No companies wanted to pay to search for fossil fuels off Newfoundland and Labrador’s coast this year.
Each year, companies are invited to offer money to explore areas in the Atlantic Ocean for oil and gas deposits. But last week, the Canada-Newfoundland and Labrador Offshore Petroleum Board announced there were no new bids to explore the region in 2023. The lack of interest contrasts sharply with 2022 when over $238 million worth of exploration licences were awarded by the provincial-federal regulator.
“This is really telling because it comes on the heels of Equinor withdrawing or being reluctant to develop the Bay du Nord field,” Angela Carter, energy transitions specialist at the International Institute for Sustainable Development (IISD), told Canada’s National Observer. Carter is also an associate professor of political science at Memorial University of Newfoundland teaching courses on topics like climate policy, the energy transition and politics. In May, Equinor announced Bay du Nord — Canada’s first deepwater offshore oil project — will be on hold for up to three years because of “challenging market conditions.” Then in June, BP announced it was abandoning a high-profile exploratory oil well, which was poised to be a multibillion-barrel deposit.
Equinor changing course is a “red flag” for other firms, said Carter.
Other factors include global oil demand changing and the challenges inherent to Newfoundland and Labrador’s offshore oil — high cost, harsh environment, a lot of dry exploration holes that have been drilled, and difficulties getting drilling rigs into position, to name a few, she said.
“There’s a realization playing out that this is not a desirable location to drill exploration wells,” said Carter. The timeline from bidding on a parcel, doing the exploratory drilling to developing oil resources means production is 10 to 15 years out, she said. In 10 or 15 years, firms will have to contend with a changing energy demand, prices and landscape, so some firms, like Exxon, are instead focusing investments on oil where it already exists, she added.
The International Energy Agency’s most recent forecast shows oil, coal and gas demand peaking before the end of the decade. This scenario, based on world governments’ existing policies, still overshoots the global goal to limit global warming to no more than 1.5 C to avoid the worst impacts of climate change.
Since 2015, firms have been showing less interest in these parcels that the government is putting up for bids, said Carter. Pre-2015, a majority of the bids offered were snapped up by companies. The one exception, she noted, was in 2018 when the regulator awarded a record bid amount of more than $1.3 billion and a record single bid of around $621 million. One parcel from that year, valued at $32 million, turned into the Bay du Nord project.
From 1988 to 2014, the board offered up 183 parcels for exploration and licences were awarded for 128 of those. In contrast, from 2015 to the present of the 163 parcels offered, only 30 licences were awarded.
“The long-term trend is [that] firms are now less willing to step forward and bid on offshore parcels,” said Carter. “Why is that? Well, because the economics have changed and it’s not looking like it’s going to get any better. In fact, it’s gonna get worse as we get closer and closer to that peak global oil demand.”
Forty-seven parcels were offered up this year with no bids, the province’s offshore petroleum board announced last week.
“This is not the outcome we wanted from this call for bids, and of course, we are disappointed with the results,” a spokesperson from the province’s Department of Industry, Energy and Technology told Canada’s National Observer in an emailed statement. The statement said the department will be reaching out to companies to better understand what factored into their decisions not to bid, but said they “remain optimistic about the future of the Newfoundland and Labrador offshore oil and gas industry and the role of its secure, lower-carbon oil in meeting global demand.”
It also pointed to ongoing offshore activity, including $2.1 billion in exploration commitments and 17 current exploration licences. There are also three currently producing projects offshore — Hibernia, Hebron and White Rose — and a fourth project, Terra Nova, which “is expected to be back in production in the coming weeks.”
The provincial government is pushing for expansion of offshore oil and gas: specifically, it has a plan to double offshore oil and gas production by the end of the decade.
“The writing is on the wall,” said Carter. “We’re at the tail end of the oil economy here, so there’s an urgent need for the provincial government to work with labour and work with communities to create a plan for an equitable transition.
“We’re not ready for the trends that are clearly playing out now in front of us,” she added.
The bump in bids last year is also likely related to the “unprecedented profits” fossil fuel companies were raking in, giving corporations more room to manoeuvre, compared to when oil prices tanked at the height of the COVID-19 pandemic, said Carter.
— With files from Cloe Logan and John Woodside
By Natasha Bulowski, Local Journalism Initiative Reporter
Original Published on Nov 09, 2023 at 08:56