The boom that was not

Economic lessons for BC from the Hibernia offshore oil project
December 1, 2001

Communities on the mid and North Coast and northern Vancouver Island have been hit hard since the mid-1990s. Highly dependent on the fishing industry, they have suffered through two rounds of downsizing that has cut the salmon fleet in half and salmon employment by two-thirds. On top of that the Gold River pulp mill has closed and 700 Prince Rupert workers are at home, waiting to see if anybody wants to run the Skeena Cellulose mill.

It's no wonder that many people hold out hope that lifting the moratorium on offshore oil development will bring much needed employment. But is that hope justified? Taking a look at the Hibernia experience in Newfoundland reveals that offshore oil does not deliver on economic expectations.

Offshore oil and gas is a hugely expensive endeavour. It is only viable if governments entice investors with huge amounts of public money. The federal and Newfoundland governments provided the Hibernia project with $1.15 billion in grants, just under $1 billion in investment capital, at least $190 million in tax exemptions, up to $300 million in interest-free loans, and $2.36 billion in loan guarantees. Based on the royalties agreement, it is still unclear if the governments will recuperate all their money.

To many British Columbians, the potential for jobs is more important than government revenue. Even in this respect, Hibernia's record has been dismal. The Jacques Whitford report--used by the BC government as a green light for offshore oil--admits that exploration holds "limited opportunities for local involvement." The construction phase of an offshore project does create more jobs. It took 5,000 workers five years to construct the Hibernia platform, with two-thirds of these jobs going to Newfoundlanders.

Somebody living in a depressed area of BC might be impressed with these employment totals. But caution is in order. The construction jobs were obviously temporary. Many of the Newfoundlanders that were lucky enough to help build the Hibernia platform are now working overseas, since comparable jobs no longer exist. Also, the Newfoundland government insisted upon a gravity-based structure because it would create more jobs. Increasingly, floating platforms--requiring less investment and labour--are being used, allowing construction to occur in distant locations. For example, Terra Nova's main structure was built in South Korea and White Rose proponents want to build that platform entirely in international shipyards.

Both Newfoundland and Nova Scotia have been left wondering about the economic boom they were promised. Newspaper headlines this summer read, "Still missing in Atlantic Canada--Wealth" and "Nova Scotia still waiting for big petroleum payoff." During the public hearings on the White Rose project, most submissions were from people and organizations actually involved in the Hibernia project stating that spin-offs have been disappointing.

But the most important lesson on offshore oil projects for BC is the lost opportunity. Of course Hibernia created jobs. Any project that uses billions in government money will. The question is how many jobs and for how long? Hibernia only created about 7.3 jobs per million dollars invested even when you include spin-off jobs. For the same investment, renewable energy projects create 60% more jobs, and energy efficiency/conservation projects create almost five times more jobs. The market for renewable technologies is expected to grow from US$7 billion this year to US$82 billion in 2010, continuing the double-digit growth from the last decade.

The challenge for the BC government, then, is to leverage investment in renewable technologies and to outright fund conservation projects. Offshore oil projects are only viable because of government subsidies and renewable technologies have been held back by these perverse incentives. Instead of lifting the moratorium, we should be shifting our attention to technologies that are not part of sunset industries, that in fact promise tremendous growth in the future, and that provide a greater number of more stable jobs for British Columbians.

Dale Marshall is resource policy analyst with the BC office of the Canadian Centre for Policy Alternatives.