CALGARY, Alberta (Reuters) - Some environmental risks of Canada’s oil sands are similar to the Gulf of Mexico oil spill “but playing out in slow motion,” the co-author of a report warning investors of the ecological, financial and social risks of oil sands development said on Monday.
The report, by RiskMetrics Group, said investors are putting their money in jeopardy unless developers of the vast unconventional resource in Alberta come up with clearer plans to deal with carbon emissions, water use and land reclamation,
Companies have not adequately tallied the long-term risks to balance sheets for such things as policy changes aimed at cutting carbon emissions or reclaiming land used for toxic tailings ponds, said the study, commissioned by Ceres, a network of investors and environmental groups.
“What is happening at the moment in the oil sands of Alberta is kind of like the Gulf spill, but playing out in slow motion,” RiskMetrics’ Doug Cogan said on a conference call.
He compared the impact on water, pointing out the large volumes used in the oil sands in the production and refining processes and the formation of tailings ponds, where waste products including leftover crude and heavy metals are stored over several years.
Tailings made headlines after 1,600 ducks died in one at Syncrude Canada Ltd’s oil sands mine in 2008. A judge is due to rule in June on Syncrude’s responsibility following a trial.
The study said oil sands projects require oil prices of at least $65 a barrel, and possibly more than $95, to justify $120 billion in planned expansions over the next 10 years. Meanwhile there is no guarantee of continued demand in future decades.
U.S. crude retreated 2 percent to $70.08 a barrel on Monday, having fallen more than 15 percent in a month.
New U.S. and Canadian low-carbon fuel standards could put producers at a disadvantage, due to the higher carbon intensity inherent in the unconventional crude, the report said.
In addition, the industry will have to make major outlays to reclaim land and treat water once production facilities come to the end of commercial operations, it said.
“If the industry does not take steps to aggressively manage these risks, this report concludes that the industry’s long-term growth is in doubt,” it said.
Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, said his group’s members recognize the risks and are working to improve operations. The firms have also initiated plan to centralize all of their environmental and social data for better disclosure.
“But comparing (the oil spill) to the oil sands industry, which is fully regulated, that is under approvals that are going on, and is monitored on a regular basis, is just not a fair comparison,” Stringham said.
Alberta’s oil sands represent the largest crude deposits outside the Middle East and are seen as a secure source of U.S. supply from a politically stable neighbor.
But their environmental impact has increasingly come to the fore. Green groups have mounted campaigns to hammer home a message that the huge projects are harmful to air, water, land and local communities.
The industry has responded with its own communications push, saying it is doing it can call to minimize the impact.
Jack Ehnes, chief executive of the California State Teachers’ Retirement System (CalSTRS), which has investments in several oil sands producers, said the report makes it clear that oil companies must do more to assess and disclosed the long-term risks.
Oil sands producers including BP Plc, Royal Dutch Shell, Exxon Mobil Corp and ConocoPhillips make up $1.9 billion of the fund’s $138 billion portfolio, he said.
“We have quite a bit of our teachers’ money at stake here and considering these companies’ existing exposure to oil sands and their plans to increase this exposure, we need to be working to ensure that these companies are properly recognizing and managing this risk,” Ehnes said.
Editing by Rob Wilson