The largest oil field yet discovered in Canada at times seems more a thing of fantasy than reality; but that may soon be changing, and that means big changes ahead for Newfoundland.
Hibernia, the Latin name and a poetic term for Ireland, is also the name of an entirely unromantic complex of sandstone and shale which has two billion barrels of oil trapped under the Grand Banks fishing grounds. When Hibernia was discovered in September 1979, 300 km. east of St. John's, it was quickly declared a giant oil field, comparable to the rich fields of the North Sea. This giant, however, has proved unwilling to give up its treasure without a struggle.
From the outset, Newfoundlanders greeted Hibernia with strongly mixed feelings. Here was hope that Newfoundland might finally escape four centuries of relative poverty. But here also was an opportunity for disaster. Newfoundland's checkered experience with "megaprojects" in the past and the experience of communities bordering North Sea oil discoveries show that development of this enormous resource should be handled with great care.
Initially, the discovery prompted a renewed urgency to the continuing debate about how Newfoundland should prepare for the coming oil boom. Four years later, however, the yield from Hibernia has consisted mainly of tragedy, conflict and uncertainty.
After the sinking of the oil rig Ocean Ranger and the drowning of her 84 crewmen on Feb. 15, 1982 -- and the repeated failure of the Newfoundland and federal governments to agree on a regulatory regime for the offshore -- oil riches and social upheaval seem a long way off. Even if, as it now appears will happen this year, the consortium of oil companies involved in Hibernia declare their intentions to proceed with the project, the oil will not come ashore for at least another seven or eight years.
As rich as Hibernia's potential is, the obstacles to its development have been enormous. For one thing, the danger of icebergs combined with heavy storms makes Grand Banks oil operations unusually difficult and expensive. During exploration, drilling rigs avoid a disastrous collision with approaching icebergs either by moving out of their way or by having the bergs towed to a safe distance. That's just one of the factors which keep drilling costs in Newfoundland waters close to $250,000 a day for each rig.
Earlier this year, an exceptionally heavy and stormy ice season prompted the Newfoundland government to issue a stop-drilling order until conditions improved. This was the first such order under special winter safety regulations brought in after the Ocean Ranger sinking. Mobil Oil Canada Ltd., operator of all three rigs working on the Grand Banks throughout the winter, never formally complied with the order because the federal government, disagreeing with the province's decision, threatened the company with fines if it abandoned the wells. (Before a rig can be moved off a drill site, both governments require the operator to obtain a permit to ensure that the well is safely capped.)
However, nature prevailed over politics. Drifting bergs chased the rigs off location several times and kept them inactive for weeks.
In the end, the episode dramatized two major problems for Hibernia. First, the competing claims for jurisdiction affected the two governments' handling of serious safety matters. Second, the safety of year-round exploration remains questionable.
The Grand Banks ice conditions will affect the production stage as well. The enormous concrete production platform needed for Hibernia will have to be twice as big as any platform yet built anywhere in the world. To withstand the impact of icebergs, the platform will weigh in the order of two million tons when it is ballasted to sit on the seabed in about 80 metres of water.
Which of several alternative production methods will be employed is still undecided, but the Newfoundland government strongly favours a concrete gravity platform, for safety reasons and for the jobs it will create in the province. Construction of a single such platform, a four-year project, would employ some 2,000 people. On the other hand, a semi-submersible steel platform would have to be built by a major shipyard outside the province.
Mobil, the major partner and operator of Hibernia, also appears to favour a concrete platform designed to sit on the seabed. One result of the Ocean Ranger tragedy has been a new scepticism about semi-submersible (floating) steel platforms.
The Hibernia partners face a total investment of $3-to-$4 billion just to build the facilities to bring the oil ashore. To operate the field for its 15-20 year life could cost another $3 billion a year. With such costs, it is small wonder the companies are reluctant to proceed before Ottawa and Newfoundland agree to an oil price formula.
That agreement can't happen until the two governments decide how to share jurisdiction over offshore oil, or until the courts decide for them. The dispute is now before the Supreme Court of Canada and a ruling is expected later this year.
Because it will be so costly to develop, Hibernia can make sense only if the price for its oil is high enough to give the companies real profits and to give Newfoundland and Ottawa the kind of healthy revenues they expect -- revenues in the range of $30 billion over the life of a single field. Shortly after its discovery, Mobil was saying it would need about $34 a barrel to make the Hibernia field profitable. Current uncertainties about world oil prices are worrisome, therefore, but Newfoundland officials calculate that the project could go ahead with world prices as low as $20 a barrel. (The world price this summer is $29 a barrel.) Undoubtedly Hibernia will proceed -- as long as oil prices don't fall so low as to make the prospect of energy self-sufficiency uneconomic for Canada.
There has never been much doubt the oil will come ashore one day. The sheer size of the field is the one thing which virtually guarantees Hibernia will not remain a pipe dream -- no pun intended -- despite the enormous costs.
With reserves estimated at two billion barrels of oil (and two trillion cubic feet of natural gas), Hibernia could replace for more than a decade the nearly quarter-million barrels of oil that Canada imports every day. Hibernia alone is equal to 27% of Canada's conventional oil reserves, and Hibernia could be only the beginning.
Compared to the North Sea, for example, the waters off Newfoundland and Labrador have been only lightly explored. The North Sea has developed 12 giant oil fields in the 15 years since the Ekofisk discovery. (The oil industry calls a field "giant" if it contains more than half a billion barrels of oil.) The geology of the Grand Banks is harder and costlier to map because, unlike the North Sea, its undersea formations cannot be projected from what is visible along the shoreline.
More information about the actual extent of the East Coast reserves may have to wait. This year's drop in oil prices has seriously dampened some companies' enthusiasm for costly exploration under the Grand Banks.
Barring major delays, it takes about seven years from discovery to production to develop an offshore oil field; so no one expected in 1979 that Hibernia would turn Newfoundland overnight into the Alberta of the East. But it is ironic that, with oil wealth still shimmering on the horizon like a mirage, the province's economy has deteriorated in many ways since this exciting discovery.
Unemployment in Newfoundland now tops 20%, the highest rate of any province. In the fishery, mining and pulp and paper industries -- the basic resource industries on which this largely rural society depends -- plant closures and layoffs this year have shattered communities around the province, including some where year-round work has been the rule rather than the exception.
The worse things get in these traditional industries, the more pressure builds on offshore oil to come to the rescue. About 2,000 Newfoundlanders have jobs this year in the continuing exploration of the Grand Banks and Labrador Sea; but for each person working in the offshore, there are scores more waiting to be hired. Newfoundland's local preference policy in employment ensures that its residents get first crack at jobs on drilling rigs and supply vessels, but there is not enough work to go around. More than 500 people lined up to apply for 25 four-month jobs on one of four rigs exploring off the Labrador coast this summer. (Exploration of Labrador waters has produced promising finds of natural gas, but this has to be done between June and October because of ice problems the rest of the year.)
But, in the long run, how much can offshore oil do to ease Newfoundland's chronically high unemployment rate?
Among the various North Sea oil nations, only about 3% to 4% of the workforce is employed in oil related jobs. It is estimated that the development stage of Hibernia will directly employ some 7,000 people, most of them Newfoundlanders, if the provincial government has its way. (This would mean an expansion of 4% of the current workforce.) These jobs -- mainly in the construction of production platforms, onshore supply bases, receiving facilities, and service vessels -- will last only four, five or six years. Once in production, the long-term workforce to operate one oil field will be about 800 people.
Hibernia can't put all the province's 50,000 jobless to work, but it does appear to be Newfoundland's only chance to provide a large number of new jobs. To expand this opportunity, provincial strategy aims to capture as many as possible of the spinoff jobs in industries which service the offshore.
In addition, the province hopes to stretch Hibernia's benefits by making sure the oil is processed in Newfoundland -- specifically, through the re-opening of the bankrupt oil refinery at Come-by-Chance (now owned by Petro-Canada) and the establishment of a petrochemical industry. At this point, however, there are no firm commitments for either of these job-expanding projects.
Government planners dream of the day, some time in the 1990s, when Hibernia's payoff in royalties and taxes can begin to finance future stability for Newfoundland's traditional renewable resource industries -- fishing and pulp and paper -- and better public services, and maybe even reduce some of the highest taxes in the country.
But economists warn that, despite its colossal size, Hibernia will still not make Newfoundland a "have" province. With the highest per capita debt burden of any province and fully half of its budget coming from federal transfer payments, Newfoundland's economy still lags too far behind the other provinces.
That is why Premier Brian Peckford never misses an opportunity to explain why Newfoundland should be allowed to control this massive development, with all its opportunities and perils. "If it's not done right," he has often said, "there may be very little in it for us."
The premier also never misses an opportunity to evoke the memory of Churchill Falls. Many Newfoundlanders got construction jobs building the giant hydro-electric power project in the 1960s, but that's about all they got. Because of a 65-year contract with Quebec which does not expire until 2041, the province gets only a fraction of the power for its own use, while Quebec makes several hundred million dollars a year selling electricity generated in Labrador.
The memory of Churchill Falls makes the Newfoundland government especially determined to get the most for the province out of Hibernia -- the revenue, the jobs, the general economic growth, and the power to keep under control the less welcome social and environmental changes which can be expected to accompany a full-scale offshore oil industry. Even before the Hibernia discovery, there were strong feelings in Newfoundland that offshore oil would be a mixed blessing. The trick would be to keep the mix as favourable to Newfoundland as possible.
Newfoundland remains a province of small communities, more than a thousand of them, scattered along hundreds of miles of coastline. Some of these communities will undergo the most dramatic transformations as the oil industry begins to exploit the Hibernia fields. St. John's harbour, which has served the Grand Banks fishery for all of five centuries, is too small and already too busy to handle the huge onshore facilities which must be built to bring Hibernia into production.
So the Newfoundland government has designated certain areas around the province as potential development sites. These are places such as Spanish Room, a quiet old fishing community in ice-free Placentia Bay, which has been proposed as a construction site for drilling rigs and offshore production equipment. One company plans to turn Bay Roberts in Conception Bay, an hour's drive from St. John's, into an offshore supply base, with a 400-acre industrial park, a helicopter base and a motel for workers.
What can places like Spanish Room (pop. 140) and Bay Roberts (pop. 4,100) expect from offshore oil? Small, unindustrialized, stable communities like these seem particularly vulnerable to change. In the recent past, developments as simple as the coming of a road or the construction of a fish processing plant have made their marks on many Newfoundland communities. People are materially better off, but there are new social tensions. They may be spending less time at home, more time in taverns that weren't there before, or in cars they didn't need before. Their lives are different, better in some ways, worse perhaps in others.
The experience of communities servicing North Sea oil projects is equally mixed. The big difference with oil is that social change can happen more quickly and there can be more of it. In the Shetland Islands, for example, the coming of the oil industry caused a marked change in work patterns. Before the oil, the Shetlands enjoyed nearly full employment, but oil has meant that the area's traditional rural industries of fishing, farming and knitting lost workers to the offshore. Men and women have been drawn away by higher wages which the traditional industries could not hope to meet.
This kind of labour drain would not seem to be a problem in Newfoundland, with its high unemployment. And yet the fishing industry has some concerns about the loss of skilled captains and trawler crews to higher-paying oil jobs. It is also easy to imagine small-boat fishermen, many of whom earn barely enough to keep their families, lining up for jobs at the construction site of an offshore support facility. The question for them is: will they be able to return to fishing when the construction boom ends? The challenge for government is to see that there is other work available when the oil-related work winds down.
North Sea experience shows that advance planning for an oil boom is no easy task. With their massive size and huge costs, offshore projects have a tendency to snowball. In one Shetlands community, the companies building an offshore supply base originally estimated they would need 500 workers, and housing was planned accordingly. In the end 6,000 people were hired.
A community in the Scottish Highlands geared up to become the construction site for concrete production platforms. But the company foundered after securing only one major contract. For a like experience, Newfoundlanders need look no farther than Come-by-Chance where a failed oil refinery turned a small fishing community into a ghost town of fine new homes, barely lived in but unsalable now that the jobs are gone.
As Newfoundland already has learned from the Ocean Ranger tragedy, a community does not have to be involved with offshore oil for long to suffer its ill effects. In the Shetlands, a serious oil spill occurred at the Sullom Voe terminal a few weeks after it opened. Sheep, which normally roam the area's beaches, died in large numbers from eating contaminated seaweed and the fleeces of 1,000 others were ruined by oil.
A spill along Newfoundland's shores could damage not only fishing operations but major seabird breeding colonies as well. Thousands of gannets, murres and kittiwakes nest each summer on Cape St. Mary's, at the entrance to Placentia Bay. Tanker traffic to and from Come-by-Chance could threaten their sanctuary.
North America's largest known colonies of Atlantic puffins and Leach's petrels breed on a group of islands south of St. John's. These islands are protected by law, but the law cannot stop birds from fishing for their food in oil-polluted waters.
One of the biggest lessons Newfoundlanders have drawn from the North Sea experience with oil is that it is possible for small jurisdictions to control development for their own benefit. At Stavanger in Norway, the town council not only restricted where offshore supply bases could be built but also made sure that ownership of the improved wharves will return to the community in 15 or 20 years. The Shetlands Council, with its population base of only 18,000, secured similar control over onshore development. Compensation to fishermen for lost access to fishing grounds and for gear damaged by debris has been another concern of local governments caught in the North Sea oil boom.
Long before Hibernia was discovered, the presence of oil was suspected both in that region and in the Labrador Sea; hence Newfoundland not only has been hoping for oil, it has been busy for years framing its demands upon both the oil industry and the federal government, and it has been gaining ideas and inspiration from the successes of Scotland and Norway in securing concessions from oil companies. If Ottawa, rather than St. John's, becomes the dominant power in regulating Newfoundland's offshore resources, there may not be the same anxiety about fine-tuning the spinoffs to benefit Newfoundland.
Other Canadians, surely, can understand why Newfoundland takes the same sort of proprietary interest in the oil on its doorstep as has been taken by Texas, Alberta, Scotland and Norway in the oilfields they regard as theirs. The people who live where the action is normally have little confidence in the distant bureaucracies of Ottawa, Washington or London and their ability to understand -- let alone fight for -- things that matter most to the inhabitants.
