Who says non-renewable resource projects can’t deliver sustainable economic development?
November 06, 2017
November 06, 2017
Offshore oil industry activity continues transforming the Newfoundland and Labrador economy, infrastructure, education, training, and R&D
When the prospect of major offshore oil and gas projects first appeared in Newfoundland and Labrador, many residents were wary. Some were concerned that oil and gas development was alien to our province’s fishing culture and that it would have adverse effects on the fishery and other traditional pursuits. Others felt that non-renewable resource extraction was essentially temporary and short-term. While people welcomed the possible economic benefits, many thought the emphasis should be on capturing taxes and royalties while keeping this strange new industry at arm’s length. This additional government income should then be used to deliver “real” economic development.
In fact, the benefits of the oil and gas industry in Newfoundland and Labrador have been much larger and more profound than taxes and royalties. We have prepared a series of reports that document how offshore oil and gas activity has, in addition to any fiscal benefits, directly delivered substantial and sustainable economic and social development. The industry has brought to the province infrastructure, skills, and capabilities that, while meeting the needs of this new industry locally, have found application in other jurisdictions and other industries. Rather than being a short-term and alien industry, offshore oil and gas activity and investment have transformed the province, delivering changes that are withstanding the effects of recent declines in oil prices.
Our latest report, “Socio-economic Benefits: Petroleum Industry Activity in Newfoundland & Labrador, 2011–2014,” builds on earlier versions that go back to 1999. While it describes the substantial taxes, royalties, and charitable community contributions that have resulted, the emphasis is on the overall effects on the province’s economy, infrastructure, education, training, and R&D sector, and on 17 case-study companies.
The macroeconomic analysis shows the offshore petroleum industry’s substantial contribution to the Newfoundland and Labrador economy, particularly in relation to GDP, employment, and incomes. The GDP contribution will likely decline in the short-term because the most productive reserves have been depleted and production levels are expected to fall in the medium term. However, other production-related benefits, such as employment and personal income, are not expected to be affected by these declines.
The offshore petroleum industry has been supported by, and made a substantial contribution to, infrastructure development. New marine bases, warehouses, construction and fabrication yards, and testing facilities have reduced the costs of developing new fields. This has increased the likelihood of additional petroleum industry investment and, ultimately, Newfoundland and Labrador’s participation in the industry. New training facilities help education institutions address skill gaps and plan for future needs of the oil and other industries. For example, oil company investment in laboratories at the College of the North Atlantic has enhanced the college’s training abilities and increased its petroleum-related applied research capacity. A new Chemical Process Engineering Technology program equips graduates with the skills necessary to perform as process operators and technologists in—and beyond—the oil industry. Other education and training investments include the industry’s funding of student awards and scholarships, the creation of work-terms and internships, and investments in new research and training programs.
Research and development is an area of high activity in the offshore petroleum industry. Industry, educational institutions, and research organizations not only support the industry locally but also provide a mechanism for transferring local expertise into international markets. One example is GeoEXPLORE, a three-year program to enhance geoscience capacity, collaboration, and industry innovation in support of both petroleum and mining exploration and development. In another, Memorial University, Husky Energy, and other companies are partners in a five-year, $7.2 million project to aid the design of ships and offshore structures for year-round Arctic operations. And the Centre for Arctic Resource Development has been established to study challenges to the activities of different industries in the Arctic and harsh environments, using core oil industry funding of $12.5 million over five years.
The success of the offshore petroleum industry in Newfoundland and Labrador is both a result of, and exemplified by, the success of local companies and entrepreneurs. Their interactions with the oil industry have led them to develop new goods and services, hire new staff, provide their personnel with further training, acquire new facilities and equipment, and improve quality, health, safety, and environmental policies and practices. The result is an experienced workforce with the capabilities that are helping local companies win petroleum industry work in other jurisdictions. Members of our skilled workforce are also increasingly undertaking work in other industries, both locally and outside the province.
For example, PAL Aerospace started life in 1972 as a small flying school but, primarily thanks to opportunities presented by the oil industry, it has developed into a global leader in aerospace and defense. PAL Aerospace now provides airborne and maritime surveillance solutions, including custom aircraft design and modification, mission system design and integration, and mission operations, training, and support. The company has more than 900 employees, including approximately 750 in Newfoundland and Labrador, with domestic bases in Newfoundland and Labrador, Nova Scotia, Quebec, Ontario, and British Columbia, and international bases in Barbados, Trinidad and Tobago, Netherlands Antilles, and the United Arab Emirates.
PAL Aerospace continues to explore the use of new technologies and innovations, including moving forward with commercial applications of military drone technology and investigating the challenges posed by distant deep-water activity. The company is also taking on larger and larger projects, including a partnership with Airbus Defence and Space of Toulouse, France, in bidding the Government of Canada’s Fixed-Wing Search and Rescue aircraft requirement. Given this diversification, the oil industry is now responsible for only approximately 15 percent of its aerospace and defense work.
Since 2014, there have been substantially lower global oil prices, with increasingly negative effects on industry spending and government revenues. In Newfoundland and Labrador, however, work has continued developing the Hebron oilfield, with planned first production in late 2017 and a life of at least 30 years. The life of our first oilfield, Hibernia, has also been extended into the 2040s. And, while local companies have suffered from reduced industry expenditures, the effects on many have been cushioned by their work supporting long-term production. Continued exploration success and record spending commitments in bidding for exploration rights make clear that the oil industry will continue to be a major contributor to the economy of Newfoundland and Labrador for decades to come.
However, the most important success from a provincial perspective has been the use of oil industry-related investments and expertise to diversify into other markets and industries, as described above, resulting in sustainable economic and social development. And this research has allowed us to more fully understand the ways in which resource development activity can have a range of positive effects, assisting us get regulatory approval for our clients’ projects. We are also advising companies how to meet benefits goals and requirements, and helping governments understand how they can capture benefits for their citizens.