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Shell: stiff resistance to oil sands exploration

Mon. June 01, 2009; Posted: 04:14 PM

Jun 01, 2009 (Datamonitor via COMTEX) — Royal Dutch Shell is facing renewed opposition to its investments in Canada’s oil sands from environmental groups, which believe that such exploration work can severely increase the carbon intensity of energy production. However, the adoption of alternate fuel sources is inevitable in the long-term and technological advances have the potential to address many of the environmental concerns.

The increasing cost of exploration in conventional oil fields, compounded by the current decline in fuel demand, has brought about a decline in global exploration activity. The implication of this exploration downturn, which will continue to be felt over the longer term, is that the supply-side will find it difficult to keep pace with renewed demand when an upswing occurs. Such a situation may lead to a rise in oil prices, which could even breach the record levels seen in 2008.

Responding to this future opportunity, oil companies are scrambling for non-conventional yet stable energy sources. For many producers, oil sands and oil shales have significant future potential. Royal Dutch Shell recently announced its plan to explore Canadian oil sands, which are an attractive option considering the scale of field available and the proximity to active fields in the US. However, such exploration activities are energy intensive, producing higher emissions and wastes, which impacts neighboring wildlife, forests, and wetlands. Shell’s plan to explore these fields has led to extreme reactions from environmentalists and groups such as Greenpeace, which believe that these activities could severely increase carbon intensity.

In spite of immense potential, successful exploration in Canadian oil sands seems difficult. A similar fate can be expected for other non-conventional assets, such as the oil shales in the US and oil sand sites in Venezuela. This presents a depressing scenario not only for the producers of fossil fuels but also for the net importers, thereby presenting a severe long-term price implication. Oil majors may be forced to extract every possible drop from deep water offshore assets and conventional oil fields, resulting in significantly higher extraction costs and creating upward pressure on prices.

With a widening fuel supply-demand gap and the limited success of renewable energy sources, it is imperative that a sustainable energy source be found. Adoption of alternate fuel sources such as oil sands and oil shale, or for that matter nuclear power plants, is therefore inevitable. And with technological advancements promoting cleaner and more efficient exploration practices, some of the environmental concerns could well be addressed. Even though the current economic scenario may create a temporary dip in fuel demand, leading to a short-term suspension of such explorations, the long-run potential of this opportunity cannot be denied.

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