Posted July 5, 2013
Amid the many current challenges faced by Nova Scotia, it’s interesting to imagine what an attractive picture of the future might look like.
For many of us, it would include a resumption of population growth, an end to school closings, a well-functioning health system, higher employment, and lower taxes. These in turn require a vibrant and growing economy.
Is such a future possible? There is evidence that it is. The four “have” provinces in Canada (British Columbia, Alberta, Saskatchewan, Newfoundland and Labrador) collectively provide some instructive experience.
All of them receive substantial revenues from resources, primarily oil and natural gas. Though down almost 40% from two years ago, Alberta’s take this year will still be above $7 billion—enough to pay for three quarters of Nova Scotia’s $9.5 billion budget. No wonder they have such low taxes!
Saskatchewan and Newfoundland and Labrador will each take in about $2 billion, and British Columbia a bit less. Alberta and Saskatchewan have a negligible amount of net debt on which to pay interest.
Nova Scotians might reasonably imagine that if we had an extra $2 billion a year, we would be on easy street—lots of room for reducing provincial debt and taxes with plenty left over to pave roads, save schools, improve health care, and spend more on public services.
Yet remarkably, all the have provinces except Saskatchewan have been experiencing deficits in recent years and are struggling to get back to balance. Various austerity measures have been put in place including public sector hiring freezes and wage restraint. Alberta has cut its university grants by 10%.
So, the first lesson to be learned is that a windfall of resource royalties does not make the need for spending discipline go away. Alberta has been particularly imprudent in some of its wage policies.
Secondly, income from resources can easily experience dramatic reductions because of movement in global commodity prices, so it is unwise to rely on all or most of it for continuing spending obligations.
Thirdly, in a province of less than a million people, there is no amount of success in the knowledge economy that can create an equivalent amount of wealth. We should still pursue that side of growth for its own sake, and because its contribution should be more stable. And of course, the big resource royalties may never occur.
But it really would be helpful if we had an extra $2 billion a year to pay bills. How do we improve our chances?
Step one is to accept that resource industries can provide an enormous economic and fiscal boost. There is already a small benefit to Nova Scotia from the offshore seismic work being done by Shell. That will increase when they are joined by BP, and quite a bit more if drilling commences. Excitement will grow if this fall’s auction of further exploration rights produces more large bids.
It will really become interesting if all that translates into commercially viable discoveries, which could include natural gas if large enough in quantity and close enough to the pipeline.
And then… we should prepare for a long wait. Production from the four major fields in Newfoundland’s offshore commenced twenty to thirty years after they were discovered. Perhaps things will move more quickly in future, but even optimistic forecasters would not forecast production in this decade.
It is worth noting that, unlike Newpage, DSTM, or Irving, none of this requires any subsidies from taxpayers. Companies just need permission, a clear regulatory structure, and an occasional bit of political spine.
Meanwhile, there are onshore opportunities which will be smaller in scale but much more easily developed. What has been the progress so far?
Petroworth wanted to drill (not including “fracking”) in the Lake Ainslie area based on promising initial data. They were given a permit, but energetic opposition brought the project to a halt when a key investor withdrew.
“Fracking” has had a hugely positive impact on the rural economies in many states and provinces.
Other jurisdictions are following. In June, Illinois Gov. Pat Quinn signed legislation giving the state his nation’s strictest regulations for high-volume oil and gas drilling.
Quinn says the law will “unlock the potential” for thousands of jobs in southern Illinois while protecting the environment. The law was crafted with the help of industry and some environmental groups. The unusual collaboration has been touted as a potential model for others.
Nova Scotia was headed down a similar road in 2012 when the government apparently got cold feet and declared a moratorium until after the election. It would be better if the time was being used to engage willing environmentalists and others in how to move forward: protection for wells, proper setbacks from dwellings and watercourses, best practices for disposal of fracking fluids.
New Brunswick’s government has shown more courage and been willing to deal with the inevitable protests. The areas being explored have exciting potential.
The fourth lesson about resource revenues is that they never happen unless political leaders are willing to make the case for them.
Nova Scotia’s government has done a good job facilitating offshore exploration, but if a big payoff is coming it will be many years away.
Onshore oil and gas represent an opportunity with faster returns, and requires no corporate handouts. It does need political leadership.