Arctic oil projects are costly and with uncertain return on investment

Don't waste money on pointless oil projects experts say

Canadian tar sands, deep water drilling or Arctic exploration projects are risky, expensive and with uncertain return on investment, a think tank has warned.

According to a study conducted by the Carbon Tracker Initiative, up to £650bn could be invested in the coming decade on costly oil development projects which could become unprofitable due to falling oil prices.

Although the proposed projects, in order to generate profit, require a market price of oil of at least $95 per barrel, which is $12 less than the current market price, the think tank said there was no guarantee the prices wouldn’t plummet below the threshold value, due to the pressure to curb carbon emissions.

Twice in the past ten years, oil prices dropped below $50 per barrel, the initiative warned, saying relying in the unpredictable oil prices could be risky.

"This risk analysis shows that many oil companies are betting on a high demand and price scenario,” James Leaton, research director at Carbon Tracker said.

"Investors need to get ahead of the carbon supply cost curve to ensure capital is not being wasted."

The think tank believes high-cost and high-risk oil projects should be the first to be scrapped as the world tries to limit global temperature rises to stay below 2 degrees Celsius - the level above which the dangerous impacts of climate change are expected to be felt.

The whole "carbon budget" for oil - the amount that can be burned and still keep the world from exceeding the 2C target - could be used up by exploiting cheaper oil sources with a market price of no more than $75 per barrel, the report said.

Demand for oil - much of which is used for transport fuels - could also be reduced by improvements to technology and more efficient vehicles. A slowdown in growth in China was leading to lower demand than predicted, the experts added.

The report urged investors to challenge oil companies on the investments they were making.

"Today's report report shows that a significant amount of investment being made in new oil projects today are neither economically nor environmentally justifiable,” Nick Molho, head of climate and energy policy at conservation charity WWF-UK, commented.

Recent articles

Info Message

Our sites use cookies to support some functionality, and to collect anonymous user data.

Learn more about IET cookies and how to control them