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August 18, 2010

Canadian Senate: We don't need a drilling moratorium

A committee of the Canadian Senate has decided that Canada does not need an offshore drilling moratorium.

"Given the often conflicting media and other reports respecting the BP disaster and the propensity of citizens and governments to rush to judgement after major disasters," says its report, "the Standing Senate Committee on Energy, the Environment and Natural Resources decided on May 26th to launch a relatively brief series of fact-finding hearings designed to determine as accurately as possible, within the available time frame, the current status of Canada's offshore oil and gas exploration and development industry, including the nature of the applicable regulatory regime(s) and Canada's present offshore disaster response capability. The idea was to either allay or validate the said fears of Canadians and to outline for them the 'actual state of play in Canada's offshore,' thus permitting them going forward to develop informed opinions."

During a six-week period, the committee conducted nine public, televised hearings, heard the testimony of some 26 witnesses representing all or most interest groups, reviewed substantial documentation and held several in camera sessions to review the evidence.

The committee found that Canada has an active and potentially more active offshore oil and gas exploration and development industry of significant importance to the economic wellbeing of Canada at large and particularly of those provinces where offshore activity is currently taking place.

At present, though, such activity is only taking place in the offshore Atlantic waters adjacent to Newfoundland and Labrador, and Nova Scotia. There is only one active offshore deepwater drilling operation currently in process, namely Chevron's Lona O-55 exploratory well in the Orphan Basin of the Atlantic Ocean, some 430 km northeast of St. John's, Newfoundland. There are also several oil and gas development and production activities ongoing in the Atlantic offshore region. There is also a standing moratorium on any offshore exploration and drilling activities off the sensitive George's Bank.

There is no current drilling in the Arctic offshore, including the Beaufort Sea. Licenses have been issued that contemplate future drilling activity in Arctic waters, but no drilling has as yet been approved. It is anticipated that activity will begin in 2014.

On the West coast, in the Pacific Ocean waters off British Columbia, no offshore activity is taking place. A moratorium on Canadian West coast offshore operations was implemented in 1972 and continues in effect with both federal and provincial approval. No exploratory or drilling licenses have been issued.

"Meantime," says the report, "the committee determined that Canada's offshore industry is subject to a regulatory regime that is modern, up-to-date and among the most efficient and stringent in the world, as compared with those in effect in other nations with active offshore industries. Canada's applicable legislation, rules and regulations, both for the Arctic and elsewhere, are presently under full review by the National Energy Board and Canada's regulators have processes in place to ensure that Canada benefits to the maximum from any and all lessons to be learned as a result of the BP disaster."

The committee considered whether it would be appropriate to recommend a temporary ban on or suspension of the Chevron deepwater drilling operation in the Orphan Basin. No evidence was adduced to justify any such ban or suspension and the committee is recommending that the Chevron operation continue as planned, under close scrutiny and supervision by the regulators and with great caution and use of state-of-the-art technology in light of the Deepwater Horizon incident. In addition, says the committee, special attention should be brought to bear to ensure Chevron's oil spill response plans are adequate in the circumstances. The committee notes that the environment in which the Chevron exploratory drilling operation is taking place differs substantially from that where the Deepwater Horizon incident occurred in the Gulf of Mexico, not far from numerous ecologically sensitive wetlands and important fishing grounds and wildlife sanctuaries.

The committee has certain concerns about present offshore disaster response planning and capacity in Canada that it discusses these in this Report. Research and development spending by the major oil companies is currently substantial, but the committee believes it should be increased, if possible, with emphasis on new and better technology for dealing with deepwater blow-outs and responding to catastrophic spills.

Generally, the committee recognizes that offshore exploration and development in the oil and gas industry is a highly risky and costly business. The need to balance the risk factors with the need for energy security and other economic considerations, plus the potential consequences of a major crude oil spill are obvious. Over-regulation and excessively rigid safety requirements could potentially discourage the petroleum industry from investing the massive sums of money already required to participate successfully in this complex business. The committee heard sufficient evidence to make it comfortable with Canada's (federal and provincial) approach to striking this risk/reward balance and with its new judgment-based and goal-oriented regulatory approach.

Canada is a leading participant in the International Regulators Forum, a group of offshore industry regulators from the most active offshore drilling nations, including Norway, the United Kingdom, the United States, Australia, New Zealand, the Netherlands and Brazil. Interestingly, none of these nations [other than the U.S.] have called for or imposed bans on current offshore drilling operations within their jurisdictions following the BP incident.

One concern expressed by the committee relates to Canada's laws governing the liability and responsibility for loss and damage, including economic loss and environmental cleanup expenses following a major oil spill arising during an offshore drilling operation. "Canadian rules in this area are somewhat confused and conflicting, and require a careful review and, at the very least, an upgrading to take into consideration present day economic realities."

The committee says it "wishes to assure Canadians that Canada's offshore oil and gas industry is in good hands, that we could not identify any justification for a temporary or permanent ban or moratorium on current offshore operations, that Canada's regulatory regime is a good one, which is continually subject to upgrading and improvement based on experience such as the BP incident, and that any future offshore operations authorized to take place in Canadian jurisdiction, be they in Arctic waters, off the Pacific Coast or off Atlantic Canada, will be well and carefully regulated and controlled, given the experience of the Deepwater Horizon incident in the Gulf of Mexico."

The committee says that there are indeed areas whereit has concerns and where improvements can be introduced on the legal, regulatory and operational levels. These are clearly outlined in the report.

You can see the report HERE


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