Hebron hangover: Major project spending in N.L. dropping, but solid prospects ahead
Newfoundland and Labrador continues to lead Atlantic Canada, with $6.6B in spending this year
Major project spending in Newfoundland and Labrador has plunged by 30 per cent in recent years, but the outlook is not all bad, says an economic think-tank in Atlantic Canada.
With construction of the the massive and costly Hebron oil project now completed and the platform being towed to the oil-rich Grand Banks, it comes as no surprise that capital investment in the province is declining.
But a recent oil project approval, an increase in mining activity, and indications that offshore exploration will surge in the coming years is blunting some of the sting.
Once-in-a-generation projects
The Atlantic Provinces Economic Council held its annual gathering in St. John's Monday, highlighted by the release of its major projects inventory for 2017.
APEC is forecasting $6.6 billion in spending on major projects this year, a reduction of 15 per cent over last year, and an even bigger drop from the construction bonanza of 2013, when spending topped $9 billion.
But those were the days when Hebron and the nickel processing plant in Long Harbour were at peak construction.
That's long since passed, with public spending on the controversial Muskrat Falls hydroelectric project now accounting for one-third of investment this year.
"You're not going to see Hebron and Muskrat Falls-size projects going forward for a long time," said Patrick Brannon, APEC's director of major projects.
"This was a once-in-a-generation type of investment so you have to adjust the companies and the labour force has to adjust a little bit to a new reality of a little bit slower activity."
But that new reality is not all bad.
Leading the Atlantic provinces
APEC is forecasting $13 billion in major project spending in Atlantic Canada this year, with exactly half of that taking place in Newfoundland and Labrador.
"It's still at a very high level historically, aside from that big blip that we saw a few years ago," Brannon added.
"Even though there's been a decline, there's still a lot happening."
The oil and gas industry continues to drive investment, along with a resurgent mining sector. And there's still plenty of work to be done on Muskrat Falls before it starts generating electricity in three years.
There is also a record amount of seismic surveying planned for the offshore in 2017, and four major oil companies, including Statoil, are planning to drill dozens of new wells beginning this year.
"Statoil continues to see offshore Canada as a core element to its international portfolio," Jim Butler, Statoil's controller for offshore Canada, told those gathered at the Delta Hotel in St. John's Monday morning.
"We continue to invest in the area in anticipation of some day becoming a producing operator."
Bay du Nord will face challenges
But Butler said nothing can be taken for granted. The company has made significant oil discoveries in the Flemish Pass, including Bay du Nord.
This deep-water basin is a new frontier for Newfoundland's offshore, and it faces many industry and economic challenges before it can become a producing oil field.
"While we continue to work very hard to try to develop a business case for Bay du Nord, the competition for capital within Statoil remains very high," Butler said.
He added that the trend is away from deep water and frontier basins, and this could put Bay du Nord at a disadvantage.
"Activity is also shifting to mature offshore basins where existing infrastructure can be leveraged," Butler said, citing the recently approved West White Rose extension project as a prime example of this.
A rebound in mining, meanwhile, will also drive investment, including Vale's plan to spend nearly $2 billion on a new underground mine at Voisey's Bay.
It's one of several mining projects in the offing.
So this new reality is not all negative, with major project spending in Newfoundland and Labrador expected to top $5 billion for the next three years, according to APEC.
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