David Prosser: Low prices, not protests, will stop BP

Outlook BP is used to being targeted by environmental protesters. Tomorrow's annual general meeting will be, however, a little different. The activists targeting BP over its controversial involvement in extracting oil from tar sands in Canada include the usual suspects, but the revolt inside the voting chamber will be led by Fair Pensions, which is trying to persuade pension fund investors in the oil company to back its push for an audit of the project.

BP could, no doubt, do without the hassle of such run-ins. It insists its tar sands extraction processes are cleaner than those of the worst polluters in Canada – and points out that it also spends huge sums developing alternative energy technologies. The bottom line, however, is the bottom line: with the oil price creeping slowly but inexorably upwards once more, oil sands are a profitable resource.

To see how valuable they might be, look at the deal China's Sinopec signed yesterday with ConocoPhillips. It is paying $4.65bn (£3bn) for a 9 per cent stake in the American company's Syncrude Canada, one of the bigger tar sands operations in the country. The price – almost twice as high as most experts had expected – took many analysts' breath away.

Chinese companies – state-owned or otherwise – have been touring the world in search of natural resources with which to feed their expanding economy. And outside of the Middle East, where simply buying up developed resources is rarely an option, tar sands are the best hope for large-scale crude oil extraction. Production, globally, is expected to triple by 2020.

With the greatest of respect to Fair Pensions and other campaigners, their best hope of seeing these projects scaled back or moth-balled is not a successful political fight but a sustained drop in the oil price.

It is not easy to extract oil from the bitumen deposits in tar sands – that's one reason for all the environmental consternation; the process is responsible for, on some estimates, five times the carbon dioxide emissions per barrel as conventional production.

The flip side of that environmental hazard, however, is that tar sands are therefore an expensive resource to put to work. When the oil price collapsed last year, the oil majors began to think about scaling back their investments in tar sands. At $50 or $60 a barrel, the level at which oil traded for most of last year, the projects are not economic.

That down trend has now reversed, with oil touching 18-month highs already and expected to climb further from today's $85 a barrel or so. Some analysts think $100 is possible before the end of the year.

That recovery is likely to take the brakes off tar sands development which seems, in any case, an inevitability in the long term. Tomorrow's showdown at BP's AGM will not be the last.