Wednesday, June 20, 2007

Gary Lunn speaks (in abstentia)

Again, fresh from the NOIA site, the speaking notes of Minister Gary Lunn for the address never given.

Premier Williams was careful to pre-refute Lunn's leaked points but, as you can see here, while critical and testing, the speech was not as adversarial as it was billed.


Thank you Caron, (Caron Hawco, NOIA Vice-Chair) for that introduction and thank you for inviting me to be here with you today.

It is always a pleasure to be in Newfoundland. I was here last March speaking to NOIA, just weeks after I was appointed as the Minister of Natural Resources.

I was impressed I was with the level of enthusiasm surrounding the oil and gas industry at that time. I remember telling you that this province was on the cusp of a bright sustained energy future, and that our Government would work with you to ensure a vibrant oil and gas industry in Newfoundland and Labrador.

We discussed the collaborative work with the provincial government and industry to build a competitive economy and sustainable communities so that Canadians right across this great country would benefit from all your hard work.

Today I do not sense that level of optimism or promise that I witnessed last year in this province.

I say that with sincerity and concern. And I am going to be blunt in my remarks today to describe the current state of Newfoundland and Labrador’s oil and gas industry, and what I think needs to be done to carry us forward.

All levels of Government and you – our industry partners – have an important task at hand. To ensure that the oil and gas industry in Newfoundland and Labrador remains strong, competitive, and above all, achieves its full potential for many, many years.

Our Prime Minister refers to Canada as an emerging “energy superpower”. The potential is real and it is on its way to being realized…along with the associated benefits…in many jurisdictions across this country.

Your industry is having a positive impact on the economy and, if managed properly, it should continue to grow.

The figures are truly staggering and I’d like to run over them briefly.

Over 28-hundred people are employed by the Hibernia, Terra Nova and White Rose projects.

Another estimate says around 14-thousand people are working in the support industries and businesses.

In total they represent 8% of all the people employed in Newfoundland and Labrador and that number can only grow. In 2005 the industry accounted for a quarter of your provincial GDP.

Let’s just focus on oil.

With 179 billion barrels…Canada’s crude oil reserves are second only to Saudi Arabia. Based on current projections, we should climb from 8th to 4th place in terms of oil production by 2015…jumping ahead of Norway, Mexico, China and Iran.

Newfoundland and Labrador is a critical part of Canada’s energy strength. Current estimates peg recoverable reserves at 2.8 billion barrels of oil, not to mention 10.2 trillion cubic of natural gas. But let’s be honest. We know we have only scratched the surface…what we need is to attract exploration to unlock and prove our true potential.

That said, to achieve this potential in Newfoundland and Labrador, we need to see new projects.

Canada’s strength does not just rest in its impressive resource base. We are more than a simple warehouse of natural resources.

Canada’s energy advantage is rooted in its people, its ideas, and its innovative capacity. I believe governments should add to that advantage by providing stable and competitive fiscal and regulatory regimes which encourage investment and innovation.

When you look across the country, you see governments…both federal and provincial…providing stable and competitive fiscal and regulatory regimes…which have led to a rush of innovation and investment on the part of industry…and jobs, revenues, and other benefits for governments and citizens.

Canada’s energy advantage is real. We live in a world of increasing demand for energy, including fossil fuels. But that world is also marked by increasing instability…particularly in key energy producing regions. While it is expensive to find and develop oil and gas in Canada, our strengths are as a significant, stable and secure supplier.

When you look around the world at the behaviour of some of our competitors, attracting investment should be a cake walk. And, it has been for some provinces.

In 1997…Hibernia’s first year…capital investment by the oil and gas sector across Canada stood at $19 billion. In 2007, that figure will come in at $45 billion. How is Newfoundland and Labrador doing? Well, in 2006, Newfoundland and Labrador only attracted about $700 million, about 1.5% of the Canadian total.

What is most concerning is that while other oil and gas provinces…such as Alberta, Saskatchewan and BC…have seen investment and activity surge, Newfoundland and Labrador have seen it drop dramatically.

The boom across Western Canada has created opportunities for Newfoundlanders and Labradorians…but most have been forced to leave their homes, families and way of life. Those opportunities should have been here for them…but they weren’t.

In a province so rich in oil and gas potential, how can it be that 50% of working age people are not working? That is 10% below the national unemployment average.

These should be the best of times…and they are in the other provinces I have mentioned. Does it feel like the best of times here? As business people, do you feel more optimistic about your future than you did four or five years ago? These are tough questions. Why are so few people asking them?

Maybe it is because you can still see and feel the decisions, discoveries and deals of the past. People are working on the existing projects and in the supply and service industries which account for about one quarter of your GDP. Provincial coffers have benefited from your industry. The province has collected over $850 million in royalties alone over the last 2 years.

But today is the product of discoveries made a quarter-century ago and three developments that collectively will soon hit their peak. We are only years away from significant declines in production and revenues.

A recent report suggested that Newfoundland and Labrador is on the cusp of becoming a have-province. I believe it. I have seen the graphs showing surging oil revenues over the next few years. But I have also seen the other side of those graphs…a cliff and plunging revenues without new developments.

Brian Peckford, in a powerful address, once dreamt aloud…”one day the sun will shine and have-not will be no more”. Newfoundland and Labrador’s time in the sun need not last for a brief moment, but that is in fact where it is headed. Again…tough stuff. But it needs to be said.

It does not have to be this way. Companies want to invest in Newfoundland and Labrador’s offshore area. But there is an atmosphere of confrontation and uncertainty that is preventing anything from moving forward.

Think back to the 1970s and early 80s when then relationship between the federal and provincial governments was marked by a divisive jurisdictional dispute, leading to two court references. Investment and development were held back by the uncertainty, to neither Canada’s or Newfoundland and Labrador’s advantage.

Two Conservative governments….that of Brian Peckford and that of Brian Mulroney…came together and negotiated the Atlantic Accord. Like any deal…the Accord required compromise and a spirit of good will. The benefits of that approach are obvious.

That spirit of good will and compromise have to be rediscovered if we are to move this industry forward. It is not too late…not by a long shot…and your federal government stands ready to pull its share of the weight.

Everyone here knows that Newfoundland and Labrador receives 100% of the offshore royalties – as they should. This year those revenues are expected to be over half a billion dollars.

There has been much talk about Equalization recently.

Newfoundland and Labrador has the option to accept the Atlantic Accord. Nothing has changed from what was signed in 2005. Nothing has been taken away from the provinces.

In Budget 2007, our Government brought in the new Equalization formula with the fiscal capacity cap. No province will be worse off because of this formula – in fact all provinces will receive more money as a result of our package.

But I want to emphasize here that the focus should not be on Equalization…it should be on increasing offshore revenues. Ensuring the economy continues to grow so that Newfoundland and Labrador will not have to rely on federal Equalization payments.

I understand Premier Williams announced to you this morning that discussions were back on with the partners for the Hebron project. This is good news – very good news. Although I have heard that discussions – not negotiations – have been on and off many times. But I do hope this is a sign of better things to come.

When many people talk about oil and gas, their minds immediately drift to the activities of the global exploration and development companies - what some call “big oil”.

But the reality is that it is your efforts to build and strengthen the local supply sector, and your capacity to compete – not just here but around the world – that are the real foundation of this industry.

In this regard, I am aware of the work that NOIA has been doing over the past few months to develop a strategic plan which will guide your future as an organization and an industry. I can assure you that our Government will be here – as we are now – to support your important efforts.

For us at least, there is nothing “annoying” about your work. You are the backbone of the oil and gas offshore industry.

Newfoundlanders and Labradorians deserve a fair share from the development of their resources. Every study I have seen suggests that they are receiving that fair share, but the provincial government has every right to mix things up… to try something new…and raise the bar.

But, at some point the provincial government has to lay out what it wants or people will start to question whether they know what they want or where they are going.

The test will be whether it attracts investment…if we see exploration increase…if developments proceed…if your businesses grow and prosper…and the people of Newfoundland and Labrador stop leaving.

At the end of the day, we have to remember that decisions…no matter how popular or appealing, have consequences.

By way of a concrete example, the nixed Hibernia expansion project would have represented a $500 million investment in platform upgrades, up to $5 billion in direct revenues to the province, and would extend the life of the field significantly.

Furthermore, the arrested development of the Hebron field would have resulted in $90 million in expanded offshore payrolls, almost $10 billion in direct revenue to the province, $32 billon in GDP, and significant spending on R&D and training.

And of course, of critical importance to you, it would have meant millions and millions of dollars in employment benefits through local fabrication, construction, procurement, and engineering activities.

Together these two projects could have delivered an additional $14 billion in revenue to the province….More than enough to wipe out the provincial debt.

The people of this province will have to live with the consequences of missing those opportunities.

It will not be felt today or tomorrow, but when oil revenues begin to decline the hard questions will come fast and furious.

All I am saying is do not wait until it is too late to ask those questions. I know the people of Newfoundland and Labrador are blunt…it is a virtue. And I believe in being blunt especially if it means being constructive.

Your federal government, which includes Fabian Manning, Norm Doyle and Loyola Hearn are ready to work with you and the provincial government to put this sector back on track.

This Conference is about identifying what needs to be done, and it is a valuable contribution. I will listen to your ideas and I will learn from them.

That’s how we’ve worked in the past and that’s how we’ve been successful.

As partners, we will find ways to address challenges and create opportunities.

I want to leave you with a message:

You have the resource potential, you have the people, you have the innovative capacity and there’s a strong partnership between our governments on science and technology and regulatory effectiveness. We need to leverage these strengths and work together to get on with growing the offshore industry to reap the benefits for the province and for Canada.

I hope you have a enjoyable and productive conference and thank you again for inviting me to speak with you today.

Thank you.

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