18 June 2009

Obscuring the next frontier

Offshore gas development is the next frontier, according to what natural resources minister Kathy Dunderdale told delegates to the NOIA conference this week.

The Labrador land sale last year garnered some strong interest, as it turned out and that was, at the time rightly heralded as a strong indication natural gas could be the next major offshore play.

One of the companies that has moved in is Repsol:

Repsol is also a majority partner in the Canaport liquefied natural gas (LNG) facility in Saint John, N.B., and the plant will be operational in a matter of days.

"We're looking for supply for that facility," said [Repisol vice-president Denis]Marcoux.

If gas is the next frontier, there are two large obstacles that have to be overcome.  Neither is the technical issue of how to exploit the gas.

One huge problem is the lack of a natural gas royalty regime.  The provincial government started looking at one in the late 1990s.  The current administration inherited their work, produced a draft version that wound up in the energy plan in 2007 and that’s the last it’s been heard of.

Word is the operators had problems with it, but that’s pretty normal for these sorts of things.

In the meantime, given that government can apparently only handle one major issue at a time, odds are good the thing has been languishing, waiting for first Hebron and then Hibernia South to get finished.

That’s despite the Premier’s assurance last year both would be done by the end of 2008.  As it turned out, Hibernia South took another year just to get to MOU and then will take the better part of another year still to get the formal agreements ready.

Your serial government continues to function just at it has since the beginning.

No royalty regime means that even if a company was interested in developing an existing find, they have no way of knowing what the costs are. That level of uncertainty makes companies with the cash to invest leery of starting something.

That’s something that can’t be easily dismissed. Having a royalty regime made it possible for the companies to start thinking hard about Hebron a decade before the deal was done and that was at a time when oil prices weren’t forecast to 50 bucks a barrel.

Heck, some companies haven’t been willing to commit to drilling on gas prospects because they simply can’t forecast the development costs even in a preliminary fashion.  They may bang some seismic in the meantime but no one is poking exploration holes and without those holes, nothing is really moving anywhere.

The other obstacle is the provincial government’s attitude. 

Under Williams Mod 1, there could be no development without tons of add-ons. He said in 2005 that he didn’t want to see gas shipped down the coast in some “God-damn boat.

That’s pretty much what Repsol has in mind and that would definitely bring their LNG tankers up on the rocks that were sticking pretty high out of the water in 2005.

Those rocks might still be sticking out of the water or the tide might have risen.  Right now, the policy fog is obscuring natural gas as the next frontier offshore Newfoundland and Labrador.