Good morning.
I'd like to thank you for the opportunity to speak about energy security and to speak to your committee. Certainly this is of primary importance to the membership of the Newfoundland and Labrador Oil and Gas Industries Association, the association I'm representing here today.
We have about 500 members in Canada and around the world, and NOIA is Canada's largest offshore petroleum association. As a little bit of background, our mission is to promote the development of east coast Canada's offshore hydrocarbon resources and to facilitate our membership's participation in the oil and gas industries.
While I'm addressing you as a representative of NOIA, the issues I outline do have an impact on Canada's energy security overall. For the most part I'll be speaking about the oil and gas industry in Newfoundland and Labrador because that's the area I work in and that I'm most familiar with.
We do believe, first and foremost, that we must develop our offshore resources safely, and certainly stewardship of our natural resources and protection of the environment remains an unwavering commitment from all of us who work and live on Canada's east coast.
I'd like to give a brief background on the surprisingly long history of oil and gas in Newfoundland and Labrador.
It started with an 1812 discovery of an oil seep in Parson's Pond, which is on the northern peninsula on the west coast of Newfoundland. We had sporadic production in that area in the late 1800s and into the early 1900s from shallow wells. As you probably know, the first offshore well in Canada was drilled by Mobil on an artificial island off Prince Edward Island in the early 1940s. In 1979 we had the Hibernia discovery in Newfoundland and Labrador, with the first oil in 1997. It was the first project undertaken in ice-infested waters, and when you think of this, we have only been accessing our offshore oil and gas resources for about 10 years, but we do have reserve potential, and at the current time we're not seeing enough activity in terms of exploration.
Newfoundland and Labrador is the largest offshore energy producer in Canada. In Atlantic Canada our industry employs over 4,500 people directly and well in excess of 10,000 when you factor in indirect and induced jobs. Certainly in a world where global demand for energy is expected to more than double by 2050, as the economies in both the developed and emerging worlds continue to grow and as the standard of living improves for the developing world, the Atlantic Canada oil and gas industry has the potential to impact and enhance Canada's security in numerous ways, certainly on the supply side and also economically in terms of the benefits that accrue to our region. As the world moves to develop a culture of conservatism by maximizing renewable energy potential and developing energy alternatives to carbon-based fuels, the potential of our offshore industry helps position Canada for an orderly transition toward a renewable future.
I'll give you some background on oil production. The production from Newfoundland and Labrador is responsible for about 40% of Canada's light conventional crude. The production comes from three fields: Hibernia, Terra Nova, and White Rose. While we have just short of three billion barrels of oil discovered in Newfoundland and Labrador, there remains the potential of about six billion barrels of oil to be discovered, and in Nova Scotia waters potentially about 2.6 billion barrels of oil remain, according to the Canada-Nova Scotia Offshore Petroleum Board. To date, over $16 billion has been invested in development, with Hebron, the Newfoundland and Labrador offshore project, set to contribute an additional $4 billion to $6 billion during its construction phase. We have another development called Hibernia South, and that will contribute, again, about another $2 billion in investment in our offshore industry. Operating expenditures contribute over $1.5 billion in spending, with the majority of that spending occurring in Atlantic Canada.
In terms of our natural gas resources, I'm dealing with the offshore resources. I've heard you folks talk about shale, but I'll be focusing on the offshore aspect.
In addition to Newfoundland and Labrador's proven natural gas reserves of about 10 Tcf--that's trillion cubic feet--another 60 Tcf are estimated to be available to be discovered. Nova Scotia's offshore has an estimate of about 29 Tcf of potential in terms of natural gas.
Our natural gas resources on the east coast, particularly Newfoundland, await favourable market conditions. Certainly the price of natural gas is at a historic low. From an environmental perspective, our natural gas produces about six times less carbon emissions than coal. This resource can certainly help replace coal-fired electricity generation, reducing Canada's and North America's carbon footprint overall if it's fully exploited.
I'd like to bring your attention to a slide called “Production Profile - March 2010” in your package. If you look at that slide, you can see that Newfoundland and Labrador offshore production actually peaked in 2007-2008. You can see the original Hibernia fields in navy blue, and the Hebron fields, which will begin production in about 2017, in the darker green. While we've had great success in terms of production, and great benefits from the industry, we do need exploration to keep this production profile flat and to have these benefits continue to accrue far into the future.
Despite the unprecedented high prices and rapidly increasing long-term demand that drives intense exploration in other basins around the world, exploration activity in offshore Atlantic Canada hasn't seen that same significant increase. In order to unlock this Canadian energy potential, NOIA believes the Government of Canada can help stimulate activity.
We only have to look at a comparison of the Newfoundland and Labrador offshore area and the North Sea to get a sense of the light levels of exploration we've seen. Our offshore area in Newfoundland and Labrador is about four times the size of the North Sea, yet to date we've only seen about 140 exploration wells; in the North Sea, they've seen over 4,000 exploration wells since inception.
Why is that? Certainly this is partially due to our environment. The east coast of Canada is a harsh environment. We have high sea states, fog, sea ice, and icebergs, and drilling wells off the east coast is extremely costly. International oil companies require certainty, and they try to minimize financial risk. We see that in the attraction of capital to the oil sands, which is largely based on a known quantifiable resource. The variables of the costs of development and production are relatively easily factored in, the price of oil a little less so.
To explore offshore is extremely expensive. In the area of the Grand Banks, where there is generally less than 100 metres of water, a well will cost anywhere from $30 million to $50 million to drill. When we move to the deeper frontier basins, the price tag for an offshore well can be in excess of $200 million. When you consider find rates are typically 10% or less, placing this sort of a bet to make a discovery is a risky business.