Megaprojects continue to fall despite brave attempts to stem tide

Lawrence Solomon
Toronto Star
July 3, 1983

Despite the brave front put on by Energy Minister Jean Chretien and the embattled oil and electrical industries, the collapse of Canada’s megaprojects — projects valued at $100 million or more each — is continuing at a steady clip.

Since 1981, when the federal government’s Major Projects Task Force concluded that a potential half-trillion dollars in megaproject investments — 90 per cent of it energy-related — would fuel the Canadian economy to the year 2000, 186 megaprojects valued at over $278 billion have been shelved.

$42 billion

And although $42 billion in new megaproject proposals have surfaced, many of the $160 billion worth of surviving megaprojects are threatening to go the way of Alsands and Cold Lake:

  • The $2.4 billion Arctic Pilot Project continues to suffer setbacks. The National Energy Board stopped hearings into the liquefied natural gas export scheme after APP’s sponsors, led by Petro-Canada, changed their marketing plans in mid-stream and decided to go after European customers instead of the soft U.S. market.
  • The potential of Gulf Canada’s $5 billion Tarsuit field in the Beaufort Sea has been downgraded, according to R. H. Carlyle, a Gulf senior vice-president. Latest projections for the once-heralded field indicate only 350 million barrels of oil, well short of the 500 million to one billion needed to justify commercial development.
  • Mobil Oil’s $2.5 billion Venture field off Nova Scotia’s Sable Island — touted by the oil giant as “the first off-shore gas field in Canada” — has yet to be confirmed as commercial in scale. Worse still for this project, whose history dates back to 1959, when Mobil was granted Canada’s first east coast offshore exploration permit, its viability depends on exports to the U.S. market, which is awash in surpluses of natural gas.
  • Manitoba’s Limestone Hydroelectric generating station — the third jewel in a crown of six large plants to be built along the 410-mile Nelson River — becomes a more distant dream with each passing year. First postponed in 1977, Limestone could have been resurrected this year had any one of three other megaprojects proceeded — a $500 million aluminum smelter, a $500 million potash mine, or a $3.5 billion western power grid. Instead, the earliest that construction could start is 1986, and because of falling demand forecasts, construction could be deferred into the next century.
  • Ontario Hydro’s Darlington Nuclear Power Station — one of the country’s largest remaining energy projects and until recently thought immune from cancellation — is showing chinks in its armor, despite the $1 billion already spent. Last November, construction at two of Darlington’s four units was postponed two ears, and some members of Ontario Hydro’s board now admit the giant project is “under continual review.”

Officially, however, Ontario Hydro is keeping a stiff upper lip, with Hydro president Milan Nastich insisting that Darlington will be completed — a brave front emulated by his counterparts in the petroleum industry and by government officials. Energy Minister Jean Chretien, pointing to one of the few megaprojects to proceed — the relatively small $200 million Wolf Lake oil sands project in Northern Alberta — hailed the project for providing a much needed economic stimulus. And oil industry chiefs like John Lynn, president of Syncrude, argue that Canadians should stick to what we know best by restoring megaprojects to their proper role as “a fundamental part of Canada’s economic development strategy for the rest of the century.”

When pressed, however, many of the champions of these projects admit that the fate of the megaprojects depends less on political factors — such as the Ottawa-Newfoundland wrangling over control of the Hibernia field located, off the East Coast — than on the dictates of the marketplace.

Despite the widely predicted economic recovery, Canada’s oil industry continues to face declining sales for their products. Since 1980, sales have plummeted 20 per cent with consumers moving in droves to more stability by opting for conservation and fuels that are less volatile in price. In 1983, oil’s market share is dropping further — refined products such as gasoline, heating oil, and jet fuel could be down another five per cent — and more declines are expected in 1984.

Because of this falling demand, the amount of recoverable oil in Canada — thought four per cent smaller at the start of 1983 than the previous year — will last far longer than expected, forcing the oil companies to carry their inventories longer.

Dismal outlook

The result is a “pretty dismal outlook for our industry,” according to Gerald Coaker, Shell’s manager of energy economics. “We’ve never been in a situation like this before.”

The outlook for the electrical industry — whose investment potential at $200 billion surpassed that of the oil and gas industries, according to the 1981 Task Force Report — is even worse, with virtually all future megaprojects effectively shelved, many in-progress megaprojects threatened and even some completed megaprojects slated for mothballing.

Atomic Energy of Canada Limited’s two heavy water facilities in Cape Breton, Nova Scotia, have been spared to date for the sake of the jobs that would be lost in the economically depressed Maritimes, despite a total lack of demand for their output. Similarly, during the Ontario Energy Board hearings currently underway, Ontario Hydro conceded it plans to shut down one of the two massive heavy water facilities at its Bruce Peninsula complex by mid-1984.

These facilities, designed exclusively to provide, heavy water for new Candu nuclear reactors, became redundant when Canada’s nuclear industry took a nosedive. The only reactor beyond the ones at Darlington being considered to the end of this century — a second reactor at Point Lepreau, New Brunswick — is on indefinite hold. Although Jean Chretien, at the recent ribbon-cutting ceremonies for Point Lepreau No. 1, told his New Brunswick audience that he looked forward to authorizing a second reactor, he made it clear that “we must have assured markets first” for the power.

If he stays true to his word, and waits for Point Lepreau No. 2 to pass the test of the marketplace like Canada’s other megaprojects it may never see the light of day.

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