Wildly swinging oil prices will continue, and provinces like N.L. can gain: professor
As the COVID-19 pandemic sent oil prices plummeting to historic lows, emails obtained by The Canadian Press show Newfoundland and Labrador was quietly bracing for two of its offshore oilfields to be abandoned by their owners.
And as the province watches those same companies this year report staggering profits, experts say fossil fuel-producing provinces like Newfoundland and Labrador should get used to the whiplash -- and use it to better protect themselves.
"We're going to see more situations where companies have a record profit one year and are completely busted the next year," said Warren Mabee, director of the Institute for Energy and Environmental Policy at Queen's University in Kingston, On. "Governments need to learn to work with that, and to turn it to their advantage."
Before the pandemic hit in early 2020, shutting down any of the four oilfields pumping off the province's east coast was a distant consideration. But by May of 2020, emails obtained through access to information legislation show government officials were already preparing for Suncor and Husky Energy to walk away from projects that would keep their respective oilfields -- Terra Nova and White Rose -- operating for years to come. (Husky has since merged with Cenovus.)
"Based on the current economics and uncertainty, it is likely the asset life extension will not proceed," said government presentation notes on Suncor's Terra Nova oilfield, dated June 30, 2020. "Much uncertainty as to when things will return to normal or what 'the new normal' will look like."
The notes said the province would take a $6.5-billion hit to its gross domestic product over the next decade if Suncor abandoned Terra Nova.
By the fall of 2020, the documents show, Suncor was rethinking Terra Nova, and Cenovus was threatening to end its operations in the province.
Energy Minister Andrew Parsons told media in October of 2020 that estimating the decommissioning costs taxpayers would have to swallow was "premature, given the current status of our offshore projects." But presentation notes from a month earlier said the province would owe Suncor a royalty refund of about $157 million, due in 2025, if Terra Nova shut down.
By June of 2021, the province's offshore oil regulator had prepared a communications plan in case Suncor decided to decommission the field, the emails show.
Newfoundland and Labrador ultimately gave the two companies about $246.5 million in direct subsidies, which came from a $320-million transfer from Ottawa aimed at bolstering the sector.
Cenovus got $41.5 million in December 2020 to keep work going on a project that would extend the life of White Rose, while in June 2021 Suncor was given $205 million in direct cash and the province took a royalty cut worth $300 million to keep work going on Terra Nova.
Both Suncor and Cenovus posted significant 2022 profits last week, at $9.1 billion and $11.4 billion, respectively.
Mabee said that in retrospect, it would have been good for the province to impose conditions on those subsidies requiring the companies to pay them back if oil prices rebounded.
"I think that often, a business that's on the receiving end of the subsidies, when they're threatening to walk away, it feels like they're holding the cards. But in reality, they want the subsidy," Mabee said. "And they normally don't want to walk away from long-term investments."
As energy demand changes and countries move away from oil and gas, there is more volatility ahead for fossil fuel prices, he said, adding that governments should brace for more extreme highs and lows. One way they can better insulate themselves is to build in mechanisms to recoup their subsidies or incentives when markets rebound, he said.
Sara Hastings-Simon, an assistant professor at the University of Calgary studying energy transitions, agrees.
"Simply giving subsidies and not structuring them in a way that's tied to the price of oil, leaves the public very exposed," she said in an interview. "We insure the downside risk, and then the private sector gets to keep the upside benefit."
Mabee noted that despite record oil profits driven by the war in Ukraine, some fossil fuel companies haven't announced larger investments in low-carbon energy. Governments should make their financial help during downtowns contingent on investments in a net-zero future, he said.
"The oil and gas industry has to change to get us there. And this is a lever that we could be using to help affect that change," he said. "This is the moment. It's that subsidy moment when you actually have power."
This report by The Canadian Press was first published Feb. 21, 2023.
CTVNews.ca Top Stories
'I just can't believe that it took so long': Body found in wreckage 3 months after deadly fire
A man accused of arson in a January Old Strathcona apartment fire is expected to be charged with manslaughter after a body was discovered in the burned building late last month.
No proof man lied to brother about number of kittens born in litter, B.C. tribunal rules
A man was denied a $5,000 payout from his brother after a B.C. tribunal dismissed his claim disputing how many kittens were born in a litter.
Quebec police hand out hundreds of tickets to Hells Angels and other bikers before 'first run' meeting
Quebec provincial police handed out hundreds of fines to Hells Angels members and other supporting motorcycle clubs who met for their 'first run' in a small town near Sherbrooke, Que.
Grandparents killed in wrong-way crash on Hwy. 401 identified
A 60-year-old man and a 55-year-old woman killed in a wrong-way crash on Highway 401 earlier this week have been identified by the Consulate General of India in Toronto.
Auston Matthews skates ahead of Game 7, status unclear with season on the line
Centre Auston Matthews of the Toronto Maple Leafs hasn't been ruled out of tonight's Game 7 against the Boston Bruins.
Snakes almost on a plane: U.S. TSA discovers a bag with small snakes in passenger's pants
According to an X post by the Transportation Security Administration, officers at the Miami International Airport found the small bag of snakes hidden in a passenger's trousers on April 26 at a checkpoint.
A Chinese driver is praised for helping reduce casualties in a highway collapse that killed 48
A Chinese truck driver was praised in local media Saturday for parking his vehicle across a highway and preventing more cars from tumbling down a slope after a section of the road in the country's mountainous south collapsed and killed at least 48 people.
Russia puts Ukrainian President Zelenskyy on its wanted list
Russia has put Ukrainian President Volodymyr Zelenskyy on its wanted list, Russian state media reported Saturday, citing the interior ministry’s database.
Britney Spears 'home and safe' after paramedics responded to an incident at the Chateau Marmont, source tells CNN
A source close to singer Britney Spears tells CNN that the pop star is 'home and safe' after she had a 'major fight' with her boyfriend on Wednesday night at the Chateau Marmont in West Hollywood.