T.
JOHN'S, Newfoundland — From this unexpected corner of the North
Atlantic, American consumers could soon see a ray of relief from
shortages that have kept oil and natural gas prices stubbornly
high. But even though the new energy supplies will be welcome,
they are not expected to bring prices down soon.
Next spring, Terra Nova, a $200 million, 14-story oil
production vessel will move 220 miles east of here, lock into
place over a 400-million-barrel pool of oil, and start pumping
100,000 barrels a day, largely for the Northeastern United
States. In addition, Nova Scotia has recently started sending
natural gas south, and that flow could increase greatly in
coming years.
Atlantic Canada, from Nova Scotia to Labrador, could prove to
be the next-generation North Sea or Prudhoe Bay. And
Newfoundland, long Canada's poorest province, stands to reap the
biggest benefit. Of the 11 oil fields larger than 100 million
barrels discovered worldwide since 1979, 4 have been off the
coast of Newfoundland, on the Grand Banks.
Today, the cacophony from 1,300 workers hammering and welding
the Terra Nova production vessel near here are drawing attention
to two new trends: Americans' growing reliance on Canada for
energy, and the future of Atlantic Canada as a major supplier of
oil and natural gas to the Northeastern United States.
While most oil fields outside the Persian Gulf are mature and
declining in production, Atlantic Canada's oil industry is
taking its baby steps. Of the four major fields offshore here,
Hibernia started producing in 1997 and Terra Nova is to start
producing early next summer.
"We have barely touched the Grand Banks," said Gary Bruce,
vice president for offshore development with
Petro-Canada, Canada's second-largest integrated oil
company and the lead operator at Terra Nova.
Newfoundland is in the midst of a 15-year, $10 billion oil
investment plan. By 2004, this long-overlooked province is to be
pumping 400,000 barrels a day, the same amount as a small OPEC
producer like Ecuador. That quantity, to be sure, would meet
only a small portion of the average daily United States
consumption of nearly 20 million barrels. But unlike Ecuador,
Newfoundland is politically stable and no more than three days
by tanker from New York.
Already, Canada is the top supplier to the United States of
natural gas and the No. 2 supplier of oil, after Saudi Arabia.
During the first half of this year, a 44 percent jump in the
value of Canada's oil and gas exports to the United States
helped push Canada's June trade surplus with its neighbor to a
monthly record of $5.2 billion. Responding to higher prices,
Canada's oil production in June was up 7.5 percent from a year
earlier, to 2.25 million barrels a day, according to the
Canadian Association of Petroleum Producers.
While Western states have long imported oil and gas from
Alberta, Eastern states only started importing natural gas from
Nova Scotia's massive gas field in January and oil from
Newfoundland's Hibernia field three years ago. By 2005, 40
percent of Canada's conventional oil production is to come from
Newfoundland. Increasingly depleted after half a century of
production, wells in Alberta produce an average of 50 barrels a
day. Off Newfoundland, the average is 20,000 a day.
"With one drill bit in the Grand Banks," Mr. Bruce said, "you
can find a reserve that takes thousands and thousands of wells
in Alberta to match."
In a mirror-like reversal of Canada's traditional oil
picture, Exxon Mobil now estimates the potential
conventional offshore oil reserves of Eastern Canada to be 40
billion barrels, compared with 34 billion for Western Canada.
Lured by estimates like these, the world's major oil players are
pumping billions of dollars through this four-century-old harbor
city.
"Eastern Canada is becoming better and better known in the
industry," said Kenneth J. Miller, a Scot, who shuttles between
here and Calgary, Alberta, to run Mobil Oil Canada's eastern
operations. Canada's largest oil producer, Exxon Mobil has a
leading, 33 percent, share in Hibernia; a 22 percent interest in
Terra Nova, and 60 percent of Nova Scotia's new gas development,
the Sable Offshore Energy Project.
In addition to Exxon Mobil and Petro-Canada leading
developments here, there is Husky Oil, which leads in
White Rose, a field that is to start production toward the end
of 2003. Chevron Canada Resources leads in Hebron-Ben
Nevis, tentatively scheduled for production around 2006. In late
July, Canadian officials increased their official estimates of
Hibernia, White Rose and Hebron- Ben Nevis by a third, to 2.1
billion barrels.
"When you see an iceberg, you only see 10 percent," said
Brian Tobin, premier of Newfoundland and Labrador. "Well, our
oil and gas industry is an iceberg waiting to reveal
itself."
While some oil goes to Eastern Canada, the big market is the
Eastern seaboard of the United States.
"All the oil is going down the North Atlantic, to New York,
to Philadelphia," said David N. Willis, president of the
consortium that operates Hibernia, which is producing 165,000
barrels a day.
Mark Turner, a ship captain and maritime lawyer here, said,
"New York is the energy eater."
In addition to oil, Atlantic Canada offers natural gas,
increasingly the energy of choice for new American homes and
power plants. While much of New York City's gas comes from
Alberta, the reserves of Newfoundland and Labrador are 62
trillion cubic feet, estimated Mr. Turner, who recently
completed his term as chairman of the Newfoundland Ocean
Industries Association, the energy company group here. That
would provide enough energy for more than 700 million homes for
a year.
In Nova Scotia, a new 653-mile pipeline is pumping natural
gas from the 3.5-trillion-cubic-foot Sable reserve through New
Brunswick, Maine and southern New Hampshire to link up with
existing pipelines north of Boston. Near the Sable development,
three other companies are drilling 15 test wells this year. Nova
Scotia has granted 43 exploration licenses and has set an Oct.
30 deadline for bids on 2,875 square miles of ocean around
Sable. As a measure of the gas industry's infancy, there are
about 200 wells, largely for exploration, off Nova Scotia,
compared with more than 6,000 in the Gulf of Mexico.
"The U.S. is consuming gas like crazy," Mr. Bruce of
Petro-Canada said. "If current prices remain on a sustainable
basis, it will be economical to run a gas pipeline to the
U.S."
With natural gas prices running at almost double last year's
levels, oil producers in Newfoundland are studying rival
proposals to tap their mammoth gas reserves with a pipeline or
with ships loaded with compressed or liquefied natural gas.
Paul D. Dicks, Newfoundland's energy minister, estimated that
within 10 years a gas pipeline would be built from the Grand
Banks to Newfoundland to Boston, a $3 billion project. "We are
very enthused about the prospect of natural gas," he said,
"because the Northeast United States is such a huge market."
The investments in Atlantic Canada are part of a response by
Canada's energy industry to the stimulus of rising prices. In
Western Canada, the number of wells drilled this year is
expected to jump 50 percent, to 15,529. Over all, a recent
federal government survey showed that oil companies planned to
invest $13 billion in new plant and equipment this year.
Fueling investments are record second-quarter profits.
Petro-Canada's profits jumped fourfold, year-to- year, to $174
million. Alberta Energy increased profits sixfold, to
$78.5 million.
The people of this island jutting into the North Atlantic,
nicknamed the Rock, see the energy boom as welcome news.
Newfoundland has Canada's highest unemployment rate, about 17
percent. In recent years, it has been the only province to lose
population, shrinking by about 1 percent a year because of a low
birth rate and heavy emigration.
Accustomed to bad news, and to making ends meet with federal
revenue-sharing payments averaging about $3,400 a resident,
Newfoundlanders are suddenly reading headlines in Toronto
newspapers like "Newfoundland, Alberta expected to lead growth"
and "The Rock's on a roll: Newfoundland, the newest oil
province, has the hottest momentum."
In a startling turnaround, this province of 540,000 people
registered the highest economic growth rates of Canada's 10
provinces in 1998 and 1999. This year, it is expected to top the
list again, matching the last two years' growth rates by
expanding 5 percent.
Offshore oil production is an extremely capital-intensive
business, with the cost of a single well often being 100 times
that of a land-based well. To lift employment, Newfoundlanders
have set an ambitious goal of joining Scotland, Norway and South
Korea as major fabricators of offshore drilling structures. Mr.
Turner, a veteran of the fog, icebergs and icy waters of the
North Atlantic, said in a recent speech, "We want this region to
lead the world in harsh- environment offshore technology."
Although initial royalties from Hibernia have been considered
low by the provincial government, Mr. Tobin, the premier, said
he believed that oil and gas would be the ticket for
Newfoundland to achieve fiscal self-sufficiency.
"When I look to oil and gas," said Mr. Tobin, a former
federal fisheries minister, "I see Newfoundland and Labrador in
a decade shaking off a history of being the poor cousin, the
have-not province of Canada."
