BP’s full steam ahead on tar sands; and the rest of us be damned!

In the course of the past month, BP tripled the number of tar sands projects it’s developing, from one to three.

While it rocked the tar sands industry back in December 2007, with its announcement of a joint venture with Husky that reversed its 1999 decision to avoid tar sands projects, the following two years saw no new additions to its bitumen portfolio. That’s changed radically this month.

Back in early 2008, when the tar sands industry was booming and the Albertan press was awash with pride over the fact that, following BP’s re-entry, no major international oil company could do without dipping its snout in the tar sands trough, BP let on that it had retained a lease in Kirby during its 1999 sell-off.

But until this month it was unclear what it was planning to do with that lease. It now turns out that it will partner with tar sands old-hand Devon to develop a SAGD project at Kirby.

Then a second deal was announced in the space of a week, this time involving Value Creation, a small tar sands developer that was one of the first to go under when the oil price fell in late 2008. BP will pay a so far undisclosed sum for a majority stake in Value Creation’s 185,000 acre Terre de Grace lease – one of the biggest in the industry. SAGD is also expected to be used at the site. Value Creation’s crippling debts will be cleared.

So with three SAGD projects in the pipeline BP’s fortunes now appear increasingly linked to expensive high-carbon oil production in Alberta. Some of BP’s investors may consider the timing of this sudden expansion into tar sands a little incongruous. They are yet to receive satisfactory answers to questions raised in a shareholder resolution tabled for the company’s forthcoming AGM in April.

The resolution expresses investor concern about BP’s first SAGD venture with Husky and requests the company to provide greater detail to investors regarding the project’s risks.

So far, BP’s formal response to the resolution raises more questions than it answers.

For example, in response to investor concerns that oil demand in the USA probably peaked in 2007 and that the sustained high oil prices needed to profit from expensive SAGD production are in question, the company replied by quoting the International Energy Agency’s reference scenario for energy demand growth to 2030.

Seems fair enough, the IEA is a respected source of data and analysis. There is a little problem though. The IEA says this about its reference scenario:

But these Reference Scenario trends have profound implications for environmental protection, energy security and economic development. The continuation of current trends would have dire consequences for climate change. (…) taking us towards a concentration of greenhouse gases in the atmosphere in excess of 1000 parts per million (ppm) of CO2-equivalent (CO2-eq). This, the outcome of the Reference Scenario, would almost certainly lead to massive climatic change and irreparable damage to the planet.

Woops! Could it be that BP’s business decisions are based on a forecast for energy demand that guarantees “massive climatic change and irreparable damage to the planet”? Surely not!

This is the company that “has a decade-long track record of advocating and taking precautionary action to address climate change” and believes that climate change is a “global issue that requires all countries, all sectors of industry and society at large to play their parts in addressing it.”

CEO Tony Hayward told an audience at Stanford Graduate School of Business in July 2009 that when he took over the company, there were “too many people (in BP) that were working to save the world.”

Looks like he won’t need any of them then.