Yes, energy companies are bailing on Canadian tar sands oil. The latest to pull back is Royal Dutch Shell, which just let word slip that it will probably not expand its operations in Canada. ExxonMobil and Chevron recently went a step farther and wrote down their tar sands reserves, as did Norway’s Statoil last year.
Even Koch Industries appears to have one foot out the door. That’s a significant development considering that the company has been among the top leaseholders in the tar sands oil field.
Energy Companies Playing Whack-A-Mole
Before you do a happy dance about Shell and tar sands oil, there are a few caveats.
First, according to our friends over at Fuel Fix Shell has not yet come to a final decision about whether or not to expand its operations in Canada. It seems likely to go in the direction of not, but the company may be holding back to see if prices recover after others pull out.
Second, Shell does have existing tar sands operations that it describes as “cash engines,” and those are likely to continue, at least into the near future.
Shell could also up its involvement in other unconventional fossil energy operations, namely deep-water and shale drilling. To underscore the risks involved in those fields, consider BP’s Gulf oil spill disaster and the growing pile of evidence over the consequences of oil and gas fracking.
However, the main point is that Shell and other companies are transitioning out of an energy field that has been widely described as a carbon bomb.
On the other hand, Chevron bailed on its renewables division back in 2014, and ExxonMobil is…well, ExxonMobil. Last week in a blog post, the company’s new CEO suggested that algae biofuel could be a “game changer,” but that’s a long way off.
What About Koch Industries?
Back in 2012, Inside Climate News documented a history of more than 50 years’ worth of involvement in the Canadian tar sands field on the part of Koch Industries. By extension, that includes an interest in the success of the Keystone XL tar sands oil pipeline.
However, Koch Industries may not be immune to the tar sands slump. Last December, our friends over at Oil Price took a look at the Koch picture and came up with this:
Koch Industries Inc. has become the latest in a long line of companies to move away from the Canadian oil sands, stating that it wants to pull out of a project in the Muskwa region. Previously the third largest leaseholder in the sector, Koch Industries cited both economic and regulatory uncertainties as the reason behind its decision.
If you caught that thing about “regulatory uncertainties,” that refers to the movement to establish a federal carbon tax in Canada.
To be clear, Oil Price notes that the “mass exodus from Canada’s oil sands” started long before the carbon tax movement began gathering steam, due to the global downward slide in oil prices:
Regardless of the environmental impact, the high capital investment required and the low quality of oil produced makes the oil sands an economically challenging sector.
Prices have been slowly recovering from their downturn, but Oil Price predicts that the regulatory environment, and pressure from environmental stakeholders, will continue to push down interest in the tar sands field.
Koch To Tar Sands: We’re Not Dead Yet!
Well, that was last December. As it turns out, Oil Price was on to something when it conjectured that the Muskwa lease fell victim to economic fundamentals, not over-regulation.
National Observer came up with a letter to Alberta regulators from the Koch Oil Sands Operating subsidiary, in which the company blamed excessive regulation for its decision:
“…The longer term risk of the project is further burdened with regulatory uncertainty around the Climate Leadership Program and its potential impacts on the project, from carbon tax to the emissions cap, both recently legislated by the Alberta government.”
The letter gave plenty of ammo to the opposition party in terms of political positioning, but according to National Observer it was all hot air:
In their public statements, neither they, nor Koch Industries mentioned that only two days after the withdrawal — very quietly — Koch Oil Sands Operating ULC filed an application to the AER for a brand new oilsands project near Bonnyville, Alta.
Upon closer examination, National Observer pinpoints the primary rationale for cancelling one lease and entering into another: infrastructure.
The Muskwa lease was in a remote area and would have cost “substantially more” than similar projects that are already located near roads, power lines and other vital infrastructure.
When oil prices were going through the roof, it made financial sense to invest in new infrastructure, but that was then. Here’s an expert cited by National Observer:
“The reality is that while this project may have made some economic sense under higher oil prices… with the expectation of oil prices now much more moderate, it really doesn’t make financial sense.”
In contrast, the new project is in a developed region. Also helping to keep costs under control is the involvement of an experienced Canadian partner, Pengrowth Energy.
Count Canadian tar sands oil down, not out.