Wednesday, April 24, 2002
The Chronicle Herald, Moncton Times Transcript

What’s natural gas done for us lately?

By Brian Lee Crowley

Taxpayers, workers and businesses are anxiously looking for the huge benefits they expected to see flow from natural gas off our shores. So far, they are disappointed. But they are disappointed both because they don’t understand what to look for, and because they have unrealistic expectations of what can be accomplished in the very short time the industry has existed here.

Capacity constraints in local businesses, tight work schedules for offshore projects, and a host of quality, regulatory and other requirements mean a great deal of the work for the offshore still has to be done elsewhere – often by one of a handful of companies in the world capable of doing the work. In this region, industry estimates that roughly 20 to 25 per cent of their immediate requirements can be met by local suppliers – a good number for a place starting from scratch in a sophisticated and technology-intensive global industry. Figures suggest that local businesses are winning an impressive share of those contracts.

For some, of course, that is not enough. They want the government to force these companies to go higher, perhaps up to 50 per cent or more of the work on these projects. This would be folly.

Exploration is the most essential part of the industry. Without successful exploration, there is no production, no royalties and no jobs. And the fact that one producing field has been brought on stream off Nova Scotia, with another slated in a couple of years, is only the beginning of our potential. But unless we continue to encourage exploration and production, the economic opportunities that gas represents will atrophy. Unless we are growing, we are dying.

PanCanadian’s Deep Panuke field, for example, is only slated to have a production life of 11 years. If we want to build a viable long-term industry with more local content, we have to be finding a lot more gas. Even then, real success will come, not from servicing the local industry, but from becoming globally competitive.

And make no mistake – exploration companies are searching worldwide for opportunities today. There are two simple facts of life in this business: There are too few exploration and development dollars chasing too many opportunities. And oil and gas companies exist in a competitive environment in which low-cost opportunities get developed first. These companies are not charities – they are businesses, and they make their money by satisfying demand and keeping their prices competitive.

Can the local industry ever be large enough to sustain a competitive supply sector on a broad scale? Not for a very long time, if ever. Given the very high regulatory and environmental standards that are required of today’s industry, as well as the efficiency and cost criteria that the industry imposes on itself, we simply do not, and will not any time soon, have the local market to justify the scale of infrastructure and other investments that would be needed. Many market niches in the industry are occupied by a handful of firms that do highly specialized work for virtually everyone in the industry. We have neither the local resource nor the capital to compete.
Protectionism – attempting to cut ourselves off from outside competitors and impose uncompetitive local suppliers on unwilling companies – is a doomed strategy. It violates the letter and the spirit of many trade agreements to which Canada is a party, and opens us up for retaliation by our trading partners.

More important, we cannot have protectionism for ourselves and expect others to extend to us the benefits of free trade. And yet free trade is what we need. If the local petroleum resources are too small to support a significant local industry, then we have two choices: Either we give up the dream of leveraging our natural assets into a large and competitive industry, or else we use the opportunities that our resources represent to build specialized expertise and competitiveness and we go on to sell our skills in the Gulf of Mexico and the North Sea and off the coast of Angola and Australia.

Competition or protection, self-reliance or government dependence, earning our way or demanding favours. The choices we make today are going to shape the oil and gas world on the East Coast for years to come. If we choose poorly, the exploration and development activity we have seen will flatten out and decline, and the companies will recoup their existing investments but not risk any more. Spin-off benefits will dry up. If we choose wisely, we will be an attractive region for international petroleum companies to place new exploration and development dollars, and we will gain technical expertise and competitive know-how that we can sell far beyond our shores.

All it takes to choose wisely is to have reasonable expectations of the resource, but infinite expectations of ourselves.

Brian Lee Crowley is president of the Atlantic Institute for Market Studies, a public policy think tank in Halifax. E-mail: [email protected]