In late September 2022, the Canada-Nova Scotia Offshore Petroleum Board issued its Call for Bids NS22-1 for eight “highly prospective” parcels: five on the Scotian Slope and three in the Scotian Shelf’s Sable Island area.
To assess the plausibility and potential timeline for Nova Scotia to bring offshore production back onstream, Petroleum Economist interviewed Tom Liles, vice-president for upstream research at Oslo-based consultancy Rystad Energy.
What do you see as the likelihood of Nova’s Scotia’s new bid round successfully reviving offshore production and why?
Liles: This process is still in its infancy, and there are a lot of pieces that would need to come together before production could be revived offshore Nova Scotia. The bid round itself does not close until September 2023, so there would need to be sufficient interest from E&P companies to ultimately translate some of these blocks into exploration licences. Assuming exploration licences are issued, there would subsequently need to be commercial discoveries. And assuming the presence of commercial volumes, it would likely take years to appraise these, settle on development concepts and begin commercial development.
We should also consider federal policy and regulatory components specific to the Canadian context. The Canadian government in March 2022 released its 2030 Emissions Reduction Plan [ERP], which envisions a 42pc reduction in GHG emissions from the country’s oil and gas industry by 2030, using 2019 emissions levels as a baseline.
Federal regulators are in the process of hammering out two key policy elements intended to achieve this 2030 ERP target. Emissions caps on the oil and gas sector specifically, which could take the form of a cap-and-trade system or increased carbon pricing, and “best-in-class” GHG emissions intensity targets for future oil and gas projects. Both policy approaches are set to be unveiled in early 2023.
So long story short, even assuming viable discoveries, new projects offshore Nova Scotia would involve extended timelines to progress to commercial development and be subject to increasingly stringent emissions reduction regulations.
Are there any inherent advantages for oil and gas companies to explore and produce from a previously producing offshore region such as Nova Scotia?
Liles: The main advantage is that there is a confirmed petroleum system offshore Nova Scotia, which produced around 100,000bl/d oe in the early 2000s following startup of the Sable Offshore Energy Project. Although the Deep Panuke project—which began production in 2013 and was taken offline in 2018—performed below expectations, there may yet be potential for new discoveries in deepwater and slope areas offshore Nova Scotia.
The waters off Nova Scotia are gas-prone, which the province claims a relative advantage as the world transitions away from higher carbon fuels, while having excellent access to the rapidly growing European LNG import market. Do these factors provide competitive advantages to Nova Scotia. If so, why?
Liles: Geographically, yes. Shipping to Europe from Nova Scotia takes about half the time as it does from the US Gulf Coast, for example.
However, there are two major questions. The first deals with the regulatory environment as mentioned in response to the first question, and the need for major new oil and gas and LNG developments to contend with sector emissions caps and ‘best-in-class’ emissions intensity guidance. Current energy security concerns notwithstanding, there does not seem to be much appetite at the federal level to ease regulatory requirements for LNG developments on Canada’s east coast.
The second question is around project timing and the wider LNG market. Rystad Energy estimates a potential oversupply of global LNG volumes by approximately 2030. Meanwhile, the bidding round for NS22-1 has not yet closed. Even if a major discovery were made in the next two years and “fast-tracked” to production, those volumes would be unlikely to come online before 2030, by which time market conditions for LNG may have already deteriorated.
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