Last week, during a speech to delegates attending the kickoff to Noia’s annual oil and gas conference, the premier extolled the “great momentum right now in Newfoundland and Labrador’s oil and gas industry.”
She praised the successes of government and industry workers, and encouraged more exploration and testing to stimulate further growth within the sector.
The premier’s motives are pretty transparent — many of Newfoundland and Labrador’s existing oilfields are past peak oil and new developments are needed to ensure a continued source of revenue for the province — and while I agree with them, you’ll have to forgive me for not sharing in her enthusiasm.
Don’t get me wrong — the province’s rich natural resources have been a blessing for Newfoundland and Labrador over the past number of decades. But they have also been a curse.
Sure, more and more development in oil and gas means more and more money entering provincial coffers.
But it also means less autonomy for the provincial government and a greater dependency on commodity prices for Newfoundland and Labrador. As development in the oil and gas sector continues to increase, our fates become progressively more tightly entwined.
I would be wrong to say that the province hasn’t benefited from oil and gas in recent years. It has meant massive investment in the province and countless jobs for Newfoundlanders and Labradorians, not to mention freeing us from “have not” purgatory and feeding all the “have province” bravado we’ve been soaking up as a result. Nonetheless, there has been a significant cost associated with the oil and gas boom of recent years.
In reaping the rewards of a thriving oil and gas industry — one whose resultant government revenues dwarf every other sector’s exponentially — we have relinquished some of our ability to decide our own fate. This year’s budget, riddled with cost cutting and belt tightening, is a shining example of the drawbacks of a government becoming so dependent on the province’s natural resources for revenue.
In 2012, the government based its budgetary projections on a benchmark price of $124 per barrel of crude.
Unfortunately for them (and for us), it never reached that level, wreaking havoc with the government’s balance sheets and eventually resulting in this March’s massive public service cuts.
At the time, Finance Minister Jerome Kennedy helped substantiate the cuts by telling reporters: “Our province has come from oil. What’s allowed us to pay almost 60 per cent of our revenues, or our moneys, on social programs has been the oil.”
Without that vital expected source of revenue, the province was more or less without a choice but to dramatically curtail its expenditures.
This year, the government’s benchmark budget projection for the price of oil is set at $105 per barrel. However, there’s no certainty of that projection being any truer than the $124 estimate set in 2012.
Back in March, while explaining this year’s projection, Kennedy said “I’m as confident as anyone can be at this point in terms of the $105.”
The thing is, Kennedy and the government can say whatever they want about their projections.
There’s clearly already precedent for oil price projections being wrong and there is never absolute certainty of how the price of oil will fluctuate over the course of a year. The fact of the matter is that in our current financial predicament, we are at the mercy of the markets, powerless to change a thing.
So you’ll have to excuse me when I don’t jump up and down at the thought of more oil fuelling our economic future.
Oil and gas development has been a mixed blessing for Newfoundland and Labrador.
The promise of more revenue is mitigated by an increased dependency on volatile commodities, and
in the end just means a less comfortable fiscal foundation for the province in the future.
Patrick Butler just graduated from Grade 12 at Queen Elizabeth Regional High School. He plans to begin the journalism program at Carleton University in Ontario in the fall. He lives in Conception Bay South, and can be reached by email at email@example.com.