Oil: Tar sands less damaging than coal, insists Shell

· Profits from controversial source increase by 74%
· Group makes $7.9bn as Exxon hits record $11.7bn

Shell warned environmentalists and ethical investors yesterday that failure to exploit tar sands and other unconventional oil products would worsen climate change because it would lead to the world burning even more carbon-heavy coal.

Jeroen van der Veer, Shell’s chief executive, said the world needed every kind of energy source it could find at a time of soaring demand. He said groups that had threatened to organise a ban on alternative fossil fuels should be careful because without unconventionals “the balancing fuel will be coal”.

Shell revealed that its tar sands operation had seen a 74% profit growth to $351m (£177m) in the second quarter, providing a relatively modest but important boost to total group profits of $7.9bn on a current cost of supplies basis. In the US, its rival ExxonMobil reported earnings of $11.7bn for the last quarter, the highest in US corporate history.

The Co-op and the wildlife group WWF announced this week that they were calling a meeting of ethical investment funds in September to try to put pressure on governments not to buy any oil supplies coming from tar sands.

While environmentalists have claimed that tar sands extraction uses at least three times more energy than traditional oil, Van der Veer said yesterday that the “well-to-wheels” carbon footprint was only 15% higher than conventional oil.

Last night Greenpeace questioned the carbon figures and expressed further concern at Shell’s growing use of tar sands. “Oil companies are increasingly dependent on these unconventionals as they get squeezed out of countries such as Nigeria and Russia. We fear tar sands are just the entrance ramp to oil shale, gas-to-liquids and other non-conventionals, which will just press the red button for climate change disaster,” said Charlie Kronick, a climate change campaigner at Greenpeace.

Shell was upbeat about another controversial area, expressing optimism that it would be able to sign agreements

“before too long” with the Iraqi authorities despite non-governmental organisations claiming that British and US firms were exploiting the western military presence there.

Much would depend on the security situation, said Van der Veer, adding that discussions were continuing over oil and gas operations in a country still riven by fighting five years after the overthrow of Saddam Hussein.

Shell said it could make no predictions about the future of oil prices, which have only just fallen back from recent highs of nearly $150 a barrel.

The company said it planned for both high-price and low-price scenarios but always with volatility in mind. Van der Veer indicated that further analysis of the state of the crude markets had led him to reconsider whether financial speculators were as much to blame for that volatility as he had suggested in the past.

Shell said it was pleased with its overall financial and operational performance, which helped to produce a return on capital employed 26% higher quarter on quarter but its shares fell nearly 2% to £18.08 as the City worried about falling oil prices.

A doubling of the price to $120 a barrel in the second quarter had driven Shell profits up but the company saw overall oil and gas production fall by 1.6% to 3.1m barrels of oil equivalent a day in the second quarter from the same quarter last year.

In the US, Exxon would have earned $11.97bn if it had not been for the company taking an after-tax charge of $290m related to a court settlement over the 1989 Exxon Valdez tanker spill. Its shares also fell 2% to $82.70 in pre-market trading as Wall Street had been hoping for even higher earnings.

Setting US profit records has become commonplace for the Irving, Texas-based Exxon Mobil. The $11.68bn topped its US record of $11.66bn in the fourth quarter last year. Right behind that was the $10.9bn it reported for the start of this year.

http://www.guardian.co.uk/business/2008/aug/01/oil.fossilfuels