Newfoundland Risks Billions in Bay du Nord Work Without Support

The federal and provincial governments must increase support for Equinor’s Bay du Nord project to retain billions in construction work in Newfoundland and Labrador, according to the organization representing 14 trade unions, Trades N.L. President Bob Fiander emphasized the need for direct government subsidies or tax credits to secure local jobs related to the floating production, storage, and offloading vessel (FPSO).

Equinor, a Norwegian energy company, paused the Bay du Nord project in 2023 after costs soared for the multi-billion-dollar venture located approximately 500 kilometres east of Newfoundland. In response to this setback, the company is now proposing a phased approach to the project, aiming to initiate production sooner. In September, BW Offshore, another Norwegian firm, was selected to construct and operate the FPSO; however, the future of Bay du Nord remains uncertain, particularly as a crucial benefits agreement regarding local employment is still under negotiation with the Newfoundland and Labrador government.

Construction Plans and Local Job Opportunities

Equinor has consistently pledged contracts for subsea work, allowing local companies to participate in building and maintaining a network of deep-water tie-backs that could span an area equivalent to the size of the Avalon Peninsula. The new Progressive Conservative government in Newfoundland and Labrador is advocating for topsides work to be completed within the province. Trades N.L. aims for 65 to 70 percent of the FPSO’s 19,000-tonne topsides, which include modules used for receiving, processing, and offloading crude oil, to be constructed locally.

Fiander pointed out that if wage disparities exist between Canada and Singapore, government intervention through funding or tax incentives could bridge that gap. The Progressive Conservative Party, under Premier Tony Wakeham, has committed to prioritizing local topsides construction, a promise made during the recent provincial election.

In a state of the province address on November 25, Wakeham reported that during his initial discussions with Equinor, the company expressed its commitment to soliciting expressions of interest (EOIs) for local contractors to construct all components of the Bay du Nord project, including the topsides. He noted, “If modules can be built in Newfoundland and Labrador without compromising cost or schedule, they will be.”

During a subsequent media scrum, Wakeham described the EOIs as a significant “shift” in negotiations with Equinor, suggesting a collaborative effort to advance the project.

Challenges and Opportunities Ahead

Despite this optimism, industry consultant Rob Strong, who has extensive experience in Newfoundland and Labrador’s oil sector, expressed skepticism regarding the potential for major topsides work to be established in the province. He warned that achieving competitive pricing and delivery timelines will be challenging, especially since skilled labor costs in Asia are lower and the support sectors in countries such as Singapore and China are more developed.

Trades N.L. recently reported that approximately 70 percent of its 14,000 members are currently unemployed, underscoring the urgent need for job creation through initiatives like Bay du Nord. While Fiander did not specify the amount of subsidies that may be required, he emphasized the project’s potential to provide significant opportunities for skilled trades workers in the region.

As discussions regarding the benefits agreement continue, both the federal and provincial governments have potential levers to influence the situation. The industry organization Energy N.L. has long advocated for the reinstatement of the Atlantic investment tax credit for oil companies. Additionally, the federal government could recommend Bay du Nord to the newly established Major Projects Office, a step that could facilitate access to federal funding.

The federal government could also take responsibility for covering international royalties associated with Bay du Nord oil, as the project lies beyond the 200-nautical-mile limit. Historically, there has been contention between Ottawa and the provincial government over who is accountable for these payments as stipulated by the United Nations Convention on the Law of the Seas.

The provincial government has not ruled out the possibility of acquiring an equity stake in the Bay du Nord project. Strong noted that a payment in lieu of local jobs could be negotiated, similar to a past arrangement in 2012 when ExxonMobil provided $150 million to avoid constructing one of the Hebron platform’s modules in Newfoundland.

According to a presentation by Equinor on November 3, the company has already invested $2 billion in the initial phase of developing Bay du Nord. A final investment decision on the project is anticipated in 2027, with the first oil expected in 2031. Bay du Nord would mark the province’s fifth major oil project, notable for its isolation in waters approximately ten times deeper than those of its four predecessors.

While Strong asserts that Bay du Nord is “critical” to the future of the local oil sector, the project faces scrutiny from various international organizations, including the International Energy Agency, which advocates for the abandonment of new hydrocarbon extraction projects due to the ongoing climate crisis. According to federal data, Canada’s oil and gas sector accounted for nearly a third of the country’s greenhouse gas emissions in 2022.

As the situation evolves, the potential for Bay du Nord to provide economic benefits to Newfoundland and Labrador hinges on successful negotiations and government support.