PACIFIC COAST OIL AND GAS DEVELOPMENT (2004 – Revised 2006)

For more than 30 years oil and gas development off BC’s coast has been stranded behind a notional moratorium. There are no legal moratoria per se; they only exist in the sense that an application to explore would not be granted.

Much of the opposition to coastal development is obsolete, inaccurate and fails to recognize the potential benefits to the people or economy of BC, aboriginal communities and Canada through new revenues through jobs, royalties, taxes and much needed investment. By way of example, the thriving BC onshore oil and gas industry employs over 34,000 people and contributed $2 billion in 2003 directly to BC’s coffers (excluding taxes).

Offshore oil and gas development takes place in discrete phases separated by analysis and decision points. These phases include exploration (including seismic surveys), exploration drilling, delineation drilling (to determine commercial viability), production, and finally decommissioning. It will take 10-15 years to reach first production. It is worth noting that the Sable Island gas reserves were discovered in the early 1980s but did not flow natural gas to market until the late 1990s. This affords ample time to consult with stakeholders and communities and to collect the scientific knowledge required to undertake quantitative risk assessments and move forward in a manner consistent with Canada’s Oceans Strategy.

Its time to lift the moratorium on knowledge and scientific fact!

Science supports offshore drilling
In March 2004, the Royal Society of Canada – a body of top scientists, our equivalent to the British Royal Society – published their “Report of the Expert Panel on Science Issues Related to Oil and Gas Activities, Offshore BC”. Its conclusions:
3. Provided an adequate regulatory regime is in place, there are no scientific gaps that need to be filled before lifting the moratorium on oil and gas development.
4. The present restriction on tanker traffic in transit along the west coast of North America from entering the coastal zone should be maintained for the time being.

The expert panel explicitly made its recommendation on the basis of the environmental precautionary principle . Even in this context, it found no reason to retain the moratoria.

In 2002 an independent scientific panel appointed by the province examined whether coastal or offshore oil and gas could be extracted in a scientifically sound and environmentally responsible manner and arrived at a similar conclusion: "there is no inherent or fundamental inadequacy of the science or technology, properly applied in an appropriate regulatory framework, to justify a blanket moratorium on offshore oil and gas activities."

The Royal Society recommended certain studies and audits prior to drilling: a census of sensitive species in the Queen Charlotte Basin, and data about ocean currents, the seafloor and wind patterns. Since it will be 10 to 15 years before production can start there is time to concurrently permit seismic surveying while collecting the necessary scientific knowledge. The Society’s report noted: “…that lifting the [moratorium] would enhance the opportunities for filling in many of the science gaps, through shared-cost partnerships involving industry participation.” In short, accelerating industry engagement will accelerate scientific certainty.

Removing the moratoria is not providing a green light for extraction of offshore resources. It is simply removing the red light to the consideration of initial seismic activities and exploration, indicating that governments are willing to consider offshore activities through normal regulatory processes.

Our need for oil and gas will continue to grow
In October 1999, the six-billionth person arrived on the planet. Almost half the world’s population is under 25. This phenomenon, described as the “Youth Quake,” guarantees what demographers call “population momentum.” Over the next 50 years the world’s population will grow to about 10 billion.

Against this backdrop, the International Energy Agency (IEA) forecasts that global primary energy demand will increase by two-thirds by the year 2030 and it reports: “Fossil fuels will remain the primary sources of energy, meeting more than 90% of the increase in demand.”

The National Energy Board forecasts that alternative energy sources may eventually be able to supply about 10% of demand in Canada. The bottom line is that renewables are not the answer to growing energy demand and that reliance on fossil fuels will not disappear any time soon.

In 2002, the North American Energy Working Group – comprised of experts from Canada, the USA and Mexico – forecast that: “North America’s per capita energy consumption would increase nearly 10% by 2010 [and] as a share of total world production, North American oil; gas and coal are all forecast to fall…”

New fossil fuel reserves are needed in North America and around the world and higher levels of production will be required.

British Columbia is largely self sufficient with respect to natural gas but relies on Alberta and the state of Washington for approximately 70% of its crude oil and refined petroleum products. BC is paying some $2 billion per year for our oil imports, and employing Albertans instead of our own people. In addition, the imports are increasingly the less environmentally friendly oil sands based material; our offshore crude will be less environmentally damaging in terms of GHGs and other pollutants. With proper apportionment of royalties to “green projects” as Norway has done, environmental neutrality should be possible.

In Canada, only BC suffers from a blanket province wide ban on offshore oil and gas. Newfoundland, Nova Scotia, the Canadian Arctic offshore, and even Lake Erie in Ontario have offshore drilling and production. Why is discrimination against BC justified? Certainly the conditions such as earthquakes, wind, waves, etc., are not worse, and in many cases are better, than elsewhere in regions where industry works safely. Newfoundand & Labrador and Nova Scotia together employ over 20,000 direct plus indirect in the offshore. Why are we denied this opportunity?

Many jurisdictions, including BC , Newfoundland & Labrador, Nova Scotia, the Canadian Arctic, Norway, the UK, and New Zealand all started their offshore exploration in the 1960s. Of these, only BC failed to develop production, and for political, not technical reasons. Canadians are world renowned in rough water and ice area offshore work, but cannot work in BC. Canadian companies, including the former Westcoast Energy and Sandwell, have completed offshore projects, but always “somewhere else”.

Over the next decade or so, forestry, possibly fishing, and conventional oil and gas activity may well decline. Offshore oil and gas, like mining, offers an economic infill opportunity.

Production and refining capability of crude oil and refined products is modest in British Columbia. The Chamber believes that British Columbia has an opportunity with respect to offshore resources to become less dependent on external sources of supply and, at the same time, create an ability to stimulate jobs, income and positive economic activity in the Province by pursuing a prudent plan to develop British Columbia’s offshore hydrocarbon resources.

The Chamber would note that energy activities in Alberta and north of the 60th parallel should create an impetus for British Columbia to consider an “energy cooperation pact” with Alberta. Development of Alberta’s oil sands is occurring at rapid rates fueled by very high crude oil prices, reduced crude oil production in the Lower 48 and a policy desire of the US to decrease imports from less stable regions of the world. Alberta’s crude oil must access markets and there are two proposals to pipeline incremental crude oil from Alberta through British Columbia (Terasen/TransMountain’s proposed expansion to the Port of Vancouver and Enbridge’s proposed new pipeline from Edmonton to the Kitimat area). The development of Alberta’s oil sands requires significant electricity generation and Alberta may be in a position over the next few years of having an exportable surplus of electric power --- should this excess materialize, Alberta would consider building an export power line to the nearest liquid pricing point which is located at Mid Columbia in the State of Washington --- should this transmission line materialize, it may transit British Columbia or may bypass British Columbia all together. Finally, Alberta and many of its producers have been actively engaged with the State of Alaska to develop a gas pipeline project accessing abundant natural gas supplies on the North Slope of Alaska. Alaskan gas may provide opportunities for British Columbia but British Columbia’s interests have largely been invisible with respect to developments in Alaska.

The Chamber is aware of the potential Liquefied Natural Gas projects for the Kitimat area and is supportive of such projects proceeding as one means of attracting investment and creating tax revenues and jobs for British Columbians.

The Chamber believes that British Columbia should move forward with seismic and exploratory activity in British Columbia’s offshore region to ensure the Province has access to its own incremental hyrdrocarbon resources, and the related economic and social benefits from such activity, over the next 15-30 years as opposed to watching from the sidelines as massive reserves are developed in neighbouring jurisdictions which creates an increasing dependency position for the Province.

The Chamber also believes that British Columbia should ensure that a fiscal and regulatory regime is in place to permit the potential exploitation of coalbed methane in the Province. With very high current gas prices, and high forecasted natural gas prices, that coalbed methane in the Province is an untapped and potentially economic resource.

With respect to the offshore, further non-project specific “hearings” are futile and suboptimal with respect to resource allocation decisions. In such proceedings, witnesses are not under oath, need not be qualified, and are not subject to formal cross examination. The resulting information is quite useless. Indeed, the Federal Public Review Panel (“Priddle hearing”) laments in their report: few “expert witnesses”, “technical quality of the submissions was not high”, “hearsay evidence”, the panel "was not in a position to call evidence" and did not "have access to expert staff". Most telling, the panel laments that the panel “was not designed to test the credibility of the views heard”, and that "the Panel was not left with a body of tested evidence ". Only by achieving a specific real project (even if only a small seismic project) does the truth emerge and the alarmist rhetoric becomes publicly exposed.

Financing energy investment cannot be taken for granted
The risks faced by investors in energy projects are formidable. Those risks include geological, technical, market, fiscal, political and regulatory. The energy sector has, in most cases, been able to mobilize the required financing in the past. It will do so in the future, but only if returns are reasonable and investment conditions are appealing. Private capital flows are sensitive to macroeconomic conditions and to the nature and stability of government policies.

The energy industry is not going to lead pacific coast oil and gas development without clear policy signals from both the provincial and federal governments, particularly given the mixed signals of the past. Government actions to lower potential barriers to investment are vital.

Additionally, the provincial and federal government has a major role to play in addressing aboriginal groups claims over offshore rights. No claims have been resolved to date. In fact the Haida Gwaii are claiming sole rights to the entire Queen Charlotte Basin. Without settling these disputes, investors are unlikely to have the certainty required. We appreciate this is a significant task, but it is a pre-requisite to offshore development; no less a requisite, in our view, than filling in the scientific gaps and establishing an enabling regulatory regime.

As a starting point The Chamber concurs with the recommendation of the Royal Society of Canada:

“At the earliest possible opportunity an advisory body be formed of stakeholders from government (including those of Aboriginal groups), the oil and gas industry, other industries active or potentially active in the Queen Charlotte Basin, community leaders, environmental NGOs, and other relevant groups. ”

Such bodies in mature oil basins like Cook Inlet, Alaska, similar in many respects to the Queen Charlottes Basin, have been very effective in channeling concerns, organizing monitoring programs and in liaising with industry. The body would advise government, industry and regulators on matters and concerns related to oil and gas projects and requirements for safe practices.”

British Columbians support offshore oil and gas development
Despite the “skewed” statistical findings of the Federal Public Review Panel, two recent province-wide surveys illustrate that the vast majority of British Columbians support offshore oil and gas development.
CGT Research International Inc. tracked public opinion on the matter over a three-year period (2001-2003) and found that:

• Support for exploration has remained strong at 60% or higher from 2001-2003. This figure remains higher at 66% or above from respondents outside Greater Vancouver
• Support for production is strong at 60% throughout BC. This figure rises to 74% if economic growth ensues and 76% if revenues benefit social programs.
• When asked about the impact on BC, 66% or above indicated there would be positive impact on the province. Again this figure rises outside Greater Vancouver with 72% or above stating there would be positive impact.

In March 2004, The Chamber conducted a survey panel of members across BC and found that:

• 84% believed offshore oil exploration should be conducted in BC waters if federal environmental safety standards are properly met.
• 83% believe that oil and gas exploration can be conducted in an environmentally safe manner if federal environmental safety standards are met.
• 87% believe it would be a major economic boost for coastal communities, and the same number state it would be a major economic boost for the provincial economy as a whole.

Conclusion
The principles of “Canada’s Oceans Strategy” include:

• recognition that oil and gas exploration and development as one of many ocean uses;
• the need to focus on conservation and protection of marine ecosystems;
• support for the economic diversification of coastal communities while respecting marine ecosystem health;
• recognition that coastal zone areas may require different management and environmental consideration than for offshore areas; and
• increased understanding of oceans’ activities and ecosystems interactions and the application of adaptive management based on increased understanding.

THE CHAMBER RECOMMENDS

That the Federal Government;

1. immediately lift the moratoria on west coast oil and gas development , and enable the private sector to help collect the information that will fill the knowledge and scientific gaps;

2. undertake aggressive information campaigns and public debates to offset misinformation being actively circulated;

3. cease identification of protected areas unless independent scientific studies support the need, and that designation of protected areas only occur in agreement with the province of BC. There are conflicting interests between the province and the federal government that require certainty from and for all parties;

4. ensures that offshore development proceeds only in a scientifically sound and environmentally responsible manner;

5. that any offshore regulatory regime be results-based and deal with fiscal, environmental, operational and safety issues in an efficient and accountable manner;

6. recognizes that offshore oil and gas development must co-exist with fishing, tourism and other marine industries;