind gets a whole lot more difficult.)

It's gradually dawning on policymakers that cutting oil use might just make sense. By bringing in mandatory vehicle efficiency standards similar to those found in Europe, for example, the US could cut its daily use of oil by 10 million barrels. Very bluntly, politicians and the US public are starting to ask whether they'd rather have slightly smaller cars, or dead American soldiers being flown back in from some future Iraq. And this is a new, and welcome way of seeing the politics on energy - because it has the potential to destroy the whole ‘oil gets more expensive therefore we exploit tar sands' dynamic.

How? Well, we may have hit peak oil. Peak oil demand, that is. The chief executive of BP, Tony Hayward, said recently that "BP is unlikely to sell more gasoline ever in the United States ...than it sold in the first half of 2008." This isn't because the stuff is stopping coming out of the ground, but rather because the oil companies are anticipating a major efficiency drive from the US government, and a subsequent drop in demand for oil.

This in turn means that certainty about a relatively predictable, rising oil price - the kind of certainty that makes it worth spending billions on building tar sands infrastructure - can't really be taken for granted any more. And it's not just the US - China is busy implementing aggressive efficiency standards, and why wouldn't the rest of the world follow suit, as resources become harder to secure, stricter environmental legislations are imposed, and climate change restrictions lurk in the future? Today BP announced that their profits this quarter compared to last year were down by about 50%. They say it's due to the falling and increasingly volatile oil price - which means it's getting too difficult to figure out what's worth investing in. A big contributing factor to this volatility is the belief that we're going to see some tough climate legislation in the near future. BP also say they're just seeing reduced demand for oil.

Investing in marginal oil sources is getting riskier and riskier as estimates of how much oil the world is actually going to want to have get revised downward. In a funny way, it may be that while we've been trying to actually get climate legislation in place, something far more significant has been happening in the world of business, outside of the oil majors. It could be that the promise (or threat) of climate legislation on the horizon is going to do a lot of the work of stopping high-carbon marginal oil production, even before any policies are passed. Well it could be. But don't you want a bit of optimism?

Shifting Sands is the latest in our series of reports critiquing the tar sands industry in Canada.

Rising Risks was the first report, and details how BP and Shell's investment in tar sands is opening them to financial risks.

There's a March 09 update to that report which you can find here.

This project also includes a study of the relative carbon intensity of the different international oil companies - which finds that Shell's investment in Canadian tar sands is a big part of the reason that per-barrel of oil produced, the amount of carbon Shell emits is going up and up. Find that here.