OFFSHORE OIL AND GAS DEVELOPMENT IN BRITISH COLUMBIA Library of Parliament

Topical Information for Parliamentarians TIPS-121E 22 November 2004

Background

In 1967, Shell Canada began drilling for oil off Barkley Sound, Vancouver Island. During the next two years, a total of 14 wells were drilled from Barkley Sound through the Queen Charlotte Basin and Hecate Strait. This initial exploration found noncommercial levels of oil off the Queen Charlotte Islands and some gas shows near Tofino. In 1972, the federal government made a policy decision to stop issuing exploration permits for the B.C. offshore and to suspend all work obligations on existing permits. In effect, this decision imposed a moratorium on those parts of the offshore under federal jurisdiction. In 1989, the B.C. government announced a similar moratorium, largely in response to the Exxon Valdez accident. At that time, the federal government reaffirmed its policy and announced that it would not consider any offshore development until requested to do so by the British Columbia government. In addition to the federal and provincial moratoria, in 1985 the Haida House of Assembly passed a resolution stating that no offshore oil drilling would be considered until the Haida Aboriginal title was resolved. Aboriginal title is still an evolving concept in Canada, and to date there has not been a definitive statement from the courts regarding Aboriginal title in the offshore. In 2001, the Haida and Tsimshian Nations released a press statement declaring that they wanted the moratorium maintained; and in 2002, the Haida Nation began a lawsuit to have Haida Aboriginal title apply to resources, including oil and gas, in the Queen Charlotte Islands. That lawsuit has yet to be resolved. Lifting of the B.C. Moratorium

In 2001, the newly elected British Columbia government announced a policy decision to reassess the provincial moratorium on offshore oil and gas development. Increased reserve estimates, growing B.C. energy demand, the rising price of natural gas and a faltering economy were all driving forces behind that decision. The first step in the policy

review was to establish a scientific panel to advise the government on matters related to the following four specific areas: •

the scientific and technological considerations relevant to offshore oil and gas exploration, development and production;

•

further research studies that should be undertaken to advance the “state of knowledge” on these considerations;

•

any specific government actions that should be taken prior to a decision on whether to remove the current moratorium; and

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any specific conditions or parameters that should be established as part of a government decision to remove the moratorium.

The panel’s report, issued in January 2002, concluded that, “while there are certainly gaps in knowledge and needs for intensification of research and a continuing commitment to baseline and long-term monitoring, these do not preclude a decision on the moratorium. There is no inherent or fundamental inadequacy of the science or technology, properly applied in an appropriate regulatory framework, to justify retention of the B.C. moratorium.” The B.C. government had, in effect, ended the moratorium simply by changing its policy. In the February 2003 Speech from the Throne, the government announced that, by 2010, it wanted to see “an offshore oil and gas industry that is up and running, environmentally sound, and booming with job creation.” Since that announcement, the B.C. government has set up an Offshore Oil and Gas Team to help enable offshore oil and gas development in British Columbia. In May 2003, the Team released an action plan that called for seismic exploration to begin by 2005. However, it is virtually impossible for this deadline to be met, as it was dependent on first resolving other significant issues, including the conclusion of jurisdictional and regulatory agreements with the federal government and First Nations in draft form by March 2004. This important deadline has

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2 already been missed. At the time that the B.C. action plan was released, the provincial Energy and Mines.Minister was quoted in the Victoria Times Colonist as saying that while he hoped that the goals in the plan were attainable, he did not know whether they were realistic. In retrospect, they were not.

Island; and Vancouver on the Lower Mainland. Stakeholders presented submissions in both oral and written formats. Written records of each session were made publicly available on the Panel’s Web site, and the public was given until 6 August 2004 to comment on submissions.

Review of the Federal Moratorium

The report on of the Public Review Panel was released on 19 November 2004. The Panel found that the public was intensely divided on whether or not to lift the moratorium. Overall, of those that participated in the public hearing process, 75% wanted the moratorium to be maintained and 23% wanted it to be lifted.

After British Columbia changed its policy, it requested that the federal government review its moratorium. In 2001, in response to that request, the federal government announced a review process designed to lay the basis for a decision regarding its policy on west-coast offshore oil and gas development. The process involved the creation of three separate panels: •

A Public Review Panel that would allow the public to express its views on whether or not the federal moratorium should be lifted for selected areas;

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A Scientific Review Panel to be conducted by the Royal Society of Canada, intended to identify science gaps relating to possible oil and gas development in offshore British Columbia;

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A First Nations Engagement Process, designed to provide First Nations people with an additional opportunity to voice issues of particular or unique concern to First Nations communities. Public Review Panel

On 15 May 2003, the Minister of Natural Resources Canada announced the appointment of Roland Priddle – former Chair of the National Energy Board and former Assistant Deputy Minister of Petroleum at Energy, Mines and Resources Canada – as head of the Public Review Panel. Under Mr. Priddle’s direction, the Panel was mandated to conduct public hearings in B.C. communities (including First Nations communities) to solicit residents’ views on issues surrounding offshore oil and gas development. On 30 July 2003, two additional members were appointed to the Panel: Don Scott, a chartered accountant and former mayor of Prince Rupert; and Dr. Diana Valiela, an environmental and natural resources lawyer. The Public Review Panel held sessions between 5 April 2004 and 18 May 2004 in Masset and Queen Charlotte City on the Queen Charlotte Islands; Prince Rupert, Lax Kw’alaams, Kitimat and Kitkatla on the North Coast; Bella Coola on the Central Coast; Port Hardy, Alert Bay and Victoria on Vancouver

There was a general agreement amongst the participants that there were large and important gaps in the biophysical baseline data and the environmental and socio-economic impact information for the Queen Charlotte region, but there was disagreement in how these gaps should be addressed. Those in favour of maintaining the moratorium felt it was unsafe to lift the ban until those gaps have been filled, while those in favour of lifting the moratorium felt those gaps could only be filled if the ban was lifted. Similarly, ecosystem protection was a widely held concern, but there were disagreements about the best way to achieve this – either keeping the moratorium or lifting it and using a regulatory regime. The extent and nature of socio-economic impacts was also an area of contention, though almost all of the participants wanted to ensure that First Nations interests and concerns were adequately addressed. The Panel noted that the availability and interpretation of data was a large source of disagreement between participants. The Panel also observed that there had been little dialogue between stakeholders, and believed that facilitating discussions, along with gathering additional information, would help build a consensus. Due to the wide range of opinions they heard, the Panel listed four options that the government can consider: 1) keep the moratorium; 2) keep the moratorium or defer the decision while undertaking a suite of activities and subsequently review it either at a predetermined time or at an indefinite future time; 3) lift the moratorium and undertake a suite of activities prior to accepting any oil and gas activity

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3 applications; and 4) lift the moratorium and allow applications for exploration. The Panel noted that it would probably be necessary to maintain the moratorium if the government desired the active participation of important groups, particularly the First Nations people. Scientific Review Panel

On 30 July 2003, the Minister of Natural Resources announced that the Royal Society of Canada had been asked to convene a Scientific Review Panel. The scientific review was chaired by Dr. Jeremy Hall, of Memorial University of Newfoundland. Other members were: Dr. Richard Addison, Salt Spring Island, British Columbia; Dr. John Dower, University of Victoria, British Columbia; and Dr. Ian Jordaan, Memorial University of Newfoundland. The Royal Society of Canada submitted its report to the Minister on 16 February 2004. The report identified 17 gaps in science that it recommended filling before exploitation of the resources began. The Panel concluded that as long as “an adequate regulatory regime is put in place, there are no science gaps that need to be filled before lifting the moratoria on oil and gas development.” Though the Panel did not explicitly recommend that development be allowed immediately, it recognized that lifting the moratoria would facilitate filling in the scientific gaps it had identified through shared-cost partnerships with the industry sector. As long as the moratoria are in place, private industry is unlikely to participate in the research needed to fill the gaps. It is also important to note, however, that the “adequate regulatory regime” mentioned by the Panel is not yet in place. First Nations Engagement Process

On 16 February 2004, Cheryl Brooks, a consultant and professor at Royal Roads University in Victoria, British Columbia, was appointed by the Minister of Natural Resources Canada as the facilitator of the third phase of the federal review, the First Nations Engagement Process. Chiefs and councils from about 40 communities in the region were consulted during the engagement process, which ended on 3 September 2004.

The report on the First Nations Engagement Process was released on 19 November 2004. The First Nations people who participated in the process objected to lifting the moratorium because their livelihood, culture and survival are intimately connected to the ocean. Some felt that the scientific evidence that had been presented was inadequate and did not allow them to make an informed decision, while others felt the evidence was sufficient, but that the potential economic benefits of offshore exploration and development did not offset the associated risks. Issues of ownership and jurisdiction were also of concern and the First Nations people were of the opinion that no further exploitation of resources should occur in their traditional territories until treaty settlements had been made. Some people indicated a willingness to work with the government to arrive at some sort of consensus, but before they would be willing to consider lifting the moratorium the First Nations people need to receive absolute assurance from both the federal and provincial government that their rights, title and interests will be protected, and that they will be full partners in the decision-making, management and utilization of the resources in their territories. Outstanding Issues

If all goes as planned, a decision regarding the federal moratorium might be made late in 2004. Even if the federal government decides to lift its moratorium, however, there are still many issues that need to be addressed before offshore oil and gas development could begin. Jurisdictional Issues Federal-Provincial

Before exploration can be considered, the question of who owns the offshore resources will have to be resolved. This could be done either through an agreement between the federal and provincial governments as was done on the east coast (the Atlantic Accords), or through the courts. This process can be lengthy. For example, the negotiations in Newfoundland over jurisdiction, royalties and benefits resulted in a 20-year gap between initial discovery and extraction.

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4 First Nations

Unlike the situation on the east coast, British Columbia must also address First Nations territorial claims before proceeding with oil and gas development. At least four First Nations (Haida, Tsimshian, Heiltsuk and Kwakiutl) claim rights over marine resources in the Hecate Strait or Queen Charlotte Sound where oil reserves are believed to be located. Jurisdictional negotiations between the provincial, federal and First Nations governments will be lengthy and difficult, and will almost definitely preclude the B.C. government’s goal of seismic exploration by March 2005. Royalty Regimes

Once the ownership question is resolved, the level of government that holds title will have to decide upon and establish a royalty regime. The details of any such regime will, in part, determine interest in the area by oil and gas companies. They will also determine the income that the resource owner (i.e., province, federal government or First Nation) will realize from the offshore oil and gas. Regulatory Regimes

As was emphasized by the federal government’s Scientific Review Panel, a regulatory regime must also be established before exploration and development of the offshore oil and gas reserves can begin. This regime must address and, where possible, harmonize federal, provincial and First Nations requirements for environmental assessment and monitoring, project planning, fiscal regimes and revenue sharing, regional and local benefits requirements, rights, tenure and leasing rules, and operational regulations. As with the jurisdictional negotiations, this is likely to be a lengthy and difficult process. Gaps in Scientific Knowledge

The B.C. Scientific Review Panel (January 2003) and the Royal Society of Canada’s Scientific Review Panel (February 2004) both identified several gaps in scientific knowledge that need to be addressed before development of the oil and gas reserves in offshore British Columbia could begin. Key gaps included the absence of baseline and monitoring data for marine

species and their associated ecosystems (especially those species that are listed as endangered or threatened under the Species at Risk Act). The specific potential impacts of an oil spill or well blowout in the Queen Charlotte Basin need to be studied, as do the impacts of seismic activity on fish and marine mammals. The impacts of the release of drilling fluids and fluids that may be found in association with any oil deposits also need to be investigated. If oil is discovered, potential pollution issues related to its transport by pipeline or tanker will have to be studied. The Royal Society recommended that the current ban on tanker traffic in the Queen Charlotte Basin be continued. Physical/geological Considerations

The Queen Charlotte Basin possesses many physical and geological characteristics that will make exploration and development of the oil and gas reserves difficult. It is a semi-enclosed basin between the B.C. mainland and the Queen Charlotte Islands. The water in most of the basin is at least 100 m deep, with a maximum depth of 400 m. Several submarine canyons are also located in the basin. By contrast, the Hibernia, Terra Nova and White Rose oil projects off Canada’s east coast are located in water that is 80120 m deep and are more than 300 km offshore. The Sable Island gas project is near the shore of the island in less than 30 m of water, but is not in an enclosed basin. In the Queen Charlotte Basin, prevailing winds, storms and proximity to the shore would undoubtedly result in spilled oil quickly reaching the shore. In addition, wind and sea conditions in the B.C. exploration area are among the most severe in Canada, creating a potentially dangerous environment for oil rigs, tankers and supply vessels. Winter wind speeds average 35 km/hour with gusts up to 200 km/hour, and wave heights range from 1.5 to 2.5 m. Monster waves reaching 25 m have been recorded in some quickly developing storms. The tides and currents in the Queen Charlotte Basin are also “vigorous” (1-5 knots), and eddies retain water (and, by extension, oil spills) within the basin. The Queen Charlotte Basin is also part of an active earthquake zone. A fault movement in the seafloor could damage well-heads, pipelines and other fixed structures, as could shifting sediments resulting from a tremor.

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5 Location and Size of Reserves

To date, there have still been no major oil or gas discoveries in the B.C. offshore, though the geology of the Queen Charlotte Basin is promising. Based on experience in geologically similar areas, the Geological Survey of Canada estimated (in 1998) a “resource potential” of 9.8 billion barrels of oil and 25 trillion cubic feet of natural gas. However, the geology in the basin is complex, and a great deal of seismic data will need to be gathered and many exploration wells drilled before a reliable evaluation of reserves can be made. Job-creation Potential

Since there is currently no concrete proposal for any exploration and development in the area, it is impossible to estimate how many jobs might be created in the region. Nevertheless, the experience in the east-coast offshore oil and gas industry may

indicate what might happen. Both the federal and the provincial legislation that implement the Atlantic Accords include requirements to ensure local, provincial and other Canadian workers and companies have fair access to the jobs that are created. However, since that legislation was signed, Canada became a party to the North American Free Trade Agreement. It would likely be much harder for British Columbia and the federal government to include similar conditions in any B.C. offshore agreement. In 2002, Hibernia production directly employed 784 Newfoundland residents, 59 other Canadians and 35 non-Canadians. The nearby Terra Nova production directly employed 823 Newfoundland residents, 99 other Canadians and 63 non-Canadians. The Queen Charlotte Basin oil reserves are said to be potentially larger than those at Hibernia.

prepared by

Lynne C. Myers Jessica Finney Parliamentary Information and Research Service

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