BUSINESS WATCH

Fishing for wealth in the oil pool

Peter C. Newman July 25 1983
BUSINESS WATCH

Fishing for wealth in the oil pool

Peter C. Newman July 25 1983

Fishing for wealth in the oil pool

BUSINESS WATCH

Peter C. Newman

Brian Peckford may not be doing much for the business future of Newfoundland—but he has created a minor economic miracle in Nova Scotia. The goofie Newfie’s eagerness to self-destruct has settled, once and for all, the issue about which Atlantic port will become the centre of the oil and natural gas play that, within a decade, could be larger than the North Sea.

Even a year ago it was still an open question whether St. John’s or Halifax would benefit most. Peckford’s peeves have now settled it: his province is being left out of the oil industry’s long-term plans. It took the feds to get some action at Hibernia going again. But more significantly, the essential infrastructure—the suppliers, moneymen, accountants, geologists—has been quietly moving out of St. John’s to Halifax.

When Nova Scotia Premier John Buchanan signed his agreement on offshore exploration with Ottawa IV2 years ago, there was one rig drilling off Nova Scotia. Soon there will be nine, and the companies involved—the big multiand transnationals out of Calgary, Houston and Dallas—have

pledged to spend about $10 billion over the next three years. Husky, Bow Valley, Shell and Mobil, as well as the Canadian Petroleum Association, have all recently opened major Halifax-based operations.

It’s difficult to estimate just how large the spin-off will be. That a $162million drilling rig just launched by Saint John Shipbuilding had an 80-percent Canadian-content factor might be one good indication. Writing in Altantic Business magazine, Lyndon Watkins has estimated that just one gas field (the Venture structure off Sable Island) will have an eventual payout of $45 billion by 2003. That would mean about $22 billion flowing into Nova Scotia’s treasury in royalties and taxes alone. The Venture project is one that’s certain to go into production, but how many associated structures will yield marketable quantities of gas and how much oil can be produced has yet to be determined. Watkins predicts that this one field will have a positive impact of $1.12 billion a year on Canada’s balance of trade with the United States.

About 2,000 jobs have already been created in and around Halifax, and engineers are currently planning how to bring the gas from Sable to the main-

land at Country Harbour Mines, N.S. It’s not expected to be much of a technical problem because the route will follow a sandy, ice-free trough on the ocean floor. The National Energy Board has assured the province that there will be no trouble with a gas export permit, but getting permission to sell energy south of the border is proving to be much tougher. Mobil, which leads the Sable syndicate, is already lobbying hard in Washington with the Federal Energy Regulatory Commission and other government agencies for an import permit, and two major U.S. distributors—New England States Pipeline and Tennessee Gas Commission—have applied for the distribution rights. Ini-

tial shipments are expected to be 300 million cubic feet of gas per day. The State of Maine, for example, is expected to take five per cent of the load, with the pipeline running from Calais to Burrillville at the Rhode Island border and five taps available for local customers along the way.

Buchanan, who has personally been guiding the public sector’s involvement in the offshore energy play, had a resolution supporting construction of the pipeline passed at the Atlantic premiers’ meeting with the six New England state governors, held in Charlottetown June 19 to 21. Nothing is signed, but the market potential certainly exists. Approximately 27 per cent of all U.S. energy needs are now supplied by

natural gas, but in the northeastern states the proportion stands at less than 10 per cent. American Gas Society officials have assured Buchanan that in New York state alone there are at least four million gas conversions waiting to be connected. Some 26 major utility firms have already indicated that they want the Canadian product. Although Alberta natural gas is about $1.50 per 1,000 cubic feet cheaper at the wellhead, transmission costs to the northeastern U.S. states are more than three times as high as from Nova Scotia.

“The market is there, and it’s big,” Buchanan told Maclean's. He has had inquiries “all the way from Aberdeen” about the possibilities of founding a petrochemical industry in Halifax, and chances are that the Nova Scotia capital could be at the start of its fastest growth cycle since Confederation.

Even during the recent recession Nova Scotia came out fairly intact, with the fifth-lowest unemployment rate in the country and the fifth-lowest per capita deficit ratio. (The province’s deficit totals $294 million.) Halifax is enjoying remarkable stability, and real estate prices are starting to climb in anticipation of the boom. There is a brisk trade in visiting firemen. One of the city’s most attractive hotels, the Barrington Inn, was built by the Delta chain three years ago at a cost of $80,000 per room and is now making a very satisfactory return.

Buchanan is sitting pretty. The only one of the seven Conservative provincial leaders to support Brian Mulroney before the recent Tory convention and presiding over a province in which Mulroney has decided to seek a seat in Parliament, the Nova Scotia premier is sure to gain in national influence. “Ever since I started in politics 17 years ago,” he says, “the Maritimes have been gabbing about tidal power. Well, now we’ve got it. Two months from now the first $50-million turbine will be opened at Annapolis Royal. Eventually there’ll be 140 units generating 4,800 megawatts of electricity—North America’s first tidal power project. No more talk. It’s actually happening. Same with the offshore. For 12 years we talked about it; now we’ve got the reserves, and all that’s left is to work out a few mechanics.”

Unlike its bellicose neighbor, Newfoundland, Nova Scotia is perched in anticipation at the edge of the Atlantic, quietly gearing up for its role as moneymaker.