Capital spending on major projects down in most Atlantic provinces

Pre-COVID-19 forecast for major projects in Atlantic Canada declines 26 per cent to $9 billion

A new report shines a light on the impact COVID-19 is having on major projects in the Atlantic provinces when it comes to capital investment.

The Atlantic Provinces Economic Council (APEC) released its annual Major Projects Inventory Wednesday, which provides an in-depth overview of capital investment for the region. Before the COVID-19 pandemic, APEC forecast $12.5 billion in capital spending for 2020 in all four provinces. That forecast has now declined to about three-quarters of that total — $9.2 billion.

Accounting for the biggest portion of that decline is Newfoundland and Labrador, which APEC previously forecast to experience growth in 2020. It now anticipates a 41 per cent decline to $3 billion for the year, citing the downturn in oil prices and health and safety issues created by the COVID-19 pandemic as contributing factors. Many companies are holding off on drilling and exploration plans and looking for ways to reduce capital costs, and Husky Energy earlier this year announced it would suspend work on its West White Rose project until 2021.

“Globally, demand for oil has dropped significantly,” said Patrick Brannon, APEC’s major projects director. “For us to see a rebound in that, we’ll have to see some stability of cases of COVID. What we’ve seen in the U.S. is concerning in terms of the ability for them to get that under control as a large importer of oil.

“We’re seeing a lot of COVID cases in other oil-consuming areas of the world, including India and Brazil. China is the biggest user of oil, and it largely has cases under control, which is positive. I think that’s having a positive effect on oil markets over the last little bit. We have seen a rebound in prices over the last couple of months, which is positive.”

OTHER PROVINCES

In Nova Scotia and New Brunswick, forecasted declines are moderate compared to Newfoundland and Labrador. APEC expects capital investments for major projects in Nova Scotia will be down six per cent to $3.6 billion, with New Brunswick investments down nine per cent to approximately $2 billion.

“In New Brunswick, some of the manufacturing activity has been postponed,” Brannon said, making specific mention of the McCain Foods expansion in Grand Falls, now postponed at least a year.

Shipbuilding activity in Nova Scotia was on hold for a couple of months as more confirmed cases of COVID-19 were reported. Nova Scotia Power has scaled back its own capital budget, as have a number of businesses in the province.

“It’s very common for companies to trim their capital budget during a recession or a downturn,” Brannon said. “It’s the easiest way for them to cut a little spending quickly. We do see that in many projects. We are seeing some housing projects in Halifax getting pushed back a little bit. A couple in New Brunswick. Things get pushed out a little bit because of some of the COVID restrictions around safety. That’s adding new costs and slowing the productivity in construction.”

On the flip side, Prince Edward Island is expected to witness a modest four per cent increase in capital spending to $540 million.

“Generally, they’re smaller projects in P.E.I., but I think it’s just really the high pace of activity,” Brannon said, noting it’s the fastest-growing province in Canada. “We were expecting a very significant increase in P.E.I. anyway because of their strong population growth. There’s a lot of new housing development, a lot of new infrastructure being built in the Charlottetown area especially.”

On the downside, a $60 million wind farm project has been delayed on the island due to global supply-chain issues.

OFFSHORE ISSUES

Paul Barnes, Atlantic Canada and Arctic director with the Canadian Association of Petroleum Producers, said the suspension of Newfoundland and Labrador’s West White Rose project in March represented a significant capital spending endeavour for 2020. However, he’s less certain drilling and exploration delays would account for much in terms of capital cost reductions, adding he views the deep-water Bay du Nord project, now deferred indefinitely, the same way.

“None of that would have caused a tremendous amount of capital cost reduction, because money wasn’t really going to be spent,” Barnes said. “It wasn’t going to be spent at all on the Bay du NordEquinor project. But I don’t know if the drilling side would be classified as capital or not. Basically, it’s really an activity. Drilling rigs come in, they drill a well and go away ... Certainly, there were millions of dollars that weren’t spent in Newfoundland on those programs this year.”

NEXT YEAR

Looking ahead to 2021, the APEC report forecasts a 17 per cent increase to $10.8 billion on capital spending for major projects in the Atlantic region, a figure that will remain below pre-COVID-19 spending levels by about eight-to-ten per cent. According to Brannon, projects dependent on exporting goods will rely more on a recovery of the global economy compared to local construction initiatives.

“It just takes some more confidence in how things are moving forward,” he said.

Even though the price of oil is bouncing back and showing some stability, Barnes does not expect to see much in the way of capital investment for Newfoundland and Labrador’s offshore sector for the remainder of 2020.

“There is obviously a fear that there is still going to be volatility for the next year likely, until such time that we get a vaccine and see how that plays out,” he said. “There is a belief there may be second waves and an economic impact associated with that.”

With that continued uncertainty in mind, his organization has been lobbying the federal government alongside Newfoundland and Labrador Oil and Gas Industries Association to provide tax relief on future development and exploration.

“We’ve got no commitment from the federal government at this point, so that has caused some reluctance to spend money in this timeframe because we just don’t know if any tax relief or any other type of incentive may come our way,” Barnes said.

The APEC report can be read in full by checking the ‘What’s New’ section of the organization’s website — www. apec-econ.ca.