A veteran of the offshore oil industry says the delay of a project sends a bad message about the future of the industry
At exactly 12:26 p.m. on Wednesday, the mood of Energy N.L.’s annual industry conference and exhibition changed. The conference had started the day before with the theme “unrivaled opportunity.”
When the Norwegian oil giant Equinor said in a statement that it was delaying the huge Bay du Nord project for up to three years because of changes in the market, this bright optimism turned into a gray reality.
Charlene Johnson, the president of Energy N.L., said she had a short heads-up that the news was coming. Andrew Furey, the Premier of Newfoundland and Labrador, said he was surprised.
And with that, the viability of a $16 billion project was called into question.
Johnson said that it was sad. Furey made it clear that it wasn’t canceled.
But Rob Strong, who has been in the business since 1979, said it’s a lot worse than that.
“If there’s no Bay du Nord, what is there?” he asked.
Bay du Nord was supposed to be the first deep-water project in Canada, and there were high hopes that BP’s project off the northeast coast of Newfoundland would be the next one. Strong said that the decision by Equinor doesn’t look good for BP’s chances.
“I mean, you might get some drilling for exploration in the future. But if Bay du Nord doesn’t happen, will BP go ahead with it? If they find something, that is. So, this is important.”
David Brazil, the leader of the opposition in Newfoundland and Labrador, also asked what a three-year delay means for the future of the industry.
“That’s three years, during which workers and their families will lose thousands of jobs and billions of dollars in economic activity,” he said, assuming that the project hasn’t been scrapped altogether.
Why now
On the surface, Equinor’s decision may appear to have come out of nowhere. After all, it was only a day earlier that the province’s energy minister, Andrew Parsons, spoke with reporters about the possibility of the province buying an equity stake in the project.
The head of Newfoundland and Labrador’s Crown Corporation for Oil supported the project on Tuesday, saying that the province was at the end of the first season of a three-part series. The Hebron and Hibernia projects were part of the first season. In the second season, Bay du Nord is in charge of deep-water oil projects.
So why did the decision show up like an unwelcome guest at the most hopeful energy conference in years?
Darin King, the executive director of Trades N.L., said that it might have been the easiest way to face a hard choice.
“We all knew that Equinor was at a second decision gate and that there were some important deadlines coming up,” he said. “I can only guess that they thought Energy N.L. was as good a time as any to do it, since everyone in the industry was here for the conference.”
The head of Canadian operations for Equinor, Tore Lseth, was already scheduled to speak at the conference on Thursday at 10:50 a.m. before the news came out.
Johnson said that there are still talks going on.
Also, Equinor hired a Canadian company less than two months ago to do the front-end engineering design (FEED) work on the project. Strong said that it’s likely that the cost estimates are coming back now because it’s hard to get materials from troubled supply chains all over the world.
Strong said, “I think the prices are going to be pretty high.” “They’ve given enough information about the project for contractors to bid on it, so I think that’s part of the reason.” When they get the final costs, they ask, “Can we afford this?”
Negotiating tactic
The provincial government and Equinor had been working on a benefits agreement. They talked about how much of the building work would have to be done in Newfoundland and Labrador.
Strong said that the announcement could be a way to put pressure on the government on important issues, like building big parts of the project in other countries where labor is cheaper.
Parsons, on the other hand, gave no sign that the talks were getting worse. On Wednesday, Furey said it again.
“This has nothing to do with the talks we were having at the time,” he said. “This is a decision about the global market for them.”
King thought it was a good question, but he had some doubts.
“We talked to Premier Furey and Minister Parsons often, and they both generally agreed that this FPSO shouldn’t be built entirely outside of the province. So, they both took a hard stance, which may have something to do with it, but I think it has a lot more to do with how much the project would cost.
Newfoundland and Labrador has given money to oil projects in the past, but Strong says it’s unlikely to happen again.
“I don’t think that’s OK in Ottawa… He said, “The rest of Canada doesn’t want the government to give any more money to this industry, so I don’t think that’s the answer.” “I don’t think they can sell another investment in the oil and gas industry on the east coast when they are putting more effort into other ways to make money.”
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