At a Cross-roads: At a Cross-roads: Recognizing the Objectives Recognizing the Objectives

and Constraints of and Constraints of Newfoundland and Newfoundland and

Labrador’s Offshore Oil and Labrador’s Offshore Oil and Gas IndustryGas IndustryA Presentation to the conference onA Presentation to the conference on

Economic Development Benefits of the Oil Economic Development Benefits of the Oil and Gas Industry in Newfoundland and and Gas Industry in Newfoundland and

LabradorLabrador

Wade Locke, Memorial UniversityWade Locke, Memorial University

St. John’s, NL St. John’s, NL May 16, 2007May 16, 2007

ObjectiveObjective To utilize the province’s oil and gas To utilize the province’s oil and gas

resources to enhance the economic resources to enhance the economic development of Newfoundland and development of Newfoundland and LabradorLabrador

But what do we mean by economic development?But what do we mean by economic development?

A useful definition, found in Wikipedia, isA useful definition, found in Wikipedia, is

Economic development is the Economic development is the development of economic wealth of development of economic wealth of countries or regions for the well-being countries or regions for the well-being of their of their (current and future)(current and future) inhabitants.inhabitants.

MeasurementMeasurement Jobs, income, GDP, productivity Jobs, income, GDP, productivity

(Mark’s slides clearly illustrate this potential)(Mark’s slides clearly illustrate this potential) Human development & improved quality of lifeHuman development & improved quality of life

Better education, improved health care, improved Better education, improved health care, improved quality of life, environmental sustainability, better quality of life, environmental sustainability, better government services government services

Taxes and royalties (government take – fair Taxes and royalties (government take – fair share)share) Hugh upside potential if projects get developed and Hugh upside potential if projects get developed and

prices do not collapseprices do not collapse Can be used to meet province’s priorities at our Can be used to meet province’s priorities at our

discretiondiscretion

Revenue Profile (Fiscal Year Revenue Profile (Fiscal Year Estimates)Estimates)

$0

$200

$400

$600

$800

$1,000

$1,200

$1,400

$1,600

$1,800

1999-00 2004-05 2009-10 2014-15 2019-20 2024-25 2029-30

Mill

ions

of D

olla

rs

Total Revenue = $18.6 B

Does not include Hebron, extension to White Rose, Orphan Basin or natural gas developments

$1.37 B2007-08

Grown from 2% of own-source revenue to in excess of 30% within 5 years

ConstraintsConstraints

There are lots of investment There are lots of investment opportunities around the worldopportunities around the world

Newfoundland and Labrador is only one Newfoundland and Labrador is only one of thoseof those

World’s Daily Oil Production -2005

Africa12.1%

Australia0.7%

Middle East31.0%

Other Canada3.4%

Mexico4.6%

NL0.4%

S. & Cent. Am.8.6%

USA8.4%

Rest of Asia Pacific

9.2%

UK2.2%

Norway3.7%

Rest of Europe & Eurasia

4.0%

Russian Federation

11.8%

Source: BP 2006 Stat ReviewNL production not large, but it is significant.

ConstraintsConstraints

However, the more important NL offshore However, the more important NL offshore is in a company’s portfolio, the more is in a company’s portfolio, the more receptive it should be to our receptive it should be to our requests/demandsrequests/demands

There may be a tradeoff of jobs for There may be a tradeoff of jobs for royalties. However, from long-term royalties. However, from long-term perspective, it still may be worthwhile perspective, it still may be worthwhile undertakingundertaking

eg., to grow an industryeg., to grow an industry

ConstraintsConstraints Shortage of skilled labour to develop these Shortage of skilled labour to develop these

prospects, shortage of rigs – it is not simply moneyprospects, shortage of rigs – it is not simply money Technical capacity – is it available in sufficient Technical capacity – is it available in sufficient

supply to develop all the project that need to be supply to develop all the project that need to be developed locally, especially given the pull of developed locally, especially given the pull of Alberta? Alberta? (Hibernia South, White Rose extension, Hebron, Lower (Hibernia South, White Rose extension, Hebron, Lower

Churchill, Voisey’s Bay, Orphan Basin, natural gas Churchill, Voisey’s Bay, Orphan Basin, natural gas developments, other mining projects)developments, other mining projects)

Expectations – while individuals with appropriate Expectations – while individuals with appropriate skills and experience can live in all parts of the skills and experience can live in all parts of the province, it is likely that fabrication & construction province, it is likely that fabrication & construction will be concentrated in specific areas of the will be concentrated in specific areas of the provinceprovince Marystown area , Bull Arm, Metropolitan St. John’s areaMarystown area , Bull Arm, Metropolitan St. John’s area

Economic Development Economic Development RealitiesRealities

Need new projects to be developedNeed new projects to be developed Need to increase exploration activityNeed to increase exploration activity Need continuity of developmentNeed continuity of development Need to get a fair shareNeed to get a fair share Need to understand the opportunity cost of Need to understand the opportunity cost of

waitingwaiting Need to be realisticNeed to be realistic Stephenville area will benefit from west coast Stephenville area will benefit from west coast

developments, but not much from east coast developments, but not much from east coast developmentsdevelopments

Labrador gas depends on technology utilizedLabrador gas depends on technology utilized Gas to wire, offshore CNG, offshore LNG, onshore CNGGas to wire, offshore CNG, offshore LNG, onshore CNG

We are at a cross-roadsWe are at a cross-roads Hebron is waiting to be developedHebron is waiting to be developed White Rose extension is waiting to be developedWhite Rose extension is waiting to be developed Hibernia South is waiting to be developedHibernia South is waiting to be developed Natural gas is waiting to be developedNatural gas is waiting to be developed Exploration activity needs to be increasedExploration activity needs to be increased Orphan is on the horizon and new projects have Orphan is on the horizon and new projects have

to be foundto be found We have to be proactive stance in making We have to be proactive stance in making

offshore Newfoundland and Labrador an offshore Newfoundland and Labrador an attractive place to do business that benefits attractive place to do business that benefits both the residents of the province and the both the residents of the province and the investors.investors.

Our future economic development depends Our future economic development depends upon it.upon it.