After several years of leading the nation in economic growth, Newfoundland and Labrador’s real gross domestic product (GDP) is expected to decline in 2014 as reduced oil production takes its toll on the province’s fortunes.
The estimated growth in Newfoundland & Labrador’s GDP was 6% in 2013, but the province is set for the much slower rate of less than 2% this year, according to forecasts by Toronto-based Royal Bank of Canada (RBC) and the Conference Board of Canada in Ottawa. In fact, Craig Wright, senior vice president and chief economist with RBC, noted in an economic outlook published in December that the province is expected to achieve real GDP growth of only 1.5% in 2014.
With less than half of oil reserves remaining in the three main offshore fields – Hibernia, Terra Nova and White Rose – the focus is shifting to new reservoirs such as Hebron, which is scheduled to begin production in 2017.
Until then, the province will be relying on small oil reservoirs tied to the three existing offshore platforms to offset the declines in oil production. The most significant of these small reservoirs, the South White Rose Extension, is expected to begin producing oil in 2014.
Besides declining oil production, GDP growth will be constrained due to the winding down of construction work at Vale Canada Ltd.’s Long Harbour nickel-processing plant. Layoffs associated with the completion of this facility will be partially offset by the hiring of construction workers for the Hebron project who now are at Hebron’s Bull Arm fabrication site. Employment related to the Hebron project is expected to peak at 3,000 workers in 2014.
Labrador is likely to be at the centre of the province’s economic growth in 2014 because of iron ore and hydroelectric power. In February, the federal government is expected to release its environmental assessment of the proposed Kami iron ore mine headed by Alderon Iron Ore Corp.
The $1.27-billion Kami project, which is 75% owned by Alderon and 25% owned by China’s Hebei Iron & Steel Group Co. Ltd., is scheduled to begin operating in the fourth quarter of 2015.
With completion of both the provincial and federal environmental assessments, Alderon’s next challenge will be to obtain a source of power for the Kami project. According to reports, Alderon is expecting to purchase power from Newfoundland and Labrador Hydro, owned by Crown corporation Nalcor Energy, which will build a 15-kilometre transmission line to the Kami site from the existing Churchill Falls hydroelectric plant.
In Labrador City, Rio Tinto Group expects to complete a second-phase expansion of its Iron Ore Co. of Canada (IOC) mining operations by mid-2014. The investment will result in a 6% increase in annual concentrate-production capacity to 23.3 million tonnes.
Although output at the mining facility exceeded expectations in 2013, Rio Tinto continues to look for a buyer for its Canadian operations. In December, Bloomberg News reported that Glencore Xstrata PLC has reiterated its interest in acquiring Rio Tinto’s Canadian iron ore operations, including its 59% stake in IOC.
Construction of the Muskrat Falls project in Labrador is continuing this year, with 2017 set as the completion date. For Newfoundland and Labrador Hydro and the provincial government, Muskrat Falls power cannot come onstream quickly enough, given the equipment failures at the Holyrood thermal plant in January that resulted in rolling blackouts throughout the island. Those failures, which are the focus of three separate inquiries, resulted in unplanned downtime for manufacturers and other large, power-intensive businesses, including the Come by Chance oil refinery and the Bull Arm fabrication facility.
Newfoundland and Labrador Hydro CEO Ed Martin has admitted that confidence in the power grid has been shaken by the outages, so the findings that arise from investigating the power failures are likely to be monitored closely by the business community.
Reliability of electrical power may not be a key factor in determining the future of the Come by Chance oil refinery, but certainly won’t help alleviate concerns that the facility could close in 2014.
The state-owned Korea National Oil Corp. of South Korea, which purchased the refinery in 2009, put it up for sale after the facility lost $103 million in the six months ended June 30, 2013. The company has not ruled out closing the plant if no buyer comes forward.
Newfoundland and Labrador
Population: 526,702
GDP 2012 ($bil.): 33.8
GDP % change: +0.9
2013-14 deficit ($mil.): 450.6
Estimated net debt ($bil.): 9.1
Median after-tax income, all families: $46,400
Household disposable income/capita: $30,461
Figures are from latest available reports/estimates
Sources: conference board of canada;
Government reports
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