TransCanada's (NYSE:TRP) Keystone XL pipeline and the Canadian oil sands products it's meant to carry were already a couple of albatrosses in the public's eyes, but three recent developments just added more flies to the tar sands ointment.
1. Suncor gets the Wikileaks treatment
Wikileaks released a fairly bizarre presentation that appears to have been prepared for Suncor (NYSE:SU), despite the company's protestations to the contrary. Stratfor, a self-described global intelligence firm, prepared the presentation, and Wikileaks published it along with reams of other Stratfor documents it had obtained.
The Stratfor presentation identifies environmental organizations that campaign against Canadian oil sands -- or tar sands, depending on which side you're on -- categorizes them, and proposes mechanisms by which Suncor and/or the industry can respond.
The Wikileaks website characterizes its Stratfor files as a major coup against a big-time, shadowy figure in the seedy, malevolent underworld of private spying. If that's the case, the Suncor presentation must have been a fluke, because the thing is pretty unimpressive.
While Stratfor's presentation accurately identifies the environmental organizations and reasonably categorizes them into four buckets -- idealists, radicals, opportunists, and realists -- the author completely misunderstands the ultimate aim of these groups, construing their underlying objective to be that oil sands companies establish a code of conduct. Sorry, guy, but that doesn't even hit the broad side of a barn.
Stratfor gives some fairly tepid advice to Suncor, demonstrating a fundamental disbelief that the activists could pack any significant punch. However, some of the "worst-case" scenarios proved prescient:
Campaign becomes the most significant environmental campaign of the decade as activists on both sides of the border come to view the industry as arrogant... Activists succeed in bringing the long term [sic] viability of oil sands into question... Direct action groups dig in and moderate groups are successful in blocking pipelines, refineries, etc.
Sounds a lot like exactly what's happening. So did Suncor ignore a threat that it paid a major global intelligence firm to predict?
Or did Suncor hire a glorified news-clipping organization to do a hair-brained assessment that got a few things right in spite of itself, and then ignore that? So suggests an interesting piece in The Atlantic, which characterizes Stratfor's reputation in intelligence circles as being "just The Economist a week later and several hundred times more expensive."
Either way, Suncor and its peers grossly underestimated the public backlash they would face, and they're struggling to recuperate now.
2. John Podesta heads to the White House
On Monday, we learned that John Podesta would be joining President Obama's team of advisors, and that Podesta would be focusing on climate. Podesta founded the Center for American Progress, a liberal think tank that has been an ardent foe of Canadian oil sands development.
Podesta has no love for the Keystone XL pipeline, and in a speech three years ago he described tar sands as "polluting, destructive, expensive and energy intensive." Needless to say, environmental groups are rejoicing. While TransCanada started pumping its first oil through Keystone's southern leg this past Saturday, the company still faces daunting obstacles to a full rollout.
3. More evidence for the "carbon bubble"
A new paper, "Un-burnable oil: An examination of oil resource utilisation in a decarbonised energy system," will be published by the journal Energy Policy in January. The study seeks to analyze what proportion of oil reserves must be left in the ground if the world's governing bodies enact legislation to constrain climate change.
Known as the carbon bubble, the essential concept is that energy companies include their hydrocarbon reserves in valuation calculations. However, these reserves may not be economically viable to exploit in a carbon-constrained world, thus rendering them stranded assets. This new study concludes:
... large volumes of oil currently considered to be reserves cannot be produced before 2035 if there is to be an evens chance of limiting the global average temperature rise to 2 degrees C. On a global scale nearly 600 Gb of oil reserves must remain unused by 2035 in a scenario where CCS is unavailable, around 45% of available reserves, while in a scenario allowing the wide-spread and rapid adoption of carbon capture and storage (CCS) in both the electricity and industry sectors, nearly 500 Gb must still remain in situ.
Lest there be any doubt, the study declares unconventional oil production to be "incompatible with a decarbonised energy system even with a total and rapid decarbonisation of energetic inputs."
Now it's probably no surprise that Suncor sees things differently. At October's SRI Conference, I was fascinated to hear Suncor's vice president for investor relations, Steve Douglas, say that even if the world restricted itself to burning only 20% of global reserves, it wouldn't be an "existential threat" to his company.
I'm not buying it. There are so many forces pushing against oil sands development that I have no faith in its long-term viability. I guess that leaked presentation got something right after all.
Sara Murphy has no position in any stocks mentioned. Follow her on Twitter @SMurphSmiles. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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