Wildly swinging oil prices will continue, and provinces like N.L. can gain: professor
ST. JOHN’S, N.L. –
As the COVID-19 pandemic despatched oil costs plummeting to historic lows, emails obtained by The Canadian Press present Newfoundland and Labrador was quietly bracing for 2 of its offshore oilfields to be deserted by their homeowners.
And because the province watches those self same firms this 12 months report staggering income, specialists say fossil fuel-producing provinces like Newfoundland and Labrador ought to get used to the whiplash — and use it to higher defend themselves.
“We’re going to see more situations where companies have a record profit one year and are completely busted the next year,” stated Warren Mabee, director of the Institute for Energy and Environmental Policy at Queen’s University in Kingston, Ont. “Governments need to learn to work with that, and to turn it to their advantage.”
Before the pandemic hit in early 2020, shutting down any of the 4 oilfields pumping off the province’s east coast was a distant consideration. But by May of 2020, emails obtained by way of entry to data laws present authorities officers had been already getting ready for Suncor and Husky Energy to stroll away from initiatives that may preserve their respective oilfields — Terra Nova and White Rose — working for years to come back. (Husky has since merged with Cenovus.)
“Based on the current economics and uncertainty, it is likely the asset life extension will not proceed,” stated authorities presentation notes on Suncor’s Terra Nova oilfield, dated June 30, 2020. “Much uncertainty as to when things will return to normal or what ‘the new normal’ will look like.”
The notes stated the province would take a $6.5-billion hit to its gross home product over the subsequent decade if Suncor deserted Terra Nova.
By the autumn of 2020, the paperwork present, Suncor was rethinking Terra Nova, and Cenovus was threatening to finish its operations within the province.
Energy Minister Andrew Parsons instructed media in October of 2020 that estimating the decommissioning prices taxpayers must swallow was “premature, given the current status of our offshore projects.” But presentation notes from a month earlier stated the province would owe Suncor a royalty refund of about $157 million, due in 2025, if Terra Nova shut down.
By June of 2021, the province’s offshore oil regulator had ready a communications plan in case Suncor determined to decommission the sector, the emails present.
Newfoundland and Labrador in the end gave the 2 firms about $246.5 million in direct subsidies, which got here from a $320-million switch from Ottawa geared toward bolstering the sector.
Cenovus acquired $41.5 million in December 2020 to maintain work occurring a mission that may lengthen the lifetime of White Rose, whereas in June 2021 Suncor was given $205 million in direct money and the province took a royalty reduce price $300 million to maintain work occurring Terra Nova.
Both Suncor and Cenovus posted important 2022 income final week, at $9.1 billion and $11.4 billion, respectively.
Mabee stated that looking back, it might have been good for the province to impose situations on these subsidies requiring the businesses to pay them again if oil costs rebounded.
“I think that often, a business that’s on the receiving end of the subsidies, when they’re threatening to walk away, it feels like they’re holding the cards. But in reality, they want the subsidy,” Mabee stated. “And they normally don’t want to walk away from long-term investments.”
As power demand adjustments and international locations transfer away from oil and gasoline, there may be extra volatility forward for fossil gas costs, he stated, including that governments ought to brace for extra excessive highs and lows. One method they will higher insulate themselves is to construct in mechanisms to recoup their subsidies or incentives when markets rebound, he stated.
Sara Hastings-Simon, an assistant professor on the University of Calgary learning power transitions, agrees.
“Simply giving subsidies and not structuring them in a way that’s tied to the price of oil, leaves the public very exposed,” she stated in an interview. “We insure the downside risk, and then the private sector gets to keep the upside benefit.”
Mabee famous that regardless of report oil income pushed by the conflict in Ukraine, some fossil gas firms have not introduced bigger investments in low-carbon power. Governments ought to make their monetary assist throughout downtowns contingent on investments in a net-zero future, he stated.
“The oil and gas industry has to change to get us there. And this is a lever that we could be using to help affect that change,” he stated. “This is the moment. It’s that subsidy moment when you actually have power.”
This report by The Canadian Press was first printed Feb. 21, 2023.
