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Gas catastrophe

ExxonMobil abandons plans for further Sable Island field drilling

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ExxonMobil announced last week that it was abandoning plans to expand its operations in the Sable Island natural gas field off Nova Scotia's coast. The announcement effectively spells the near-demise of the offshore industry, and the hundreds of millions of dollars in annual government royalty payments that come with it. It is, in other words, an economic catastrophe for the province.

From 1999 to the end of last year, ExxonMobil had spent $2.235 billion on Nova Scotian-produced goods and services related to its Sable operations, resulting in 723 full time jobs and $1.3 billion in royalty payments to the provincial government. Royalty payments peaked at about a half billion dollars in 2007, and were $173 million last year. For comparison's sake, the recent two percentage points increase in the sales tax will bring in $215 million this year.

Production from ExxonMobil's existing Sable wells will continue to fall, until they are decommissioned, in about 10 years. The government had offered ExxonMobile the opportunity to expand drilling into new areas off Sable Island, but the company declined, saying depressed prices for natural gas don't make such drilling economically viable. In addition to ExxonMobile's operations, EnCana will start pumping natural gas from the Deep Panuke field this year, but that field is at best a third of the size of Sable, and so royalty payments will be similarly reduced.

Practically none of the natural gas pumped from the Sable field---less than 10 percent---went to Nova Scotian residents or businesses to use as fuel, and practically none of the $1.3 billion in royalty payments was spent on building a replacement renewable energy source for Nova Scotians.

Energy minister Bill Estabrooks did not return a call for comment, and government officials have not said how they will respond to lost royalty revenue.

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