Investors looking to profit from Canadian tar sands oil are getting a wake up call today. Financial insiders have revealed that the oil sands industry is likely to be a high risk and barely profitable investment, even if the industry backed Keystone XL pipeline is built. A new report published by Carbon Tracker and authored by former banking analysts says the Keystone XL pipeline would be a short lived industry victory, as a range of economic and political factors would likely undermine the value of oil sands, leaving these fossil fuel investors high and dry with stranded assets. These conclusions deliver another blow to the oil sands industry, which is already struggling to find its way onto global markets as a result of the notorious human rights abuses, environmental damage and greenhouse gas emissions associated with it.
Hashtags in use: #KXL, #NoKXL, #oilsands, #tarsands
- Investors shouldn’t be fooled by the Keystone XL pipeline “mirage.” Though the oil sands industry is projecting the Keystone XL pipeline as the key to ramping up both capacity and profits, a new Carbon Tracker report reveals the pipeline is no oasis for investors. If built, it would have only a small, short-term impact on the industry, one that would be likely outweighed by a host of other factors that erode the value of oil sands projects and infrastructure, leaving investors with stranded assets.
- The looming risk of stranded assets casts yet another shadow over oil sands extraction. As the world moves to account for and limit dangerous greenhouse gas emissions, it is increasingly likely that the highly polluting oil sands will face a crash in value as markets react, leaving investors high and dry. As well as being a hazard to investors and economies the oil sands industry has been described as “socially and environmentally unconscionable” due to its well documented environmental and human rights abuses.
- Low-carbon investments safeguard investors and shareholders from the mounting risks of unburnable fossil fuels. From the grassroots divestment movement to the growing list of major investors pulling support for fossil fuels – high carbon projects are no longer looking like a safe, long-term investment. Shifting support away from fossil fuels reduces exposure to mounting economic risk and increases security, for the public and investors alike. The renewable energy market, on the other hand, is growing exponentially, offering opportunities for sound investments that aren’t at odds with future stability.
In a revealing new report investment bankers warn that the economic arguments for developing Canadian oil sands are increasingly questionable and investors who believe in the “mirage” of improved oil sands economics with Keystone XL face loss and disappointment.
Approval of the controversial Keystone XL pipeline would have a marginal positive impact on the questionable economics of the Canadian oil sands industry, but could nevertheless trigger a rush of high-risk investment into additional projects that would rely heavily on the shaky prediction of rising oil prices, according to new research from the Carbon Tracker Initiative.
The analysis – produced with assistance from former banking analysts at Deutsche Bank – concludes that if Keystone was built it would not be a silver-lining for investors looking to sink money into oil sands projects. The benefits of the Keystone XL pipeline, as well as oil sands in general, are based on unreliable predictions of the profitability of the oil market, which is subject to strong volatility. Analysts say there is no strong consensus on where oil will be in the medium to long-term. This leaves the Keystone XL pipeline as an unacceptably high-risk investment, and many oil sands projects run the risk of becoming ‘stranded assets’ as a result. The risk to investors sinking money into the dirty oil sands industry has also been flagged by MIT.
Earlier this month, the Pembina Institute issued a report on the long-term economic implications of rapid tar sands expansion in a report called ‘Booms, Busts and Bitumen’ which looked at the economic consequences for Albertans and Canadians of being so dependent on a resource that many never be able to be burnt. As David Emerson, chair of the Alberta Premier’s Council for Economic Strategy, has noted, Canada “may have heavy oil to sell, but few or no profitable markets wishing to buy.”
Indeed, Europe is trying to shut tar sands oil out but intense political pressure from the industry and Canadian officials has so far prevented the EU from closing the door on this dirty fuel. The EU is currently on the path to classifying tar sands oil as 25% more polluting than standard crude oil. The proposed new rules have wide support across Europe but a handful of powerful players have succumbed to Canadian lobbying and are delaying the process. The proposed legislation would make the oil sands uncompetitive in the European fuel market – currently the biggest in the world – striking another blow to the economic validity of tar sands projects.
There were already a considerable range of issues to concern potential investors in Keystone XL and Canadian oil sands. Not least that a rupture in the Keystone XL pipeline could cause a BP-style oil spill in America’s heartland, contaminating the source of fresh drinking water for 2 million people. But organisations sinking capital into Canadian oil sands are also directly associating themselves with projects responsible for well documented human rights and environmental violations. To top it off, ex-NASA climate scientist James Hansen warns that fully developing the tar sands in Canada would be “game over” for the climate. But if these largely moral factors ring hollow, this latest research from Carbon Tracker bolsters the economic argument that pumping investment into oil sands and pipelines is risky business, now and in the future.
- Keystone XL Pipeline: A Potential Mirage for Oil-sands Investors (Carbon Tracker)
- Former energy secretary calls for more Canada-U.S. co-operation on renewables (Globalpost)
- Keystone ‘not in Canada’s best interests,’ NDP says (Globe and Mail)
- Anti-Keystone XL environmentalists seek to derail imports of crude
- TransCanada Pushes Keystone XL Pipeline Start to 2016 (Bloomberg)
Tools and Resources
- Full Report: Keystone XL Pipeline: A Potential Mirage for Oil-sands Investors (Carbon Tracker)
- Map: Keystone XL Pipeline And The People In Its Path (Huffington Post)
- Report: The economic implications of Canadian oilsands development (Pembina Institute)
- Report: Canada’s Bitumen Industry Under CO2 Constraints (MIT)
- Report: Jobs Gained, Jobs Lost by the Construction of Keystone XL (Cornell University)
- Report: Keystone XL: The Key to Crude Exports (Oil Change International)
- Report: Analysis of Worst-Case Spills From the Proposed Keystone XL Pipeline (John Stansbury)
- Report: World Energy Outlook 2013 (International Energy Agency)
- Website: Oil Sands Reality Check
- “New Canadian oil-sands development is increasingly economically questionable without the additional export capacity that pipelines such as Keystone XL would bring. But the vision of improved prices it promises could quickly be wiped out by increasing costs, meaning investors who believed the mirage of improved oil-sands economics with KXL will be left disappointed.” – Mark Lewis, external research advisor to Carbon Tracker
- “KXL will improve returns in the short-term, which means that it will help catalyze new investment, more oil-sands production, and additional greenhouse gas emissions. Some policy advisors have suggested that additional emissions linked to KXL could be subject to carbon offsetting, as the price of US State Department approval for the pipeline. The additional costs involved would further undermine its economic benefit.” – Mark Fulton, external research advisor to Carbon Tracker
- “Oil sands are high-cost, high-carbon projects, being proposed at a time when both costs and emissions are under pressure to shrink; as such they should immediately hit an investor’s higher-risk screen. Efforts to stay within a carbon budget, increase fuel efficiency, reduce costs and improve air quality mean that if capital continues to flow into oil sands, the projects risk becoming stranded assets.” – James Leaton, Research Director at Carbon Tracker
- “The Keystone XL pipeline is not only economically risky. It is socially and environmentally unconscionable. The short term investment that the pipeline would stimulate would mean a wave of highly carbon-intensive new tar sands extraction projects being approved. Many of these projects are being actively opposed by local First Nations, as they will exacerbate the pollution of waterways, poison more of the local wildlife and further affect the health, well-being and traditional practices of the indigenous communities of Alberta. The business case for KXL rests on the assumption that new markets will be found to sell this dirty oil to. This makes it ever more urgent for the European Union – the biggest market in the world – to pass the Fuel Quality Directive, and discourage the future import of fuels with high carbon intensities, such as tar sands.” – Jess Worth, No Tar Sands
- RT @arhobley Keystone XL Pipeline: Financial Analysis: A Potential Mirage for Oil-sands Investors http://tinyurl.com/od9hctc via @CarbonBubble
- MT @Suss_quatch New report: #KXL pipeline approval wld encourage investments 2 risky high-cost, high-#carbon project http://bit.ly/1c2e3LF
- RT @insideclimate Carbon Tracker report: http://ow.ly/ra2jV “If capital continues to flow into oil sands, the projects risk becoming stranded assets” #KXL
- MT @PriceofOil New report from @carbonbubble: #KeystoneXL Pipeline: A Potential Mirage for Oil-sands Investors http://www.carbontracker.org/KXL
- RT @350 Approving KXL = rush of risky investments in tar sands: http://ow.ly/r9OR2 Bad for people, bad investment. Stop the tar sands.