' ' ecolog.com - EcoLog Environment News and Environment Legislation and Health and Safety News and Health and Safety Legislation - - 3/23/2019
Twitter Ecolog Editor Lidia Lubka
Follow EcoLog Editor Lidia Lubka




Ecolog Products

ecolog.com Legislative Tracker

Newfoundland oil and gas: the potential is there, but costs are high

by Mark Sabourin
EcoLog, 5/4/2018 8:41:00 AM

Newfoundland and Labrador’s offshore remains a high-cost, high-potential area for oil and gas exploration, according to an independent, detailed analysis commissioned by the province from global energy consultants Wood Mackenzie. The report, Newfoundland & Labrador — Competitiveness in Oil & Gas Investment, is part of Advance 2030, the government’s plan to re-energize its oil and gas sector.

The report compares Newfoundland and Labrador against its global peers in the oil and gas industry, and the province compares favourably in terms of the likely size of available resources, political stability, fiscal attractiveness and availability of skilled resources.

However, it remains a very high-cost area for oil and gas exploration. Capital and operating costs in the region are higher than peer jurisdictions by almost $14/barrel of oil, largely because of the environment and the relatively low density of activity in the area. Only Mexico has a higher break-even cost than Newfoundland and Labrador.

Despite the low Canadian dollar, currency risk is a deterrent to investment. That’s because the Canadian dollar’s value has been closely tied to the world price of oil. A rising oil price, which should make investment in Newfoundland and Labrador more attractive, will be balanced against a rising dollar, which would make investment more costly.

Lack of pipelines is a problem, but unlike the other side of Canada, not for the oil industry. In Newfoundland and Labrador, oil is transported by tanker directly to market or to the Whiffen Head transshipment terminal. Gas is the problem, where the lack of pipelines is one of the factors impeding commercialization.

The provincial government can’t control the weather or the international currency market, but it can influence the regulatory environment. The number of potential steps in the development permitting process, and the consultations required, make Newfoundland and Labrador less attractive than its peers. So too are the benefits that must be provided to the local economy. None of these issues is unique to the province, and in some other jurisdictions they can be more onerous, but Wood Mackenzie notes that they do slow the pace of development.

Back to Headlines | Top of Page

Ecolog Network