Oil companies pursuing unconventional sources of fossil fuel could be in for a rude awakening as a combination of factors drives down expected growth in the global demand for oil, according to a new report from Greenpeace UK.
The report, “Shifting Sands,” calls into question the long-term profitability of unconventional fossil fuel sources like Canada’s so-called “tar sands.”
The findings were released in the same week that oil majors BP and Shell are scheduled to post their quarterly results (BP today, Shell on Thursday). The report claims Shell is uniquely exposed to oil price volatility; with more than 30% of its oil resources classified as unconventional, the firm requires consistently high oil prices for such resources to remain viable.
“Shifting Sands” also further questions whether the high oil prices needed to sustain tar sands production will ever be withstood by the economy.
Co-authored by PLATFORM, Greenpeace and Oil Change International, the report points to a series of trends emerging from the growth forecasts of OPEC, the International Energy Agency (IEA) and the Energy Information administration (EIA) as evidence that the oil market could be undergoing a permanent structural shift.
The authors assert that previous oil demand growth forecasts have seriously underestimated the potential impacts of Government policies aimed at securing energy supplies, reducing price volatility and tackling climate change. This “triple crunch” of political imperatives has led to a widespread dampening of expectation among the world’s leading energy analysts.
“The investment risks associated with tar sands projects are increasing almost daily,” said Lorne Stockman, the report’s main author. “The potential impact of major efficiency programmes on oil demand is only just being realised, as Governments around the world attempt to reduce price volatility, secure energy supplies and tackle climate change.”
He added, “Investors should be aware that the assumptions they made just one year ago could now be well out of date, and they should think carefully before committing to projects that require a consistently high oil price to break even.”