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Thursday, Jan 21st, 2021

Oil downturn prompts Newfoundland to question its reliance on fossil fuels

A strange, new arrival appeared in Conception Bay this summer, a sight so unusual that it drew crowds to the shoreline and so large that it dwarfed the jagged, brown cliffs of nearby Bell Island.

The Terra Nova, a towering, deep-sea oil rig normally anchored 350 kilometres out in the North Atlantic, has been floating idle in the bay for months since its owner Suncor Energy Inc. brought it inshore in July. It’s a striking image that says a lot about the challenges facing Newfoundland and Labrador’s oil and gas industry.

“The Terra Nova was never meant to be a tourist attraction. It’s meant to be out at sea, pumping oil,” said Charlene Johnson, chief executive officer of the Newfoundland and Labrador Oil and Gas Industries Association, known as NOIA, which represents the supply and service sector for offshore oil and gas.

Like the Terra Nova, which hasn’t produced oil in more than a year while its owner decides on its future, much of the province’s oil and gas industry is facing uncertainty. The $2.2-billion West White Rose extension project is on hold until at least 2022, with no construction on the massive concrete gravity structure since March, as owner Husky Energy Inc. reassesses its long-term plans in the province. Drilling on the iconic Hibernia platform, which launched the province’s oil industry, has been suspended since April as a cost-saving measure.

Just a few years ago, with oil at more than US$100 a barrel, St. John’s was a boom town, with a soaring real estate market, rapidly growing population and pricey new restaurants fuelled by oil executives and their expense accounts. Today, the crisis is forcing a debate in Newfoundland about how much the province should stake its future on fossil fuels buried deep off its rocky shores.

For many here, the writing is already on the wall. Demand for oil will never return to prepandemic levels, they say, and the time is now for Newfoundland to reinvent itself by tapping into its abundance of wind, hydro and tidal energy resources.

“Energy issues define this province,” said Lori Lee Oates, a historian from Memorial University of Newfoundland who has worked in senior levels of the provincial and federal governments. “That transition will likely define this government, and how well they manage to move off oil and gas and move to green energy.”

Premier Andrew Furey, just three months into the job, says the province can’t count on oil revenue forever – which is why it needs to get what value it can, while it still can, from a sector that was worth about 10 per cent of government revenue last year. Offshore oil royalties, normally worth well more than $1-billion annually to Newfoundland, is expected to be slashed in half this year.

What is happening in his province is no different than what’s occurring in oil-producing regions everywhere, as the world shifts to more renewable sources of energy, he said. Mr. Furey, who is still in favour of government subsidies for the oil sector, believes his province needs to be ready for this shift by investing in green technologies now.

“I think Newfoundland and Labrador is perfectly positioned for this transformation,” the Premier said in an interview in his office overlooking St. John’s. “Oil and gas will continue to be valuable, at least for the short and medium term, but not the long term. And we have an abundance of it, and it has a lower carbon footprint than some of the other global supplies.”

While the Muskrat Falls hydro dam project is much-maligned for cost overruns and delays, once completed it will make Newfoundland’s electricity system 98-per-cent renewable and emissions-free. The province also has three wind farms supplying power to isolated communities.

Meanwhile, the warning signs around oil and gas continue. Newfoundland’s only refinery is floundering after a deal to sell the facility to Irving Oil collapsed, putting as many as 500 well-paid jobs at risk. On Nov. 4, U.S.-based Origin International announced it had made an offer to buy the facility and said, if accepted, the refinery could be up and running again sometime in the second half of 2011.

Newfoundland and Alberta, both major oil-producing provinces, had the country’s worst unemployment rates last month, at 10.9 per cent and 9.9 per cent, respectively. But the staggering downturn in Alberta’s oil patch also has a compounding effect on Newfoundland, which sends thousands of workers to the Western province every year. In 2016, the most recent year for which figures are available, an estimated $350-million in paycheques were sent back home by Newfoundlanders who work in Alberta, according to Statistics Canada.

The role of the oil and gas sector in Newfoundland’s economy is significant. The industry says it accounts for about 15 per cent of all wages, and produces about 25 per cent of the province’s GDP.

As oil prices tanked in the spring because of the pandemic and an oil price war between Russia and Saudi Arabia, oil companies began slashing spending. The global downturn in the sector hit Canada’s most eastern province particularly hard, with an estimated 5,200 people losing their jobs since March – about one out of every five jobs connected to the industry, according to NOIA.

Thousands of other well-paid trades and construction jobs are in limbo as oil and gas companies reassess their plans for the future in Newfoundland. The Canada-Newfoundland and Labrador Offshore Petroleum Board, the industry regulator, reported this month it received zero bids for 16 of the 17 offshore parcels available for drilling in 2020 – slashing planned exploration spending from oil companies to just $27-million, down from $1.3-billion in 2018.

“It’s been devastating for our industry, it’s a crisis,” said Ms. Johnson at NOIA. “It’s very depressing. Many people I’ve spoken to have said to me, ‘What’s going to become of us?’ ”

Some help may be at hand. Mr. Furey’s government is scrambling to figure out how to best spend a $320-million bailout from Ottawa intended to aid workers in the struggling oil and gas industry. The province’s Industry, Energy and Technology Minister, Andrew Parsons, said they have no time to waste to get the money distributed.

“Right now we need immediate actions. Basically, we’re talking about survival here,” he told reporters in St. John’s.

Workers in Newfoundland’s oil sector say there’s a real feeling of desperation among many families connected to the industry, at home and elsewhere. They want that federal money spent on programs that will directly help workers.

“This industry, as it is for many offshore families, is our bread and butter. It puts food on our tables, roofs over our head, clothes on our back and gas in our car,” said Amanda Young, a chef aboard the Terra Nova whose partner also works in the offshore industry, at a recent protest in front of Newfoundland’s National Assembly.

“These opportunities will no longer be on the table for many this year, simply because the jobs won’t be there. The money won’t be there.”

Newfoundland’s offshore industry is relatively young, beginning production in 1997 at the Hibernia field, about 315 kilometres southeast of St. John’s. The province estimates it still has more than 11 billion barrels of oil and 24 trillion cubic feet of natural gas buried offshore, and currently produces about 7 per cent of Canada’s total crude oil.

But accessing the province’s offshore reserves requires multibillion-dollar projects and takes years to bring to production. When the price of sweet, light crude oil, or Brent crude, was at more than US$100 a barrel, companies lined up to get into Newfoundand’s offshore. With the price now around US$44 a barrel, those kind of major investments are a much riskier decision.

While there have been some recent oil discoveries in the Flemish Pass Basin, an offshore area about 500 kilometres east of St. John’s, the low price of oil is keeping Norwegian energy giant Equinor ASA from making any promises about its deferred Bay du Nord project that would develop it.

Husky, meanwhile, is threatening to pull the plug on its West White Rose project unless it gets government financial support, while the delay puts thousands of construction jobs in limbo. The provincial government, facing a budget deficit of well in excess of $2-billion, has said it’s in no financial state to help.

Dr. Oates, the Memorial professor, said how Newfoundland navigates the transition away from fossil fuels will be one of the new premier’s biggest tests.

Newfoundland has been through significant downturns before, from the failed rubber boot factories of Joey Smallwood to the codfish moratorium. The key this time will be how the Premier can balance the demands of climate activists who want oil subsides to end immediately, with the need to use oil revenue to fund new opportunities, such as the island’s budding tech sector, she said.

“There’s a camp that is really hopeful that we’re going to build back better, and this is going to force the necessary transition,” she said. “There’s going to be pressure to transition oil and gas workers. I’ll be looking for government spending that benefits average people, and not giving out money to oil companies.”

Ms. Johnson argues Newfoundland’s oil and gas sector is well-positioned to make the transition to renewable sources of energy, such as offshore wind, and points to Norway as a model for how oil-producing regions can also be progressive on measures such as incentive programs to buy electric vehicles.

Newfoundland’s light, sweet crude comes with a lower carbon footprint than other global sources of oil, something she says should be promoted more widely.

“I hope this isn’t just about turning off the taps here and turning them on somewhere else,” she said. “Consumers are still demanding oil, and it’s going to have to come from somewhere. You can’t turn off the switch tonight and say tomorrow, we’re going to move to a green economy.”

Source: The Globe and Mail | This text was excerpted from the media outlet cited on November 22, 2020 and is provided to Noia members for information purposes only. Any opinion expressed therein is neither attributable to nor endorsed by Noia.