When Abitibi-Consolidated Inc. closed its paper mill in Stephenville, Nfld., in 2005, most residents of the western Newfoundland town braced for the usual negative consequences that occur when a one-industry community loses its economic mainstay.

But surprisingly, just the opposite has happened: retail sales rebounded shortly after the closure, housing starts soared and the anticipated exodus of young families has not materialized.

The major reason for Stephen-ville’s resilience comes not from any new local employer but from 3,000 kilometres west — in the oilsands of northern Alberta. The rapacious demand for skilled workers in communities such as Fort McMurray, Alta., has drawn thousands of Atlantic Canadians, including many of the 280 who were laid off from Stephenville’s now defunct mill.

These people, and thousands more throughout Newfoundland and Labrador, have become “super-commuters.” They travel by air to work for weeks or months at a time and send most of their wages back to their families.

As well, within Newfoundland and Labrador, such labour has become crucial to the provincial economy: several hundred people are employed at three oil-production facilities on the Grand Banks, and 400 people work at Vale Inco’s geographically isolated Voisey’s Bay mining camp in northern Labrador.

The importance of the migrant economy to the province is not well documented, but anecdotal evidence abounds. Communities with little visible means of survival are thriving; new homes are being built alongside roads that are crowded with that iconic symbol of success, the pickup truck — preferably a Ford F-Series or a Dodge Ram.

This observation is supported by Statistics Canada, which found that in November 2007, new vehicle sales rose by 2.3% in Newfoundland and Labrador. Alberta recorded a 0.9% bump, while sales retreated throughout the rest of Canada.

This example illustrates the paradox of a province that is almost completely dependent upon the vagaries of commodities markets — its own and those of others, such as Alberta. A downturn in Alberta’s oil sector — spurred by a slump in demand in the U.S. — could lead to layoffs, which would undoubtedly drive super-commuters back home to Newfoundland and Labrador, which is still carrying an unemployment rate of 13% and can ill afford to take back thousands of displaced workers.

Equally worrying is the effect of a recession on investment — in particular, the proposed $5-billion oil refinery slated for construction near an existing refinery in Come-by-Chance. Newfoundland and Labrador Refining Corp., a consortium of investors led by Altius Minerals Corp., is planning to begin site preparation this spring for the new 300,000 barrel-a-day refinery.

During the construction phase, 3,000 workers are expected to be employed, with start-up scheduled for 2011. So far, the undercurrents of uncertainty within world financial markets have not affected major energy investments, and NLRC is publicly sticking to its schedule.

In fact, the province does not appear to be hunkering down for a recession. In Labrador, the Iron Ore Co. of Canada is completing significant upgrades to its operations. Last summer, IOCC approved a $60-million investment that will increase iron-ore concentrate production capacity to 18.4 million tonnes a year by mid-2008 from 17 million tonnes. IOCC is also conducting a feasibility study this year on expanding annual production to 21 million tonnes. This growth has led to a local housing shortage, which is being solved by building a temporary work camp for 270 people in Labrador City.

Nearby Wabush Mines, which is co-owned by Stelco Inc., Dofasco Inc. and Cleveland-Cliffs Inc., produced five million tonnes of iron-ore concentrate in 2007 and is expected to keep operating at full capacity this year.

Farther north in Labrador, Voisey’s Bay Nickel Co. is into its third full year of production. VBNC, which is contractually bound to conduct a portion of its nickel processing within Newfoundland and Labrador, is supposed to advise the provincial government of its preferred production method by mid-November. Since 2005, VBNC has been testing hydrometallurgical processing of ore in order to determine whether this technique is commercially feasible. If proven viable, the company will build a plant capable of producing 50,000 tonnes of finished nickel annually, which will employ 400 people. If the process is not feasible, VBNC will construct a matte processing plant, employing 350.

Another area of potential growth lies in the offshore oil sector. On the Grand Banks, three producing fields are at the midpoint of their productive lives. In January, ExxonMobil Corp. and its partners announced that in 2009 they will drill at least one exploration well in the Orphan Basin at an estimated cost of $200 million. This round of drilling was originally to have been completed in 2006, but a major structural fault on the drilling rig forced ExxonMobil to suspend its work after completing just one of three wells.

@page_break@The decision to proceed with offshore drilling follows the decision made this past August by operators of the Hebron oilfield to proceed with their $6-billion project. With reserves of 731 million barrels, Hebron is the second-largest offshore oilfield in Newfoundland.

In a groundbreaking move, the provincial government has acquired a 4.9% ownership stake in Hebron, which is scheduled to begin producing oil in 2013. Using the benchmark of US$70 a barrel, the province is projecting to earn $16 billion over the 25-year life of the project.

Aside from Hebron, the best news to come from Newfoundland and Labrador’s oilpatch recently was the revelation by Husky Energy Inc. in 2007 that it had discovered a further 190 million barrels at its White Rose reservoir, pushing total reserves from this project to 470 million barrels.

Although mining and oil are leading the province’s economy, its two remaining newsprint mills are struggling to survive the winnowing process that has gripped North America’s paper industry. Uncertainty hangs over the future of the Abitibi-Consolidated mill in Grand Falls, at which the Canadian Energy and Paperworkers Union helped management find $10 million in operational savings in 2007.

In November, more than 100 workers were laid off at Kruger Inc.’s Corner Brook mill as the company shut down one of its four paper-making machines. In justifying the move, Kruger reported that for each 1¢ the Canadian dollar gained against the U.S. dollar, the mill lost $3 million.

Although heavy industry constitutes the vast majority of the province’s gross domestic product, the fishery remains its largest employer. Despite losing much of the groundfish fishery following a moratorium on cod fishing in the early 1990s, 26,000 people still derive their living from the sea, either as fishers or by working in processing plants. The value of fish landings was approximately $450 million in 2006.

But with U.S. markets taking 35% of Newfoundland and Labrador’s fish exports, the burgeoning C$ has cast a new element of doubt into the industry. Snow crab and shrimp, which are the high-value species that are critical to the future of the province’s fishery, are facing stiff competition from U.S. producers. And with the season set to open this spring, harvesters and producers will be casting one eye on prices and another on the C$-US$ exchange rate.

Industry is not the only sector affected by the ebbs and flows of commodities. Both directly and indirectly, the provincial government has been a beneficiary of surging base metals and crude oil prices.

In a December financial update, Finance Minister Tom Marshall disclosed that the province will reap a surplus of $881.8 million for 2007-08, a considerable improvement over the $261.2 million surplus forecast nine months earlier.

Much of this unbudgeted surplus is being applied to the provincial debt, which works out to be $22,000 per capita — more than double the national average of $10,000, Marshall says. The province allocates almost $750 million a year to its debt, a figure he says must be dramatically reduced. But the degree to which Marshall is able to draw down the debt is almost entirely dependent on world oil prices, an area entirely outside the province’s influence.

Marshall should also hope that there are no unanticipated shutdowns of the three producing oilfields, which occurred in 2006 with the effect of almost wiping out the government’s surplus for that year.

The province is also hoping to benefit from a continuation of this past year’s strong retail sales and housing starts. The manufacturing sector, which contributes approximately 7% to the province’s GDP, has also shown some buoyancy, and the government is hoping to see continued growth in metal fabrication, seafood and oil refining.

Most economists predict the province’s real GDP growth rate will drop to 1%-2% in 2008, down considerably from almost 9% in 2007.

This slowdown is largely a result of the maturation of the province’s oil industry and, specifically, reduced output from the Hibernia oilfield, according to a Royal Bank of Canada report released in January. But the report also notes that approvals for new production at the White Rose oilfield will provide stability to the industry until the Hebron project starts pumping oil.

The provincial government is also continuing its quest to find markets and financial backing for the Lower Churchill Falls hydroelectric power project as a source of sustainable, long-term revenue. But Premier Danny Williams, like his predecessors, is finding Quebec a tough negotiator; and a deal on providing a power-line corridor through that province seems as elusive as it did 20 years ago.

Regardless of whether an agreement can be reached on Lower Churchill Falls power, the short-term future of Newfoundland and Labrador appears bright, with several megaprojects in various stages of development. The major worry for the province is how a U.S. recession will affect the future of these important investments — and whether there will be a delay in Newfoundland and Labrador achieving its goal of becoming a “have” province. IE