Rest In Peace

By banning high-volume fracking, Nova Scotia has bowed to ENGO pressure and hobbled the province's economic future

By: Jim Bentein, from Oilweek Magazine

Nova Scotia's Liberal government allowed "well-funded anit-fossil fuel groups" to dominate its decision making in choosing to ban high-volume fracking, says the head of an organization that represents conventional and renewable energy producers in the province.

The ban, says Barbara Pike, chief executive officer of the Halifax-based Maritimes Energy Association, has cost the province in an anti-business light, a perception that will be almost impossible to overcome.

The government has "created the impression that the province isn't open for business," says Pike, whose organization represents some 320 energy producers, from tidal to wind to oil and gas. "If you're developing wind for generating hydro or other forms of energy, you're looking at investing in a place that is business friendly, and Nova Scotia  may not be where they will put their money."

She was commenting on Energy Minister Andrew Younger's announcement in early September that Nova Scotia would ban high-volume hydraulic fracturing as part of onshore oil and gas development in the province.

His decision came days after and independent panel, headed by Cape Breton University president David Wheeler, released a 387-page report calling for more research into hydraulic fracturing but not recommending an outright ban.

"Nova Scotians have overwhelmingly expressed concern about allowing high-volume hydraulic fracturing to be part of onshore shale development in this province at this time," Younger said in a written statement. "Our petroleum resources belong to Nova Scotians and we must honour the trust people have put in us to understand their concerns. We will, therefore, introduce legislation to prohibit using this technique to stimulate onshore shale projects."

Pike says the ban is a grave mistake and will halt virtually all onshore oil and gas development in a province that will, according to all estimates, need to import substantial volumes of gas in the future, as offshore resources dwindle and rising costs impact future offshore exploration initiatives.

The government, which relies on federal transfer payments for more than 40 per cent of its revenue, has also lost an opportunity to create economic activity and jobs, Pike notes.

She points out that 1,000 people showed up at a recent job fair put on by Alberta oilsands producers in neighbouring New Brunswick, where onshore fracking has been allowed. There was a suggestion, however, that it might be banned if the pro-fracking Conservative government was defeated in a late September election.

"[Job fair attendees] said they were going out west because there are no jobs," Pike says, adding that the employment prospects in Nova Scotia and Prince Edward Island are as bleak as they are in New Brunswick.

Pike says that recent opinion polls in the province show about half of Nova Scotias favour fracking, but that didn't stop the government from "listening to the same groups that are fighting pipelines in British Columbia" by announcing the ban.

"This is perceived by some of those groups as a real victory," she says, arguing that anti-fracking groups stacked the attendance at public meetings that were held as part of the Wheeler panel's process.

Karen White, a spokeswoman in Younger's department, says that Pike and other critics of the government are wrong when they portray it as viewing the fossil fuel sector negatively.

She says the government continues to support offshore oil and gas development as well as waterless fracs using propane, CO2, or nitrogen. It also continues to support coalbed methane (CBM) development, White says, noting the recent approval of a project being developed by Toronto-based East Coast Energy Inc.

"The concern was around the use of high amounts of fresh water," White says, adding that the legislation will outline whether the use of recycled water would be allowed.

Julie Cohen, president and chief executive officer of privately owned East Coast Energy, which proposes to develop a CBM project in the Pictou County area of the province, says her experience with the Department of Energy in Nova Scotia "has been very positive," with permits being granted without extensive delays.

"In fact, I had the minister of energy come to the site," she says.

The company was granted permits to drill two test wells last November and December along the Foord coal seam, located near Stellarton, at a depth of 540 metres.

CBM development is not new in Nova Scotia, where it dates back to the 1800's and where more than 30 wells have been drilled since 1979.

The Foord coal seam is known for its high levels of methane gas.

Cohen says her company has since drilled the first successful horizontal well in a CBM seam and will be carrying out further analysis this fall. She hints that development will proceed.

"It's very exciting," she says. "For me, it couldn't be any better."

East Coast Energy has the rights to develop 22,000 acres, with 20 coal seams.

She says a Sproule Associates Limited resource estimate showed there is 426 billion cubic feet of gas in place there.

Gas utility Heritage Gas Limited is extending a pipeline to the Stellarton area, which means the project would have ready access to local and out-of-province markets.

Cohen says she "sort of feels bad" for the energy minister, since he is being portrayed as anti-industry.

But she also says the fracking decision came in a province "where people don't understand what fracking is about."

The energy department also doesn't appear to understand what it is, according to Paul Barnes, manager, Atlantic Canada, for the Canadian Association of Petroleum Producers.

"What do they mean by high-volume fracking?" he says. "Is it fresh water they're talking about? Can you use salt water or waste water?"

He points out that the province should have no worries about freshwater shortages or access to salt water, given its ample rainfall and coastal location.

"The concern for us is the way [Younger's announcement] came out," he says. "We were hoping to have more discussions with the government [before any decision was made]."

He says he wouldn't go as far as Pike in portraying the government as anti-business, pointing out that it does have an active offshore oil and gas industry.

"But if you don't want to see onshore oil and gas development, why promote offshore development?" he asks.

And while CBM development doesn't involve high-volume fracking, he points out that it does require the use of water. "It's a mixed and confused message."

Offshore gas development is slowing as the Sable Offshore Energy Project winds down, despite the recent addition of the much less prolific Deep Panuke project, which was finally commissioned by Encana Corporation last fall. In April, Nova Scotia Finance and Treasury Board Minister Diana Whalen said that the province faces significant economic and fiscal challenges as royalties from offshore development decline.

Offshore royalties are estimated to climb to $31.78 million in 2014-2015 from just $22.36 million in 2013-2014, as the Deep Panuke offshore gas project goes into production. However, those revenues pale in comparison to the past. It took in $172.68 million in offshore royalties in 2010-2011, for instance, when gas prices were much higher and the Sable project was producing significant gas volumes.

Edwin Macdonald, vice-president and chief geologist with St. Brendan's Explorations Ltd., which has licenses to explore three blocks in the Cumberland Basin in the province totalling 833,000 acres, says he will await the final regulations before reaching a decision on his company's plans or commenting on the government's decision. However, he says his company plans to drill primarily for conventional natural gas on its properties.

Nevertheless, even those plans are on hold until the final regulations are announced, he says.

Macdonald won't criticize the fracking ban, but he wonders how development will proceed without the industry being able to explore for shale gas.

"There is a long history of oil and gas exploration in Nova Scotia, stretching back to the 1860's,' he says. "In all of that time there have been 130 conventional wells drilled and there have been no commercial discoveries."

Macdonald, who was born and educated in the province and has worked worldwide, including in western Canada, in the South China Sea for Husky Energy Inc. and offshore Atlantic Canada, says it is unlikely there will be onshore gas development any time soon, given the massive capital investment involved.

Another veteran local geologist, Bob MacDonald, who owns consulting firm Jammin Rock Resources Inc. and has 40 years of experience in the oil and gas industry, says the decision is more about politics than geology.

"There is a silent majority [in Nova Scotia and New Brunswick] that wants shale gas development," he says.

He recently conducted a survey for a client in New Brunswick who wanted to gauge the public mood  about development. "We knocked on 4,500 doors and 75 per cent of the people were in favour of development."

And he's convinced the same percentage of Nova Scotians would support fracking. "We're kind of tired of being on welfare."

He says there is more seismic available, and there has been more active drilling in New Brunswick, where Halifax based Corridor Resources Inc. has been producing small volumes of conventional gas from its McCully Field since 2007. Corridor has launched a shale gas exploration program and has so far drilled three wells and fracked them with waterless frac technology developed by Calgary based GASFRAC Energy Services Inc.

Future plans, however, were thrown into doubt with the late September election of a majority Liberal government under Brian Gallant.

During the campaign, Gallant set out the conditions his government would require before allowing fracking for shale gas to move forward in New Brunswick. The conditions include extensive public consultation to determine if a social consensus to allow fracking exists; the existence of methods to avoid unacceptable risks to the environment, water and health; the government's ability to maximize benefits to the province through a royalty regime; and the development of a country-leading regulatory regime. Lastly, the economic and long-term employment benefits would have to outweigh and residual risk, the Liberal's platform says.

Estimates suggest New Brunswick's onshore has the potential to deliver 80 trillion cubic feet of reserves through fracking, and while not much is known about Nova Scotia and Prince Edward Island, there's bound to be significant potential in both provinces - potential that might go unrealized if the fracking fear that has paralyzed Nova Scotia spreads to other jurisdictions.

"We're missing a golden opportunity here," Bob MacDonald says.

Brad Hayes, president of Calgary based Petrel Robertson Consulting Ltd., was one of the 11 members of the Wheeler panel, and he shares Bob MacDonald's view that the decision was about politics rather than geology or economics.

"Some of the people working with me on the panel said there was a lot of political interference around the decision," he says, even though the panel, appointed after a moratorium on fracking was declared by a previous New Democrat government in 2012, was supposed to provide and independent review.

He wonders if the energy minister even read the Wheeler report.

"He got the report on August 27-28 and the ban was issued the week after," he says, questioning how a thorough analysis could have been made of such a detailed report.

In June, Hayes and Ray Ritcey, the former president of Heritage Gas and also a member of the Wheeler panel, produced a report that suggested there was likely commerical potential for onshore gas development but that the industry first needed the assurance that it could use suitable technologies, including fracking.

"Exploration companies are attracted but are hesitant to move quickly in light of the high levels of risk and uncertainty," Hayes and Ritcey suggest in their report.

"As knowledge of the subsurface, including sedimentary rocks and hydrocarbons, is extremely limited, it is very difficult to quantify the potential or even rank the various basins in terms of overall prospectivity," say the authors. "More exploration, and particularly more deep wells targeted to investigate unconventional reservoirs, would be required to add to our knowledge."

They conclude that the province is unlikely to see increased exploration activity until the moratorium on fracturing is lifted, additional seismic well data is acquired and the complexities of developing frontier basins are addressed.

Nevertheless, they did suggest, using information acquired to date, that gas volumes in the prospective Windsor-Kennetcook Basin are between 17 trillion and 69 trillion cubic feet, while CBM resources stand between 280 billion and 1.8 trillion cubic feet.

Hayes says he is as mystified as others about the government's reference to high-volume fracking.

He says Younger "is trying to create the impression there is a definition and that high-volume fracking would be dangerous, but that is not correct."

In fact, there is no one-size-fits-all approach producers can use. Some formations, such as the Cardium in Alberta, need as little as 2,000 cubic metres of water for each frac, while others, such as the Horn River in British Columbia, routinely see fracs that use 50,000 - 75,000 cubic metres of water.

"The companies will put in as little fluid as they can because it makes sense" - the less water they use, the less a frac costs.

But he says they won't know that until they can test approaches on different reservoirs, which the ban will prevent them from doing.

As for waterless propane-only fracs, he says "not many plays use propane," and he doesn't see that changing.

And CO2 and nitrogen are mostly used in addition to water "to energize a frac" but are rarely used on their own.

Hayes fails to see why water use should be such an issue in the province, pointing to its use in the Marcellus shale in Pennsylvania, where water access is similar to what it is in Nova Scotia.

"You're not talking about high-volumes when you compare water use in fracking to agriculture," he says, which uses far more than the energy industry ever would.

In any case, he says the provincial government hasn't reached out to other Canadian jurisdictions like Alberta and British Columbia, which have strict regulations regarding water use by the energy industry.

"Those provinces have dealt with this issue, and there are very good regulations in place," he says.

Kevin Heffernan, president of the Calgary-based Canadian Society for Unconventional Resources (CSUR), which represents most companies involved in fracking, says the Nova Scotia government never contacted his organization, even though it is recognized as one of the most knowledgeable groups regarding the technology.

"We're certainly prepared to meet with the Nova Scotia government about a path forward," he says.

In contrast, the former left-leaning Parti Quebecois government in Quebec talked to CSUR and to companies involved in fracking to gain a good understanding of the technology, he says. After implementing a moratorium on fracking a few years ago, the Parti Quebecois subsequently agreed to allow some fracking in the province and even invested in a company involved in areas where it will be deployed.

"Maybe the [Nova Scotia government needs] to understand how it is regulated safely in other jurisdictions," he says.


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