Prime Minister Justin Trudeau’s government gave the green light to a US$12 billion offshore oil project proposed by Norway’s Equinor ASA, handing a major win to the nation’s fossil-fuel sector but drawing an angry backlash from environmental groups.

The government said late on Wednesday the Bay du Nord project -- about 500 kilometers (311 miles) off the coast of Newfoundland -- can move ahead as long as the company follows strict environmental protection measures. Equinor will need to comply with 137 legally-binding conditions, including requirements to reduce greenhouse gas emissions, it said.

It’s a politically-risky move for Trudeau that complicates his efforts to hit aggressive emission targets for the oil and gas sector and could potentially alienate the pro-environment bloc within the governing Liberal Party. Yet Russia’s invasion of Ukraine has also prompted policy makers to reconsider the importance of the nation’s vast oil reserves to Canada’s economic security.

The project will be “subject to some of the strongest environmental conditions ever, including the historic requirement for an oil and gas project to reach net-zero emissions by 2050,” Environment Minister Steven Guilbeault said in the statement.

To buffer criticism, Guilbeault concurrently announced he would be toughening rules for future approvals, adding a requirement that new projects would need to demonstrate the have “best-in-class” low-emissions performance.


BACKLASH

Environmental groups were not impressed.

The project’s approval is a “slap in the face” to climate scientists, Julia Levin, an official at Environmental Defence, said in a statement. “The decision is tantamount to denying that climate change is real and threatens our very existence.” 

Greenpeace Canada said the decision “will only deepen the climate crisis and global addiction to planet-wrecking fossil fuels.”

The left-leaning New Democratic Party also slammed the decision, despite having signed a power-sharing deal with the Liberals just last month.

“This shows exactly what is wrong with this government,” NDP lawmaker Charlie Angus said in the statement.

The government announced its approval late in the day, on the eve of the federal budget -- a sign officials want to minimize attention. Guilbeault didn’t hold a press conference. 

Despite the ire of environmentalists, other political considerations may have been at play in the decision. While the Liberals do poorly in Canada’s western oil-producing regions, they place a high value on seats in the Atlantic provinces and several cabinet ministers are from the area. 

 

BP AND CENOVUS

The Bay du Nord project consists of multiple oil discoveries containing at least 300 million recoverable barrels, according to Equinor. Other estimates have put the recoverable oil two to three times higher. However, it is unlikely to start producing oil until the end of this decade.

Based on 300 million barrels, Equinor has said the project would produce $3.5 billion (US$2.8 billion) in government revenue and create thousands of jobs in Newfoundland. 

The environmental assessment process for the project started in 2018. It will be Canada’s first deep-water drilling site and proposes to use a floating production, storage and offloading vessel. Cenovus Energy Inc. and BP Plc are partners with Equinor in the project.

“Equinor is pleased with the strong support that the Bay du Nord project has received from stakeholders,” the company said in an emailed statement. “We now look forward to progressing this key investment in Canada –- which has the potential to produce the lowest carbon barrels of oil in the country.”

The approval means Bay du Nord is poised to become the first major new Canadian oil production site since Suncor Energy Inc.’s Fort Hills oil-sands mine began operation in 2018. The most recent new production platform off the Newfoundland coast was Exxon Mobil Corp.’s Hebron project, which started pumping oil in 2017.

 

CLIMATE PLAN

Canada’s energy companies have mostly stopped proposing major new oil projects since prices collapsed in 2014. The industry has shifted from investing in multibillion-dollar oil-sands and offshore projects that last for decades in favor of drilling for shale oil.

Bay du Nord could produce as much as 200,000 barrels of oil a day when it goes into operation, according to the company. Equinor plans to drill two exploration wells this year.

The approval comes a little more than a week after Guilbeault released a plan for cutting Canada’s greenhouse gas emissions over the next eight years, including a 42 per cent reduction in the oil and gas sector. 

Government officials have said that technical improvements -- such as installing carbon capture technology -- can allow Canada to meet its emission reduction target while still allowing increased oil production.