Fri. Mar 1st, 2024

Oil to the rescue of Newfoundland economy in 2024, report says

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The Hercules drilling platform was used by BP to drill its Ephesus exploratory well, off the coast of Newfoundland, in 2023. The oil industry represents 20% of the province's real GDP.

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Economic growth will be stronger in Newfoundland and Labrador than in other Canadian provinces in 2024, according to a new report from the Movement Desjardins.

The analysis highlights that, over the next year, the Canadian economy will navigate troubled waters, in particular because of the Bank of Canada's key rate – a measure taken to curb inflation, but which also increases the cost borrowing and reduce the number of construction starts.

However, growth in oil production off Newfoundland will soften the negative effects of high interest rates on the country's easternmost province according to the report.

The most important factor is the return to service of the Terra Nova oil field, which is on the way to returning to full production, says the author of the report (New window) , the economist Marc Desormeaux.

The Suncor-operated production vessel Terra Nova had been out of service for more than two years, but has returned to the Grand Banks since last November.

The economist adds that household debt is lower in Atlantic Canada than elsewhere in the country, which also reduces the negative effects of interest rates on Newfoundlanders and Labradorians.

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Elsewhere in Canada, for example, in British Columbia and Ontario, it There are several households that have very large mortgages and […] these provinces are more vulnerable to rising interest rates, explains Marc Desormeaux, based in Toronto.

While the report highlights future economic growth for Newfoundland and Labrador, it also illustrates its dependence on black gold. The oil industry represents 20% of the province's real GDP, a higher proportion than in Alberta and Saskatchewan, two other oil-producing provinces.

In Newfoundland and Labrador, oil royalties accounted for 12 per cent of revenue in the provincial government's latest budget. The latter is therefore very vulnerable to the roller coaster of the oil sector, which has been very volatile since the start of the COVID-19 pandemic and the Russian invasion in Ukraine.

The long-term future of the sector, which contributes significantly to greenhouse gas emissions, is also uncertain.

Four offshore megaprojects are currently in production in the Jeanne-d’Arc basin, approximately 350 km east of the island. Calgary-based Cenovus is building the West White Rose expansion project and renovating its SeaRose production vessel to extend the life of the White Rose field.

But the Norwegian giant Equinor put its Bay du Nord project on hold last May. The shock decision has disrupted the oil sector, for which Bay du Nord, the first project in waters more than 1,000 m deep, represents a new frontier.

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