BUSINESS WATCH

The enduring mystery of Hibernia’s creation

It will produce the world’s most expensive oil, in the Earth’s most delicate environment— and not a drop of it for Canadian consumers

Peter C. Newman October 22 1990
BUSINESS WATCH

The enduring mystery of Hibernia’s creation

It will produce the world’s most expensive oil, in the Earth’s most delicate environment— and not a drop of it for Canadian consumers

Peter C. Newman October 22 1990

The enduring mystery of Hibernia’s creation

BUSINESS WATCH

PETER C. NEWMAN

It will produce the world’s most expensive oil, in the Earth’s most delicate environment— and not a drop of it for Canadian consumers

It’s been a month now since the governments of Canada and Newfoundland announced with great fanfare the $5.2-billion Hibernia project—and a second look at that gargantuan undertaking makes it even more puzzling than it appeared at first glance.

The launch itself betrayed Hibernia’s schizophrenic quality, with Clyde Wells chasing his own tail in a classic reversal that helped his critics consolidate their low opinion of him as the hypocritical politician who killed Meech Lake. In the week before the event, the Newfoundland premier had personally telephoned Brian Mulroney, pleading that he attend the inauguration ceremony. The Prime Minister dispatched John Crosbie and Jake Epp instead, but Wells used the occasion to praise the Conservative leader in a manner that seemed to suggest that all was forgiven between them.

“I acknowledge most sincerely the tremendous support of the government of Canada for this project,” he said. “I acknowledge, again most sincerely, the tremendous support of Prime Minister Mulroney, personally, from the time he took office to the present. That support is gratefully acknowledged and very much appreciated by the people of this province, and I want to tell him so.”

That was on a Sunday night, two days after the announcement, and Wells went on about how great the benefits of Hibernia will be in “industrial opportunities, revenues for both the federal and provincial treasury, as well as in increased energy security for all Canadians.” Next day, Wells was on the attack. He accused Mulroney of unfairly painting the deal as federal largess for Newfoundland. “The government that will benefit most from Hibernia is the federal government,” he charged. “It is not going to produce an economic Shangri-La in Newfoundland or result in the level of economic benefit for this province that I would like to see. So when you hear some of these federal politicians—Mr. Crosbie and Prime Minister Mulroney say, ‘Look at what we’re doing for Newfoundland’—get the real truth of it. New-

foundland has made one helluva lot of concessions.” That same day, on an open-line radio show, Wells went even further, complaining that Hibernia was far from being a good deal for Newfoundland, all but jettisoning any vestiges of his support for the project he had praised so lavishly only 20 hours earlier.

That kind of bizarre partisan byplay by a politician who seems obsessed with trying to cut down the feds—even when they’re trying to be helpful—is less troubling than the project itself. Although it has been mentioned in various election platforms and been under serious negotiation since the oilfield was discovered in 1979, it was the recent jump in the price of oil that suddenly made it possible. The armed standoff in the Gulf is dragging on, but it’s not going to last for another 25 years. Yet that’s how long Hibernia will be producing oil, and without the current, artificially high prices, the project is simply not viable. Ian Doig, the authoritative Calgary energy analyst, has estimated that Hibernia’s extraction cost will be the equivalent of $38.20 per barrel, which would make it the world’s most expensive oil. To pretend that oil prices will remain at present levels or higher for the next quarter century is not only an unlikely, but an almost impossible prospect.

Apart from the project’s highly questionable economics, there are potentially catastrophic environmental risks. The Hibernia field will be drilled from a quintet of floating modules attached to a mammoth 427,500-ton structure that will be protected by 300-foot-wide concrete shields to ward off pack ice. That’s not a hypothetical problem because the giant rig will be planted squarely in midstream of the North Atlantic’s so-called iceberg alley, where the Titanic ocean liner struck an iceberg and sank in 1912. Any oil spill would not only pose the horrendous hazards to sea and bird life of similar disasters, but could terminally endanger the Atlantic fisheries. The entire ecosystem of the Grand Banks could be wiped out, if the spill were bad enough.

It’s one of the many ironies of the project that two of its multinational senior partners (Mobil and Chevron) joined up at least in part because American environmental regulations have prevented them from drilling fields they own off the coasts of Florida and California. There are no icebergs in those latitudes, but authorities there still considered the offshore drilling too risky.

The political justification for going ahead with Hibernia is that it will create jobs in a province with a 17-per-cent unemployment rate—the country’s highest. That’s true enough, but only 50 people will be hired before next January, and at its height, the construction phase, most of the 6,000-member workforce will be out-of-province specialists who belong to closed-shop unions. According to both Wells and Mulroney, the $2.7 billion in federal subsidies allocated to Hibernia will translate into the creation of about 10,000 person-years of work. That means Ottawa will be spending more than $250,000 per year for each of the few jobs it creates, and few of the new positions will be available to the Newfoundlanders who need them.

All of this might be understandable if Canada would at least gain security of supply for its eastern provinces that now import 220,000 barrels a day. Not so. Every barrel of the heavily subsidized Hibernia crude will be refined and sold in the United States. “The oil might as well be produced in West Africa for all the jurisdiction Canada has over it,” says Liberal Senator Daniel Hays, former chairman of the Senate energy committee.

One explanation offered for this incomprehensible turn of events is that Canadian refineries can’t handle the Hibernia crude because of its high paraffin or wax content. Yet the heads of all four major refineries in the Atlantic provinces deny this and add that they have the capacity (457 million barrels a day) to handle Hibernia’s 110,000 daily output. Besides, Petro-Canada, which owns 25 per cent of Hibernia, has a refinery in Montreal that could easily handle the assignment

The U.S.-Canada Free Trade Agreement prevents the unfair restriction of oil exports between the two countries. But why do we have to spend $2.7 billion in this fiscally strapped season to subsidize the world’s most expensive oil, in the Earth’s most delicate environment—and not a drop of it for us?