Financial Hazards Seen in Oil Sands

An article in Wednesday’s paper weighs the risks and benefits of a leading source of oil for the United States, the oil sands of Canada, whose growth will probably accelerate if deepwater drilling is restricted in response to the Deepwater Horizon accident.

But a new report this week from RiskMetrics Group and Ceres, an investment adviser that incorporates sustainability issues into its recommendations, urges caution in buying into oil sands.

“Oil comes from many places, and none of them are very clean and all have risks. We need to be far more open about the tradeoffs,” said Andrew Logan, Ceres’ director of oil and insurance programs. “We’re not saying don’t invest in oil sands. We’re saying there are lot of short-term and long-term risks, and you need to address them up front.”

Ceres advises some of the country’s largest banks and pension funds.

The report looks at the financial costs of the environmental damage caused by oil sands extraction, costs not always tallied by the energy industry.
“The oil sands are the world’s most expensive source of new oil, and new production requires prices of at least $65 per barrel, and potentially as high as $95 per barrel, to make economic sense,” it says.

The report details the environmental toll:

Bitumen mining mars the landscape and consumes large volumes of water that end up in toxic tailings ponds. In-situ production fragments wildlife habitat and is extremely carbon-intensive. Restoring this vital ecosystem will require sustained investments in land reclamation and water treatment projects, which presents one of this industry’s biggest long-term challenges.

There is also a risk of laws changing, the report finds.

For example, some states and countries are introducing low-carbon fuel standards, which prohibit the sale of fuels whose production involves heavy greenhouse gas emissions. California already has such a requirement, passed in 2009.

With current production techniques, oil sands may not be able to meet low-carbon tests.

“We conclude that oil sands producers banking on rapid growth are taking a big gamble,” the report says. “Over the long-time horizon of these capital-intensive investments, market and energy policies could turn against their projects for reasons largely beyond their control.”

By ELISABETH ROSENTHAL/NYT

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