Harnessing the Potential - Atlantic Canada's Oil and Gas Industry
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MWANB NOIA OTANS HARNESSING THE POTENTIAL - ATLANTIC CANADA'S OIL AND GAS INDUSTRY PREPARED BY: STRATEGIC CONCEPTS, INC. DR. WADE LOCKE AND COMMUNITY RESOURCE SERVICES JANUARY 1999 Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry i Executive Summary EXECUTIVE SUMMARY Offshore Atlantic Canada is now firmly established as one of the bright spots in Canada’s petroleum sector and has started to attract the attention of world- class players in the oil and gas industry. Some of the world’s major oil and gas companies have embarked upon aggressive and ambitious exploration and development programs in Atlantic Canadian waters. Since 1995, more than $700 million in exploration commitments have been announced for four regions within the Atlantic Canadian offshore: the Jeanne d’Arc Basin, Scotian Shelf, Sub-Laurentian Basin and the St. Pierre Bank. The purpose of this report is to provide a comprehensive overview of Atlantic Canada’s oil and gas industry. As a source document, it demonstrates the importance of oil and gas resources and related industries to Atlantic Canada. Moreover, this report could form the basis for a strategy to optimize opportunities within the region from the oil and gas sector. The modern era of oil and gas development in Atlantic Canada began in the early 1960s. Since then, more than 300 exploratory and development wells have been drilled in Atlantic Canadian waters. Cumulatively, this drilling and seismic activity alone has generated nearly $8 billion in investment expenditures and has resulted in the creation of more than 100,000 jobs throughout the region. More than $14 billion has been committed to the development of upstream and downstream oil and gas projects since 1990. The continued growth and prosperity of Atlantic Canada’s oil and gas industry significantly impacts the regional economy and society. As the industry has expanded, the level of participation by Atlantic Canadian businesses and workers has increased. Increased investment in the oil and gas sector has “Looking decades ahead, it is possible, under a spurred continual enhancement of regional infrastructure and capabilities related conducive local environment, that Atlantic to both upstream and downstream activities. Training and research Canada can build the kind of capabilities which today development institutions throughout Atlantic Canada are increasingly being one sees in Stavanger, recognized as world-class centres of excellence. Furthermore, local companies Norway, in Aberdeen, Scotland and, indeed, and professionals have demonstrated that they are competitive at both the Alberta. However, this will require a vision and a national and international levels. With the transfer of technology, expertise and longer term plan and focused commitment on experience to the local businesses and labour, there has been an expansion of the part of our governments” business and employment opportunities to Atlantic Canadians. Sir Graham Day, 1997 CORE Conference Proceedings Key operators in Atlantic Canada's offshore anticipate a new development project to commence every two to three years throughout the next two decades. Should this transpire, oil and gas production could reach approximately 500,000 barrels of oil equivalent per day. This level of production is equivalent to 50% of Canada’s current light crude oil production MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry ii Executive Summary and more than 300% of current oil consumption for Atlantic Canada. To achieve this level of production, there could be as much as $55 billion in cumulative capital and operating expenditures associated with the development and operation of these fields. With this level of activity, oil and gas production has the potential to raise Atlantic Canada’s GDP by more than 10% over current levels; thus, within two decades, the economic well-being of one in ten Atlantic Canadians could depend on the oil and gas industry. Industry associations and provincial governments anticipate downstream projects will make an equally impressive contribution to the regional economy. Industry players are investing in pipelines, transshipment terminals and gas processing plants throughout the region. Perhaps even more telling is the fact that established businesses are investing in support infrastructure including shipyards, fabrication facilities and heavy industrial facilities. These investments are creating new opportunities that are changing the economic realities faced by Atlantic Canada. This region attracts investment because it offers several critical advantages for petroleum play. East Coast Canada’s strong reserve potential provides an excellent hunting ground; its large potentially hydrocarbon-bearing structures remain virtually unexplored; exploration that has been undertaken has had very encouraging rates of success. Typically, pool sizes have been large and flow rates superior. Atlantic Canada’s stable political environment, including a reliable skilled workforce and predictable fiscal and legislative regimes, enables “A certain clarity of vision, some sense of long-term development and production planning. A growing infrastructure base restraint and a full measurement of complemented by an extremely versatile marine heritage allows for local supply determination. In other words, you need to know of an expanding range of products and services. Coupled with ongoing what you want to do, improvements to offshore technology, this significantly increases the economic understand why you want to do it, and be prepared viability of regional projects and sharpens regional industry’s competitive to use both political and economic clout to achieve advantage. Finally, its geographical proximity to both North America and it. Clear-thinking realism is the order of the day.” Europe afford relatively easy access (by cost-effective marine transport) to John D’Ancona, 1997, two of the largest markets in the world. CERI Conference, Halifax The degree to which the industry expands to capitalize on these advantages will depend heavily on the region’s success in overcoming the challenges to growth identified in this report. A pivotal issue is the lack of a clear vision for the future of Atlantic Canada's oil and gas industry. Therefore, this report recommends that industry associations take the lead role of facilitating an industry vision and implementation strategy. The vision should provide the basis for a common strategy within government, as well as with operators and the supply and service sector. Regional economic prosperity can be achieved without compromising the cost MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry iii Executive Summary structure for operators through a best-value approach over the life of the resource and a strong commitment to full and fair opportunity for Atlantic Canadian businesses and individuals. MWANB NOIA OTANS Harnessing the Potential - Atlantic Canada’s Oil and Gas Industry 1 SECTION ONE - INTRODUCTION The Newfoundland Ocean Industries Association (NOIA), the Offshore Technology Association of Nova Scotia (OTANS) and the Metal Working Association of New Brunswick are pleased to present “Harnessing the Potential: Atlantic Canada’s Oil and Gas Industry”. Through an assessment of the industry’s past, ongoing and anticipated future developments, this report profiles Atlantic Canada’s oil and gas industry and highlights its substantial contribution to economic growth and prosperity both within the region and Value Chain throughout Canada. Components of the Oil and Gas Industry The objective of the report is to investigate the extent to which the Upstream Exploration development of Atlantic Canada’s oil and gas resources does and can provide Development millions of dollars in revenue for businesses and government as well as Production thousands of jobs for residents of Atlantic Canada. Since some sectors of the Downstream Transportation and industry are still in their infancy, the potential exists for even greater storage contributions to regional economic growth from this industry. The analysis in Refining Petrochemicals this report is presented in the context of the oil and gas industry’s value chain Marketing and for both upstream and downstream activities1 and Atlantic Canada’s capacity distribution to satisfy the requirements of the industry at each link of the value chain. 1.1 Report Structure The report begins by reviewing the current status of the industry, covering the region’s resource potential and the oil and gas developments now underway. Next, the evolution of the oil and gas industry is discussed in terms of its value chain components; this puts in context the current status of industry development within Atlantic Canada. There follows a broad assessment of the region’s supply, labour force, infrastructure, training, and research and development capabilities; development of these capabilities is critical to the ability of Atlantic Canada to capture long-term economic benefits derived from its oil and gas industry. The next section describes the industry’s potential, its regulatory framework and the barriers and constraints affecting industry development. The final section offers recommendations to enhance the industry’s beneficial impact on both Atlantic Canada and Canada as a whole. 1 Upstream refers to all activities up to and including the extraction of oil and gas from the ground. Downstream refers to all activities following the extraction of the oil