N.L. continues to bet big on the offshore, despite net zero commitments drawing closer
It's full speed ahead in Newfoundland and Labrador when it comes to the offshore oil and gas industry, with the provincial government signalling strongly in Thursday's budget that it's not ready to start weaning itself off fossil fuels.
The province plans to spend roughly the same amount of money in Budget 2023 to help grow the oil and gas sector as it has set aside to help combat the effects of climate change, and its commitment to net zero emissions by 2050.
The Liberal government will pump $50 million into a program launched three years ago that's designed to encourage oil companies to drill exploration wells in hopes that it will lead to the next big find, and more production. This year's beneficiary? ExxonMobil, the lead partner in both the Hibernia and Hebron oil fields, and a company that posted record profits last year.
And the taxpayer-funded seismic program, which uses seismic waves to search for oil and gas and was suspended a year ago, has been resurrected with a $13-million injection of cash.
These seismic results are offered up to oil companies, and officials say the program has successfully enticed companies to bid large sums on offshore land parcels, with a commitment to carry out exploration.
And that's not all.
All four of the province's mature offshore fields are located in the Jeanne d'Arc Basin, but only the oil is produced, while the ample gas resource is either burned off, used to power the oil producing platform, or re-injected into the reservoir.
The oil companies who operate in the offshore have long said that extracting the gas and delivering it to market is not a viable option, but there's an increasing global demand for natural gas, and that's raising new questions about whether the resource should be developed.
As a result, the budget includes $4.8 million to carry out an assessment of the volume of gas within the oil reservoirs in the Jeanne d'Arc Basin.
So that's a nearly $70-million investment into an industry that's come under increasing scrutiny for its contribution to climate change. It comes at a time when climatologists talk of an irreversible climate disaster lurking around the corner, and the need to transition away from fossil fuels.
Meanwhile, the province will spend nearly $60 million to help homeowners, businesses and the public sector reduce greenhouse gas emissions through rebates and project funding. Some $3 million has also be earmarked to support the transition to electric vehicles.
Businesses can also avail of a 20-per-cent tax credit for the capital cost of projects that promote conservation and clean energy generation, and the efficient use of fossil fuels. But it's not known how much uptake there will be for this program, so there is no estimate in the budget.
The diverging priorities illustrate the tightrope being walked by the provincial government as it tries to balance the critical royalties and jobs in the oil and gas sector, with the need to transition to a greener, lower-emitting economy.
Big royalties from oil
Oil royalties are projected to account for 12 per cent of the province's revenues for the coming year, or $1.1 billion.
Production is expected to be stable at nearly 84 million barrels, with the province forecasting an average price per barrel of $86 USD.
It's also shaping up to be a notable year in that construction is expected to resume on the West White Rose extension project, the Terra Nova FPSO is scheduled to resume production for the first time in more than three years, and Equinor has said a sanction decision for its massive Bay du Nord project could could occur in the next 12 months.
When questioned about the oil-climate change balancing act, Finance Minister Siobhan Coady returned to the province's standard messaging, saying fossil fuels will be needed for decades into the future, and the oil produced in the offshore has more advantages than most other jurisdictions.
She said oil from the Hibernia, Hebron, Terra Nova and White Rose fields is produced at lower emissions than the global average, and at the highest environmental and labour standards.
And she emphasized that the $50-million offshore exploration incentive is not a direct subsidy, but a redirection of deposits forfeited by companies who failed to make good on previous exploration commitments.
"The world needs oil. We have oil, we have low-carbon oil," said Coady.
Analyzing the potential of a natural gas industry
Energy Minister Andrew Parsons said the exploration incentive program will not be extended beyond this year, and he hinted that the deposit forfeitures in future years may be directed toward green energy projects.
As for concerns about climate change, Parsons said the province takes the issue very seriously, and is making headway in the non-renewable sector in areas such as wind-to-hydrogen projects.
But he said there is a strong demand for fossil fuels, companies continue to show an interest in the province's resources, and the revenue from oil and gas is crucial to paying for vital services such as health and education.
As for the potential of a natural gas industry, Parsons said a study to determine whether it's viable is long overdue.
"We just think there's a pragmatic approach to looking at the strengths that we have on both sides without giving up an opportunity," he said of the balance between fighting climate change and developing non-renewable resources such as oil and gas.
He said "multiple jurisdictions" have made contact with the province about its offshore gas potential, "so we're seeing if we have an opportunity to be in that field now."
As for the commitment to net zero emissions by 2050, Coady said the province remains committed to that goal, and said ongoing efforts to lower emissions in the offshore and throughout society will help with the transition to a low carbon economy.
