Newfoundland and Labrador has a lofty goal of doubling offshore oil production by the end of the decade, but exploration efforts that revealed two unsuccessful wells further call that target into question.
This week, ExxonMobil Canada announced there is “no evidence of hydrocarbons” in its Persephone exploration well, which the company hoped would unlock billions of barrels of oil off the coast of N.L. The news follows a similar announcement by Equinor and partner BP earlier in the month, which noted that its Sitka well near the site of Bay du Nord was also a failure.
Both projects were undertaken hundreds of kilometres off the coast of the province in very deep waters. In Persephone’s case, the exploration project was drilling into depths about 30 times deeper than existing offshore oil in the province with an operating price tag of at least $1 million a day, reported CBC.
The high costs of discovering unsuccessful wells combined with the decline in global oil demand paints a bleak picture for the future of oil in N.L., and stresses the need for the province to shift its goals around energy, said Angela Carter, a Canada Research Chair and associate professor of political science at Memorial University in N.L.
According to the International Energy Agency (IEA), worldwide oil and gas demand is set to peak by 2030, and producers such as Exxon, Equnior and BP will lose revenue as a result, said Carter, adding “the most costly oil reserves are going to be squeezed out first.” The IEA also stresses that no new fossil fuel projects are needed for the transition to net-zero greenhouse gas emissions by 2050.
A 2020 International Institute for Sustainable Development (IISD) analysis also found that after 2030, global demand for oil will start to sharply decline, and stresses that Canada needs a plan to avoid these big upfront investments becoming stranded assets.
Drilling for offshore oil in N.L. hundreds of kilometres off the coast in harsh conditions falls under the costly oil umbrella, she notes. And while N.L. Premier Andrew Furey says the province is going to be “all in on oil and gas for decades and decades to come,” the economic case for those fossil fuels will continue to weaken, notes Carter.
“This is high-cost oil, and it isn't competitive…it's already not competitive. But as we get further down that track of global oil demand declining, these projects are ever more precarious,” she said.
“We are at the point now where we have all the international, independent evidence about what's coming. Now, we've got to manage [the] phase-down of oil production and manage it so we don't repeat those old problems. So, this is about climate, yes, but at this point, this is very much about economic sustainability.”
At the same time, the cost of energy from renewable sources, such as wind and solar, continue to decline. The United Nations calls renewable energy “the cheapest form of power.” A 2022 report from the International Renewable Energy Agency found that two thirds of renewables installed in 2021 had lower costs than the world’s cheapest coal-fired power plants, specifically in the G20.
Bay du Nord
Furey’s comments about the future of N.L. oil took place at the annual Energy N.L. conference in June, where ExxonMobil Canada announced a $1.5-billion investment this year in the province’s offshore oil industry for upgrades to existing oil projects, such as Hibernia (which has been operating for 27 years), and exploration at the Persephone well. ExxonMobil did not respond to a request for comment for this story.
In an emailed statement, Equinor said it is prioritizing improving the economics of Bay du Nord after announcing the project would be on hold for three years in May 2023, partly due to cost increases. Several discoveries have been made near the project that show "significant near field prospectivity," the statement added. Spokesperson Erika Kelland said Equinor is focused on presenting a business case "that supports an investment decision."
While Stika is "not included in the Bay du Nord business case," Kelland said, "each well drilled in proximity to Bay du Nord enhances our understanding of the resource potential and helps us optimize the development."
Equinor was trying to bolster its business case for Bay du Nord when it opted to explore for additional deposits near the area’s original well location, said Gretchen Fitzgerald, national program director of the Sierra Club Canada Foundation. Now that the company knows the Sitka well is commercially unviable, it is even more unlikely that Bay du Nord will move forward, Fitzgerald said. She heralded the news as good for climate and marine life, but questioned the investment of public dollars into offshore oil exploration.
Each year, companies are invited to offer money to explore areas in the Atlantic Ocean for oil and gas deposits by Canada-Newfoundland and Labrador Offshore Petroleum Board (C-NLOPB), the joint federal-provincial regulator. The body offers up parcels which could have oil deposits, and companies bid to explore them.
“Newfoundland and Labrador subsidizes this by trying to scout out these sources. So, it's the reason [companies] are interested to some degree, because N.L. went out there and tried to show there is a case for new drilling,” said Fitzgerald.
“So why are we wasting public dollars to try and subsidize this?”
This year’s call for bids from the regulator is still open, and consists of 41 parcels at a total of 10,287,196 hectares. However, last year’s call for bids received no responses, which contrasted sharply with 2022 when over $238-million in exploration licences were awarded by the regulator.
There are other examples of offshore oil plans in the province not panning out since 2022, such as BP announcing it was abandoning a high-profile exploratory oil well in 2023, which was poised to be a multibillion-barrel deposit.
Comments
Praise the Lord..and the Great Mother.....not that this small win is enough to stop the climate catastrophe's coming at us from all over the planet. When the rain forests of Brazil are burning, you know we've likely already cooked the planet.
Shame on the lot of us.
"A 2020 International Institute for Sustainable Development (IISD) analysis also found that after 2030, global demand for oil will start to sharply decline, and stresses that Canada needs a plan to avoid these big upfront investments becoming stranded assets."
I had a very brief look at the referenced IISD report and didn't locate the actual text that was paraphrased in the above snippet.
In any event, governments shouldn't be overly concerned about stranded, corporate assets unless said governments have been stupid enough to sink public money into such risky projects, or give corporations the right to despoil ecosystems without having first obtained a secure mitigation bond.
These considerations are why I'm not overly concerned about Bay du Nord having been approved.
That NL governments continue to offer fealty to oil and gas is an issue for the NL electorate to deal with.
On the other hand, governments should certainly be concerning themselves with the future composition of the economy, and our (trade) relationship with the USA, when fossils are no longer a thing.
One wonders if they are just saying that, to end the issue. I think they can see that the global oil market is more-or-less at peak now, and has nowhere to go but down in a few years.
An offshore field takes several years to start producing; they know that prices could be in free-fall by 2030, if electrification starts to REALLY catch on in, say, 2027.