Fending off a public backlash, the Quebec government has rejected demands for a moratorium on development of its shale gas resource, staking its future on the prospects of gas self-sufficiency that the industry estimates could stretch over 50 to 100 years.
But what has been touted as a “game changer” in the North American energy landscape is showing its first signs of being a “game breaker” for Talisman Energy and Questerre Energy, two Calgary-based companies which have delayed their push towards commercializing the Quebec resource.
The mood has been so ugly at public meetings that Andre Caille, a man whose credibility and charm was seen as a plus when he was named president of the Quebec Oil and Gas Association, was ushered by police out of one public meeting when they feared for his safety after he faced a torrent of abuse. Caille has since taken an indefinite leave from his job.
Despite those setbacks, Quebec Environment Minister Pierre Arcand has pledged that exploration will continue, even while his province collaborates with the Canadian government to tackle three concerns related to shale gas: climate change; emergency response to environmental disaster; and environmental assessments of major projects.
Upstream battleFederal Environment Minister Jim Prentice, making the joint announcement with Arcand, said many provinces with potential for shale gas exploration (British Columbia, Alberta, New Brunswick and Nova Scotia are in the forefront) are looking for Quebec to lead the way.
“Other provinces will have to ensure they have regulations in place, but Quebec is very much a leader in terms of exploration of shale gas and future exploitation,” Prentice said.
The two governments are clearly engaged in an upstream battle, with a poll commissioned by the environmental group Equiterre indicating 76 percent of Quebecers believe the province should suspend all shale gas activities until impact studies are complete.
Quebec Deputy Premier and Natural Resources Minister Nathalie Normandeau said it makes no sense to impose a moratorium until more is known about how it could affect the province’s goal of slashing greenhouse gas emissions by 20 percent from 1990 levels by 2020.
“We don’t want to develop the gas at any cost though,” she said.
Economic benefits estimatesIn what is emerging as one of the most passionate debates between the petroleum industry and the forces aligned against fossil fuel development, an analysis done for the QOGA by consulting firm Secor Conseil provided some of the first estimates of the economic benefits of extracting shale gas.
The study forecasts Quebec could reap more than C$1 billion a year in royalties and create 5,000 to 19,000 jobs a year over a decade, with companies paying an average C$150,000 in royalties per well based on 10 percent royalties and a gas price of $6 per million British thermal units.
While the government — which is eager to end its dependence on Alberta for gas supplies — is adamant that it will let drilling continue until it firms up industry regulations, the industry has showing its first signs of unease.
Talisman and Questerre, two leading developers of the resource on the south shore of the St. Lawrence River (an extension of shale gas stretching from Pennsylvania and New York), have stalled by at least six months plans to complete two test wells, citing high costs and lack of support services.
Public uproarAlthough they did not directly pin their decision on raucous and divisive public hearings in Quebec, it’s all part of the public uproar spreading across North America over fears that unconventional drilling, accompanied by hydraulic fracturing (which involves injecting chemically laced water into shale rocks) could threatened local water supplies.
Earlier this year, Questerre claimed that drilling results indicated Quebec’s Utica shale resource is among the top 10 shale deposits in North America.
But Questerre Chief Executive Officer Michael Binnion has suddenly decided there is no rush to achieve commercial development, arguing the decision to put Quebec programs on hold stems from a combination of depressed gas prices and reduced exploration budgets in high-cost regions.
He said operating costs in Quebec can run to C$15 million for a single horizontal well, two to three times higher than British Columbia, Texas or Pennsylvania, partly because Quebec does not have a home-grown service sector and must import rigs and rig hands.
Binnion said companies would need to invest about C$500 million to complete 50 wells to gain an economy of scale in Quebec, but that needs an overhaul of government regulations.
Price rise neededBased on some estimates, natural gas prices would have to rise to US$5.50 per thousand cubic feet — US$2 above current levels — for companies to make a profit from the Utica shale.
A Talisman spokesman said the big independent, which has just formed a joint venture with Norway’s Statoil to buy 97,000 acres of the Eagle Ford shale of south Texas for US$1.33 billion, has decided to defer some if its Quebec plans because of high drilling and fracking costs.
“We need to be more thoughtful and do it later at a lower cost,” he told the Globe and Mail.
Whatever the underlying reason, the stiff opposition from residents and environmentalists is likely to be emboldened by the actions of Talisman and Questerre and a University of Toronto report released Oct. 14 arguing that provincial and federal regulations covering fracking have not kept pace with shale development.
“Wherever the shale industry has invaded rural communities, controversy about water use, groundwater contamination and the regulation of the industry has doggedly followed,” said the study.
Groundwater study under wayPartly to deal with some of the concerns, Geoscience B.C. has launched a C$950,000 study of regional groundwater resources in the Montney formation of northeastern British Columbia, supported by companies such as Encana, Devon Energy, Shell Canada and Talisman. The objective is to identify non-potable water sources that could reduce the need for freshwater surface withdrawals to support gas development.
Questerre has published its own “fact sheet” outlining its water usage and fresh water protection techniques for the Utica shale.
Binnion said his company plans to recycle and reuse as much as 100 percent of the water recovered from fracking operations, which is about 30 to 50 percent of the total water used, arguing that amounts to less than 1 liter of water per day to heat a home with gas from Utica, compared with the average household consumption of 400 liters a day.
Regardless of the moves by Talisman and Questerre, Montreal-based junior explorer Gastem — which is involved with several partners — said it plans to announce a new shale gas operation in Quebec before winter, aiming to prove it can profitably recover the gas it has discovered.
But Calgary-based Canbriam, which has drilled three horizontal wells in Quebec, said there are simply better places than the St. Lawrence River region, opting instead to drill more advanced plays in British Columbia’s Montney and Horn River areas.