This decade's oil boom is moving to offshore N.L.

Global oil companies are pumping billionsof dollars into offshore drilling, reversing a long decline inspending on the decades-long projects, including some in theremote iceberg waters far off Canada's Atlantic coast.

Surging oil prices are encouraging the investments, alongwith Europe's mounting energy demand as the Ukraine-Russia wardrags on.

Offshore production sites are more expensive to build thanonshore shale, the last decade's investment darling. But oncethey are up and running, they can turn profits at lower pricesthan other forms of production, according to consultancy RystadEnergy.

They are also designed to pump oil for decades, acounterintuitive move that could increase financial risk for theprojects as the world pushes for net-zero greenhouse gasemissions by 2050 to slow climate change.

Offshore projects generate fewer emissions per barrel thanother forms of oil production due to their massive scale, butthey would still increase global air pollution. Environmentalgroups warn that spills far offshore are hard to clean up.

One of the most remote developments is near Canada, whereNorway's Equinor ASA is close to a final decision onits Bay du Nord project, 500 kilometres offshore of Newfoundland and Labrador.

The site is so far from shore that it falls in internationalwaters, requiring Canada to pay United Nations royalties. Itwould be a global first, according to Energy RegulationQuarterly, illustrating how far producers are willing to go foroil supplies that could last up to three decades.

'Last ones standing'

Canada has set a goal of lowering its emissions by 40-45 per centby 2030 from 2005 levels, but Ottawa approved Equinor's $16-billion Bay du Nord in April anyway, saying itraised no significant environmental issues.

Ottawa could approve more such projects as long as theyproduce low emissions, have best-in-class technology and canbecome net-zero by 2050, said Jonathan Wilkinson, Canada'snatural resources minister. Bay du Nord is expected to produceless than eight kilograms of carbon dioxide per barrel, Equinorestimates, less than half the international average.

"Those facilities that are producing oil and gas with zeroor near-zero production emissions are going to be the last onesstanding," Wilkinson said.

Bay du Nord, which could first produce oil by decade's end,might be the first of several massive Newfoundland offshoreprojects. OilCo, a Newfoundland government corporation, hasidentified 20 prospective projects with one billion barrels inreserves each, CEO Jim Keating said.

Such projects come with challenges not seen onshore.

The Bay du Nord floating production, storage and offloadingunit would measure more than a city block, producing crude inicy waters known for waves up to 15 metres high in winter,according to Equinor. Icebergs drift across the area betweenMarch and July, and two species of endangered sea turtlesinhabit its waters.

"Canada already has profitable producing fields far from thecoast with similar weather," Wood Mackenzie upstream analystMarcelo de Assis said, noting that the project's water depth of650 to 1,170 metres is much less than wells elsewhere at 3,000metres.

Bay du Nord would be so far from shore that helicoptersflying in workers for three-week shifts might carry only eightpeople, half the usual number, to account for extra fuel,according to Rob Strong, a longtime Newfoundland oil industryconsultant.

Despite the high upfront construction cost, projects likeBay du Nord interest companies because the 500 million barrelsof recoverable reserves would be enough to last 20 years.

Equinor declined to provide a production cost estimate,though it said that major projects coming by the end of 2030will, on average, break even with oil below $35 per barrel.

Producing offshore projects average a break-even price of$18.10 per barrel of oil equivalent, compared with $28.20 perbarrel for onshore, according to Rystad.

Other companies bought into offshore Canadian projects thisspring. BP PLC purchased a Bay du Nord stake and CenovusEnergyrestarted a stalled project.

Global offshore investment should rise 27 per cent from 2021 levelsto $173 billion in 2024, reversing a decade of decline andgrowing slightly faster than onshore investment, Rystadestimates.

"I've been up and down like a yo-yo," said Strong, who hasbeen called the "grandfather of the Newfoundland offshore oilindustry." He added,"Two years ago I was at the depths ofdepression. Today, I'm very optimistic."

The profitability of offshore projects depends on future oildemand, and forecasts vary widely. The International EnergyAgencyin 2021 advised against new fossil fuel projectsfor the world to reach net-zero emissions by 2050. If globaltransportation is fully supplied by electric vehicles andrenewable fuels by mid-century, oil demand would drop 75 per cent toabout 25 million barrels per day, said the IEA.

Bay du Nord could become a stranded asset before the end ofits lifetime if oil demand peaks between 2025 and 2030 and the world's crude needs are supplied by lower-cost regions like theMiddle East, said Jean-Francois Mercure, an associate professorin climate change policy at the University of Exeter, in England.

"Financial risk will be very high," Mercure said.

However, Wood Mackenzie estimates oil demand is only likelyto halve even in its most ambitious 2050 energy transitionscenario and could even rise.

'Preciousand fragile'

Producing offshore emits less carbon per barrel than onshore,as projects' massive scale and new technology make it easier tocurb flaring and methane emissions and recycle heat.

Offshore projects still carry huge environmental risks, saidGretchen Fitzgerald, Sierra Club's Atlantic director. After aspill, Equinor would be unlikely to contain oil due to intensewave action and instead use chemicals to disperse it. Such anapproach may harm northern bottlenose whales and deep seacorals, she said.

"Because it's so far offshore, it's hard for people toimagine what the environment is like. But it's pretty preciousand fragile," Fitzgerald said.

Equinor will only approve projects if "convinced they aresafe and environmentally responsible," spokesperson Ola MortenAanestad said, adding it has long experience in harshenvironments.

Other European oil majors are setting similar goals. Both Shell PLC and BP plan to reduce crude output over timebut say they will keep investing heavily offshore. Each isadding a new Gulf of Mexico platform this year.

"We believe that hydrocarbons will be part of the energy mixfor many decades to come," said Shell's executive vice-presidentof global deepwater, Paul Goodfellow.

Offshore accounts for about one-third of world oil output,but that could increase in coming years.

"The energy transition should take some 25, 30 years,"WoodMac's Assis said. "It will be difficult to eliminate oil.Europe's energy crisis is a reminder of that."

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