Nfld.: out of gas
To understand the scale of NL’s lost gas opportunity, look to Angola at the forefront of LNG market
As North America’s newly abundant natural gas-driven energy renaissance builds, one of the last regions out of gas is Newfoundland & Labrador. Although the province is blessed with abundant proven offshore gas resources on the Grand Banks and good potential for on-shore gas from ongoing oil exploration, none of that gas will get delivered to Islanders any time soon.
The earliest the province is likely to see any offshore gas reaching some market is at best 12 years from now according to a preliminary proposal floated by Husky Oil, an off-shore operator. Husky says it is thinking of starting studies on gas development in 2016 at the earliest.
One way to understand the scale of the province’s lost opportunity is to compare Newfoundland & Labrador with another jurisdiction economically dependent on its offshore petroleum resources — the impoverished but now rapidly advancing sub-saharan nation of Angola.
Last week, Angola, working with Chevron Corp. and others, shipped its first load of Liquefied Natural Gas (LNG) to market. LNG development has provided the impetus to build a large infrastructure to pipe its raw gas ashore. Once ashore, the gas is fed into a world-class industrial complex where it feeds power generation and other industrial uses in addition to converting gaseous methane to LNG. With the market demand and price for LNG soaring, Angola’s timing could scarcely be better.
Angola’s progress in gas utilization is a huge commercial, technical, environmental, and social achievement for a country still recovering from civil war -- unthinkable misery that went on for more than 26 years. Some estimates put the number of civilian deaths over 500,000.
Meanwhile, Newfoundland & Labrador’s natural gas policy remains stuck on wasteful reinjection practices. A small portion of the gas now co-produced with oil is used on one off-shore platform, but most is reinjected. estimates of the unrecoverable reinjected gas range from 10% to 50%.
As blogger and provincial political commentator ed Hollett notes, the provincial government doesn’t even have an agreed gas royalty regime in place, despite efforts to get one since 1997. A draft version was floated in 2007 but remains unofficial.
There are many similarities between the petroleum industries of Newfoundland and Angola. There is substantial overlap in the oil companies involved in both jurisdictions. Their production histories in recent years are similar. Both became large off-shore oil producers in the late 1990s. Oil production in Newfoundland peaked in 2007 whereas Angola’s peaked in 2008. From the year of peak production through 2012, Angola’s production has dropped 7% whereas Newfoundland’s production has dropped a punishing 46%.
Part of the reason Angola has been able to sustain its oil production better than Newfoundland is that by diversifying into gas, Angola has been
Local politics prevent offshore gas from landing in Newfoundland, even for electricity
better able to attract new investment. Previously a hazardous nuisance for off-shore operators, gas is now valuable.
declining offshore oil production is a threat to Newfoundland & Labrador’s public finances. The provincial government has set aside almost nothing from the boom years of production. Instead, the early flush of royalty income funded higher long term spending commitments.
If the province could profitably exploit its gas, the improved payback for future petroleum exploration and development might help diversify and sustain the industry so critical to the province’s future. However, in an environment where provincial energy discussions are politically unpredictable and the existing oil extraction business is stable, the compelling case for incumbent offshore producers is to avoid local politics by keep all their output physically isolated from land.
Islanders, burdened today with the most oil-dependent electricity supply remaining in Canada, need a better option. Gas delivered to the island could have fueled much needed replacement generation. Once tied into a large vol ume anchor client, it could be available for other needs such as the new Vale nickel processor now under construction.
Instead, last december Kathy dunderdale’s government effectively blocked future gas delivery to the island. Instead of encouraging offshore operators to develop a natural gas supply to the Island for power generation, LNG export and other uses, the government’s energy department made a final commitment to the slow, high cost hydro-power project now underway at Muskrat Falls in Labrador. Muskrat power will need an 1,100-kilometre, partly submarine, extension cord to reach St. John’s. Island power consumers are locked in to pay for the project over the next 50 years, irrespective of its usefulness.
The federal government bears some responsibility for thwarting diversification of Newfoundland & Labrador’s energy future by subsidizing the Labrador power option with a loan guarantee.
As Memorial university engineering professor Stephen Bruneau ruefully notes, “even Muskrat Falls won’t stop Grand Banks gas from reaching the regional and global market eventually, it’s just that we on the Island won’t be allowed to use it for cheap power like everyone else.”