Mega Projects

Posted on August 24, 2012 | Atlantic Business Magazine | 0 Comments

On november 3rd, 2008, Newfoundland and Labrador became a “have” province for the first time since it joined Canada. Then-premier Danny Williams released the news during a press conference, saying that figures released by the federal finance department showed, for the first time, the province would not be receiving equalization payments from Ottawa. Long considered the “poor cousin of Confederation,” Newfoundland and Labrador was finally self-sustaining, operating on its own resources and on its own monies – mainly due to oil revenues, corporate income taxes, commodity prices and retail sales.

The news was huge.

The province had finally fulfilled a prophecy made by former Progressive Conservative premier Brian Peckford. “I am more convinced than I have been any time in the past that Newfoundlanders and Labradorians speak (with) one voice when we all say one day the sun will shine and have-not will be no more,” Peckford said during his victory speech in 1982.

The economy of Canada’s most eastern province shows no signs of reversing that forward momentum. When the Atlantic Provinces Economic Council (APEC) – a non-partisan think tank – recently released its Major Project Inventory 2012, it showed that Newfoundland and Labrador, with 48 per cent of the total major project inventory, is well ahead of the rest of the Atlantic region in terms of major, or “mega” project development. APEC identified 111 projects worth a total of $40.1 billion that are either ongoing or scheduled to take place in the province – an 11 per cent increase over 2011.

Mega projects defined

The term was first applied to very large capital projects, like the Syncrude oil-sands project in northern Alberta, back in the 1970s. “Mega” essentially means millions, though by today’s standards it’s more likely to refer to billions than millions as a single offshore oil production platform may easily carry a price tag in the billions of dollars. That the island of Newfoundland itself has many mega projects in the works is a big deal as a mega project can only thrive in an atmosphere of certainty. Ten-year, 20-year or even 50-year commitments involving billions of dollars and decades of employment can only be undertaken if a province’s finances are sound, if demand is there, if the technology exists and if the political environment is supportive.

Keith Hutchings, Minister of Innovation, Business and Rural Development for the province s ys his government is more than supportive of the commercial and industrial activity that is taking place. “This activity (major project investment) is creating exciting and rewarding spin-off opportunities for the province’s business community. It is giving rise to the creation of new businesses, attracting business and investment, and helping businesses avail of supplier development opportunities and expand their operations,” he says.

The product is there. So is the technology. In addition to having access to extensive natural resources, the province has world-class research and academic facilities, Hutchings continued. “We are strategically positioned to capitalize on trade corridors to the Arctic, we have a solid communications network that is being used by Tele Greenland to link into North America’s communications industry and we are home to an innovative business community whose products are finding their way into international markets.”

Hutchings says that the collective force of the ongoing activity has made Newfoundland and Labrador an attractive location for business development and a place where young people and more experienced professionals can enjoy vibrant, progressive careers. “It has also significantly increased the provincial government’s ability to invest in healthcare, education and key infrastructure throughout the province,” he says.

Around the province

Residential development is one of the province’s growth sectors. Housing starts in the St. John’s region increased during the month of July, according to data released by Canada Mortgage and Housing Corporation (CMHC). July’s housing starts totalled 276 units throughout the St. John’s area compared to 258 units in July of last year. Year-to-date starts were up 13 per cent to 1,207 units.

That’s significant considering total housing starts were down two per cent to 16,876 units compared to 17,230 a year ago in other urban centers across Canada. In the Atlantic region, 890 new units were started compared to 1,409 during July 2011. That the province of Newfoundland and Labrador saw the only significant increase is, well, significant.

Just as significant is the fact that approximately three-quarters of all new single-detached homes sold for more than $300,000, though the fastest growing segment of the market were homes selling for $400,000 or more.

The distribution of wealth is stretching well beyond the capital city.

Approximately $3.6 billion will be spent this year in Long Harbour on construction of Vale’s nickel processing facility. Maintenance on the Terra Nova offshore project’s FPSO (Floating, Production, Storage and Off loading vessel) at the Marystown shipyard is worth $560 million. Increased work on facilities associated with the $8.3 billion Hebron offshore oil project, expected to employ over 3,000 workers during its construction phase, was also mentioned in the APEC report.

But that’s far from a complete list of projects and benefits. In Bay Bulls, Pennecon established a marine terminal which serves Hibernia, Terra Nova and White Rose. Over the next three years the terminal is anticipated to create an additional 23 new jobs. In Clarenville, major retail operations, like building material supplier Kent, are opening and expanding. “Automotive dealerships are expanding and there is a wave of other commercial developments and companies expanding their product lines, all (stemming) from the large industrial projects,” said Hutchings.

Even smaller, more remote communities like Lewisporte, far removed from any significant industry project, are also benefitting from the boom of economic activity. By leveraging its strategically-located port and marine infrastructure, Lewisporte has experienced population gains, a new hotel has opened, and the Marine Institute has established its first regional fisheries and marine centre in the community. For a province famous for its out-migration – often of its youngest, best and brightest – this is great news.

“I think that the greatest opportunities are yet to come and the future is bright for today’s youth. Youth today are progressive, growth-oriented, and want to leave their mark on their community, province and industry,” Hutchings says.

Future developments

The provincial government isn’t afraid to put its money to work. “The provincial government … (has) established close to $200 million in programs and services that support entrepreneurs from startup through product development, and ultimately national and international sales. We have also taken an active role in developing policies that further create an environment where communities and businesses can maximize the significant strengths that exist in Newfoundland and Labrador,” says Hutchings.

In the last session of the House of Assembly, the government passed a resolution to encourage all provinces to explore opportunities for an East-West electricity transmission corridor. “East- West electricity would help to unlock Newfoundland and Labrador’s vast supply of clean renewable power sources such as the Lower Churchill Project beginning with the proposed Muskrat Falls development. Its development would result in greater capital investment and support conditions where businesses can excel.” Hutchings stressed that activity of this nature brings direct, indirect and induced benefits. Direct benefits would encompass engineering and construction activities, while indirect benefits include material, services and equipment purchased by the project and workers involved with fabrication of equipment. Those involved with the services sector would benefit as well, he said.

That the province is doing well comes as no surprise to those who have been waiting and watching. Newfoundland and Labrador has recorded cumulative surpluses of approximately $5.5 billion in six of the last seven years, with a corresponding reduction in net debt of $4.1 billion up to March 31, 2012. The projected surplus for 2011-12 was $776.4 million, though a drop in oil prices caused current premier, Kathy Dunderdale, to issue a caution and what she termed a “reality check.” According to the premier, every one-dollar drop in the price of oil below government estimates results in nearly $20 million less being funnelled into the provincial treasury. Newfoundland and Labrador had budgeted for oil to average $124 a barrel in 2012-13. It began the fiscal year in April near that level, but bottomed out near $90 in June before rebounding back above $100.

But, all things considered, Patrick Brannon, APEC’s director of Major Projects, says things continue to look positive. “Newfoundland and Labrador is in the midst of a period of very strong investment that will continue for several more years,” says Brannon.

Scope of work

One example of an ongoing mega project is the Terra Nova FPSO, operated by Suncor Energy (with just under 38 per cent share) in partnership with ExxonMobil (19 per cent), Statoil (15 per cent), Husky Energy (13 per cent), Murphy Oil (just under 10.5 per cent), Mosbacher Operating (just under 3.9 per cent) and Chevron Canada (one per cent). While it usually operates at the Terra Nova oilfield about 350 kilometres off the coast of eastern Newfoundland on the Grand Banks, the vessel, which is the size of three football fields set end-to-end and more than 18 storeys high, can store 960,000 barrels of oil and house 120 people when producing oil, arrived at the Peter Kiewit Infrastructure (PKI) Cow Head facility in Marystown on June 26. The FPSO will be there for 21 weeks as part of the Off Station Project to complete the Integrated Swivel Turnaround and other scheduled equipment upgrades. But “Off Station” doesn’t mean off work. Currently, there are over 350 trades people working on the project with the peak estimated to be around the 600 mark.

It isn’t only those in the specialized trades who benefit from a project of this magnitude. East Coast Catering (ECC) developed, commissioned, and mobilized a temporary kitchen and laundry facilities on the site prior to the vessel arrival. ECC provides those working onsite with everything from boxed lunches to laundry and housekeeping services.

Vale’s commercial nickel processing facility at Long Harbour is also a bright spot on the island. Currently there are about 600 employed by Vale in all facets of its operations but once the Long Harbour Processing Plant is operational in 2013, an additional 475 people will be employed. During the construction phase approximately 5,750 person-years of employment will have been created.

Nalcor Energy’s Bull Arm site, Atlantic Canada’s largest industrial fabrication facility, is located 150 kilometres outside St. John’s. While employment numbers fluctuate, there are an estimated 300 workers there currently. The gravity-based production system (GBS) for the Hibernia field was built at Bull Arm in the 1990s which was followed by a series of smaller projects. Kiewit-Kvaerner Contractors (KKC), a 50/50 partnership between PKI and Kvaerner Corporation, has been awarded the contract by ExxonMobil Canada Properties for the Hebron Project GBS. Once completed, the Hebron GBS will be installed in approximately 95 meters water depth and be situated just north of the Terra Nova field and southeast of the Hibernia field. This is a long term project, and is far from completion — oil is not expected to flow until the second quarter of 2017 — but, particularly for the 300-plus already employed, benefits from the project are already pouring in.

And the province’s potential continues to expand. Statoil discovered oil in 2009 while drilling in deep water 500 kilometres east of St. John’s – up to 200 million barrels of recoverable oil at its Mizzen prospect in the Flemish Pass.

Premier Kathy Dunderdale, in her 2012 budget speech, said it best: “That our province has undergone a wholesale transformation since 2003 is indisputable. Our newfound status as a leader on the national stage is unprecedented. How far we have come, and we have only just begun.”

Projects by industry ($ millions)

Industry 2012 2013
Oil and gas $3,787 $12,272
Manufacturing/other primary $1,340 $3,063
Mining $710 $6,396
Electricity $454 $9,415
Other public infrastructure $358 $267
Housing $315 $5,621
Transportation $292 $501
Other services $227 $443
Education and research $206 $245
Health $201 $1,691
Recreation/tourism $48 $147
Environmental infrastructure $44 $100
Total $7,985 $40,161

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