Big Oil is hungry for Canadian Oil sand. But it is an environmentally ethical decision? When it comes to easing the energy crisis, most politicians and many Big Oil companies have the same mantra: the more oil from sources other than the Middle East and other unstable regions, the better. And "the next big thing" in Big Oil could be the oil sands in Canada's province of Alberta. The Economist reports on why Canadian oil sand is suddenly looking better to Big Oil:
Analysts at Citibank reckon the oil price needs to remain above $40 a barrel to make the development of the oil sands worthwhile. …There is no exploration risk: the oil is definitely there. Once up and running, oil-sands mines produce a steady flow of oil for 30 years or more, whereas the output of more conventional fields is much less predictable. Best of all, the oil sands are in Canada, a hearteningly moderate and stable country.
Indeed, oil is unlikely to fall below $60 a barrel in the near future, and this has Big Oil companies, including Exxon (XOM), Chevron (CVX), Shell (RDS-B) increasing their investments into this region. Big Oil is hoping that the investment will ultimately result in a regular supply of oil from a stable source, reducing energy dependence on the Middle East.
But is this somewhat expensive investment in Canadian oil sand development ultimately good for Big Oil? BP (BP) doesn't think so. It is one of the few oil companies that remains skeptical of the long-term value of Canadian oil sand development, both in terms of value and in terms of environmentally friendly investing. Oil sand development is a more intense process that produces more greenhouse gases and greater emissions in development. Indeed, reports the San Francisco Chronicle, California's new measures aim right at the processes involved in developing oil, as well as at other emissions:
The California measure is designed to address the often-overlooked, emissions-spewing ways in which fuels are created, thus complementing the state's other global warming policies such as cuts in vehicle tailpipe emissions.
Nine Northeast states are expected to eventually join California's fuel standard, along with Illinois, Quebec and Manitoba. Together, these steps will advance Schwarzenegger's stated goal of forcing oil companies to reduce emissions — such as oil production processes that capture and store greenhouse gases underground, or cellulosic ethanol, or even electricity.
So, why won't Big Oil think outside the box? Why does investing in Canadian oil sand development seem more attractive overall than investing in alternative energy that can not only reduce our dependence on oil from unstable sources, but also prevent further damage to the environment? The answers from Big Oil may not be readily available, but in the future, as states and consumers become more interested in environmental ethics, Big Oil may find that alternative energy was the better investment.
Disclosure: The only Big Oil company that I invest in is BP.