Thursday, May 6, 2010

Power struggle over Canada's 'dirty oil' sands

By Sally Williams

Christopher Hall is an unlikely rebel. Aged 74, the retired canon of Christ Church Cathedral, Oxford, wears wire-rim glasses and a tweed jacket, and lives with his wife in a cottage in a village just outside Banbury. He reads, he gardens and he enjoys being with his children and grandchildren. It is scarcely the lifestyle of extreme radicalism and yet Canon Christopher Hall is one of a new breed of activists.

The target of his unhappiness is Shell. Canon Hall does not want the global giant mining in Canada's oil sands. He is not alone in this. Canada is the world's second largest source of future oil after Saudi Arabia. The tar sands of Alberta, which cover an area greater than the size of England and Wales, have attracted the world's biggest oil companies: Shell, Total, Statoil and PetroChina. But extracting the oil is costly and fraught with environmental and social difficulties. For Canon Hall, the most significant issue is the greenhouse gas emissions. 'Three times as much CO2 is emitted compared with traditional methods of oil extraction, and in the present situation when climate change is upon us it makes no sense whatsoever,' he says.

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Shell battens down the hatches ? but stay aboardCanada's 'dirty oil' has triggered protests all over the world: Rainforest Action dropped a 70ft banner over Niagara Falls last summer; a climate protester glued his hand to a window of the Canadian High Commission in London in December; and two women chained themselves to petrol pumps at a BP garage in Devon last month. But Canon Hall is part of different kind of protest: a coordinated drive to influence BP and Shell, two British companies with investments in tar sands, through pensions.

"People are beginning to recognise that this dreary thing called a pension can be a real source of power," says Catherine Howarth, the CEO of Fair Pensions, a British-based lobbying group for 'responsible investment'. (It was Howarth who contacted Canon Hall through the Ecumenical Council for Corporate Responsibility, a church-based investor group of which he is a member. But she says she will represent anyone with a pension; indeed, any investor.) Fair Pensions points out that everybody who has a private or company pension owns a tiny share of almost all the big stock-market companies. Most of us, however, don't make the connection because it is obscured by a long and convoluted chain of people that runs from pension-fund trustees to fund managers. Fair Pensions is aiming to collapse this distance and say, look, if you feel strongly about something a company is doing, you should use your voice as a shareholder.

'Shareholder activism' is nothing new, of course. Organisations such as Greenpeace and Friends of the Earth have often acquired a few shares in order to ask awkward questions at company AGMs, as have individual shareholders. But this is different. This is inviting a potentially huge number of shareholders to step forward and speak up. "Protesting with banners outside is fine but I'm afraid it just doesn't impact on the power dynamics," Howarth says, "whereas major pension funds and fund managers have huge sway over what companies do."

Under Section 338 of the Companies Act, Fair Pensions succeeded in forcing BP to include a special resolution at its recent AGM demanding more information about a proposed move into Canada's oil sands. BP had been a leader on climate change issues for the industry since the 1990s. It was the first oil company to recognise that the industry had to play a part in a collective move towards reducing carbon emissions. In 1999 it sold all of its oil sands assets on the grounds that they were not financially or environmentally viable. But under Tony Hayward, who became BP's chief executive in 2007, it announced Sunrise, a 50:50 venture with Canada's Husky Energy that is expected to pump out 60,000 barrels of oil a day by 2014.

"It represents a complete reversal of their previous strategy," Howarth says. Fair Pensions (staff: five and a half) took on a company with 314,294 shareholders, of whom 777 have more than a million shares each. The first step was getting a list of 100 shareholders to back Resolution 25. Once the resolution was filed, Fair Pensions spent the weeks leading up to the AGM last month rallying support. Legal & General, the largest investor of pension assets in Britain and the largest single shareholder in both BP and Shell, is said to have received 3,000 emails from individuals urging the company to support the resolution. Legal & General didn't, as it happens, back the rebels, because to it 3,000 is a tiny minority. But the call to action did receive significant support, from big investors such as the California Public Employees' Retirement System to smaller groups like the Congregation of Jesus Charitable Trust. "It's a pristine, beautiful part of the world up there and there is a very small indigenous population which exists by hunting, shooting and fishing, and Shell and BP are going to destroy it," Sister Patricia Robb, 73, says.

Resolution 25 opened the door to a different type of activist. "These aren't protesters against companies, they're the owners of companies; they want companies to be working on their behalf,' observes David Pitt-Watson, a fund-manager and co-author of the book The New Capitalists. 'This is ushering in a whole new way of thinking about how and for whom capitalism ought to be working."

The tar sands of north Alberta are the product of ancient marine life and geological forces some 200-300 million years ago. The reserve of bitumen lies under a vast wilderness of forest in the basin of the Athabasca river, 270 miles north of Edmonton. The original inhabitants of this area, the Cree, one of Canada's aboriginal (or First Nations) peoples, boiled up the tarry sand to repair canoes. The Hudson's Bay Company used it to shore up leaky roofs at a time when fur pelts,
not oil, were the economic basis of the area. The Canadian government spotted its value in the 1880s, but it wasn't until 1967 that the first oil company (now Suncor) built a mine on the banks of the Athabasca. Syncrude appeared next door in 1978.

Now the Athabasca tar sands are a global concern. A rise in oil prices and the threat of dwindling supplies has sent global corporations pouncing on Canada. The province of Alberta has approved nearly 100 extraction projects since 2000. Here
was a resource in a first-world, humanitarian, democratic, free nation (most of the remaining conventional oil supplies are held in Russia and the Middle East). 'We are a stable, reliable producer in a volatile, unpredictable world,' the Canadian Prime Minister, Stephen Harper, has said.

Today, 1.3 million barrels of oil a day are produced here; projected production is 3-5 million a day (Saudi Arabia produces 8.1 million); 65 per cent is exported to America. And yet tar sand oil is the world's most expensive: $30-40 a barrel, compared with the $2-3 price tag of conventional oil. This is because getting oil from oil sands is not easy. "You can't pump it [bitumen] out because it's as hard as a hockey puck in its natural state," Rick George, the president and CEO of Suncor, said in 2008. Others put it more bluntly: "This is a very low-grade resource, so it takes a lot of energy and a lot of effort and lots of pots and pans to get it out," says Simon Dyer, the oil sands programme director for the Pembina Institute, the sustainable energy think-tank.

"Think of people in a pub, where the beer has run out," one environmental campaigner explained. "They start thinking about all the beer that got spilled into the carpet. They're so desperate they say, well, why don't we get the beer out of that? It's scraping the bottom of the barrel stuff."

But as long as we depend on hydrocarbons to drive our cars and heat our homes, tar sands oil will make sense. "We need fuel,' one Shell executive said, 'so if we have resources sitting in mother earth we will use it to the last drop."

About 2.5 per cent of the tar sands are shallow enough to be extracted by giant diggers. Companies must cut down the forest, drain the soil, and dig up four tons of earth to get two tons of tar sand. They must then give those two tons a hot wash to strip the bitumen from the sand. Afterwards they must discharge the waste water into 'tailings ponds' – a quaint name for what are in effect toxic lakes containing mercury, arsenic, naphthenic acid and polycyclic aromatic hydrocarbons. There
are now 54 square miles of tailings ponds in the Athabasca valley. Suncor's Tar Island Dyke, a vast tailings pond dug in the late 1960s, is adjacent to the Athabasca river, the main source of drinking water for nearby communities.

The rest of the tar sands lie deep in the earth, and the bitumen has to be melted or steamed out of the ground with a system of pumps, pipes and wells. This process is called 'in situ'. And the most popular in situ technology is steam-assisted gravity drainage, known as Sagd. "Think of a block of wax the size of a building," Neil Edmunds, a Sagd expert explains. "Then take a steam hose and tunnel your way in and melt all the wax above. It will drain to the bottom where it can be collected."

The good thing about Sagd is that there are no tailings ponds; the downside is that it uses six barrels of steam to produce one barrel of oil. BP says it will get this down to two in its Sunrise operation by using 90 per cent recycled water from aquifers rather than the river. Another company, Opti-Nexen, claimed the same but found in practice that it still needed six barrels of steam. It has recently submitted an application to withdraw some 3.7 million gallons of water a day from Alberta's Clearwater river, a designated 'heritage river' owing to its unspoilt beauty.

Steam operations will consume nearly $200 billion worth of natural gas in the next decade. Shell's Athabasca Oil Sands project has already meant cutting down forest the size of 33,702 ice rinks. And studies from the US Department of Energy suggest that the emissions produced from extracting oil from tar sands (on a well-to-wheel basis) are between 14 and 40 per cent higher than other forms of oil. "Oil sands are the fastest-growing source of greenhouse gas pollution in Canada," Simon Dyer says. "Emissions are set to triple by 2020."

The upshot is that the tar sands have triggered two booms: one economic, one ideological. On the one hand you have an industry championing its benefits: billions of dollars to the federal and provincial government for education, health care, welfare and jobs – 240,000 if you include those working in spin-off industries, according to Melissa Blake, the mayor of Fort McMurray, the small town on the banks of the Athabasca river that has become the hub of Canada's black gold rush.

"If there's no work in your area, Alberta's a soft place to fall," says Chris Galbraith, who works for a company that transports chemical fluids for the industry. He commutes from Newfoundland, 2,000 miles away, where he has a wife and two children, and where he worked in a paper mill until it closed in 2007. He works three weeks on, 10 days off, and lives in a camp near Fort McMurray with about 250 others who work for Total, Shell or Syncrude. "Way I see it, mother nature had an oil spill centuries ago and we're just clearing it up,' he laughs. 'It's all about money."

On the other hand, you have a growing group of opponents jolted into active life by reports of carbon emissions, social injustice, destroyed forests, too much water being sucked out of the Athabasca, and too many contaminants being allowed back in. There has also been alarm over dead ducks: 1,600 migrating ducks died after landing on Syncrude's Aurora tailings pond in 2008. Syncrude is currently on trial in Edmonton, facing charges (which it denies) of failing to take adequate measures to divert waterfowl from its toxic lakes.

John Rigney, who works for the Athabasca Chipewyan First Nation community, sits at his desk in his office in Fort Chipewyan. To reach him I have flown 150 miles north from Fort McMurray over the open mines. I am surprised at how much wilderness survives intact: a mosaic of muskeg bog, shallow lakes, meandering streams, a forest of black spruce, white spruce and jack pine, aspen and poplar. But not for long. Working mines account for only one seventh of the total land that has been leased for oil sands development. An area the size of Greece could be stripped of its forest.

"There will be a trillion dollars of investment in the next 25 years," says Rigney, 60, who cuts a striking figure here, being a Scotsman with startlingly fair skin; he has lived here for 38 years with his wife, a Dene aboriginal (they have six children and 14 grandchild­ren). "And we're downstream from all that. We expect pollution on a scale…" he stops. "The tar sands will probably make this region of the world uninhabitable in another 50 years."

On the northern shore of Lake Athabasca, Fort Chipewyan was founded more than 300 years ago by another Scotsman, Roderick Mackenzie (a cousin of the explorer Alexander Mackenzie), but First Nations people have been here since the Ice Age, nomadic hunter-gatherers who lived close to nature, ice-fishing and hunting muskrat and moose. The local Cree and Chipewyan tribes are now organised into the Mikisew Cree First Nation and Athabaska Chipewyan First Nation, and the Northern supermarket is their main source of food, but still people talk about being good hunters. Vegetarians provoke confusion. "Your husband must be a bad hunter," they say to me.

The community has evolved to a steady 1,200, living in modest clapboard houses on a grid of streets with names such as Robert Avenue and Mackenzie Avenue. There are signs of the modern world: an ice rink, a cinema, an adult education college, a courtroom, and a cafe serving the local speciality, bannocks (Scottish scones), and the national favourite, poutine (chips with cheese and gravy). But the old world prevails: there is a sweat lodge – a purification sauna with ritual prayers and offerings to the spirit world; and there are dream-catchers in most homes – handmade hoops decorated with feathers and beads, traditionally believed to ward off nightmares. There is only one shop, one liquor store and one restaurant. There is no resident doctor or nurse, and the routine is that all pregnant women move to Fort McMurray in their eighth month to have their babies.

It is a remote place, one of the great wildernesses of the world. Winters are long and temperatures can fall as low as -40C. A brief frost-free period extends from June to September, when temperatures can be quite high (24C) but so can the number of mosquitoes. In summer the only access is by plane, but each winter sees the annual reappearance of a road to Fort McMurray – an ice road over the frozen bog, carved out by a man and his bulldozer in 1987 after the town clubbed together to raise $10,000. The cost of moving freight around means life is expensive. Groceries cost three times what they do in Edmonton. A pizza at the guesthouse costs $50. A litre of milk, $3.50. The average annual income is $14,000, and many have to supplement this with government benefits.

When Herman Kahn, the military strategist and founder of the Hudson Institute, a US think tank, proposed in 1973 that Canada make a major commitment to oil sands, there were worries that multi-plant operations would turn north-eastern Alberta into 'a disaster region resembling a lunar landscape'. Kahn dismissed the environmentalists, arguing that northern Alberta was 'a relatively undesirable environment anyway'. "Because the oil shales in Colorado lay in scenic Rocky Mountain country, Kahn thought it made more sense to dig up the mosquito-infested, muskeg-laden boreal forest first," the environmental journalist Andrew Nikiforuk points out in his book Tar Sands: Dirty Oil and the Future of a Continent.

Fort Chipewyan has an ambiguous relationship with the oil industry. It has brought much-needed jobs (the only other big employer here is fishing), paved streets, running water to every home, and a turkey every Christmas for every family (courtesy of Syncrude). The ice rink, gym, cinema and youth centre were all partly funded by Syncrude. And it has particularly rewarded those with an entrepreneurial inclination. One man hired out his bulldozers to the oil companies; another his river freight boat; another started a bus service for Syncrude.

But there is also a deep sense of anxiety: a study by the Alberta health services in February 2009 confirmed elevated levels of cancers in the community. Alarm bells had been raised by a local doctor in 2006, after he reported recording five cases of cholangiocarcinoma, a rare cancer of the bile duct. "We know that tailings ponds leach into the underground aquifers which all end up in the Athabasca river, that's how they drain," says George Poitras, a former chief of Mikisew Cree First Nation. "The river flows into our community, that is how we get our drinking water. We also suspect that contamination of the water has reached the food chain in the traditional food we consume on a regular basis, whether that is ducks, fish, geese, moose or muskrat." The report did not make the connection, only that 'further investigations' were needed. But Poitras is convinced: "We suspect that it is through this food that people are consuming toxic metals and contaminants that are likely to be contributing to cancers in Fort Chipewyan."

Industry and government counter that the pollution occurs naturally from oil sands deposits. "You can see an oil sheen on the Athabasca river where the river is in contact with the bitumen naturally," Dr Preston McEachern, a Government of Alberta scientist, says.

"We deliberately set out to test the 'it's all natural' hypothesis," says Dr David Schindler, a professor of ecology at the University of Alberta, who recently conducted a series of tests along the Athabasca and its tributaries, "and we found the hypothesis is not acceptable." The report, published in the Proceedings of the National Academy of Sciences, with Erin N Kelly of the University of Alberta's department of biological sciences, establishes that 'industry is a big polluter' and the pollutants include several known carcinogens. "You can pick any toxic trace metal off the periodic table and it's elevated by industry in the area," he says.

Schindler believes there are two pollution 'pathways'. First, seepage from the tailings ponds. McEachern states that tailings ponds are sealed by 'a relatively impermeable layer' of clay and have sophisticated 'seepage capture' and monitoring systems. 'They have a ditch with a bunch of pumps that pump it back into the tailings ponds,' argues Schindler, but 'I doubt they're 100 per cent efficient.' Besides, accidents have happened. Last year Suncor was fined $400,000 for sewage leakage; and in 1982 Suncor had an accident with a direct release pump. People could do nothing but watch the oil and wastewater flow downstream to Fort Chipewyan where contamination was so acute it shut down the fish plant.

Schindler also has evidence of air pollution getting into the Athabasca via soot-coated snow melting in the spring. Air monitoring hasn't been a legal obligation for oil companies since the late 1970s, but Environment Canada keeps thorough data. It runs a National Pollutant Release Inventory where companies are required to report their emissions. "Tar sands companies are themselves reporting that they're putting out a lot of toxic trace metals [including 1,300lb of lead every year] and what's more, they're increasing rapidly," Schindler says.

But mercury levels have always been high in fish, McEachern argues, quoting research that goes back to the 1970s. Schindler agrees, but believes the reality is less straightforward. Fish, he says, register increased levels of mercury if found in areas of increased toxicity (companies were releasing three times as much mercury in 2008 than they were in 2003). His team is working on a scientific study to prove the connection between raised mercury levels in the water and raised mercury levels in the fish. "There's no strong scientific evidence yet but it's getting close."

Why the sudden spike in cancer rates in Fort Chipewyan, I ask McEachern. "There are a number of health issues that could relate to that," he says. "You've got a 30 per cent higher smoking rate than anywhere else in the province, 30 per cent higher obesity and diabetes rates."

Kevin Marcel, 37, who lives in Fort Chipewyan, is not convinced. A former employee of Suncor (he made $40 an hour driving trucks), he left the company in 2006 after seven years, partly because his sister Stephanie died of cancer, aged 29. "The community were burying a lot of people in those years," he says. Now he worries about his five children, aged six to 14. "My family come from trapping. Now there's no muskrats, no beavers and the delta is drying up. We're scared to eat the fish. I've got two little boys and they want to learn all that traditional hunting and stuff. But I'm scared."

Fort Chipewyan has flexed its muscles in another respect. In 2005 George Poitras, as chief, initiated a legal action against the Canadian government for its lack of consultation with the Mikisew Cree on a proposed road that would cross their traditional lands. Under an 1899 treaty, the First Nations surrendered 330,000 square miles of land to the Crown, an area that now includes northern Alberta. In exchange for this, they were promised reserves and other benefits, including the right to hunt, trap and fish through the land except for 'such tracts as may be required or taken up from time to time for settlement, mining, lumbering, trading or other purposes'. (Mining, yes, "but how could anyone have foreseen the proportion of treaty land that was going to be used for that purpose?" Schindler says.) Poitras won the case and the road was diverted from the reserve to a track along its boundary. Mining companies are now duty bound to consult with First Nation communities before a development is permitted. (Critics say this is often little more than a box-ticking exercise, with companies paying First Nation elders an honorarium of about $300 each to turn up to the meeting. But Shell says it works closely with First Nation people. "We call this "traditional ecological knowledge", a spokesman says.)

"I think environmental groups who focus everything on CO2 have got it wrong," says Schindler, who believes the violation against First Nations is a bigger crime. "For a country that prides itself on multi-culturalism, if you can't deal with your own First Nation, you'd better give up."

Other Alberta First Nation groups have recently launched legal actions to defend their treaty rights against oil sands development, including the Beaver Lake Cree, Duncan's First Nation and Horse Lake First Nation. 'First Nations are going to have a strong case that this is a breach of treaty rights, which could freeze development,' Dyer says.

Back in his office Rigney shows me the latest proposal: Synenco Energy, a subsidiary of Sinopec, the Chinese national oil company, wants to assemble a tar sands plant in China, Korea and Malaysia, then float the whole show across the Pacific to the Beaufort Sea and then down the Mackenzie river to Alberta. "This is big, bigger than anything," he says,
as we look at photographs of the 12,000-ton plant and vast ships that could be coming to his back door.

"We're not against the companies," he says. "Nobody minds a good economy. What we're objecting to is going ahead with these unbelievably large developments without any knowledge of how it's going to affect us in the long term. But what do a thousand or so people in Fort Chip matter? We're just a drop in the ocean."

April 15, ExCel Centre, Docklands, London. BP's AGM has just finished and 1,200 or so shareholders, mostly grey-haired and smartly dressed, are filing out of the conference hall for wine and sandwiches. Richard Tebboth, 65, a businessman from Surrey, is assimilating the unusual addition of a 'special resolution'. He says he is quite used to demonstrations outside, but today someone called George Poitras stood up and talked of 'crimes against humanity'.

"I wasn't aware of the First Nations issue," he admits. There were some unsettling points in this, as there were with the Sunrise project. "If the board is correct and it can be done without releasing lots of CO2, fine, but what will happen to the 10 per cent of water that isn't going to be recycled?" He admits that he didn't vote, partly because he had always assumed his vote wouldn't have much impact.

"All the major shareholders, be they pension funds, insurance companies or unit trusts, rarely go against the board." Now he knows differently.

Cedric Collins, 65, a businessman, just wants his pension fund to grow big and fat: 'Let's be honest, we're just looking for profit.'

So are we, Catherine Howarth of Fair Pensions insists. "These companies have to get good returns, otherwise we'll be retiring into poverty. We want them to do well, but most of us can see a balance to be struck between profit maximisation and actually treating society and the environment with respect."

In all, 15 per cent of investors, representing £10 billion of BP stock, refused to back the board. The chairman, Carl-Henric Svanberg, said the resolution raised 'perfectly legitimate' concerns, but with increasing world energy demand the project was justifiable. BP is continuing with Sunrise.

"Fifteen per cent is huge," says Karina Litvack of F&C Asset Manage­ment, which signalled disapproval by abstaining. "If you were a company doing a customer survey and you found that 15 per cent of your client base cared deeply about something sufficiently to do something extremely unusual, you'd be crazy to dismiss it."

Fair Pensions anticipates a similar revolt at Shell's AGM on May 18. "We don't want a dust-up," Canon Christopher Hall says, "but we feel this is the responsible way to deal with things."

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