A Not So Happy New Year for the Tar Sands in 2018

C: Jennifer Grant, Pembina Institute

Although Canada’s controversial tar sands industry celebrated a small increase in production last year, this year’s forecast is looking gloomy, as investors continue to take flight over the climate risks and the relatively low oil price means that other oil patches look more profitable.

Last month, the tar sands sector was hit by the news that Axa, one of the largest financial services companies, was ending investments in 25 tar sands companies, as well as three companies transporting tar sands oil to market. It also withdrew insurance cover worth €700m from the pipeline companies.

At the time, Thomas Buberl, the CEO of Axa, said: “The pipelines will also be stranded assets at some point, so we don’t want to invest.”

That same month, Norway’s main municipal pensions provider, KLP, announced it was excluding companies from its investments that had over 30% of their revenue stemming from the tar sands.

Anne Kvam, the head of responsible investments at KLP Kapitalforvaltning, argued that “What we found was that in terms of climate change and GHG emissions, oil sands is just as bad as coal, so having excluded coal, it made no sense for us to remain involved in this.”

Also last month, a report by the Royal Bank of Canada noted that major tar sands producers would face problems this year due to pipeline constraints. “Based on our analysis, Western Canada’s oil exports are set to materially exceed export pipeline capacity in the first quarter of 2018,” said the report.

And now, Tim McMillan, president of the Canadian Association of Petroleum Producers, has admitted that the tar sands sector will continue to experience further trouble this year, with more job layoffs expected.

He is quoted in the Canadian press this week saying “We have positioned ourselves to be less competitive than we need to be and because of that, we’re not going to see the level of investment we saw over the last decade. When we should be making ourselves more competitive, it seems we’re going the other direction.”

He added that: “We’re seeing increasing amounts of capital that traditionally came to the oilsands finding more competitive jurisdictions south of the border and in other places.”

And the theme of disinvestment is picked up in today’s Wall Street Journal, which says of the tar sands and other risky oil and gas investments: “In a world where the heaviest polluting industries could be penalized, some investors say the financial risks of such investments could outweigh the rewards.”