Energy and Environment
Tar sands in Canada

Why It Matters that Statoil Just Shelved Its Multi-Billion-Dollar Tar Sands Project ... Statoil will halt its multi-billion dollar tar sands oil development project—a huge win for environmentalists.

Burgess COMMENTARY

Peter Burgess

Why It Matters that Statoil Just Shelved Its Multi-Billion-Dollar Tar Sands Project ... Statoil will halt its multi-billion dollar tar sands oil development project—a huge win for environmentalists.

In what’s being hailed as a huge win for environmentalists, Norwegian oil company Statoil announced on Thursday that it would postpone a planned multi-billion dollar tar sands oil development project in Fort McMurray, Alberta for at least three years. The major project, when completed, was supposed to produce 40,000 barrels of Canadian tar sands, or oil sands, crude oil every day.

Statoil is putting the project on hold for a few reasons, but the most notable is the company’s assertion that there is “limited pipeline access” for the oil. In other words, Statoil is not sure there is enough pipeline capacity for it to actually get the oil out of northern Canada. According to Reuters, Statoil is the first company to explicitly cite pipeline access as a reason for delaying or canceling a project.

For environmentalists and advocates opposed to the controversial Keystone XL pipeline, this decision is huge. A group of six environmental organizations including the Sierra Club and 350.org are calling it “tangible proof” that strong, coordinated opposition to big pipeline projects like Keystone XL “lead to real reductions in tar sands investment and associated carbon pollution.”

Over its lifetime, Statoil’s project would have emitted 777.4 million metric tons of carbon dioxide, the groups said — the equivalent to 164 million cars, or one year’s worth of emissions from 204 U.S. coal plants.

It’s important, however, to emphasize that Statoil’s postponement probably didn’t have to do with the fact that Keystone XL itself has not been approved. Andrew Leach, a professor of energy and climate policy at the University of Alberta, told ThinkProgress that Statoil did not secure an agreement with Keystone operator TransCanada to transport its oil on the pipeline. “So even if Keystone XL got built … [Statoil was] still potentially left without a home for the barrels they want,” Leach said.

While Statoil’s decision to halt its project does not have to do specifically with the Keystone XL pipeline, there are nevertheless several reasons why the postponement matters for the environmental community.

1. It shows that pipeline protests really can impact the future of oil sands development

The momentum surrounding opposition to Keystone XL has done more than just delay the one pipeline — it’s made companies extremely wary of pursuing pipeline projects that cross the border to bring Canadian tar sands oil into the United States. According to Leach, that broader fact is now making some companies rethink tar sands production projects.

“For [oil companies] looking ahead, it’s not a question of whether Keystone XL is going to get built, it’s more a question of the broader transportation situation in the market,” he said. “It’s more the general opposition to oil sands, and the focus of that opposition on new pipeline projects … Keystone XL is almost a symptom, rather than a cause.”

Because of Statoil’s postponement, some have called into question the accuracy of the State Department’s claim that building Keystone XL would not impact global greenhouse gas emissions, because the oil produced in Canada would get to market anyway. But as Leach points out, the State Department’s assessment only looked at the 800,000 daily barrels of oil that would be produced by Keystone — not the ripple effect approval might have on other cross-border pipeline projects.

“Anyone who says that pipelines don’t matter for the future of oil sands is wrong, but it’s also wrong to view that as what the State Department said,” Leach said. “If you’re building an oil sands project, that’s going to effect you.”

So while it may not be the lack of the Keystone XL pipeline itself that has halted Statoil’s project, the culture of opposition to tar sands pipelines has put uncertainty surrounding oil transportation into the mix. And in the context of tar sands, which are mostly isolated in Northern Canada, access to transportation must be certain.

2. It highlights the power of environmentally-conscious shareholders

Another reason Statoil may have put its project on the shelf is because of its shareholders. Unlike most Canadian-based oil companies, stockholders of the Norwegian energy company have put a decent amount of pressure on the company to make environmentally-friendly investments.

“Statoil has been under a lot of pressure at home in terms of their oil sands investments,” Leach said. “For them, building a new oil sands project is going to be difficult given the opposition … They won’t be able to push ahead if it’s even slightly risky.”

And risky it has been. Along with the pipeline access issues, Statoil said the risk of increased cost was another big reason to postpone. Compared to Canadian-based companies, Statoil’s costs are magnified because, as FirstEnergy Capital Corp. analyst Michael Dunn pointed out to the Globe and Mail, it is an outsider company. They don’t have relationships with local contractors and suppliers there that would give them “preferential treatment,” Dunn said, meaning it’s more difficult to get projects done timely and relatively cheaply.

3. It shows how much more needs to be done to make a dent in climate change

Statoil’s postponement may be a victory for environmentalists concerned with the physical landscape of the area, and even for climate activists who are happy to see the a large amount of carbon not emitted into the atmosphere. But a postponement does not necessarily mean the project is gone for good. And even if it is gone for good, the emissions reductions represent a drop in the bucket for combating global climate change.

“At the end of the day, new oil sands production is a drop in the bucket, albeit a big drop, on global oil production,” Leach said. “If you’re really concerned about climate change, what you care about is how much oil people are producing or burning … and what you need to do to get that at some point is a policy change.”