Michael Brush

Company Focus3/26/2008 12:01 AM ET

Oil giant backs off 'green' push

Big Oil spends big money to show concern for the earth. But BP, which led the way with its 'Beyond Petroleum' campaign, is taking heat from environmentalists as it moves into Canada's oil sands.

By Michael Brush

For years, BP PLC (BP, news, msgs) commanded the admiration of environmentalists with aggressive campaigns to reduce carbon emissions and develop alternative energy sources.

But the former British Petroleum is now alienating the very activists it was winning over earlier with its groundbreaking "Beyond Petroleum" program to develop "green" energy from the wind and the sun.

Even as other oil giants tout their own environmental efforts, the one-time leader's reversal has environmentalists wondering whether Big Oil can really live up to its promises to be more green.

"To say that 'BP' stands for Beyond Petroleum is such an utter joke. It should stand for Being Phony," says Gregg Steiner, whose Los Angeles business, Green Life Guru, helps homeowners and businesses become more eco-friendly. "It makes me want to throw up every time I see BP lying to us on Sunday morning while watching 'Meet the Press.' It is all smoke and mirrors."

Back to petroleum?

In its most recent annual report, BP maintains that it still has "aspirations of no or minimal damage to the environment" when developing energy sources. Environmentalists aren't convinced.

Their chief gripe: BP has jumped on the Canadian oil-sands bandwagon. Green activists say developing that oil will cause vast damage stretching from Canada to the U.S. refineries where the gooey source of hydrocarbons will be converted into oil.

Activists also worry that new BP chief Anthony Hayward wants to crack the whip on the company's green operations. Will the green divisions that don't help the share price go up be dropped?

That all seems a far cry from the tone set by Lord John Browne, the company's chief when it adopted the "Beyond Petroleum" slogan in 2000. Haywood took over when Browne left last May.

"There was this one shining moment where they looked like they were going to be the good guys, and they've just rapidly moved away from it,' says Josh Mogerman of the Natural Resources Defense Council (NRDC).

Here's a closer look at why environmentalists say BP's marketing is now little more than "greenwashing."

Tapping Canada's oil sands

Stretching through much of the Canadian provinces of Alberta and Saskatchewan is a hydrocarbon-rich mixture of bitumen, sand, water and clay known as tar sands or oil sands. These huge deposits give Canada the second-largest petroleum holdings in the world, behind only Saudi Arabia.

Oil sands are costly to tap, but with the price of oil up fivefold over the past decade, companies are eager.

After holding out for years, BP last December inked two ventures with Canada's Husky Energy. BP took a 50% interest in Husky's Sunrise field in Alberta, and Husky got a 50% stake in a BP refinery near Toledo, Ohio. BP says it will increase the capacity of that refinery to process heavier grades of crude oil and bitumen, the substance that contains oil, to 170,000 barrels a day by 2015. "They divested their interests a decade ago, and now there has been an about-face," says Simon Dyer of the Pembina Institute, a Canadian environmental think tank. "It's not consistent with a message of green energy production."

Why would BP risk its eco-friendly image? Simple. BP's energy production declined 3% in 2007, and operating profits were down 6.4%. Those negative trends have brought growing pressure from analysts to build oil reserves fast.

Citigroup (C, news, msgs) analyst James Neale cut his rating on BP to "sell" from "hold" in February, warning investors that the decline in BP's core oil-and-gas production has been "surprisingly high." Neale says in 2000 BP projected that production would rise 21% to 3.4 million barrels a day by 2007, from 2.8 million. Instead, it dropped to 1.5 million.

Dirty business?

But environmentalists say developing Canadian tar sands carries a huge cost:

  • Greenhouse gas. Producing oil from tar sands requires so much energy that it creates three to five times as much carbon dioxide as production from wells, says Bill Moomaw, the head of the Center for International Environment and Resource Policy at Tufts University's Fletcher School.

    Aside from the heavy machinery used in mining, producers use enormous amounts of steam and hot water to extract the crude. Largely because of tar-sand production, Canada's greenhouse-gas emissions will probably rise 30% from 1990 through 2010, even though the country pledged to reduce emissions by 6% in that time frame as part of the Kyoto accords, says Dyer, of the Pembina Institute.

    Dyer believes "capturing" and storing carbon underground would only add a few dollars a barrel to the cost of production. But BP's partner Husky isn't using carbon capture in Canada, and BP recently dropped plans for a carbon-capture experiment in Scotland. "It would be fantastic to see some real leadership on this from an oil-sands operator," he says.

    BP wants to use carbon capture to reduce greenhouse gas emissions, says spokesman Scott Dean, but first wants Canada to develop a regulatory framework mandating it for all energy companies "so there is a level playing field so that early adopters aren't penalized." He says BP is using carbon capture at a project in Algeria.

  • Damage to wildlife. The extraction process used by Husky may be more eco-friendly that some; it uses steam to melt and drain away bitumen underground. But it still requires roads and pipelines that slice up forests -- a huge impact on the local ecosystem.

  • Acid rain. The Pembina Institute also claims that production of sulfur dioxide and nitrogen oxide linked to mining tar sands has caused a spike in acid rain in Western Canada.

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BP's involvement in Canadian oil sands is simply part of an overall trend in energy production toward exploitation of "heavier" forms of crude oil around the globe as lighter "sweet" crude supplies are used up, responds BP spokesman Dean. "It is inevitable that not only the Canadian oil sands but other forms of heavier crude oil will be developed."

Processing heavier forms of crude produces more pollution than processing light crude.

Continued: A US problem, too

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