Green Groups: Investors Beware of Oil Sands

Last Updated Jul 27, 2009 3:42 PM EDT

Greenpeace has taken the approach of 'investor protector' in its battle against Canadian oil sands. The environmental group, along with PLATFORM and Oil Change International, published its "Rising Risks" report Monday warning investors of the potential economic falloutfor international oil majors who are relying more on unconventional oil -- those found in the Canadian oil sands, ultra deepwater and offshore Arctic.

The report's premise? Oil majors heavily invested in unconventional oil have unsustainable business models. Why? Because, according to the report, more oil will come from unconventional sources, which rely on high oil prices to pay for the costly projects. As the cost of oil production rises, demand will fall as governments institute climate change legislation; improvements in technology reduces use and the world turns toward renewable energy sources.

If oil moves above $90 a barrel the economy will be put at risk, weaken once again and push down demand even further. Without high oil prices, majors like BP and Royal Dutch Shell will be forced to delay or scrap costly unconventional oil projects including Canadian oil sands.

In short, oil majors invested heavily in oil sands are vulnerable and therefore not a good long-term investment. The report focuses primarily on Shell and BP because of their investment in oil sands.

It's an interesting tactic for this long-time opponent to Canadian oil sands, which Greenpeace calls tar sands. And Greenpeace's timing -- in the midst of second-quarter earnings season -- was clearly not an afterthought.

The FT does an excellent job breaking down the complex paper by examining each point in the 19-page report.

And as the FT points out, the report -- using data from a variety of agencies, analysts and earnings reports and other information from oil majors themselves -- makes some credible arguments.

I do take issue with at least one point in the report: the premise China's policies of increasing pump prices as well as encouraging greater fuel efficiency in cars and investment in renewable energy sources will offset demand growth for oil. I'm not saying this could not happen, but there are so many unpredictable factors I would be hard-pressed to bet on that particular scenario.