How Oil Companies Lost $17 Billion Defying Environmental Activists over Canada’s Tar Sands

If oil companies are rational economic actors, and climate activists want to keep them out of Canada’s tar sands, it’s worth asking just what cost those companies have suffered for trying to produce that oil over the environmental community’s objections. Thanks to a new study by the Institute for Energy Economics and Financial Analysis (IEEFA), and Oil Change International, we now may have a dollar figure: $17 billion.

The report — Material Risk: How Public Accountability Is Slowing Tar Sands Development — looked into the delays and project cancellations that have been caused by public opposition to the development of the tar sands.  The ongoing battle over the Keystone XL pipeline is the most prominent example.  But what it all adds up to is transportation bottlenecks, and falling profits for the industry even as crude oil has kept flooding in from Canada’s tar sands fields.

That difference between what oil companies have sold and what they could have sold in the absence of the bottlenecks amounts to $30.9 billion from 2010 through 2013, according to the analysis.  A good portion of that is from the inevitable changes and risks that come along with any marketplace.  But after going through the various circumstances of the last few years, and teasing out various signals in the data, the researchers concluded that $17.1 billion (or 55 percent) of that “can be credibly attributed to the impact of public accountability campaigns.”  The researchers also note that nine of the ten leading oil producers in the Canadian tar sands have underperformed that stock market in the last five years, and that industry observers have begun downgrading their projections for future production in the tar sands.

“Public opposition has caused government and its administrative agencies to take a second and third look,” said Steve Kretzmann, executive director of Oil Change International.  “Legal and other challenges are raising new issues related to environmental protection, indigenous rights and the disruptive impact of new pipeline proposals.  Business as usual for Big Oil — particularly in the tar sands — is over.”
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The report also delves into the possibility that rail transportation could make up the difference for the oil companies.  “Shipping bitumen to the Gulf Coast by rail has been losing money for much of 2014 and only shipments tied to long-term contracts have made the 3,000 mile journey,” the report noted.  The oil must compete for access to the rail with other commodities like grain and manufactured goods — a problem they don’t face with pipelines — and many rail terminals lack both the scale and the equipment necessary to handle the oil shipments.  Despite the boom in rail transport of crude oil in North America — which has led to a number of explosions and disasters — an investigation by Reuters also reached the conclusion that rail shipments could not make up the flow of oil Canadian oil producers had anticipated from the Keystone XL and other pipeline transportation.

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