Atlantic Canada's big, fat energy inventory

An impressive roster of megaprojects means billions of dollars of investment could flow into the region. Can the labour market keep pace?

by Peter Moreira

If you ask Mayor Norm McFarlane to name one event that launched his city’s economic revival, Saint John’s chief magistrate doesn’t hesitate for a second before offering the following response: liquefied natural gas, or LNG. “The main reason that Saint John is hot is that the Canaport LNG receiving and re-gasification terminal project is enabling all sorts of other projects to happen,” says McFarlane.

The project by Irving Oil and Spain’s Repsol YPF, which will vaporize natural gas that has been liquefied for shipment across the ocean, is costing $750 million to build. An additional third tank was recently announced, and while no value has been given on that tank, it will represent a significant additional investment. Still, it’s peanuts compared to the megaprojects that are currently in the works or proposed for the Saint John area.
 
NB Power, a provincial government–owned corporation, is spending $1 billion on a refurbishment of the Point Lepreau nuclear-power facility. Halifax–based Emera Inc. is beavering away on a $350-million pipeline from southwest New Brunswick to the Maine border for Canaport LNG. And in the planning process are a $5-billion to $7-billion second refinery being mooted by Irving Oil, plus a natural gas–fired power plant. NB Power is also pondering a new nuclear reactor at Point Lepreau; it could cost about $4 billion, but no official figure has yet been given.
 
Suddenly, this city of about 125,000 (a Loyalist stronghold, Saint John was the third-largest city in British North America in the 1820s) is recapturing its glory days, largely because of the investment in energy. “In Saint John, what you have is real assets on the ground and an increasing number of people coming in and saying, ‘This makes sense,’ ” says Tim Curry, the president of the Saint John–based Atlantica Centre for Energy.
 
Saint John highlights an economic trend that is repeating itself throughout the Atlantic provinces. More and more, the region’s economy is being driven by megaprojects, massive undertakings that require hundreds of millions or even billions of dollars, take years to complete, and cascade economic benefits on the region for a generation. The good news is that the construction phases of these projects is about to blossom, adding to regional economic growth over the next few years. Better still, most of the multibillion-dollar projects are being built by private money, so governments won’t have to go into the red to finance them.
 
But there is a cloud in all of the silver linings: the projects will squeeze an already tight labour market. Already, economists are able to state categorically that announced megaprojects across the region will contribute to GDP growth in the next year, assuming none fall through for unforeseen reasons. In fact, the Atlantic Provinces Economic Council (APEC) has identified 407 projects with a total value of $72 billion in various stages of development across the region, though some will take a few years to get off the ground. “Major project investment remained weak in 2007, but there are signs that construction activity is on the rise in Atlantic Canada, with a number of significant megaprojects moving forward this year and new large-scale projects proposed,” the council stated in its spring/summer 2007 Atlantic Report.
 
In New Brunswick, for example, economists can now factor in the Canaport LNG project, the Point Lepreau refurbishment, the Emera Brunswick Pipeline, and the $1.7-billion mine expansion that Potash Corporation of Saskatchewan Inc. is working on in New Brunswick. APEC is forecasting that New Brunswick’s GDP will hit 2.7% in 2008, compared with an estimated 2.2% in 2007, as these projects pick up the slack left by weakness in the forestry sector.
 
But if the second Point Lepreau generator and the second Irving refinery proceed, the economic uplift could carry on, or even accelerate, over the next few years. “If a couple of these proposed megaprojects [in Atlantic Canada] come about, there could be a future significant boom,” said APEC senior economist David Chaundy, during a presentation of the think-tank’s economic outlook last fall.
 
The megaprojects are certainly well timed, given that they are getting off the ground when the economies of various provinces are suffering a few rough patches. In Nova Scotia, for example, the tourism sector is feeling the pinch because of the strong Canadian dollar, and there was no significant exploration for oil and gas off Nova Scotia or Newfoundland in 2007. However, Nova Scotia will benefit from the development of EnCana Corp.’s Deep Panuke gas field, a $700-million project that is expected to pump gas from 175 kilometres off the province for eight to 12 years.
 
Even with Deep Panuke coming on stream, APEC is predicting that Nova Scotia’s growth will fall to 1.8% in 2008, from 2.2% in 2007, largely because of two factors that year: the government received a boost from the Sable project and a rebound in paper production at Stora Enso (now NewPage Corp.). Yet there could be a megaproject coming about to bail the province out in the future. Halifax–based Keltic Petrochemicals Inc. is proposing to build a $4.5-billion LNG terminal and petrochemical plant in Goldboro, N.S., where the Sable Island gas comes ashore. The project has received local environmental approval but has yet to receive federal environmental approval or a confirmed source for its liquefied natural gas. “If the Keltic Petrochemicals project gets the go-ahead,” says Chaundy, “that would definitely be an addition to our GDP forecasts.”
 
It’s the same story in Newfoundland and Labrador (see page 37). Canada’s youngest province has suffered from severe out-migration in the past and prolonged problems in the cod fishery, but it should benefit from the continued production from offshore oil fields, a proposed oil refinery, and the Voisey’s Bay nickel and copper development. Vale Inco (formerly Inco Ltd.) has budgeted $3 billion in investment in the Voisey’s Bay project over the 30-year life of the project, though APEC expects another $1.6 billion to be spent on the project. Newfoundland’s GDP growth was estimated at 8% in 2007, though APEC expects it to decline to 1.8% in 2008 as the gains from oil and mining moderate.
 
Premier Danny Williams is now hoping that Vale Inco or another operator will use the abundant supply of nickel in Labrador and electricity produced by the Lower Churchill development to build an aluminum smelter in the area. Newfoundland and Labrador Refining Corp., a majority-owned unit of Altius Corp., is proposing a $5-billion, 300,000-barrel-a-day oil refinery for Placentia Bay.
 
Lower Churchill itself could be the granddaddy of all Atlantic Canadian megaprojects, not just because of the costs but also because of what it would represent in terms of green energy. The sequel to the Churchill Falls project built in the 1960s would provide 2,800 megawatts of power (more than Nova Scotia now produces) of entirely renewable energy. The $6-billion to $9-billion Lower Churchill Project by Newfoundland and Labrador Hydro would involve two massive hydroelectric dams and transmission. This power would be 100% renewable and produce no greenhouse gases.
Prince Edward Island is not being left out of the boom; APEC has identified 50 existing projects on the island, with a total value of $1.5 billion. The largest is the West Cape Wind Park, with a price tag of $230 million.
 
One major feature of the Atlantic Canadian multibillion-dollar megaprojects is that they are almost entirely funded by the private sector. The only public sector projects are those being developed by provincially owned power companies: NB Power’s work on the Point Lepreau nuclear plant and Newfoundland and Labrador Hydro’s Lower Churchill development. Experts say that neither of these Crown agencies should have problem financing the projects, since they would both sell greenhouse-friendly energy to the northeastern U.S. It’s about as sound a business proposition as you’re going to find.
 
The remaining projects are providing a boost to the region because they are luring international investors. Saint John Mayor Norm McFarlane says that he is pleased that a company of Repsol’s stature has come to his city and has seen how efficient and productive the local workforce is.
In fact, the workforce pool across the Atlantic provinces is probably the greatest concern of the advent of so many huge projects in a short span of time. There is already a shortage of skilled workers in the region, and experts are wondering who will build these projects, not to mention where those workers will live. “It may take some co-ordination among the project operators to make sure they don’t all happen at once,” says APEC research analyst Patrick Brannon, adding, “there is the possibility that labour problems could delay some spending or cause cost overruns.”
 
The labour constraints are serious, but ultimately it is Atlantic Canadian workers who may benefit the most from these projects, as they will allow people to find better work, return from other provinces, and even receive training to upgrade their skills. No one knows this better than McFarlane. “With the number of projects underway and planned, Saint John has a real opportunity to reduce its poverty rate,” he says. “While there will be a number of jobs created in the energy sector, there also will be jobs created in the service and retail sectors as the economy grows.”
 

 

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