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Project cancellations and delays are hampering plans to massively expand Canada's offshore oil industry. Temitope Onifade, a researcher working in law and climate policy, says it may be a signal that the offshore oil boom on the East Coast is ending before it’s even really got started.
In June, BP announced it was abandoning a high-profile exploratory oil well, which was poised to be a multibillion-barrel deposit. BP hasn’t clearly stated why, but energy publication Upstream writes that there are “signs the probe was unsuccessful.” The abandonment comes on the heels of the postponement of Bay du Nord — Canada’s first deepwater offshore oil project. In May, owner Equinor said it would be put on hold for three years and that increased costs within the oil market are partly to blame, although the company maintains it is planning to pivot strategies to make it work.
In response to Canada’s National Observer, BP confirmed it is in the “process of plugging and abandoning the well as per plan” and had no other comment. Newfoundland and Labrador Premier Andrew Furey said he was “disappointed” by the delay of Bay du Nord but is still holding out hope it will eventually be completed.
Newfoundland and Labrador has a unique goal to double offshore oil output by 2030. In 2022, the provincial regulator greenlit more than $238 million worth of exploration licences, jumping off from the approval of Bay du Nord earlier that year. The province already has some offshore oil, such as the Hibernia platform, which has been operating for over 25 years.
The approvals followed years of inactivity. Since 2004, the oil sector has paid an annual average of $1.3 billion to the province, but just $532 million came in between 2020 and 2021. In May, the province said oil production was down over 11 per cent compared to the previous year.
The Newfoundland and Labrador government’s 2030 target is “ambitious,” and Onifade said he “would be very surprised to see that they're able to do that.” As well as being a faculty member and the director of the masters of research in sustainable futures at the University of Bristol Law School, Onifade is a PhD candidate and researcher for the Canada Climate Law Initiative at the University of British Columbia’s Peter A. Allard School of Law.
There are a number of pressures that make a plan to increase oil production unstable, explained Onifade: cost pressures, competition, fewer available subsidies and the implementation of climate policy.
Competition is coming from both renewables and cheaper fossil fuels, Onifade said. He notes oil from the Organization of the Petroleum Exporting Countries (OPEC), comprised of 13 oil-producing states throughout the Middle East, Africa and South America, will arguably be more competitive in the years to come.
Newfoundland and Labrador is hinging its financial future on the offshore oil and gas industry, but experts say that future looks murkier after recent news coming from the industry. Here's the breakdown.
“Because there's going to be lots more products coming from the OPEC bloc, including places like Nigeria where Dangote [a company owned by the richest man in Africa, Aliko Dangote] has just finished building a massive refinery,” said Onifade, who used to live in Newfoundland.
“... But the second leg of the competition is that renewables are already cheaper than oil.”
Renewables are increasingly presenting a stronger business case than oil and gas, which risk becoming stranded assets as the world transitions to clean energy. Eventually, fossil fuels will lose their market, which means investors won't see a profit.
However, the government of Newfoundland and Labrador stands strong in its belief that oil and gas from its offshore can be part of the transition. In a statement, Lesley Clarke, media relations manager for the province’s Department of Industry, Energy and Technology, said Newfoundland and Labrador produces oil with fewer emissions per barrel than international averages and that the sector “can be a part of the solution to help meet global demand as the world transitions to a lower-carbon economy.”
“We continue to have a positive working relationship with BP and acknowledge the company’s office presence in our province. We remain cautiously optimistic that there will continue to be opportunities in the offshore,” said Clarke.
Demand for fossil fuels
Depending on how quickly the world cuts its greenhouse gas pollution, demand for fossil fuels could be a lot lower by 2040, explained Gregor Semieniuk, an assistant research professor at the University of Massachusetts Amherst. He recently released a paper on how the wealthiest one to 10 per cent of people will suffer the most financially from stranded assets resulting from climate policy that curbs the use of fossil fuels.
Specifically in Canada, the Canada Energy Regulator released new modelling last week that found Canadian oil production will plunge by 2050 if the world reaches net-zero emissions by the same year.
If the world achieves a low-emissions scenario and hits the 2050 target, that means “huge uncertainty” for any planned projects, said Semieniuk. From a climate perspective, the IEA has also said there should be no new fossil fuel projects if the world is to reach net zero within the next 25 years.
With lower demand for fossil fuels, Semieniuk explains fossil fuel companies have to consider whether their project has the best business case to move forward if there will be a smaller market, which makes the next decade “really relevant for a project like Bay du Nord.”
Ultimately, Semieniuk hopes oil and gas companies will take note of the economic risk that comes with expanding Newfoundland’s offshore oil industry.
“I don't know the future any better than anybody else. These oil companies, of course, really know the industry and really think very hard about what they're doing,” he said.
“So, to me, this is good for BP and Equinor that they're cautious about this because there's really this large uncertainty. And this could be a signal to other players that maybe it's not such a great idea to expand.”