Offshore oil: environmental disaster, or jobs? (Shared Vision magazine, Vancouver, February 2005)

Once upon a time, Prince Rupert was a vibrant, blue-collar town. The trees and the fish and the deep port provided Rupert with a healthy resource economy, and its people had work. But while memories of those days remain, the pulp mill has closed, the commercial fishery is in disarray, and rust is claiming the metal of unused machinery that lines the harbour.

What’s left is the hope that another industry will arrive with jobs and investment in hand.

When Premier Gordon Campbell announced plans for an offshore industry in 2001, oil and gas became that hope for many people. But Des Nobles isn’t falling for it. He says an offshore industry is nothing but a false panacea for his town, and that big economic projects, realistic or not, excite people when times are tough. “Three years ago we had the pulp mill close down and this town was pretty hard-pressed,” Nobles says. “Oil and gas has become the saviour; whether that’s true is the question, but that’s the mantra being chanted.”

Nobles embodies the tensions of his town. A commercial fisherman for 25 years, he now works for the T. Buck Suzuki Foundation, an environmental group that opposes offshore oil and gas development. Local livelihoods have long been wed to resources, and residents who need jobs are being forced to decide if the environmental gamble is worth it. Desperation is tipping the balance, Nobles says. Many people have lost their homes, while those who remain hope things will pick up. “These sorts of industries start to look interesting, and that’s the scary part. But what else are you going to do?”

BRITISH COLUMBIA HAS been down this oily road before. For decades both the federal and provincial governments have researched drilling for crude off the coast. But, as with the 14 wells Shell Canada drilled near Tofino and Prince Rupert in the late 1960s, no one’s struck oil. Since 1971, when Pierre Trudeau’s Liberals instituted an exploration moratorium, offshore seismic testing has been banned in B.C. Then came the Exxon Valdez spill in 1989—dumping 45,000,000 litres of crude into an Alaskan harbour—and everyone was reminded of the devastation caused by such spills. Last November’s spill of 170,000 litres of oil off the shore of Newfoundland brought the issue even closer to home. In fact, the very day B.C. energy minister Richard Neufeld was in Ottawa to lobby the feds to lift the moratorium, the spill at Terra Nova was making headlines. And that spill also came in the wake of the Priddle Panel report, which, based on submissions from the public, said that 75 per cent of B.C. residents want to keep the moratorium. Another report by the First Nations Engagement Process showed that First Nations agree, arguing that the risk to the marine ecosystem outweighs any potential benefits from development.

The environmental risks of offshore industry are forcing B.C. residents into a difficult balancing act. With war raging in the Middle East and oil flirting with $60 a barrel in 2004, can we really afford not to harvest oil if it’s out there? On the other hand, can we accept the risk of a Valdez-sized spill near the Queen Charlotte Islands or Tofino?

Oil is easy money. Onshore oil is already B.C.’s biggest cash crop, worth $2.03 billion in revenues in 2003. With the world consuming more than 76 million barrels a day, at anywhere from $40 to $60 each, Premier Campbell sees more than water off B.C.’s coast—he sees hospital beds and budget surpluses.

RON BURLESON , senior project manager with the B.C. Offshore Oil Team—set up in 2003 with a $5.8 million annual budget—says offshore oil and gas drilling is an opportunity “too great to ignore.” Bolstering that opinion is a 1998 Geological Survey of Canada study that estimates B.C.’s offshore reserves could be close to nine or 10 billion barrels, potentially worth $110 billion. (Cook Inlet, Alaska, has two billion barrels of recoverable oil reserves; Hibernia has just under 900 million barrels. The B.C. estimate is for total reserves. Recoverable reserves would be lower.) “It’s very difficult to predict what the revenue stream is going to be,” cautions Burleson. “We’re not there yet, it’s too early.” However, he says that his team is confident the moratorium will be lifted.

Aside from the moratorium, offshore drilling faces many hurdles, including resource ownership. To determine who owned the oil and gas off the shores of Newfoundland, the federal and provincial governments went to the Supreme Court, which found for the feds. Bitterly divisive ownership battles continue today. In late December, Newfoundland Premier Danny Williams walked out of talks designed to solve the dispute and ordered the removal of the national flag from all provincial buildings. He called Ottawa’s reluctance to cede all revenues from Newfoundland’s offshore industry “a slap in the face.”

More parties sit at the offshore-oil table in B.C. than in Atlantic Canada, including several First Nations. But Burleson says the government will likely have a policy framework negotiated by 2007, and “some activity” happening offshore by the Winter Olympic Games in 2010.

However, the provincial government doesn’t want to pay for a mega-offshore project (and all offshore projects are mega), so it plans to put private industry in the driver’s seat. The scenario seems logical: Companies will invest millions to search for oil, spend millions on equipment to get the oil, then pay millions to the province in royalties when they extract the oil. All the while, the government will spend relatively little. Burleson says the estimated reserves make this scenario realistic.

Another possibility, which the government doesn’t talk about, is that an economical amount of oil or natural gas won’t be found. Adrienne Lamb, spokesperson for Shell Canada, says offshore projects are more complicated than just finding and drilling for oil. The projects are expensive: Terra Nova in Newfoundland is expected to cost around $4 billion; Hibernia, with its iceberg-resistant structure, cost nearly $8 billion. To recover costs, there must be plenty of oil. “It’s not just a matter of making one commercial discovery,” says Lamb. “There have to be pools in close proximity to each other.”

Former premier of Newfoundland Brian Peckford will tell you how hard it is to find offshore oil. Exploration off Newfoundland turned up nothing until 1979, but oil didn’t flow from Hibernia until 1997. “In many places they go for decades and don’t find anything,” Peckford says. “Look at Nova Scotia. They have only one project [and] it’s been all dry holes. That’s the chance you take.”

But Peckford, who now lives in Qualicum Beach on Vancouver Island, wants the B.C. moratorium lifted. “The province and the feds don’t invest any money, it’s the companies that do. Then it’s the province that reaps the benefits. The investment from B.C. will be quite minimal.”

Using Hibernia as the reference point for his claims, Peckford argues that Newfoundland got more than half a billion dollars pumped back into the province, and that 89 per cent of the workers at Hibernia are Newfoundlanders. “There’s 105 communities in Newfoundland with someone working in the offshore industry,” he says.

However, the federal and provincial governments gave $1.15 billion in grants, a little less than $1 billion in investment capital, $190 million in tax exemptions, $300 million in interest-free loans, and $2.36 billion in loan guarantees to keep the Hibernia project afloat. But Peckford remains resolute: “If you look at the number of projects on the East Coast, of the five or six there, only one got government money—the first one, the most difficult one.”

GOVERNMENT CASH INJECTIONS aside, Hibernia is the best example of what can go right—and wrong—with offshore projects. Oil is flowing there, and so is money, but according to Dale Marshall, an economic analyst with the David Suzuki Foundation, the number of jobs and revenues created doesn’t justify the tax incentives and other public costs. “Offshore projects cost billions of dollars—Hibernia is the perfect example of that,” he says. “The return you can expect is maybe four per cent.”

Marshall says that offshore-oil projects are bad at job creation, noting that Hibernia created only five jobs per million dollars invested. “Land-based oil and gas creates seven jobs per million and renewable energy creates 12 jobs per million,” he says, quoting figures from his own research and a study done by the Pembina Institute, an Alberta-based environmental-policy research organization.

Marshall says that offshore projects employ people who build rigs and then man them. But B.C.’s recent decision to have its new ferries built in Europe, combined with the fact that the province doesn’t have a shipbuilding industry capable of constructing offshore rigs, lead him to believe that there’s “almost no chance” rigs will be built in B.C.

Jose Villa-Arce, chief negotiator with the B.C. Offshore Oil Team, says it’s too early to speculate about rig construction, and alludes to the limited role government will play. “This government sees that these decisions are made by the primary investors, and that’s industry,” he says. “If there is an industry here that can do that, they’ll use them. If it’s somewhere else, they’ll go somewhere else.”

But Marshall’s critique goes deeper than his concern about where rigs would be built. Not only are capital costs high and job creation dismal, he says, but offshore projects also create what he calls “opportunity” costs. He says the ministry of energy and mines is spending so much time on offshore oil that there’s no doubt it’s ignoring other opportunities. For example, he says, “There are so many provinces in Canada moving ahead on wind development. B.C. has one of the best wind resources in the world, and yet, there’s not a single wind turbine in the province.”

And, he says, significant numbers of jobs from offshore drilling would be at least 12 to 15 years away. Hibernia took almost 19 years to produce oil. Marshall says the government is “dreaming” to think a B.C. offshore industry will be in place by 2010.

Nobles says people in Prince Rupert recognize that. Offshore oil is “about opportunities for their children instead of for themselves,” he says. But Villa-Arce disagrees, saying that offshore industries are already creating jobs. “There’s going to be jobs right away, but not what people expect. There’s the economic potential in preparing the industry for any discharge, whether from vessels or structures, to put in place response mechanisms up and down the coast. It’s just not on a drilling rig with hard hats.”

ENTER BILL REES , UBC professor of community and regional planning. He’s a proponent of true-cost economics, which takes external costs created by something—in this case oil—to determine its actual, or true, cost. Oil is relatively cheap by the barrel, but factor in global warming, oil spills, health problems, and recreational Hummers—the list goes on—and it isn’t cheap at all.

And Rees doesn’t buy the government’s offshore-oil claims. “When a government can announce a multibillion dollar project and pretend there’s going to be job creation, they do it,” he says, noting that the money in mega-projects goes toward buying equipment, not hiring people. “Before anybody decides if this is going to be a boom for the province, we have to ask where the money is going to be spent. Is it on labour or capital?”

Rees says that using a hypothetical $100 million dollars, with $90 million going to buying an offshore rig from China or South Korea and the remaining $10 million staying in the province, there’s no net gain. “The money goes straight out of the province. The money could have been spent on something else.” He says that “something else” should be conservation: Governments should invest in alternative-energy research, create high-end jobs, and find ways to use what energy we have more wisely. “If Canada took conservation seriously, we could save oil and gas by retrofitting houses. The labour required would create more jobs than the labour you get out of offshore oil and gas.”

Rees feels the probability of a “huge” find off the coast—one to eight billion barrels—is very small. “Let’s say we find eight billion barrels—and there hasn’t been a find that big for decades,” he says. “That would just satisfy the U.S. for one year, and only add enough oil to be one-quarter of what we use in the world per year.

“Why should we put at risk the economic value of the tourism industry, the fisheries, for one year’s supply of oil?”

MUCH OF THE TALK about offshore oil comes from politicians trying to show that they’re doing something, says Nobles. “If the government wanted to generate opportunities, we’d be looking toward our forests and our fisheries. The fish are still there, believe it or not,” he says. “We’re trying to develop a whole new economy based on oil and gas, fish farms, and the tourism industry and cruise ships.

“All of them make me gag.”

With more than 75 per cent of B.C. residents opposed to lifting the moratorium on offshore oil and gas exploration, it seems Nobles has company. But imagine being in his shoes, seeing his neighbours struggling to get by. They dream of jobs, and their concerns for the environment can’t put food on the table.

The gamble offshore oil requires is clear, and Nobles’s question is apt: “What else are you going to do?”