THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Tuesday, November 18, 2025
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 6:32 p.m. [ET] to examine and report on Newfoundland and Labrador’s offshore petroleum industry.
Senator Joan Kingston (Chair) in the chair.
[English]
The Chair: Good evening, everyone.
Before we begin, I would like to ask all the senators to consult the cards on the table for guidelines to prevent audio feedback incidents. Please make sure your earpieces are away from all microphones at all times. Do not touch the microphone. Activation and deactivation will be managed by the console operator. Finally, please avoid handling your earpiece while your microphone is on. Earpieces should remain on the ear or be placed on the designated sticker at each seat. Thank you all for that.
[Translation]
I would like to begin by acknowledging that the land on which we gather is the traditional ancestral and unceded territory of the Anishinaabe Algonquin nation.
[English]
My name is Joan Kingston. I’m a senator from New Brunswick and chair of the Standing Senate Committee on Energy, the Environment and Natural Resources. I would like to welcome everyone here this evening. For those listening online, I would like to welcome you as well.
Today, pursuant to the order of reference received from the Senate on October 8, we are pursuing our study on the Newfoundland and Labrador offshore petroleum industry.
We are pleased to welcome today, on our first panel, as individuals: Ian Lee, Associate Professor, Sprott School of Business, Carleton University, by video conference; and Joel Finnis, Professor, Department of Geography, Memorial University of Newfoundland, by video conference.
Thank you to both. Mr. Lee, we met recently at the National Finance Committee. Welcome to you both. For the next five minutes, each of you will make opening remarks. If you would like to start, Mr. Lee, that would be great.
Ian Lee, Associate Professor, Sprott School of Business, Carleton University, as an individual: Thank you, Senator Kingston and distinguished senators.
First, my disclosures: I do not belong to or donate money to any political party or allow any lawn signs during elections. Second, I do not consult to or have investments in any energy companies of any kind anywhere, directly or indirectly. Third, I have taught the Strategic Management capstone course analyzing industry and firm competitiveness for 35 years, and before that I spent 9 years in commercial banking in a Canadian bank, lending millions of dollars to small- and medium-sized enterprises, or SMEs.
Since the 1960s, political elites in Ottawa and Toronto have promoted the idea that Canada’s future lies with manufacturing. It was argued that Canada’s historical dependence on resources was a large mistake, for it condemned Canadians to be “hewers of wood and drawers of water.” This, which I consider an ideological narrative, assumed — without evidence-based analysis — that a resource-based economy was low tech or dirty or low productivity and marginally profitable and would condemn Canada to economic decline with many developing countries, notwithstanding the empirical reality that the resource sector, which I have studied for 35 years is extraordinarily capital intensive, using extremely sophisticated exploration, extraction, refining, smelting and transportation technologies in conjunction with sophisticated and highly educated human capital in engineering, geology, IT and corporate finance.
Moreover, for millions of years before Canada came into being, the geographic mass of the northern half of the North American continent possessed an unimaginable bounty of natural resources, as we all know, ranging from oil to gas to timber to nuclear fuel to agriculture, fish, potash and critical minerals. As the German Chancellor and the Japanese premier told us a couple of years ago when they visited, they do not want our manufactured goods, our two-ton SUVs and trucks in countries that drive very small autos — they want our resources.
Turning now to the resource sector, Professor Stephen Gordon, at the Université Laval, over 20 years ago showed this sector was responsible for approximately three quarters of the increase in the standard of living in Canada for the past quarter of a century. This has been reconfirmed in studies by Professor Trevor Tombe from the University of Calgary, who stated:
Far from being a drain, the oil industry — and the resource sector more generally — is a boon. Without it, we would be poorer and our economy worse.
In the last 30 days, the International Energy Agency, or IEA, has acknowledged the fundamental error in the assumptions of those who claimed peak oil by 2030 and subsequent sharp declines in oil extraction. The IEA now states:
Energy demand for oil and gas is expected to increase strongly over the outlook period, in line with strong demand for reliable and affordable energy. Oil demand will rise by 18.2 mboe/d, while natural gas will rise by almost 20 mboe/d between 2024 and 2050.
Despite a marginal decline, oil will remain the fuel with the largest share in the energy mix, at just below 30% in 2050. The combined energy mix share of oil and gas is expected to stay above 50% between 2024 and 2050.
... increasing oil demand will be primarily driven by demand for petrochemical products and jet fuel, alongside a slowdown in the growth of electric vehicles.
As Professor Emeritus Peter Phillips stated in an op-ed in The Globe and Mail recently:
Canada has a strong comparative and competitive advantage in primary production, including agriculture, forestry, fishing, mining, energy and related supporting sectors.
If Canada is to remain a prosperous nation, it must pivot to much greater development of our resources — as Australia did in 2017 when it exited auto manufacturing completely and as Norway did with its offshore years ago. Indeed, the Government of Newfoundland and Labrador has commissioned studies that estimate over 120 billion barrels of oil and almost 300 trillion cubic feet of natural gas. The natural resource sector, and oil and gas in particular, has one of the highest rates of productivity in the Canadian economy at a time when Canada faces a crisis with our declining productivity, documented by Statistics Canada, the Bank of Canada and Finance Canada.
Resources, and oil and gas in particular, represent 7 of 10 of our largest export industries and contribute to significant increases in prosperity. The fantasy that Canada was going to become a manufacturing powerhouse was contradicted by its long-term decline — from 30% of GDP in 1970 to less than 10% today — and that was before its collapse with the recent change in U.S. policy concerning the tariff-free export of our autos.
It is essential for our future, if we wish to remain prosperous, that Canada returns to its roots as a resource powerhouse that will be the foundation of increased prosperity rather than manufacturing and the deliberate policy suppression of our comparative advantages.
Thank you.
The Chair: Thank you, Dr. Lee.
I was remiss in not asking my fellow senators to introduce themselves. I will do that before our next speaker.
[Translation]
Senator Aucoin: Réjean Aucoin from Nova Scotia.
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
Senator Youance: Suze Youance from Quebec.
[English]
Senator Lewis: Todd Lewis, Saskatchewan.
The Chair: Thank you, colleagues.
Now I’d like to ask Mr. Finnis if he would provide his opening remarks.
Joel Finnis, Professor, Department of Geography, Memorial University of Newfoundland, as an individual: Thank you very much.
First of all, I’ll just acknowledge that I am currently standing in Memorial University, whose campuses are situated on the traditional territories of diverse Indigenous groups, and I would like to acknowledge, with respect, the diverse histories and cultures of those groups, including the Beothuk, Mi’kmaq, Innu, and Inuit of the province. I would also like to thank the committee for the invitation to speak here today.
I’m a climatologist by training, currently at Memorial University of Newfoundland and Labrador’s Department of Geography. My research focuses on climate dynamics, climate-change impacts and, a little bit more recently, I’ve been looking a lot at connections between risk and decision-making in the context of weather and climate challenges.
When it comes to Newfoundland and Labrador’s oil and gas industry, I find I’m most often asked to comment on either connections between the industry and climate change or efforts by the province to frame the industry as environmentally beneficial. It is that last piece that I suspect is most relevant to your discussions today, although I’m happy to take questions about climate implications for the offshore oil industry itself.
Probably the thing most relevant here is related to the unique nature of the Newfoundland and Labrador’s offshore hydrocarbon resources and particularly the provincial government’s and industry advocates’ continued efforts to frame Newfoundland and Labrador oil as clean, green and/or low carbon. We’ve been seeing them positioning the oil industry as another tool available to address the climate crisis. This basis is then used by the province and advocates to promote existing oil production to international markets and advocate for significant growth in the sector. Indeed, the provincial government has expressed hopes for substantial growth, amounting to roughly three gigatons of additional carbon dioxide emissions by 2050, more or less three times the emissions that have been produced by the industry to date.
The problem ultimately is that this clean branding relies on very selective frames of reference. The first requires that we look at only a small portion of the environmental costs associated with a barrel of oil, and the second that we compare ourselves only against what we might call high-carbon or dirty producers, if we stick to the kind of framing that Newfoundland and Labrador is using, and that is that we really compare ourselves only to unconventional oil sources such as those from the Alberta tar sands.
Now, if we instead look at either the full climate impact of each barrel of oil or compare against other conventional sources of oil, it becomes clear that any environmental benefit is really negligible. More importantly, realizing even marginal environmental gains from our industry would require collaborative management with other high-carbon producers — for example, through agreements to replace production in a place like Alberta with additional production in Newfoundland and Labrador. Instead, all major oil-producing provinces are currently pushing for increasing production, suggesting that this kind of collaborative management is highly unlikely.
Removing the low-carbon window dressing of Newfoundland and Labrador’s oil really ultimately means that we have to contend fully with the true environmental impact of the offshore oil industry here. Increasing production in this province, as with any region in the world, will make it more difficult to meet climate commitments and achieve the warming limitations set out in the Paris Agreement.
I will add that the window for decisive action to meet those targets is rapidly closing. At current emission rates, we have roughly three years left before we hit the 1.5 degree threshold and roughly 21 years before we meet the less ambitious if much more risky 2 degrees Celsius target. Global emissions continue to rise, meaning that these windows ultimately are continuing to shrink.
While Newfoundland and Labrador remains a relatively small province and oil producer, the impact of its oil sector remains disproportionate to its size. Should the province achieve the desired growth, that additional three gigatons of carbon emissions, research suggests that resulting emissions will be responsible for up to US$775 billion in global economic loss and roughly 678,000 excess deaths, which is significantly higher than our current population of a half a million.
To summarize, then, despite continued enthusiasm within the provincial government of Newfoundland and Labrador for what they refer to as a clean oil product, expanded development of our offshore hydrocarbon resources will ultimately carry a substantial environmental cost that should be acknowledged while we’re considering these developments.
Thank you.
The Chair: Thank you. We will now turn to questions.
[Translation]
Senator Miville-Dechêne: Thank you for your remarks. You’re the first witness who is also a critic of Newfoundland’s offshore oil industry. To my relief, Newfoundland has its share of critics of oil development. Thank you for being here.
You’re critical of the prevailing narrative in Newfoundland about the benefits of the oil industry. At the same time, the Canadian government participated in building this image of clean oil by saying that the Bay du Nord project would be accepted for development. It isn’t just Newfoundland. I would say that it’s a bit broader than this.
I wanted to hear your thoughts on this. The approval of the Bay du Nord project, which isn’t yet up and running, sends the message that this oil is indeed clean, that it differs significantly from tar sands and that this is the way forward, right?
[English]
Mr. Finnis: Yes. I think the province is basing these claims — and I suppose then anybody else who is getting behind the idea of a green oil or a clean oil, or I think the term they prefer right now is lower carbon — what they are leaning into is that the energy cost for producing that barrel of oil is lower in offshore petroleum developments than it is when you have to do a lot of processing, extraction and movement of heavy materials in something like the tar sands. Ultimately, that is just the first part of the environmental cost of producing and then ultimately transporting and consuming a barrel of oil. We refer to it then as upstream emissions associated with that barrel’s production. In comparison to Alberta, there is a substantial environmental benefit there, but again, that is a fraction of the barrel’s overall impact, right? It gets buried completely when you start taking a look to the larger life cycle. Even if I just focus on the upstream emissions from that production, if I compare our production to other comparable operations such as Norway or operations in the North Sea, the upstream emissions are indistinguishable. It is, frankly, easy to start digging around and looking for other operations that might have even lower upstream emissions. In comparison to some other places in the world, you might start finding there is a slight advantage for those other operations relative to Newfoundland and that they might be even lower carbon.
All of this means that very selective framing and scaling is necessary to make those claims. This, of course, raises concerns for somebody like myself that we are refusing to acknowledge the full implications of what we are doing here, which isn’t to say that oil cannot or should not be extracted today. It’s just recognizing that if we’re acting to increase production in Canada, then we are actively moving opposite to the direction we have committed to when it comes to the Paris Agreement and we are ultimately not meeting the imperative to ramp down global production to reduce the impacts of climate change.
Senator Miville-Dechêne: Are you saying that if we compare the Newfoundland operation to the Norway operation, we are less efficient in terms of emissions? I am interested in that.
Mr. Finnis: Only when it comes to the production of that barrel of oil. If I take a look at how much energy Norway needs to produce a barrel of oil versus Newfoundland and Labrador, they are basically identical. Then that barrel of oil and its transportation comes with additional emissions. For example, when we’re taking it to market, we call those midstream emissions. Those are different between the two locations as well. When it comes to actually consuming that oil, it ultimately is the same amount. The downstream emissions, the stuff associated with consumption — really, the majority of the emissions — those are indistinguishable across all producers. It’s just the upstream piece that varies in a way that’s noticeable but, again, that’s a fraction of the total barrel.
[Translation]
Senator Aucoin: I would like to continue along the same lines as Senator Miville-Dechêne. However, I first want to ask Mr. Lee a question.
You heard Mr. Finnis. It seems that you have completely opposite positions. Mr. Lee, you said that we absolutely must develop our resources, including oil, and that many resources will be available for development until 2050. I would like to ask you the following question. What are your thoughts on climate change and the greenhouse gases created by developing these natural resources?
I’ll then turn to Mr. Finnis.
[English]
Mr. Lee: Thank you.
If you’re asking me if I am denying global warming, of course, I’m not. It’s a fact. We all know that. We can debate the extent. There are serious people who say it’s not as extreme, that we’re not all going to die in 5, 10 or 15 years and that it’s nowhere near that extreme. Bjorn Lomborg has published extensively on this. I won’t get into that. I’m sure that everyone’s aware of that.
The impacts are real. It will affect some parts of the world more seriously. I’ve taught around the world, including Iran and the Middle East. Some parts of the Middle East will probably become uninhabitable, and some parts of sub-Saharan Africa. As the first IPCC report noted, the Intergovernmental Panel on Climate Change, some parts of the world will become more habitable, such as Siberia and the Canadian High Arctic. But that’s not my justification.
You asked me how I can even say what I’ve said. I want to put a couple of statistics on the record, if I can, quickly. We look at this whole debate and zero in on the oil. A particular barrel of oil has a certain amount of emissions, and we say this is terrible and it’s getting worse. But when you stand back and look at the data — and I’m talking the Government of Canada, Natural Resources Canada — and look at emissions per person — something that nobody talks about in this country even though it is out there — emissions per person has declined steadily from 1993 until today, under each government — Mulroney, Harper, Trudeau, Chrétien — because we have become more and more efficient. Yes, we’re using fossil fuels that generate emissions, but we also have become vastly more efficient. Our houses, factories and automobiles are more efficient today. That’s why we are emitting far less per person than we were 30 years ago, even though we’re burning and using more fossil fuels.
We have to look at it in the context of the greater good. Are we becoming worse or better? I argue we’re becoming better over time because our emissions per person are in serious decline year after year, and this is the price we’re paying for using a fuel which is used around the world for all of the benefits it produces, such as a higher standard of living in countries around the world.
[Translation]
Senator Aucoin: My question is now mainly for Mr. Finnis.
I think that you said that the production of a barrel of oil isn’t the same everywhere, but that it accounts for a small fraction of greenhouse gas emissions during the burning process. Is that right?
The second part of my question — you can answer it in writing — concerns whether other technologies should be explored to reduce this small fraction of the production.
[English]
Mr. Finnis: To your first part, yes. Absolutely. What I’m saying is that when an oil industry says they are lower carbon, what they mean is they’re just talking about the energy necessary to produce the barrel of oil — just the production: getting it out of the ground, getting it into a container, getting it ready to move to a market. That can vary considerably between different producers. Again, with even the highest producer, it’s still dwarfed by the emissions that will come from that barrel once it’s consumed. Right? It’s those downstream emissions that are huge and those upstream emissions that are tiny. We find that our provincial industry is trying to position an environmental advantage by saying this small chunk of the life cycle of the barrel is better here than it is in other places and we’re clean, we’re green and we’re low carbon. It’s a dubious claim.
Should we be pursuing ways to reduce that further? Any technology that can ultimately reduce the total emissions is probably helpful. What I should stress is even that if we removed entirely that upstream production cost, that little piece associated with removing the oil from the ground and getting it ready for consumption, we would still be just scratching the surface of the climate challenge. The problem is that we have to recognize we can’t keep adding more barrels of oil to market and consuming them and expect we’re going to be able to address the climate crisis, which means we do have to think about alternate energy resources.
One thing I think about a lot at the moment is how governments and economies that are committing to fossil fuels as the energy source and main driver of an economy are increasingly, it looks like — as renewable energy is growing, growing and continuing to grow — positioning themselves and locking themselves to what I would think of as the energy resources of the past. We’re seeing massive growth in renewables coming out of places like China, and we’re seeing that rapidly being adopted by the developing world. We’re going to China for renewable technologies, energy resources and moving away from fossil fuels, even as places like the United States double down on fossil fuel production. We have to think about whether we’re moving towards what the future will be and what future energy markets will look like or whether we’re locking ourselves to something that is becoming increasingly dated, perhaps.
[Translation]
Senator Youance: My question is for Mr. Lee.
The main purpose of offshore development in Newfoundland and Labrador is to export raw materials. Given the significant growth of this type of production in different parts of the world, such as the United States, South America, Guyana and Brazil, how does this competition affect the production in Newfoundland and Labrador?
[English]
Mr. Lee: I’m not sure if I understood your question. You asked about what would be the effect on competition.
Senator Youance: Yes.
Mr. Lee: Let me answer this way. Really, I have to disagree with Mr. Finnis on something he said. Oil consumption or usage is going up around the world in every country. This is the IEA World Energy Outlook, which is published every year. It’s a UN body, and it’s about 900 pages, and it breaks it down by energy source: electricity, nuclear, renewables and so forth. They have superb empirical data in there. Just so everybody understands this paradox, this has been studied in the last several years by all kinds of institutions, such as the Oxford Institute for Energy Studies. It’s the explosion in demand for electricity. It’s using up and consuming all of the renewables that we’re generating in each of these countries. I’m referring to data centres, air conditioning, heat pumps and electric vehicles. The demand for electricity is doubling, growing much faster than the rest of the economy and other energies. Alternative energies or renewable energies are important. They’re essential. They’re being used up, and we need more and more renewable energy, and it is not enough to solve this explosion in demand for energy around the world. It’s not just in the U.S. Yes, they have a president who is very vulgar about it, but the demand for oil is going up around the world. Those numbers, for those who want to disagree with me, are in the latest IEA World Energy Outlook 2025.
[Translation]
Senator Youance: My question was answered in part. Does the growing offshore oil production in South America have an impact? Does it change market conditions in relation to our production in Newfoundland and Labrador?
[English]
Mr. Lee: I think I understand what you’re asking me. Oil is a fungible product. That is to say, within the class of oil, whether it’s Brent, WTI or whatever—- these are classes of the type of oil. I’m sure Mr. Finnis is much more knowledgeable about the carbon content of one class versus the other. But the point is that they are fungible. It goes into a world market. There is a world price, unlike natural gas, which has regional prices, as we all know. It just goes into the world aggregate supply and demand.
By the way, in the IEA report I’m referencing, they forecast daily consumption of oil globally — yes, broken down by countries, but they have the global number showing a steady increase year after year from now clear through to 2050. It’s a global market, so any oil produced here or out in Western Canada or in Mexico will just feed into that global market for oil.
Senator Lewis: Thank you very much for your comments, both witnesses.
It seems as if, when we’re talking about a barrel of oil, it doesn’t really matter where it comes from. It’s going to burn at the same level. That’s kind of what I’ve gotten out of this to this point.
In Canada, we’re very fortunate that we have energy choices. We have an abundance of oil and natural gas, and we’re working on renewables. Nuclear is part of our future, and we have hydroelectric, all those things. I think a lot of the world starts talking more about transitional hydrocarbons because in places like Europe and so on, when they lost their natural gas supply out of Russia — geopolitical problems — all of a sudden, they have to start looking at things like more oil or how do you replace something like natural gas when suddenly you lose your source of that product and winter’s coming or they’re in the middle of winter.
Generally, I’d like your comments. As we transition into clean energies, it seems like the demand for oil will be there, and I think it will be fairly important that Canada is able to participate in that demand and fill some of it. It may be all the same when it goes up the smokestack, so to speak, but how it gets there — Canada is a very stable jurisdiction with good regulation. I think it’s morally pretty good oil. The governments and the people producing it are good corporate citizens. I think that for a lot of the oil it is competing against, you can’t say that about that production. I’d like comments on that.
Mr. Lee: I’ll respond very quickly. I want to make even more explicit what I just said a moment ago in response to you.
The paradox of the green economy — and there’s no question a green economy is emerging. The data again—- and it’s not just the IEA data. There are lots of other studies out there. The U.S. Department of Energy produces excellent outlooks for each of the different types of energy. The point I want to put across and leave with everybody is the paradox of the green economy is that it’s causing the explosion in demand far greater than in the old economy that we grew up in. As a consequence, many institutions forecasted that renewables were going to displace fossil fuels. What the IEA just recognized in this most recent about-face in the 2025 report is they said, “Oops, we were wrong. Oil will not peak in 2030 or 2035 and fade away.” What we realized is the voracious growth in demand for electricity is using up all of the renewables we can produce and we still don’t have enough energy. One of the paradoxes is that we need a lot more oil, a lot more natural gas and a lot more renewables.
Mr. Finnis: I’ll just stress that these energy-demand projections are always changing. The IEA does update these projections frequently, but they’re also considering multiple scenarios. It’s not just one projection that you’ll get that says consumption will continue to grow across the board everywhere out to 2050. They typically will take a look at a couple of different outcomes depending on what sorts of decisions are made between now and that end date. We are seeing quite a bit of change.
What I’ll stress is that in the last year, in 2024, we actually saw carbon emissions globally almost plateau. There was growth, it was continuing to grow, but it actually almost hit a no‑growth year. That’s a substantial change from the past. What that’s due to has been really, again, that growth in renewable production. We are starting to see a real shift towards something different.
Again, this is a reminder that if we lean into the energies of the past and heavily invest in those right now to deal with demands in the present, one of the things we have to remember about something like Newfoundland and Labrador’s oil production is that if you decide to go after that oil and start going after it today, it’s going to take several years before you’ve got the equipment together, the platform together and everything ready to start extracting the oil. By then, the situation could have changed considerably. It’s several years later that you’ll actually start making a profit on some of these investments. This is at least part of the reason why we’re seeing things like oil developers associated with Bay du Nord postponing that development again and again. It was actually postponed recently during the COVID pandemic because of a lot of uncertainty around that, but we haven’t seen them rushing forward with that development.
I’ll stress too that this is a relatively new set-up. When talking about the growth in Newfoundland’s offshore oil industry, they’re talking about going further out than they ever have before, which comes with a lot of logistical and technical challenges and additional risks when it comes to accidents because you’re further away from resources. All of this means that the investment to get that operation up and going is going to be higher than before.
I suspect what we’re seeing is some reluctance on the part of industry to jump into this because of the uncertainty around what oil prices will look like in the near future, recognizing that the global energy situation is changing and evolving quite rapidly now.
The Chair: Thank you.
[Translation]
Senator Miville-Dechêne: I’ll ask Mr. Finnis another question, since he works in the geography department.
Based on your research on climate and storms in the North Atlantic, how have conditions off the coast of Newfoundland changed over the past 20 to 30 years? What risks do these changes pose to new oil and gas infrastructure?
You just spoke about Bay du Nord. Could this risk discourage the company from venturing so far out to sea?
[English]
Mr. Finnis: It may. What I would say is that the weather situation outlook, of course, for the North Atlantic is becoming really uncertain. We’ve seen some unprecedented events in the last couple of years. One of the things to stress is that the ocean at the moment is behaving in strange ways. We had a three-year North Atlantic-wide heatwave from 2022 up to this year. It’s finally starting to recede a little bit, but it’s still unusually high. That kind of thing was largely unimaginable. I would have described that as statistically impossible prior to the event actually showing up and persisting the way it has. The ocean is doing something new. That, then, translates into changing weather patterns and changing weather risks. We’ve also got rapid loss of sea ice and thinning of sea ice in the Labrador Sea, which changes how things like sea ice but also icebergs trapped in the sea ice end up moving through the area.
One of the other things I would say about the Newfoundland and Labrador oil industry is that they have really overdesigned and committed to overdesigning their structures to withstand the environmental conditions that have been present here for a long time. It is a very harsh environment. We get hit by strong storms frequently. We have the odd aging hurricane passing through. We have icebergs passing through the region as well. At the beginning of the oil development here, the industry was really pushed to and really committed to reducing the chance of those translating into a serious environmental disaster.
Now, as things become a little bit more uncertain and as you try to push further offshore, you might find that operators are concerned around the ability to move personnel to and from those platforms easily and safely, and you might say that they have concerns about reliable delivery, but I suspect that those would be managed and absorbed by the industry without too many concerns. If they stick to the kind of design standards they’ve had up to this point, I’d say the chance of an absolute disaster is pretty low, even with shifting climate uncertainties.
[Translation]
Senator Miville-Dechêne: Given Canada’s climate commitments and the need to cut emissions, how should policy-makers weigh the short-term economic benefits of offshore projects against the long-term climate and environmental risks? It’s a philosophical question. However, I would like to hear your thoughts, given your expertise in this area.
[English]
Mr. Finnis: I am not really tied in with economics or policy as much as I am with the climate science itself and risk and decision making around weather and climate, but I have a lot of conversations with people who think about this a lot. Perhaps you’ve already talked to a colleague of mine, Angela Carter, who has thought a lot about how oil has shaped our provincial economy and has actually created some instabilities and some risks that have provided some challenges to this province in the past. Certainly, she would stress that we have — I’m putting words in her mouth, and that’s not entirely fair. I would say that what has come out of those discussions with her is that we tend to prioritize short-term economic gains at the expense of the environment frequently, but frankly, a lot of times those short-term economic gains fail to materialize in the way that it’s been projected. Newfoundland and Labrador’s oil industry here grew at a time when provincial economists were saying, “Look, the price of oil is always going to go up, there’s always money to be made here, and there’s no risk.” We ended up with a situation where the oil prices crashed in and around 2013 and forward, which caused significant problems for our provincial budget that we’re still contending with. Oil hasn’t been the surefire, sure bet that it was sold to us as. I would say that continues to be the case. It’s not a purely safe bet, particularly as you start pursuing harder-to-access resources like those found in Bay du Nord.
Senator Lewis: As we talk about risks and so on, these are private companies that are huge multinationals, worldwide, that are assessing that risk. I think Newfoundland has proven to be a good place to invest. It’s going to be up to the private industry to look at that.
When we look at it overall, any energy development takes years. It doesn’t matter if it’s a nuclear power plant, it’s still decades. For a hydroelectric project, certainly, Newfoundland is very familiar with that. It certainly doesn’t happen overnight. Even something on renewables, battery production for solar panel storage, takes a long time to get in place. It is the same with windmill projects. How does the investment and where we are now with the stage of development in Newfoundland compare to something like nuclear?
Mr. Lee: Who are you asking?
Senator Lewis: Both of you can make comments on that, the overall point being that any development takes time.
Mr. Lee: I’ll be very quick on this. When you’re talking large capital projects, whether in manufacturing or natural resources, you’re looking at very long timelines. I’m looking right now at mining. The average mine in Canada takes 21 years. That’s the nature of very complex and sophisticated products.
I want to make another point that was mentioned earlier. There’s an assumption that oil is a short-term thing. The Exxon CEO — I have great respect for Exxon, and I’ve already said I don’t invest in any of these companies. It’s one of the largest corporations on the planet Earth, and they have very high levels of education at work at Exxon. He gave a fascinating speech, which I’d urge every member of the committee to read. He said there’s a great deal of misunderstanding around oil. People think of it as a singular product. If you look at Natural Resources Canada, there are hundreds and hundreds of refined petroleum products. Let me get to the chase. The Exxon CEO said that in the next, he argued, 50 years, the demand for oil will go up not because of transportation, which most of us assume because of cars. He said EVs will knock off gasoline automobiles down the road. He’s fully cognizant and agrees. He said it’s petrochemicals because of the voracious need. There are two industries: heavy industries — cement and that sort of thing has a huge need for energy — and secondly, the petrochemicals. His point was that this is why oil is going to continue in the future, not to drive our cars. He broke it down and went into that.
I would point out to the committee that oil is not a singular product. It produces a plethora of products in many different industries, including pharmaceuticals. I don’t understand how or why and I’m not a pharmaceutical engineer, but they actually use products from the oil industry. You can’t look at the oil industry as a singular product that’s going to fade away because we switch to EVs. There is a multiplicity of products based on oil that are used in many different industries.
Mr. Finnis: I agree with you. Any kind of development, project or resource development is going to take time. You don’t flip that switch and all of a sudden start extracting it. But that then means you have to think about the long-term outlook for what you’re planning to extract. If the market is going to change dramatically over the course of development, before even starting to bring things to market, then that poses a challenge. I think that’s why some of our developments are being stalled. It’s not regulations from the federal government so much as it is the players asking, is this the right investment? And when they are international players, as they all are, they usually have other options to look at. The question ultimately becomes, regardless of what we decide to put in place to drive Newfoundland and Labrador development, are there industry players who see the value in there?
I’ll also stress that, yes, we will see oil get used for other things. I have another colleague here in the Faculty of Engineering, Kelly Hawboldt, who will argue that the least interesting thing you can do with oil is burn it. There are all kinds of other things that it’s going to get used for, and part of that explains why oil consumption continues to go up even if global carbon emissions are starting to plateau. Again, if we’re taking oil and saying we’re going to use this for energy security and to drive energy growth, what we’re doing is making a commitment to additional climate change. That’s a conscious decision that we’re making. If instead we’re taking our oil resources and reserving it for those other, more interesting opportunities, those chemical process, those plastic products, those things you can sell in different ways, that’s a different choice. I suspect, frankly, that in the future, we’re going to be seeing oil used less for energy — if we’re moving in the right direction — but that should ultimately translate into reduced demand for oil.
I think that’s what some of those industry players are saying. Where should we be going for that oil that makes the most sense to us? And is the somewhat unconventional operation in Newfoundland and Labrador the right place to do it? Those decisions will be made by industry, to some degree, but they will also be shaped by the sorts of policies Canada puts in place around the developments we encourage and discourage and the uses we encourage and discourage.
The Chair: I have a question. When I’m hearing you speak, both of you, I’m thinking of a couple of things. One is, do we do enough mitigation around what we’re doing? You talk about production, for instance, of oil as being what we can control. That’s what I sort of get out of it. Are we doing enough to control the emissions and other consequences of the production of oil? The other thing that I think about is that as part of this study, it’s been said we’re going to look for other markets for Newfoundland oil across the pond. I’d just like each of your comments on those two particular things. Do we do enough to mitigate the harm that we can control? You each have talked about the global impact. We’re going to be selling this elsewhere, probably not in Canada. I don’t think the Irving refinery, for instance, in my home province actually refines the sweet crude that is produced in Newfoundland. I’d like each of you to comment on those two things, please.
Mr. Lee: I’ll be very quick. I don’t want to seize the floor.
I want to remind everybody of this again, and I hope the good senators look at that data from Natural Resources Canada. When I first saw that graph several years ago, I was shocked, because every politician in our country — of every political party — told us that our emissions in Canada are going up. I knew they were going up in aggregate terms, but then I saw the graph. When you see the graph, it’s a sharp ski hill down, 45 degrees, emissions per person in the country. Then it dawned on me that, of course, the population grows every year because of immigration, which we support, and every person uses energy, but we’ve become more and more efficient in terms of mitigation.
To your question, Senator Kingston, our cars, houses and factories are vastly more efficient than in 1990. We are mitigating if you look at that as a form of mitigation. Sure there’s more we can do, and I certainly support using carbon capture. I don’t know if it will work. There are some people who say it’s going to fail, and there are others who say it will work. I think it looks promising. The Government of Canada is putting money into carbon capture. There are people who say it will be part of the solution. That’s certainly the way we should be looking at it. Yes, of course, there’s more we can do. But we should not underestimate what we’ve done in the last 35 years. People assume that it’s getting worse and worse because they’re confusing the absolute growth in the population and the absolute growth in emissions and not looking at the emissions per person to see if that number is going down. And it is dropping very dramatically in Europe, in Canada and even in the United States.
Mr. Finnis: With regard to mitigation, are we doing enough? We’re going to have to start doing a lot more. There have been various proposals put forward on how to do that, from planting additional trees—- again, the number of trees necessary to start making a dent is huge, and you have to find the land for it—- to technological solutions like carbon capture.
What I’ll stress is that the technological solutions aren’t scaling quickly enough to address the additional emissions we’re adding to the atmosphere. If I look at carbon capture plants, based on one that’s operating, a recent plant, a technological advancement, the Orca plant in Iceland created by Climeworks, to address the kinds of emissions Newfoundland expects to create over the next 25 years you would need to create 30,000 of those plants. Conservatively, that costs about $10 million just to build. The cost for this is astronomical. The technological solutions aren’t scaling anywhere quickly enough to address this problem, which means that we need to think about reducing consumption. It’s the only way to go forward, to start reducing how much we’re consuming.
Sure enough, we are seeing there are advances here. Europe is well ahead of where we are in terms of reducing individual consumption, but we’ve made efforts to move in that direction. The problem is, as with many other things, we make strides forward and then we take steps backwards. We started to try to control consumption recently with things like carbon pricing and carbon taxes. We’ve recoiled from that because of resistance to it. If we aren’t willing to contend with controlling consumption, many would argue that we need to start controlling production. If we stop producing so much or encouraging more production, then that leads to reductions in consumption. Again, I doubt that will be politically palatable here in Canada either. But if we do neither, we end up having to deal with climate change consequences. I need to stress that we are getting closer and closer to those targets beyond which we don’t feel like we can safely anticipate what climate change will mean for this country or the rest of the world. Time is running out to start taking serious action.
The Chair: Thank you. Our time is running out as well. We really appreciate, as a committee, both of you coming here. It’s been a fascinating conversation. You have the thanks of all of us here in the room. You have added to our knowledge around the report we’ll be producing at some point. We will be hearing from more witnesses, but both of you were very informative, so thank you very much.
For our second panel, we would like to welcome Stephen Follett, Chief Executive Officer, Enaimco; and Wade Locke, Professor of Economics, as an individual, retired from Newfoundland and Labrador, I believe.
We are going to give each of you an opportunity to present your opening remarks for five minutes and then we will move to questions from the senators who are present. Mr. Follett, would you like to start?
Stephen Follett, Chief Executive Officer, Enaimco: Thank you for offering me this opportunity to speak.
With consideration for the expertise, credentials and qualifications of the other witnesses, some will undoubtedly provide clear evidence showing that the offshore oil and gas industry is essential to the economy of Newfoundland and Labrador and continues to be a catalyst for growth, opportunity and enabling economic prosperity, with which I agree. It is well known that the industry was a saviour on the back of the cod moratorium and created opportunity for a generation of Newfoundlander and Labradorians, both directly and indirectly. The offshore oil and gas assets of the province have driven significant economic growth, creating jobs, generating royalties and supporting businesses resulting in levels of prosperity never realized previously by our province, all achieved by only four offshore facilities.
My intention is not to reiterate this narrative, as I’m not an academic, but I believe I can offer more value by sharing my perspective based on my background. I’m a mechanical engineer from Memorial University with extensive experience in the global energy industry, having built major projects as an engineer and executive in offshore oil, gas and hydro in Canada, Europe, Australia and southeast Asia while expanding my business interests in the province to found a software-as-a-service company for the energy industry as well as a brewery, coffee company and Nordic retreat in rural Newfoundland. These businesses employ Newfoundlander and Labradorians from numerous backgrounds and skill sets that I believe would not have been possible without the province’s offshore oil and gas industry.
I strongly feel the discussions associated with the province’s offshore oil and gas industry should never occur in isolation but rather as part of a holistic view of the global energy ecosystem and the tremendous opportunity that the province has to support energy demand internationally and at home. We must develop a comprehensive, progressive, global and long-term generational plan for energy development. This plan must be a responsible, staged, dynamic strategy that includes oil and gas projects today that will allow the province to invest in the development of hydro, wind, mining and other energy-related industries in future.
There is an urgent need to retain, develop and transition the skilled workforce built over the last 30 years. Newfoundlanders and Labradorians have developed a world-class industry competency and have since replaced the initial industry expatriates in the province from Scotland, Norway, the U.S. and elsewhere, while also being considered the leaders of the offshore energy industry globally.
I’m concerned that inaction and a short-sighted view of the generational benefit of the local energy industry as a whole will threaten future development, as is demonstrated by challenges with Bay du Nord and the Churchill Falls project. The province’s oil and gas resources are underdeveloped, with substantial untapped oil and stranded gas resources compared to other regions of the world, while the province also has an embarrassment of riches in hydro, wind, critical minerals and other energy resources.
In short, I would like to empathize my position as not necessarily pro-oil but rather pro-energy, pro-development and pro-Newfoundland and Labrador. I am cautioning that failing to adopt a proactive, global energy plan that supports and expedites strategic development of the province’s vast energy resources, of which oil and gas is a component, could have disastrous implications to the provincial economy for years to come that may not be recoverable.
Thank you.
The Chair: Thank you, Mr. Follett. Dr. Locke?
Wade Locke, Professor of Economics, as an individual: I wish that I had heard Mr. Follett’s presentation before. I would have just said “ditto” for much of it.
Thank you for inviting me to come and speak to your committee. For the current testimony, I have provided a PowerPoint presentation that should be helpful for the senators here, I hope.
I want to let people know my view on the importance of the industry to the provincial economy. I spent the last 40 years analyzing provincial economy issues around debt and all of those issues for the province as well as natural resources, oil and gas. I think that I have been involved in every oil and gas project and most mining projects in the province and across the country.
Rather than put ideological perspectives in my presentation, I want to give you facts to help you understand the importance of the industry to the Newfoundland and Labrador economy and to the people of Newfoundland and Labrador. I have not been following your committee, so I do not know what you have or have not been told, so let me start off with some basic points.
There are currently five fields operating offshore in four platforms. There are two — utilizing something called a GBS, gravity-based structure, which sits on the ocean floor, and two that are ships — FPSOs, floating production, storage and offloading systems, which are ships. They are located in relatively shallow water, I guess, relative to what Bay du Nord would be expected to be. Bay du Nord is further out and much deeper. On average, from 2017 to 2025, the five fields have been producing something like 85 million barrels of oil per year. Production has gone down from the previous 10 years but it is up from the previous 10 before that. Those are provided to you in terms of the PowerPoint. You can look at that at your leisure.
For the five fields, we know, in terms of proven and probable reserves — which is all that I am going to talk about tonight here — there were 3.6 billion barrels of estimated ultimate recovery — what could be produced from these based upon available technologies and what they know about the fields now. That can change as they do more drilling and find other things, but it is 3.6 billion. Right now, 2.4 billion have been used up or produced. That means that two-thirds of that amount have been used up and one-third is left to be used. That doesn’t count projects like Bay du Nord because they are not in operation. These are the five fields in operation.
At current rates of production — Mr. Follett may have some views on this — there may be 20 to 25 years of production remaining in the existing fields. What that means is that Terra Nova and West White Rose will be finished off long before that 20- to 25-year period, so there will only be two fields operating unless other fields come on in the near future. That is why Bay du Nord is so important for the provincial economy and for all of the reasons that Mr. Follett talked about.
Currently, there is only one new project that is close to final investment decision, and that is Bay du Nord. There are no other projects close to that at this point in time. It takes a long time from when they find the oil to when they actually produce the oil and decide to go forward with it. It is a significant period of time.
What you may not be aware of is that there has been existing oil produced to date that has produced $190 billion worth of revenue from the offshore — $190 billion. There has been $81 billion of investment in the offshore from 1966 to 2024. For a company like Mr. Follett’s company, they would have benefited from that $81 billion. It is a significant number.
The government has received $40 billion of revenues since 1997. That is when oil first started in terms of the first barrels of oil produced. That’s $30 billion in royalties, $2 billion in corporate income tax and $8 billion in payments under various Atlantic accords and the Hibernia net profit interest from the Government of Canada. So $40 billion is the revenue that the provincial government received, and we are currently around $10 billion in terms of the provincial budget right now in the province, just to get a sense of it.
There have been 10 government surpluses since Confederation. Six of those are due to oil and four are due to things that may be related to oil as well but certainly federal transfers. For the last two years, we have received equalization, but we have been off equalization since 2008-09. That is due primarily to oil. The reason that we’re on equalization now again is that there was a fallback in 2020 in terms of the revenues received by the government from oil. The way equalization works is that it is a five-year impact. It takes five years for the impact to be felt from this year to next. The first two years don’t count and then the next three count in certain ways. That was related to oil, as well.
In 1997, with the first oil, Newfoundland’s per capita GDP was 65% of Canadian GDP. By 2006, GDP in Newfoundland, per capita, has exceeded that in Canada as a whole and continues to do so, just so you know. The turnaround in per capita GDP from 1997 to 2006 has been the fastest of any province in the history of Canada — not in the history of Newfoundland but in the history of Canada. Petroleum activities currently comprise 16% of provincial GDP. It has been higher in the past, but, right now, it is at 16%. The oil and gas industry share of GDP is larger than the forestry, logging, fishing, fish-processing, pulp-and-paper, and mining sectors combined. It is a big industry, and it is important to the economy.
I will finish off with two statements. One, right now, we have 11 Tcf, trillion cubic feet, of natural gas. None of it is going to liquefied natural gas. We tried to think about pipelines for natural gas. We considered compressed natural gas and liquefied natural gas. However, given the federal government’s initiative in terms of growing the economy, it is likely we’ll see some movement toward liquefied natural gas in the future.
What I wish to say to you is that the petroleum sector has transformed the Newfoundland economy, no ifs, ands or buts about that. We can show you all kinds of data that will help you understand that.
I will stop there. Thank you.
The Chair: Thank you both. We will start our questions.
[Translation]
Senator Aucoin: Mr. Follett, you said that we need a proactive energy plan for oil, but also an integrated energy plan for Newfoundland and Labrador. I would like to hear your thoughts on the comments made by the two previous witnesses. Professor Ian Lee from Carleton University said that if oil production were to increase right now, greenhouse gas emissions would also increase and that we can’t afford to let that happen. In the plan that you referred to, did you consider the greenhouse gas emissions that would result from increased oil production?
[English]
Mr. Follett: Thank you for your question.
I am saying that the argument I heard in the last session was very binary. It was very black and white. What I am trying to say is that greenhouse gas emissions and global warming are enormous parts of the dialogue associated with the oil and gas industry and how, where and when we invest, but it is still part of the collective resource discussion that we have to have in Newfoundland. My argument is that it is not a matter of “yes” or “no”; it is a matter of the fact that we have a resource, so what is the most responsible way to develop that resource, environmentally, but as part of the greater energy mix, with consideration for our hydro resources and precious metal resources, for example. What does that look like as part of a comprehensive plan? I am saying that I still believe oil and gas to be part of the energy plan for Newfoundland and Labrador.
[Translation]
Senator Aucoin: I have a second question for you. It’s nevertheless quite encouraging to hear our witnesses’ latest comments about how oil production or demand will increase to meet electricity demand. We’ve also been told that oil use in our cars, for example, will decline significantly given the shift to electric vehicles. However, the demand for oil will increase anyway, since there will still be a wide range of oil-related needs and oil-based products.
Could you comment on this, please?
[English]
Mr. Follett: Again, for some reason, it seems that combustion of oil is often the only consideration when talking about the development of oil products in general. To your point, there is an extremely important global industry associated with petroleum products that do not require combustion, which makes the resource extremely valuable. Electricity, as we know globally and as the gentleman last session said, is going to be a critical commodity of the future, but we still have places in Canada, in Labrador and Newfoundland, where we’re burning diesel to support electricity in these remote towns and places. By no means do I think that the combustion of diesel or petroleum products for electricity is the way forward. Those facilities need to be replaced. We need to take the money from oil and invest in renewable energy sources. That being said, it is still an important part of the mix today, not only for combustion but for the products we need as a civilization. Oil and gas is still part of that mix we have to consider going forward.
[Translation]
Senator Aucoin: In your overall plan for Newfoundland, have you considered or thought, for example, about the possibility of developing an industry that would use hydrocarbons for all kinds of refined products?
[English]
Mr. Follett: There are limited refining businesses in the province. There is a limited refining business in Newfoundland. Frankly, the opportunity is not economic development through refining the oil in Newfoundland; I think it is taking the revenue from oil and reinvesting it in other technologies altogether such as hydro, wind, minerals, but also the technology industry in Newfoundland. Ultimately, we need to be less dependent on the oil industry. I do believe in taking that money and investing in renewable energy, but it is still part of that mix today, and it will be for a while. We have to consider that. Processing and refining is one option, but there are many different areas in which the province could be taking that revenue and investing in to spur economic development and diversify our economy.
[Translation]
Senator Aucoin: Thank you.
Senator Miville-Dechêne: I have a question for Mr. Locke. I’m quite surprised and intrigued by the statistics that you provided. Thank you for making us tables. They’re always useful for senators.
You said that two thirds of the estimated oil has already been used up and that only one third of the resources remain in the known deposits. This means that the industry has reached maturity, and even more than maturity. From now on, I imagine that it will decline.
I’m trying to understand where Bay du Nord fits in. People don’t seem to have enough confidence yet that they’ll make money in order to start looking for oil. This is a bad sign.
I would like to hear your thoughts on the fact that, yes, the presence of this oil has created considerable wealth in Newfoundland. However, I gather that these glory days are coming to an end and that there will be less and less oil available, barring the sudden discovery of an absolutely extraordinary deposit.
Am I right in thinking that things are on the decline?
[English]
Mr. Locke: Senator, what I was talking about was the five fields that are currently being exploited.
Senator Miville-Dechêne: Yes.
Mr. Locke: Bay du Nord is not currently being exploited. I do not know on what basis you assume that people are reluctant to go ahead with Bay du Nord. I think they are moving forward. They are close to a final investment decision. It will make a difference. There is potentially significantly more oil offshore, and natural gas. There is 11 Tcf of natural gas. They can have an industry there. From Hibernia and Hebron, we are looking at 2050 before they run out of oil. The other two smaller projects now are Terra Nova and White Rose, and North Amethyst, and they will finish up before the 25 years, yes.
I am optimistic. I try not to get involved in these ideological discussions because it is a no-win situation. I prefer to deal with the facts as I understand them. If people dispute the facts, that is fine, and we’ll go through that. But if you are asking what my belief is with respect to the offshore industry in Newfoundland, it is important, as Mr. Follett said, and it will continue to be important. Hopefully, we do not screw it up as we normally do with big projects.
[Translation]
Senator Miville-Dechêne: Thank you. I had interpreted these figures to mean that the industry had reached its peak, if two‑thirds of the quantities had already been used up and one-third remained. Obviously, if Bay du Nord comes into play, this will change the situation.
Given all this, are you taking a keen interest in Newfoundland’s finances? Global demand is set to decline. Do you think that, at some point, this will affect the province’s finances, which are currently greatly benefiting from the oil industry?
[English]
Mr. Locke: It will be a bad thing going forward in the sense that we are going to have to diversify the economy, look for new ways of exploiting the advantages and, right now, using the revenue that is available to the provincial government, and on an annual basis it is significant. They can use that for funding diversification, educational and technological projects. All of those things are possible. They are made possible by having the revenue available to do it. Right now, Newfoundland has $20 billion worth of debt. Their ability to borrow is getting more limited, so oil and gas is important.
Senator Miville-Dechêne: Are they diversifying? You are saying they should diversify. Since you are an economist and watching them closely, are they doing what it takes to have a more diversified economy?
Mr. Locke: They are. As I explained when I started off, 16% of the GDP was accounted for by the oil and gas sector. It was higher than that, about 30%, in previous years. The oil and gas sector is becoming less of a share of the overall economy, but it is an important share. We’ll start seeing more. As long as we get the MOU finalized with Quebec, we’ll see more electricity and it will be much more important for the province and for Quebec as well. We have a lot of minerals as well. Again, it is important the province takes the appropriate perspective in taking full advantage of the resources in a balanced way. Extreme anything is of no value. Try to be balanced and take account of the fact there will be increased greenhouse gases. Again, we need to take it in a more logical discussion as opposed to simply ideological.
Senator Miville-Dechêne: I get what you’re saying. Thank you very much for that explanation.
Senator Lewis: Does Mr. Follett want to make any comments? He has his hand up. I’ll let him speak before I ask any more questions.
The Chair: That was a good catch. Thank you very much. Mr. Follett, do you have something to add?
Mr. Follett: Thank you so much for that. I appreciate it.
One comment I wanted to make to the senator’s question is that while there are only four assets offshore in Newfoundland right now, only 7% of offshore Newfoundland is licensed at the moment. I was very hesitant knowing that Mr. Locke would be here, and the economist that he is, to reference any numbers, but I do know to be true that only 7% of the offshore is licensed. The truth is that there’s a tremendous amount of resource out there that’s undiscovered. That represents an enormous opportunity for the province in the future, should we invest in it.
Then, on Bay du Nord, it’s not a case of it being profitable. It’s a hugely profitable project, but it is technically challenging. It’s in a very challenging environment and part of the world, and it’s part of Equinor’s global portfolio. As part of that, it’s not a question of profitability necessarily — although that’s obviously a big part of it — but there are political implications. I believe local benefits to be a huge sticking point with Equinor Norway. Bay du Nord will be an extremely profitable project for not only Equinor but for all the businesses across Newfoundland.
I just wanted to make that clarification, if that helps.
Senator Miville-Dechêne: I understand what you’re saying about the 7%. The fact that there’s no project that’s now being completed or a new project, doesn’t that show that either the oil present is more difficult to extract or the market is not there to do it? What does it show?
Mr. Follett: That is a very good point in terms of the fact that oil will only be found if oil companies drill, explore and take chances. The view could be that the oil companies can get that oil faster and cheaper in less developed places, like Guyana or Africa, and therefore, they may not want to take the risk on drilling in Canada. In Guyana, they can go from discovery to first oil in three to five years. I assume that would take 20 years in Canada. Obviously, there are significant pros and cons to both of those sides, but you’re right, that is a consideration.
To Mr. Locke’s comment, the only project currently that is even close to moving forward is Bay du Nord, and there’s nothing right now that’s been further progressed than that at all.
Senator Miville-Dechêne: Thank you very much.
Senator Lewis: Mr. Locke, you talked about the revenue to Newfoundland from the oil business. You talked about years of surplus and $20 billion in debt. If Bay du Nord comes online, has there been any analysis into the future as to how much—- we may have surpluses that could go towards paying the debt. Have they looked at having a rainy day fund, a future fund like Norway has, hundreds of billions of dollars in place because they’ve developed their industries? Have you done any analysis on that as far as Newfoundland?
Mr. Locke: Let me think about how to answer that question.
The provincial government has a future fund where some portion of the royalties received from the offshore are put into that, so that can be used.
The issue with respect to what Bay du Nord will mean to the provincial economy or to the provincial treasury depends on what we’re talking about when we talk about Bay du Nord. There are several fields that could be encompassed by Bay du Nord. It depends on what the company is putting forward publicly in terms of the specific fields that are being considered. It was delayed for a period of time, without a doubt. As far as I understand, it’s back on full speed right now.
Senator Lewis: Mr. Follett, over time, in your experience in the industry and so on, as the current fields are being exploited, has the recoverable amount of oil increased over time from what it was originally thought they would get and they’ve gotten more oil out of it because of improved technology?
Mr. Follett: Yes. The example with Hibernia is not just because of improved technology. As you likely know, Hibernia was originally sanctioned on 500 million barrels of oil, and it should have finished up about 10 years ago. It’s already produced 1.3 billion, and it has been extended out to 2043. These things are not exact science in terms of the reservoir.
I am seeing an enormous shift. The whole world is shifting in technology in oil and gas. They’re all moving to software. They’re using technology to increase production and to try to reduce emissions as well as make things safer. Software, which is the business that I’m now in, is being developed in a matter of weeks and months. It’s transforming how they’re doing their work. The answer, I guess, in general is yes, they are bringing on technology all the time to increase reserves, but there is just an influx of technology in all parts of their business.
Senator Lewis: Is a lot of that based in Newfoundland? A lot of this new research and some of the improvements are coming out of Newfoundland? You mentioned that Newfoundland is seen as a world leader in this technology.
Mr. Follett: I would say in terms of digital technologies and software, no. I have a software company that I deploy in Australia, Malaysia, Equatorial Guinea and Congo, but that’s more in terms of the support for the local tech industry. The domain is almost irrelevant. I only did it in Newfoundland because I felt the best offshore energy people were there. I would suggest that most of the technology used in the global offshore energy industry comes from Norway, Scotland or Houston. We just have the human resources that are now all over the world leading the industry and are here now. I think there’s a lot of uncertainty with that in terms of whether they’re going to stay here and whether there’s work in oil and gas or other industries.
I wanted to make one final point. Bay du Nord is a real topic here in that space, but the Churchill Falls projects are an enormous enabler for the province as well. It’s going to cost $15 billion to $20 billion to build Bay du Nord. We have $15 billion to $25 billion in projects in Labrador that are now sort of on the tipping point of going. That same workforce that will support one will support the other, so that allows some continuity of the workforce, as Lower Churchill did. That’s an important part of the energy equation for a small place with a highly skilled now but small workforce.
Senator Lewis: Thank you.
[Translation]
Senator Youance: Mr. Locke, I want to talk about the risks for Newfoundland and Labrador and Canada associated with heavy dependence on offshore oil revenues. You said in your remarks that, despite declining revenues, spending continues to grow. Is all this good for the long term? Will the Newfoundland and Labrador government reach a point where it can no longer meet needs or support spending, given global market fluctuations in relation to demand?
Will the province reach a point where it can no longer sustain this spending, given the various factors and global market fluctuations?
[English]
Mr. Locke: It surprises me to no end that they can even spend at the level they’re spending at. The graph you’re referring to was a graph I did up to help people understand how expenditure started to go up quickly when our revenues went up, and then when our revenues went down, our expenditures didn’t go down. We borrowed more.
That’s a political decision about whether or not the politicians have learned to invest, as Mr. Follett suggested, in appropriate ways. In Newfoundland, it’s an interesting situation because there are 40 members, and half of them are outside of major urban centres. When you cut back expenditure, you’ll affect people in smaller areas, for the most part. If you want to get re‑elected, it’s probably not a good strategy. In terms of politicians, we’re good politicians in terms of doing what the people want.
No, I don’t think we’re at a point where it’s unsustainable, but I do think there’s a point where we have potential revenue coming in from an MOU with Quebec and the Bay du Nord project, as well as the five fields that are currently being exploited right now. That could be used for more productive ways of spending money but, again, we have a lot of issues around provincial debt. I hadn’t come here prepared to talk about provincial debt. No, I don’t think there’s a limit in terms of getting exposed to too much revenue that will cause them to spend much more. No, I don’t think so.
[Translation]
Senator Youance: My question has a second component, which Mr. Follett could address.
Are the current investments — not including Bay du Nord yet — in exploration and development enough to remain competitive with other jurisdictions? You spoke about development in Guyana and other countries. Are these investments enough — I’m adding another layer — given Canada’s commitments to net zero?
You spoke about fluctuations in human resources. Do these fluctuating situations pose an additional risk or challenge when it comes to the sustainability of the current investments?
[English]
Mr. Follett: Can you clarify investments for me as part of your question? Do you mean investment —
[Translation]
Senator Youance: I was talking about current projects, specifically development projects.
[English]
Mr. Follett: Right, so investments that are in the existing projects or Bay du Nord potentially, are we still able to be competitive with other parts of the world with consideration for climate change and all the other factors that exist in Newfoundland and Canada? Is that your question in general?
Senator Youance: Yes.
Mr. Follett: It’s very challenging for us to stay competitive in that space because, as I said, there are other parts of the world where you can extract resources quickly and less expensively, but they have challenges as well, such as corruption and workforce challenges. They often have political challenges as well.
We still have a very strong market for all of the oil that comes out of the existing platforms. The Bay du Nord project itself would be a tremendous investment that Equinor is comparing to assets in the North Sea and in Brazil. By virtue of Equinor making that decision about the investment on a global scale. So yes, we’re competing with those other projects as a province and as a country. Benefits, the environment and regulations are all part of that mix. My understanding is that we’re very competitive. As Mr. Locke said, the latest commentary from Equinor is that they will develop Bay du Nord, that they are going to go ahead and develop that, which, by virtue of that decision, implies that we’re extremely competitive. I think that’s also driven by global demand in general. Did that answer your question?
[Translation]
Senator Youance: Yes, very well, thank you.
[English]
The Chair: I’d just like to delve a little bit into what you were talking about in terms of globally versus what’s happening in Newfoundland and where the benefits are to exporting the oil and then the whole idea of benefits to society as a result of the production of oil. You’ve talked about future funds, I think you called them, possibly, or other things. Are those mandated by the province, or have they been in the past? Do you see opportunities by doing some things differently so that any increased production, for instance, would benefit directly in developing other modes of electricity, for instance, or other social benefits? I’d ask each of you to talk about those things just a little.
Mr. Follett: The big discussion in Newfoundland is typically about jobs, always. The discussion around benefits and the obligation for these companies to provide near-term construction jobs is always the kind of near-sighted political driver in that discussion about these oil projects, but the real benefit is the royalties. They often get overshadowed politically because people are asking about jobs, but those royalties — and Mr. Locke can give you all the detail and numbers that I’m sure are already in the presentation — for a province that has 500,000 people, which is the population of a small municipality, with an enormous land mass that has to be maintained, those royalties change the lives of people all around the province for decades. Those royalties are so significant for a population that small and they can be used to invest in hydro, mining, technology and software companies like mine.
I was at Nalcor for a period, and we were assessing submarine cables, bringing electricity down to Boston. I’ve been part of projects where we were looking at pipelines to the Avalon, bringing gas to power the province. There are so many opportunities there. We were looking at compressed natural gas. There’s the wind-to-hydrogen opportunity. For me, what unlocks some of these other investments is the royalties that we could potentially get in the future from projects like Bay du Nord. We can then flip them into these other energy opportunities. We have a wealth of resources in all those areas, so I see this as a turning point for the province whereby Bay du Nord specifically could and should unlock a lot of those opportunities in the future, I would hope.
The Chair: Is there a history in the recent past of the royalties being invested, as you mentioned, to other things that would benefit Newfoundland and Newfoundlanders?
Mr. Follett: I’ll pass it on to Mr. Locke after this, but I think the comment would be not to the extent it should have been. I think in Newfoundland’s history, we’ve notoriously not leveraged the benefit of resources of this kind to diversify the economy. I believe Mr. Locke said it was 15% of the GDP. That’s four assets offshore bringing in 15% of the revenue for a full province. That is stifling in terms of the risk to our economy.
Mr. Locke: With respect to your question in terms of a future fund, we just had a change of government. The previous government had enshrined in legislation that a portion of royalties would be paid into the future fund. I guess that’s a way of controlling their urge to spend.
When we had oil and gas going at a peak — you’ll see some diagrams there and some significant peaks — what happened was that we cut taxes to everybody. We raised the salaries of the public sector workers and universities and invested in infrastructure in terms of buildings like the Corner Brook campus had a new building put up. A lot of new buildings were put up as well. To answer your question of whether the ordinary Newfoundlander gets benefit from these things, yes.
The other thing I would point out is that wages went up significantly during this time period as well. We went from being well below the Canadian average to equal to or above the Canadian average in terms of wages. The impact on GDP was tremendous. GDP translates into all kinds of other taxes as well. Since equalization started in 1954, we’ve received equalization every year, and we were one of the highest per capita ones — us and P.E.I. — forever. In 2008-09, we no longer received equalization, and that was because of oil and gas. That was a benefit for the rest of Canada as well.
The Chair: The government obviously then intentionally turned those royalties into benefits for the province over that time in the past?
Mr. Locke: Intentionally or otherwise, they did it.
The Chair: Thank you.
Senator Miville-Dechêne: I’m very curious about one aspect, Mr. Follett. You are the boss or the creator of the company called Enaimco. What does that do? I’m reading “software solutions.” Do you stuff around climate? What is it exactly? What are we talking about here?
Mr. Follett: I will speak to it succinctly because it’s probably tangential to the discussion here. My whole life’s work has been spent in installing infrastructure underwater. Doing so takes a great deal of money and creates a great deal of carbon emissions to have very expensive boats going back and forth to service these offshore oil facilities. We’ve developed a software that allows you to do what’s called digital twinning. Effectively, you replicate what’s offshore on your computer so that you don’t have to send people or boats out to the facilities as often. This is a big mandate for Equinor. Some of these offshore assets right now have 250 people on them. Equinor wants 50 for a number of reasons, but one is to reduce helicopters, reliance on boats and greenhouse gas and emissions.
Yes, that diversified the experience I gained in Newfoundland that I then took to the Far East and Australia. I saw a need in that industry for software to help not only reduce costs to make the projects more viable but also reduce emissions and greenhouse gas. That’s one application. Software like this is being developed all over the world for various different applications for the same purpose.
Senator Miville-Dechêne: Thank you for indulging my curiosity.
The Chair: Any last short questions for our witnesses? No?
This has been fascinating. I thank you both very much for being with us, both virtually and in person. We’ll hope to see you again at some point.
Mr. Follett: Thank you for the opportunity.
The Chair: Thank you very much.
(The committee adjourned.)