Koch and Keystone Exacerbating Emissions: Carbon Content of Top U.S. Oil Companies in Canadian Tar Sands

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Koch’s potential CO2 emissions from tar sands development in Canada could be more than that of Exxon, Chevron, and Conoco combined, based on available information about the carbon content of each company’s acreage in Alberta, as reported in IFG’s Billionaires’ Carbon Bomb: the Koch Brothers and the Keystone XL Pipeline. The Washington Post recently corroborated IFG’s claim by quoting a Canadian oil official who confirmed Koch has “closer to two million acres.” President Obama’s approval of Keystone would exacerbate emissions by intensifying more tar sands production, whereas rejection of Keystone could keep more of it in the ground.

Having first calculated the recoverable bitumen from the tar sands based on the companies’ acreage (see Box A below), we then converted barrels to metric tons of emissions. This conversion was done by using the barrel-to-emission equivalence taken from Oil Change International’s report, “Cooking the Books,” which considers the full life-cycle of the oil sands (i.e., emissions during the various stages of production, refining, transportation, and combustion). When the entire life-cycle is taken in to consideration, the emissions intensity of oil sands is 598kgCO2/barrel, so 598 multiplied by each company’s respective net recoverable bitumen gives amount of emissions for each company.

BOX A: CARBON CASH COW FOR THE KOCHS: METHODOLGY FOR PROJECTING ADDITIONAL PRODUCTION PROFITS
KI’s gross potential profits due to KXL from producing Canadian tar sands can be projected by multiplying two key figures: 1) 15 billion barrels of profitable-to-produce Canadian tar sands oil that KEC is estimated to have in reserve on its reported two million acres in Alberta’s tar sands territory; multiplied by 2) $15 gross production profit per barrel due to KXL. Here is how each input is derived:
1) To estimate how many recoverable barrels per acre might exist on KEC’s two million acres, we extrapolate a barrels-per-acre ratio from a large property in tar sands territory representing 1/6 of their 2 million acres for which the information is available. Sassoon’s same article cites KEC’s 2006 sale of 374,000 acres with “47 billion barrels of oil resource estimated to be in place.” The midpoint in the range of “in place” reserves that are typically recoverable is 13 percent, so 47 billion “in place” barrels could easily be 6 billion “recoverable” barrels. Dividing 6 billion barrels by 374,000 acres gives a recoverable-reserves-per-acre ratio of a little more than 16,000:1. Multiplying 16,000 by the two million acres equals 32 billion barrels of recoverable reserves. Assuming conservatively that less than half of those barrels will be profitable to produce still leaves 15 billion of recoverable, profitable to produce barrels.
2) $15 gross production profit per barrel due to KXL is based on an estimated per barrel discount prevented of $20, of which producers will capture only 75%. We use the term “discount prevented” because the value of KXL to producers is that it allows them to continue to increase their production without driving down the price they get for their crude- as much. KXL will drain excess crude from the Midwest market, relieving the oversupply that would otherwise drive down the price. We use the modest (given historical data)vi estimate that KXL will prevent on average a $20 discount to the price of a barrel of tar sands crude (see endote for a summary of historical data). We estimate that the producer will only capture on average 75% of the prevented discount per barrel because we estimate that, of the barrels that will be profitable to produce, only half would have been profitable to produce without KXL. This half of KEC’s barrels would reap the full 100% of discount prevented, because it was already profitable to produce. Therefore, when it is $20 less cheap, that makes it $20 more profitable to produce. In contrast, the half of the barrels that would be profitable to produce with KXL, which would not be without KXL only capture on average 50% of the prevented discount. This is because 50% represents a midpoint in the range of the possible percentages of the discount that could be captured by barrels that are only profitable to produce with KXL. To illustrate, if a particular barrel of tar sands costs $90 to produce, but without KXL the price it would sell for would only be $80, then when it sells for $100 as a result of KXL, you can only say that the producer profited $10, or 50% of the prevented discount as a result of KXL. This is because without KXL this particular barrel would have merely gone unproduced. 75% is simply the average of 50% and 100%.

For further information: kochcash.org/bilionaires-carbon-bomb