Oil and Gas
Posted January 25, 2013
Early in January, the consortium owning the rights to the Hebron oil discovery announced that they were moving forward to develop production. First oil is expected in late 2017.
Royalties and other income to Newfoundland and Labrador (NL) over the life of the project are estimated at $23 billion, although big payments will only start to arrive after the oil companies have recovered their project costs. In addition there will be thousands of construction jobs during the next three years. This is an exciting development for that province.
Although Nova Scotia has no direct interest in Hebron, NL’s growing status as a have province can only be beneficial here. For example, Nova Scotians (especially Cape Bretoners) currently working in Fort McMurray will have options much closer to home.
Nova Scotians may be tempted to think that the big exploration commitments by Shell and BP will soon lead to a similar outcome. Each has committed to spend about $1 billion on exploration offshore Nova Scotia over the next six years. That sounds like a lot of money, but for these companies it is not. The major oil companies spent $80 billion worldwide on exploration in 2012, much of which did not produce discoveries.
Even if seismic surveys are encouraging and exploratory drilling productive, actual development announcements will not happen soon. The discovery at Hebron occurred more than 30 years ago in 1980, exploration having started some years earlier. Of course at today’s oil prices, development would likely be quicker, but it is still very unlikely to begin before 2020.
Meanwhile in NL, the 1,200 workers already engaged in the Hebron project will increase to a peak of 3,500. This will occur at the same time as Muskrat Falls construction. Unemployment continues to be high in NL, but the skilled tradespeople needed for these projects are in very short supply. This no doubt has contributed to the dramatic increase in forecast Hebron costs from $8.3 billion in 2011 to $14 billion now.
Those same cost pressures will impact the building of Muskrat Falls, although the cost increase estimates provided have been much more modest. It would not be surprising if much of the early revenue from Hebron was used to pay for unanticipated costs at Muskrat Falls.
The extractive industries (mining plus oil and gas) are reinvigorating the economy of NL, which had a $883 million budget surplus in 2011-12. Nova Scotia has made good progress on offshore opportunities but the payoff is distant and uncertain.
On the other hand support for these industries onshore has been weak. A small indicator is the exclusion of mining from the off-highway fuel tax rebate that is provided to fishing, farming, and forestry. At $2.6 million per year this is more symbolic than substantial.
Much more important is the continuing moratorium on “fracking” (hydraulic fracturing) for oil and gas. Although there have been isolated problems, as occur with any resource industry, fracking has been largely safe and is responsible for revitalizing many parts of rural North America. The resulting gas discoveries have replaced a lot of coal while reducing electricity costs, and cutting emission of greenhouse gases and other pollutants.
Onshore gas discoveries would both enable reduced electricity costs and improve security of supply. An onshore oil discovery could provide a smaller but much quicker win for taxpayers than offshore finds.
If we want rural Nova Scotia to be more than a park for cottagers, if we want to maintain population and save our schools and hospitals, we have to be willing to accept properly regulated resource industries.
New Brunswick has recognized this and is moving to implement solid regulations for fracking. Our political leaders should have a good understanding of the potential. It is disappointing that none of them have taken a position beyond wanting more study and consultation. New Brunswick is likely to progress while we dither.