As global oil prices fall below US$85 a barrel, polluting tar sands ventures become a bigger gamble, says Carbon Tracker
Syncrude Aurora tar sands, Canada
(Pic: Flickr/Elias Schewel)
By Megan Darby
Tumbling global oil prices have exposed tar sands and fracking projects as risky investments, analysts are warning.
The Brent crude benchmark price has fallen US$30 in the last few months to around US$80-85 a barrel. US crude futures dropped to a three-year low of US$76 today, following a price cut by Saudi Arabia.
Nine out of 10 barrels from Canada’s undeveloped tar sands will need a price of US$95 or more to be profitable, according to the Carbon Tracker Initiative.
That means investors are on the verge of sinking US$271 billion into high cost fuel exploration that may not pay off, the think-tank concluded.
“The economics of oil sands are getting more challenging. We expect to see more stranded assets, as expensive projects get shelved with no viable route to market,” said research director James Leaton.
Meanwhile, Halliburton chief executive Dave Lesar told industry blog FuelFix US shale oil fracking companies would curb production in light of the price slump.
Bloomberg, on the other hand, reported that US oil production was likely to keep increasing as long as the price stayed above US$70.
Divestment
Environmentalists have long opposed these fossil fuel ventures, raising concerns about both local and climate change impacts.
The majority of fossil fuels need to stay in the ground if the world is to avoid catastrophic global warming, they argue.
A growing movement of organisations including churches, universities and local authorities is divesting from fossil fuel companies to reinforce that message.
But it is difficult for major investors to follow suit, Bloomberg analysts say, due to a lack of large-scale green alternatives.
That leaves companies like pension funds and insurers locked into dirty energy investments.
The Carbon Tracker Initiative offers analysis to help these institutional investors steer clear of the most expensive projects, which are often also the most polluting.
It had already identified tar sands, along with deep sea drilling, as one of the most financially risky areas of oil exploration.
Oil companies could waste US$91 billion on the 20 highest cost undeveloped projects, it found.
Its latest update strengthens that conclusion, in light of the lower oil price.