The world’s largest untapped oil reserves – in northern Canada – have become the new front line in the battle between environmentalists and the energy industry.

Shell, a self-styled “green” energy company, is to invest billions of pounds in exploiting the Athabasca tar sands.

Environmentalists say the tar sands are the world’s dirtiest oil deposits and that refining them generates three to four times more CO2 than normal oil extraction.

However, Clive Mather, chief executive of Shell Canada, said rising demand and surging oil prices could not be resisted. “The deposits are huge, potentially even greater than in Saudi Arabia,” he said. “The time is right to exploit them.”

The Athabasca tar sands are named after the river that runs through them. They contain about 1.7 trillion barrels of oil, of which 175 billion can be reached with existing technologies and another 135 billion could be tapped with technologies under development.

The total of 310 billion barrels would give Canada the world’s largest oil reserves – bigger than Saudi Arabia’s 264 billion.

For western countries, especially America, Canada’s oil is a chance to cut dependence on the Middle East, but the environmental costs could be huge.

This is because tar sands comprise viscous bitumen and sand, a mixture that can currently only be extracted by digging it out, destroying the overlying forests.

The Athabasca region has already been scarred with huge pits, some hundreds of feet deep. Alongside them lie vast ponds that hold the contaminated sands and other residues left after the oil is removed.

Shell, along with Suncor and Syncrude, the other main oil companies in the area, are developing a second extraction method where superheated steam is pumped into the ground to melt the oil so that it can be sucked out as a liquid.

However, both processes, and the subsequent refining, require huge amounts of energy – equivalent to up to 30% of the energy contained in the extracted oil.

Shell and its partners are extracting about 150,000 barrels of oil a day but now want a fivefold expansion to 770,000 barrels. A barrel is roughly equivalent to 35 gallons. Suncor and Syncrude are each planning similar expansions to about 500,000 barrels a day.

This will require so much energy that the oil firms want to lay a pipeline across 800 miles of forest to tap into gas reserves in the Mackenzie river basin, in Canada’s far north. There are also proposals to build a nuclear power station near the tar sands.

Such plans are causing alarm among environmental groups such as Britain’s WWF. It has set up an office in Edmonton, the capital of Alberta, to campaign for restraints on development and improved monitoring.

“Tar sands are the worst kind of source for oil,” said James Leaton, WWF’s policy adviser on gas and oil. “Extracting oil takes huge amounts of energy and devastates the local environment by destroying the forest and polluting rivers, lakes and the air.”

Leaton and other environmentalists contrast Shell’s operations in Canada with the firm’s public relations, which portray it as the greenest of oil companies.

Privately, however, Shell executives make clear that they are simply doing what oil companies are meant to do – extract oil. They say it is the job of governments to regulate the pace.

In Alberta little interference is likely from a state government with a powerful dislike of regulation. Rob Renner, Alberta’s Conservative environment minister, said: “We believe the speed of development is best left to the free market.”

Under Renner the monitoring of industrial pollutants from the tar sands has largely been handed over to the oil companies. One result is that the Athabasca river, and Lake Athabasca, into which it flows, are widely believed to be heavily polluted.

Medical staff at Fort Chi-pewyan, on the shores of the lake, have reported a surge in rare cancers.

The decision to exploit such oils is provoking a political backlash with Arnold Schwarzeneg-ger, the governor of California, effectively banning them. He has issued a fuel standard demanding a cut in “carbon intensity”, a measure of the CO2 generated in producing and using them.

Ten other American states and the European Commission are considering similar measures.

The reserves

Confirmed reserves of top 10 countries in billion barrels

264bn Saudi Arabia

175bn Canada

133bn Iran

115bn Iraq

102bn Kuwait

98bn United Arab Emirates

80bn Venezuela

60bn Russia

39bn Libya

36bn Nigeria

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