Is Equinor’s Bay du Nord ‘Delay’ a Cancellation in Slow Motion?

Primary Author: Mitchell Beer
Is Equinor’s Bay du Nord ‘Delay’ a Cancellation in Slow Motion? - Equinor

June 1, 2023

There’s growing speculation that the decision to “postpone” work on the giant Bay du Nord oil and gas project off the Newfoundland and Labrador coast is actually a cancellation moving in slow motion.

Norwegian state fossil Equinor announced Wednesday that it was suspending plans to develop the C$16-billion Bay du Nord megaproject in the province’s offshore for up to three years.

Equinor revealed the surprise “strategic postponement” of the project in a news release Wednesday, while the province’s annual energy industry conference was under way in downtown St. John’s. It said Bay du Nord had seen significant cost increases in recent months, mostly due to volatile market conditions.

Though the company had not yet confirmed it would make the full investment necessary to carry the project through to completion, there was early-phase work under way, including concept studies and assessments, spokesperson Alex Collins told The Canadian Press in an email. She said the company would use the delay to “optimize” the project and work toward a “successful development.”

The five sites that make up the Bay du Nord project are believed to hold a total of 979 million barrels of recoverable oil, according to recent estimates from the province’s offshore oil regulator, CP writes.

After Equinor’s bombshell announcement, Premier Andrew Furey put a brave face on the announcement and said he was confident the oilfield would still be developed.

“Of course we’re disappointed in the delay, but I would caution everybody that it’s just that: it’s a delay,” he told media, adding that Equinor has not given any indication it was interested in walking away from the development.

“The resource is still there,” Furey said. “It’s not going anywhere.”

As it happens, though, the announcement came just days after the International Energy Agency (IEA) reported a dramatic drop-off in investment in new project development by many of the world’s biggest oil and gas companies. The report shows the companies investing far less in new extraction projects—and next to nothing in self-styled low-carbon initiatives like biofuels, hydrogen, and carbon capture, utilization and storage (CCUS)—despite an “extraordinarily profitable” year that saw them take in US$4 trillion in profits in 2022. Oil and gas capital expenditures will stand at 48% of total spending in 2023, down from 61% last year, 73% in 2020, and highs of 93% and 94% in 2016 and 2010.

“Uncertainties over longer-term demand, worries about costs, and pressure from many investors and owners to focus on returns rather than production growth mean only large Middle Eastern national oil companies are spending much more in 2023 than they did in 2022,” the IEA said. “And they are the only subset of the industry spending more than pre-pandemic levels.”

A ‘Bleaker’ Outlook for Oil

Bay du Nord’s opponents quickly declared the win and said they had no plans to slacken the pressure against the project, beginning with a request for judicial review led by Vancouver-based legal charity Ecojustice. But they say the tough market conditions Equinor is facing aren’t likely to improve over the next three years—and if the project is destined to disappear, it’s unfair to keep offering Newfoundlanders false hope of jobs and economic gain.

“There are various ways you can interpret that statement,” Ecojustice Program Director Alan Andrews told The Energy Mix, citing Equinor’s reference to volatile market conditions. “Taken at face value, it seems to be about rising costs associated with production. However, another way to look at it is around market volatility when it comes to the demand for oil and gas. While we’re obviously seeing a big spike in demand and prices in the aftermath of the Russian invasion of Ukraine, the medium- to long-term outlook is much bleaker for oil, and that may well be playing into Equinor’s decision here.”

Speaking two years and 14 days after the IEA’s landmark Net Zero by 2050 analysis called for no new oil and gas fields in a decarbonized future, Andrews said the Paris-based agency’s conclusion “is only strengthened in the aftermath of the war in Ukraine, as we’ve seen Europe really double down on its energy transition.” If Equinor is hoping that lower inflation will cut the costs of some of the equipment and services it needs for Bay du Nord, “it’s hard to see how the demand side of the equation will get any better for them in three years,” as competing oil and gas projects take advantage of the same cost savings and fossils as a whole continue losing ground to renewable energy and energy efficiency.

With the IEA’s analysis as a guidepost, “the long-term outlook for demand for oil, and gas, particularly for Canadian oil and gas, has got to be grim,” Andrews added. “And the longer they delay, the worse that is going to get for them.”

‘This is Serious Stuff’

Industry veteran Rob Strong told CBC the announcement was far more serious it might sound.

“If there’s no Bay du Nord, what is there?” he asked. “I mean, you might get a little bit of exploration drilling in the future. But if Bay du Nord doesn’t happen, will BP—assuming they discover something—will BP go ahead with it? So, this is serious stuff.”

Provincial opposition leader David Brazil added that “that’s three years with thousands of jobs lost and billions in economic activity for workers and their families—if the project hasn’t been shelved altogether.”

Equinor’s media team did not reply to emails asking how they expect changing market conditions to help the project over the course of a three-year postponement.

Conor Curtis, head of communications at the Sierra Club Canada Foundation (SCCF), said Equinor should share more information with people in Newfoundland and Labrador communities who are planning their lives around the project.

While Sierra Club and its partners in the Ecojustice lawsuit won’t assume Bay du Nord is cancelled until Equinor says so, “we’ve long doubted the economics of this project,” and the decision to postpone “casts big doubts not only on this project, but on all the other offshore projects that have been proposed,” he said.

But even so, “people base their decisions on what they read in the news. So when oil companies come in and say there will be an oil boom, people bet on the future based on that. For a long time we’ve been saying that’s irresponsible, that these products are unstable economically over the long term,” but local residents can’t make different choices when that’s not the story they’re hearing.

“They could have made decisions in a different direction than betting their futures on the continuing expansion of the oil and gas industry,” Curtis said. Now, it’s important for fossil industry workers to realize the companies are “telling you something that isn’t going to be the reality. It’s better to face that now and change course,” rather than embracing a “false hope” that would only deliver a future of severe storms and raging wildfires if it actually happened.

Squeezing for Bigger Subsidies?

Citing Strong, CBC says Equinor’s announcement “could be a ploy to squeeze the government on key issues—such as building major elements of the project in other countries with cheaper labour”—while the company and the province are negotiating a benefits agreement for Bay du Nord. Holding out for more generous project terms would not be inconsistent with recent activity in the Newfoundland and Labrador offshore: In June, 2021, the province handed Calgary-based Suncor Energy and other owners of the Terra Nova oilfield a $205-million subsidy, plus another $300 million in royalty relief over a decade, meant to extend the life of the field by about 10 years.

At the time, Energy Minister Andrew Parsons called that “a really good move for this province,” even though Newfoundland and Labrador only expected to see $35 million in royalties in return.

But Strong said that’s not likely to happen again. “I don’t think it’s acceptable in Ottawa…The rest of Canada is not wanting the government of Canada to lend any more financial support to this [industry], so I don’t think that’s the solution,” he told CBC. “I don’t think they can sell another investment in the east coast oil and gas industry when their emphasis is on other alternate forms.”

Andrews said he couldn’t shed light on Equinor’s plans, but if the announcement is meant to lever new subsidies, it’s a “high-risk” strategy.

“Delaying the project by three years is only going to mean further erosion of market demand for oil and gas, as Europe shifts away from gas and doubles down on renewables,” he said, and “the climate crisis certainly won’t be under control. So the medium- to long-term outlook for Canadian oil and gas is likely to be much less favourable than it is now.”

Furey’s comments Wednesday reinforced the point that bigger, wider factors are at play. “This has nothing to do with ongoing discussions we had,” he said. “This is a global market decision for them.”

The Court Action Continues

While Equinor hits pause on Bay du Nord, Ecojustice and its clients—Mi’gmawe’l Tplu’taqnn Inc. (MTI), SCCF, and Montreal-based Équiterre—are carrying on with their call for a judicial review of federal Environment and Climate Minister Steven Guilbeault’s April, 2022 decision to approve the project. One critic called that announcement a “slap in the face” to climate science.

“The legal issues remain live, whether or not the project proceeds on its intended timeline,” Ecojustice lawyer James Gunvaldsen Klassen told The Mix in an email. “The legal issues we raise show up over and over in major resource extraction projects and merit determination by the court.”

Ecojustice and its clients are arguing that Bay du Nord “was approved without any consideration of the massive downstream climate impacts of extracting and burning the project’s oil, even though the project’s downstream economic benefits were highlighted,” Gunvaldsen Klassen wrote. As well, “egregiously, the project was also approved without fulfilling Canada’s constitutional duty to consult MTI’s communities” on how marine shipping would affect Indigenous fishing rights and Atlantic salmon populations.

The Federal Court heard the application March 1-2 and the judge’s decision is still pending.

Andrews said there’s at least one other important question for the court to consider, even if it eventually turns out that Bay du Nord is on its way to being cancelled.

“Canada continues to take an inconsistent approach when it comes to climate change,” he said. “On one hand, it’s acting to reduce its domestic emissions of carbon pollution. On the other hand, it willfully ignores the impacts of its fossil fuels when they’re sent overseas.”

[Top photo: Equinor]