Beyond Moratorium: Hydraulic Fracturing’s Future in Newfoundland and Labrador

Hydraulic fracturing–otherwise known as, ‘fracking’–has become a major topic of debate in policy circles, scientific discourse, and popular discussion. This method of extracting oil and gas, used since the 1940s, involves pumping a mixture of water, sand, and various chemicals into bedrock in order to extract the desired resource.

Fracking south of the border inspires much of the debate within Canada. The United States is set to achieve energy independence in an estimated twenty years, largely because of shale-gas extraction, as technological innovation makes it profitable to extract resources that previously were not worth extracting.

Now, the debate rages in Newfoundland and Labrador (NL). The provincial government recently announced a moratorium on hydraulic fracturing after proposals to extract oil and gas on the province’s west coast arose. Government officials cited the need for additional review and regulation as reasons for implanting the moratorium.

As with all debates concerning resource development, the question is not, ‘are there environmental harms?’ Most human activity–farming, building dams, deforestation, etc.–inflicts some environmental damage. Rather, we must ask, “Do the benefits outweigh the harms?”

What are the benefits of hydraulic fracturing in NL’s context?

First, it would provide an economic boost to a part of the province left behind in NL’s offshore boom. Oil and gas extraction would create high-paying job opportunities for locals and reduce dependence on government transfer programs. It would also drive growth in the region and increase government revenues, contributing to potential future budget surpluses.

Nevertheless, government should learn from its past mistakes in dealing with revenue from hydraulic fracturing. NL’s government dramatically increased public spending when offshore oil royalties increased, making services including healthcare and education dependent on a potentially volatile source of revenue. Fracking royalties, therefore, should not justify further spending hikes.

Regarding fracking’s environmental impact, water is the most common concern: hydraulic fracturing requires large amounts of water to extract resources and purportedly threatens local water supplies when ‘fracking fluid’ leaks.

If water miles below the Earth’s surface is contaminated, there is a less chance of public harm; however, if fracking affects surface water, there is an obvious danger to the drinking water supply. Preventing such pollution should be among the priorities of NL’s regulators.

Concerns about both ecological sensitivity and ecotourism also exist. Regulators must determine a way to monitor the effects of fracking on neighbouring ecosystems and punish firms that destroy public property.

It is conceivable that hydraulic fracturing could threaten tourism about Gros Morne National Park, which one company proposed drilling in. However, the need for a park-specific ban does not necessitate a province-wide ban. And, within Gros Morne, it might be possible to restrict fracking and its potential externalities to Green Point, the proposed development site.

In advancing with hydraulic fracturing, the NL’s government should balance smart regulations that minimize externalized harms while facilitating economic growth. After revisiting its regulations, the province should consider allowing the technique and add fuel to the fire of its economic ascent.

Michael Sullivan is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute

The Energy-East Pipeline: An Opportunity to Turn a Province Around

New Brunswick has been making a rare appearance in the national editorial pages and the prospect of natural resource development through the Energy East Pipeline has been the principal topic of debate. Some observers argue that this could be the province’s opportunity to turn around its fortunes, but, as always, there is opposition citing environmental problems, among others.

That opposition generally stems from the argument that Canada must end its reliance on fossil fuels and fears of possible oil spills in the future.

While environmental concerns are particularly important in all natural resource development cases, it would be irresponsible for any government (of any political stripe) to ignore the possibility for serious economic gains. This fact becomes very clear from an examination of the state of the New Brunswick’s economy and the stimulus the project could provide.

It is no secret that New Brunswick has faced serious economic problems since the 2008 global economic meltdown. In September 2013, Statistics Canada reported that the province faced a 10.7% unemployment rate, which is one of the highest rates in the country. In conjunction with this report, CBC reported in the same month that the province lost approximately a net 2,944 individuals to other provinces in 2012.

Although these are only two indicators of economic performance, they tell a story that New Brunswick is facing a major economic problem.

This brings forward the next level of discussion: How can the Energy East Pipeline help build the New Brunswick economy?

TransCanada, the company who wishes to build the pipeline, employed Deloitte to explore the economic benefits of the pipeline for Canada. Deloitte found that the pipeline would add the following figures to New Brunswick’s economy:

  • $2,799 million to GDP
  • S266 million in tax revenues during construction (6 years)
  • $428 million in tax revenues during the operation phase (40 years)
  • 868 jobs in development (3 years)
  • 2866 jobs in construction (3 years)
  • 385 jobs per year in the operations phase (40 years)

These large amounts of tax revenues could mean balanced budgets for New Brunswick and extra money to spend in other areas of government, such as education and healthcare. Balanced budgets will also restore investor faith in New Brunswick.

The pipeline would create jobs that would not only reduce unemployment, but also increase consumption. That will lead to more economic spin-off, meaning that individuals will be able to afford more and, therefore, will buy more goods and services creating even more jobs in turn.

In conclusion, considering the state of the New Brunswick economy, it would be reckless for the government not to consider the opportunities that could be afforded to the province through natural resource development: the numbers show clearly that there is an extreme potential for growth and the Energy East Pipeline could have serious economic benefits for the province.

Randy Kaye is a 2013-2014 Atlantic Institute for Market Studies’ Student Fellow. The views expressed are the opinion of the author and not necessarily the Institute