David Prosser: Reprieve for tar sands

Outlook: When the industry began stepping up the development of tar sands, the oil price was at an all-time high

Environmentalists will be pleased to hear that Royal Dutch Shell now plans to raise oil production at its tar sands assets in Canada more slowly. Peter Voser, the oil giant's new boss, has signalled that he intends instead to place greater emphasis on identifying and developing more conventional assets.

However, green campaigners should not assume that they are winning the argument on tar sands: though some activist investors have expressed their disquiet about tar sands to the oil companies in which they have shareholdings, Shell's strategic decision is born out of economic considerations.

When the oil industry really began stepping up the development of tar sands two years ago, the oil price was at an all-time high. That made the commercial decision about whether the very high development costs were justifiable much simpler. Since then, however, those costs have risen, while the oil price has halved. Hence the shift in emphasis at Shell, which mirrors the decision taken by many of its rivals.

Remember, however, that these companies still plan to expand tar sands production, just at a slower rate. And if the oil price rises again, there may yet be another change of strategic direction.