Guest Post by Ron Penney
I’ve been following with increasing dismay what has been happening over the past number of years as the Federal Government has, through the guise of environmental protection, eroded the authority of the Offshore Petroleum Board created under the Atlantic Accord to jointly manage the oil and gas industry in the province.
I was a member of the negotiating team which led to the Atlantic Accord, chaired by the late Cyril Abery, then Deputy Minister for Intergovernmental Affairs, reporting to Bill Marshall, the Minister responsible for the offshore negotiations, who in turn reported to the Planning and Priorities Committee of Cabinet, chaired by Premier Brian Peckford.
These were a very difficult set of negotiations, particularly with the Liberal government of Prime Minister Pierre Elliot Trudeau, and initially led by the Minister of Natural Resources, Mark Lalonde, who was succeeded by Jean Chretien. Those negotiations were unsuccessful because they refused to meet our two demands: that we would should be given the same right to collect royalties as if the resource was on land, and that it be managed by an independent board composed of equal representation from both governments.
The Liberal government would not agree with either of those demands. Their position was that our revenues would be capped and that any joint management system would be subject to the final decisions being made by the federal government. I can recall vividly the phrase used by the chief federal negotiator, Paul Tellier, when he outlined how the joint management system would work and said “Ottawa decides” on all important decisions.
Fortunately the federal government changed in 1984. Prior to that Bill Marshall negotiated the basis for an agreement with Pat Carney, the Progressive Conservatives energy critic at the time, who then became the Minister of Natural Resources in the Mulroney administration. This quickly was translated into the Atlantic Accord after a very smooth set of negotiations with the new government. It was signed on February 11, 1985, 37 years ago.
I don’t think that anyone would argue that the Atlantic Accord has not stood the test of time. It has generated fabulous wealth for the province. The last figure I’ve seen dates from 2019 when Premier Ball said, when announcing the transfer of the Hibernia share to the province, that we had received over $23 billion in royalties. Since then that figure has increased to over $25 billion. Unfortunately we have squandered most of that. If we had kept our rate of increases in expenditures to the Maritime average we would have $10 billion in a rainy day fund. But we didn’t. The rainy day has come and we don’t have anything to fall back on. Plus we have the legacy of Muskrat Falls to contend with.
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| Hibernia Platform, Jeanne d'Arc Basin, offshore NL |
In addition the economic impact has been immense starting with Hibernia and then to Terra Nova, White Rose, Hebron and hopefully the Hibernia South Extension and Bay de Nord.
A 2019 study by Stantec for Petroleum Research Newfoundland and Labrador for the period 2010-2017 found that oil and gas was responsible for almost 30% of our GDP and 24,000 jobs. Tens of thousands Newfoundlanders and Labradorians have developed skills which have taken them all over the world. Local companies have been created and expanded serving the oil and gas industry both here and the rest of the world. All due in large part to the Atlantic Accord, in particular the local benefit requirements of the Accord.
In this fiscal year royalties are projected to be a billion dollars, or 20% of our own source revenues. How are we going to replace that?
There has been recent reporting of a split in the federal cabinet on whether the Bay du Nord project should go ahead at all for climate change reasons. I don’t understand how they can unilaterally make that decision given the provisions of the Atlantic Accord.
One of the key components of the Atlantic Accord is the joint management system. A joint board has been created with equal representation from both orders of government with a jointly appointed Chair.
The Board makes all the decisions about the offshore without interference from either Government with the exception of what are called “fundamental decisions”. One of those fundamental decisions is the approval of the development plan for a project.
In the case of fundamental decisions, they are subject to one government’s approval. Which government’s approval is required is dependent on whether Canada has reached “self-sufficiency and security of supply.” When the Accord was signed we hadn’t reached that goal but eventually we did and the final decision shifted to the Government of Newfoundland and Labrador, which I’m told is still the case.
It should be noted that the present federal Minister for Environment and Climate change is Steven Guilbeault, who has been a long time environmental activist, including a stint as the Quebec head of Greenpeace. Newfoundlanders and Labradorians will remember their fight against sealing.
Reports of comments by the new Minister of Fisheries and Oceans, Joyce Murray, that we will have to give up fishing in the service of climate change are also very worrisome. There has been a lot of concern about climate change having an adverse impact on the fishery but I had never heard about the fishery causing climate change. I looked it up and the only reference I could find is on the Greenpeace website! The fishing industry is worth $1.4 billion to Newfoundland and Labrador and employs almost 16,000 people.
I don’t see much future for us if we have to give up both our oil and gas and our fishery.
The other provision of the Atlantic Accord that seems to have been eroded over time is the requirement for a public review of proposed developments, which, among other things must examine the “environmental impact statement and socio-economic impact statement” for the project. The Board is required to appoint a commissioner or panel to conduct a review of major projects. This happened for Hibernia and the other large projects but seems to have come to an end. The Board seems to have gone down a different path and could have only done so with the approval of both governments. Why our government would agree with this is difficult to understand.
One of the purposes of the public review was to examine, among other things, matters “within the jurisdiction of the Parliament of Canada or of the legislature.” This would include the environmental assessment powers of the Government of Canada.
The idea was that environmental assessments would be part of this independent review but that seems to have been abandoned and the federal government has been allowed to exercise exclusive jurisdiction over the environmental assessment process. This seems to date from an amendment to the Atlantic Accord legislation in 2015 stating that the Board is a “responsible authority” under the federal Environmental Assessment Act, which meant that their authority became a delegated power, which could be removed, and obviously has been.
Our Regional Minister, Seamus O’Regan, has objected to the reporting on the alleged cabinet split but there are no denials from the responsible Minister and given his history it shouldn’t surprise us if the reports are accurate. If Minister O’Regan had retained his Natural Resources portfolio there would be less to worry about but he’s now Minister of Labour.
I recognize that the fossil fuel industry is coming to an end for climate change reasons but it won’t happen overnight. There will be strong demand for oil and gas for many decades. There are some, including the new Minister no doubt, who want to signal our virtue to the world and let other less virtuous countries in the Middle East and Russia meet that demand. As the saying goes, we will be “cutting off our nose to spite our face.”
Our own NDP takes that position as well. I’m not sure where they think we can make up a 30% loss in GDP and the associated loss of employment. It’s all very well to talk about the transition to a green economy but I doubt many of the jobs associated with that transition will happen here. There aren’t going to be many heat pumps or batteries manufactured in Newfoundland and Labrador.
It should also be remembered that we will be one of the greenest places in the world because of Muskrat Falls. Just about all the energy used here will be green, albeit at great cost to this and future generations. Once we all switch to electric cars to take advantage of our “cheap” electricity we will be the greenest place on the planet. I think we have done our bit to mitigate climate change and shouldn’t be asked or made to do more.
It’s also very odd that a government which has bought a pipeline to ship the dirtiest oil on the planet to the world would contemplate the premature end of the oil and gas industry here. It has just been announced that the costs of the Trans Mountain Pipeline have increased by 70% to $21.4 billion! Sound familiar?
Without oil and gas we’re done for sure. We are just hanging on by our fingernails as it is, because of our failure to properly manage our fiscal affairs despite having the highest per capita revenue in Canada.
Fortunately the federal Liberals are in a minority so it is unlikely they can afford to risk the loss of the 6 seats they hold here.
In the meantime they need to be reminded of the provisions of the Atlantic Accord and that we have the final say on this project, not the Government of Canada.
Bay du Nord is a big project whose proponent is Equinor, formally Statoil, owned by the Government of Norway. They know what they are doing and that there will be a market for the oil they produce there. It’s estimated by the government of Newfoundland and Labrador that royalties and taxes for this project will be $3.5 billion and there will be $8.5 billion in expenditures in the province. By the way the Norway Sovereign Wealth Fund is worth US $1.3 trillion.
There is an outstanding issue on royalties however. Under the United Nations Law of the Sea Convention, Bay du Nord would be the first project in the world subject to an international royalty peaking at 7% in the 12th year of production. That is because it is beyond 200 nautical miles on our continent shelf. It’s unclear who pays it, government or the company, and in the case of Canada, whether it will be the government of Canada or Newfoundland and Labrador. That will have to be made certain before the project proceeds. If it is the position of the Government of Canada that either us or the project proponent is responsible, that will certainly effect our royalties and perhaps the viability of the project.
All this uncertainty about the environmental assessment process can only have the effect of having the proponent take a sober second look at the project. I had originally thought that the motivation for leak about a split in the Liberal cabinet was meant to warn us of the uphill battle that we face to get this project started, but it might have been to cause Equinor to have concerns and stop the project.
Our Government needs to assert
its rights under the Atlantic Accord, in particular our right to make this
decision. There are tens of billions of dollars at stake which, assuming we act
wisely, could be the source of money to allow us to make the transition to a
future without oil and gas. Of course, acting wisely hasn’t been our forte, so
I’m cynical that will change anytime soon. But I live in hope.