The Chair (Mr. Leon Benoit (Vegreville—Wainwright, CPC)):
Good afternoon, everyone. It's good to see everybody back.
We are of course doing a study on energy security in Canada. The committee began the study a few months ago. We're looking at what the federal role is in unconventional oil and gas development, such as deepwater offshore drilling, shale gas exploration, and oil sands development. We're also looking at the regional economic impacts of the oil and gas development on conventional oil and gas, and at the National Energy Board's role in the development and export of unconventional resources. Today we are looking at the shale gas component.
We have with us today, on our one panel, three individuals. We have Dr. Gerry Angevine, a senior economist from the Fraser Institute, and Dr. Anthony Ingraffea, Dwight C. Baum Professor of Engineering from Cornell University.
Professor Ingraffea's flight was cancelled this morning, so he will be with us by video conference. If he isn't on...we'll have until the others have presented, so we'll have him last in the group.
As well, we have the Honourable Bruce Northrup, Minister of Natural Resources with the Government of New Brunswick. He's appearing by video conference from Fredericton.
Welcome, everyone. We'll get right to the panel. We have just one panel for the full two hours.
We'll start with Dr. Angevine, please, for up to ten minutes.
Dr. Gerry Angevine (Senior Economist, Global Resource Centre, Fraser Institute):
Thank you very much, Mr. Chairman.
Good afternoon, ladies and gentlemen. Thank you for the opportunity to speak about the Fraser Institute's research pertaining to energy security and how it relates to the committee's study.
I understand that the study includes reviewing the roles of the federal government and the National Energy Board with respect to the development and export of unconventional oil and gas resources, and this will be part of my focus.
I assume that, in the context of the study, energy security refers to an assured supply of energy for Canadians under normal market conditions. From this perspective, the greater the Canadian oil and gas production is and the more opportunities there are to freely export and import these resources, the less Canadians should be concerned about oil and gas supply difficulties.
Concern that North America's energy resources are not being developed as quickly and extensively as they could be in order to allow the citizens of Canada, the United States, and Mexico to reap the maximum employment income and social benefits led us to initiate a continental energy strategy project two years ago.
As explained in a 2008 Fraser Institute paper by former premiers Klein and Tobin, the envisaged strategy would require North American energy policies at the national, provincial, and state levels to be aligned in support of efficient and as rapid development of the continent's energy resources as possible in light of free market conditions, science-based environmental concerns, competition from oil and gas imports, and petroleum investment opportunities abroad.
Clearly, increased development and production of the continent's energy resources would bolster the security of oil and gas supplies as well as provide economic and social benefits. Because market forces will determine the most efficient allocation of North America's energy resources, development of a continental energy strategy does not encompass identifying energy investment, production, and trade targets. Rather, the focus is on ensuring that government policies and regulations pertaining to energy resource investment, development, and trade are stable, fair, and appropriate.
Governments must avoid intervening in energy investment decisions, as these are best left to those who are motivated by market forces, have an in-depth knowledge of the technologies involved, and are prepared to take risks based on their understanding of how energy requirements are likely to change.
In the continental energy strategy program, at the institute we recently released two papers, which are available on the institute's site, free of charge. One is Towards North American Energy Security: Removing Barriers to Oil Industry Development, and the second is North American Natural Gas: Reducing Investment Barriers.
These studies review the oil and gas supply potential and requirements in Canada, the U.S., and Mexico and prospects for national and continental supply-demand balances for both oil and gas.
One of the conclusions from this research is that, with continued technological improvements, there is potential to significantly increase the volume of oil liquids that is produced in North America relative to domestic demand. Along with continued development of the oil sands, increased offshore production, commercialization of gas to liquids, and coal gasification technologies will contribute to improvement in the continental oil liquids balance.
Eventually, when we get there, the technology that allows us to commercialize oil that's found in shale—the oil in the U.S. that's been indicated to exist in large quantities locked in the kerogen in oil shale—will also contribute.
With regard to natural gas, technological improvements have made the production of gas from shale formations viable. That has transformed the long-term outlook for continental gas supply and demand from one of increasing dependency on LNG imports to near self-sufficiency.
An indication of this is the plan to export gas to overseas destinations from Kitimat instead of importing gas at that location, as originally planned. Because of what's been termed the shale gas revolution, the security of gas supply should not be a matter of concern for Canada in the foreseeable future.
With regard to the impact that shale gas is having on the outlook for U.S. gas supply, the upward revisions contained in the U.S. Energy Information Administration's 2011 long-term forecast are telling.
This is gas production from shale formations reaching almost 8 trillion cubic feet in 2020, compared with 4.5 trillion cubic feet in the administration's previous forecast just 13 months ago. That compares with actual 2009 production of 3.3 trillion cubic feet. More remarkably, the projected volume of U.S. shale gas production in 2035, when total gas production is forecast to reach 26 trillion cubic feet, has been doubled from 6 trillion cubic feet to 12 trillion cubic feet. As a consequence, U.S. gas production from other sources—not all other sources, but some, including coalbed methane—and imports of gas from Canada and abroad are projected to shrink.
The Fraser Institute studies that I referred to and the U.S. Energy Information Administration's most recent long-term outlook underscore the fact that the continent has a strong oil and gas resource position; however, non-market barriers stand in the way of achieving the goals and objectives of a continental oil and natural gas strategy. Because these obstacles prevent oil and gas production from increasing as rapidly as they could, they also impinge upon oil and gas security. There are a number of barriers that Canada is in a position to address because of its jurisdiction over oil and gas exploration in the north and in the Atlantic and west coast offshore regions, and also on account of responsibilities that Canada has with regard to environmental protection.
First, the government needs to ensure that royalties or production taxes on conventional oil and gas in the areas for which it has jurisdiction are competitive, not only with those in the provinces but with those in competing jurisdictions around the globe.
Second, it needs to ensure that royalties in relation to higher costs of production because of deep offshore or remote far north locations or other factors, as with some of the unconventional sources, reflect those higher costs. If royalties don't do this, investment will be allocated to regions promising more attractive returns.
Third, the government needs to remove the cloud of uncertainty overhanging the oil and gas industry in relation to the timing and specifics of environmental policy changes that could significantly impact the capital costs of oil and natural gas projects and energy pipeline construction. Necessary changes to environmental regulations need to be defined and implemented as quickly as possible. If potential investors don't know what changes will be made and can't estimate the cost of compliance with accuracy, major projects will be lost to other regions.
Fourth is the issue of moratoria on offshore exploration, which are standing in the way of development of petroleum resources—offshore British Columbia, for example. Moratoria on exploration and production in offshore areas should be lifted once the authorities are satisfied, having examined the cause of the disastrous oil leak in the U.S. Gulf of Mexico last year, that the environmental risk can be mitigated. This will open new areas for development and in turn contribute to Canada's energy security.
Fifth, regulatory process and procedures that threaten to delay the approval of oil and gas pipeline construction that will be required to transport new supplies of bitumen, shale gas, and other petroleum resources to market hubs need to be made more efficient. The National Energy Board has self-imposed standards regarding time schedules with regard to the release of decisions following the completion of public hearings. But these are arbitrary and serve only as guidelines, not hard and fast rules that must be achieved. Moreover, there are no such standards with respect to the time required from when an application is received until a public hearing commences or with the maximum time to be allowed for public hearings. To ensure a more rapid response to pipeline construction applications, more may be required than simply tightening the NEB's self-imposed service standards. In fact, the National Energy Board Act may need to be revamped to limit the board's involvement in the construction permitting process to non-commercial aspects such as safety, environmental impacts, and other matters of public importance.
Finally, there is the land claims issue. Means for settling aboriginal and other claims expeditiously and in a fair and appropriate manner need to be found to prevent unnecessary delays in the construction of pipelines required to transport oil and gas to markets. A matter that should be of concern to the federal government is that investors regard the Northwest Territories as relatively unattractive for investment in oil and gas exploration and development.
According to the Fraser Institute's global petroleum survey, in 2010 the NWT ranked 74th of 133 jurisdictions worldwide. This was worse than any of the other Canadian jurisdictions that were ranked, other than Quebec. In fact, the NWT appears to be less attractive for investment than almost all of the U.S. states and offshore regions, all of the Australian states and territories, New Zealand, Chile, the United Kingdom, Norway, the Netherlands, and many other jurisdictions around the globe.
Now, according to survey respondents, the Northwest Territories' poor performance in the global ratings is due to a number of factors, but most important is the land claims dispute issue. On this factor, the NWT was deemed to be the least attractive for petroleum investment of all 133 jurisdictions around the globe that we were able to rank. The Northwest Territories also scored poorly in relation to the availability of infrastructure, regulatory duplication, and uncertainties in relation to protected areas. If the federal and NWT governments wish to attract petroleum investment to the north and thereby advance energy security, these matters need to be addressed.
As I've mentioned, Canadians are fortunate in not having to worry much about the security of oil and gas supplies given our fortunate position as a net exporter of both commodities. However, those parts of the country that are mainly dependent on imported crude oil and refined petroleum products would be disadvantaged by any lengthy interruption in the usual marine supply channels. The government may therefore wish to investigate the extent of the risk exposure of that sort and how it might be lessened.
The Canadian government has a role to play in ensuring that the laws and regulations that define the conditions within which the petroleum industry operates are conducive to free market competition, and also in working to lower non-market barriers to petroleum investment such as those that I've identified, so that development of Canada's oil and gas resources, including oil sands, bitumen, and shale gas, can proceed quickly where production is viable in light of the rigours of competition, free trade, and the costs of compliance with necessary environmental protection policies.
Thank you, Mr. Chairman.
Dr. Anthony R. Ingraffea (Dwight C. Baum Professor of Engineering, Cornell University, As an Individual):
Good afternoon, and thank you very much for giving me this opportunity to present testimony to your committee. I do apologize for not being there, and I also compliment your staff for setting up this video conference on short notice.
I want to make it clear that all of my testimony this afternoon is on point, that is, unconventional natural gas development from shale formations. I'm going to limit my time to just a few comments right now, because I understand we have a whole two hours and I would rather spend my time with you answering your questions. But I am going to spend a few moments and suggest some lines of questions based on my reading of all the testimony on the issue of unconventional natural gas from shale formations that your committee has received to date from various speakers over the last few months.
As I've read that testimony, I've noted some inaccuracies and some misleading statements, so I hope today to help to clarify those for you. There are five main comments that I'd like to suggest right now that perhaps we could follow up on during Q and A.
The first is, don't make the same mistake that's been made in the U.S. by framing and naming the issue of unconventional natural gas production from shale fracking. It is not just fracking; it is the entire process, the whole system of producing unconventional gas from shale formations that you should be investigating. So don't develop too narrow a focus.
The second point is that the most important aspect of developing unconventional gas from a resource like shale is the scale of an operation. By that I mean two things. It takes between 50 and 100 times more fluids to develop a shale gas well than to develop a conventional gas well. That implies that a concomitant amount of waste products is produced in the stream. I emphasize 50 to 100 times the amount of fluid necessary over a conventional gas well. That's one aspect of what I refer to as scale. The second aspect is this. The nature of the geology of shale is such that to produce the vast quantities of gas that are being forecast by the industry will require a very high well density compared to conventional gas development. By that I mean on the order of three wells per square kilometre. Those two issues of scale need to be absorbed and digested: the large amounts of fluid necessary, which implies much transportation and much waste disposal; and many more wells per square kilometre than previously experienced.
The third point is that the technology to do this kind of unconventional development is, surprisingly, relatively new. There are four elements of that new technology, and they did not come together in the United States until about eight years ago. So this is not the hydraulic fracturing of the 1950s, 1960s, and 1970s. It's not conventional gas development of that era. It's a relatively new combined technology.
Fourth, because it's relatively new—in the U.S. certainly, and in the western provinces where it's going hot and heavy in Canada—regulations and the enforcement of the regulations have not kept pace with the technology in the U.S. I'll repeat that. The regulations and the enforcement of those regulations have not kept pace with this new technology. It is unlikely, based on the experience that we're seeing in the eastern part of the United States—Pennsylvania, Ohio, and West Virginia, where shale gas development is under way—that your eastern provinces are ready for similar development. I emphasize that it is unlikely because we have similar geologies, similar surface uses, and similar population densities, and, as I said previously, the regulations and the enforcement of those regulations in that kind of environment. Your eastern provinces, I claim, are not yet ready.
Finally, the fifth point I want to make is to follow the waste streams. If there's one lesson we have learned already in the eastern part of the United States where shale gas development is undergoing tremendously rapid expansion, it is that the ability to note how much waste is being produced in each well is important—and by waste I mean solids, liquids, and gases. It's important to know what's being produced, in what volume and when, and where every waste stream winds up in the environment.
Those are the five points I would like to make in my opening comments. I hope we have ample time during Q and A that you might want to ask me to expand on all of them.
Thank you very much for your attention.
Hon. Bruce Northrup (Minister, Department of Natural Resources, Government of New Brunswick):
Thank you very much, Chairman Benoit.
Good afternoon, everyone.
I want to thank you for the opportunity to appear before the committee today, and I appreciate that you have made it possible to do it via video conferencing.
The Government of New Brunswick is very pleased to present its views on the energy security in Canada and how our province can contribute to our country's energy needs.
I understand I have 10 minutes for my opening remarks, so I'll use this time to share where we are now and where we want to go.
Today we are in the very early stages of what could be a very substantial natural gas industry in our province. This is a very exciting prospect, and we are very optimistic that this could be a major part of the New Brunswick economy if managed in a responsible manner. In just the Sussex area where I live, there is an estimated 60 trillion cubic feet of natural gas trapped in shale formations deep underground. For comparison purposes, just one trillion cubic feet of gas could power 10,000 homes for 1,000 years. So you see there is enormous potential from an economic development and energy security perspective.
Today, 11 companies have rights to explore for oil and natural gas on almost 1.5 million hectares of land in New Brunswick. Two of these are large American companies with extensive experience in shale development in the United States and Canada. Exploration companies have invested $350 million in our province over the past decade, looking for natural gas and oil, and they plan to spend at least another $200 million over the next two years. So the exploration phase alone is creating employment and pumping significant dollars into the New Brunswick economy through the purchase of goods and services.
But it's the next stage that has the potential to substantially change our province's future. If shale gas is discovered in commercial quantities, then we're looking at a game changer for our great province. A large-scale natural gas industry would generate millions of dollars in royalties, create many new direct and indirect jobs, and expand our tax base to help fund services we all count on, such as health, education, and senior care.
Just last week I returned from a fact-finding mission to the State of Arkansas with my colleagues, the Minister of Energy and the Minister of Environment. We were joined on this trip by Stephanie Merrill from the Conservation Council of New Brunswick, who also appeared before this committee. During our visit we met with landowners, environmentalists, regulators, and politicians, including the Governor of Arkansas. It was a very eye-opening experience. What we saw is how the shale gas industry has ignited the economy of Arkansas. As Governor Beebe told us, the shale gas industry has transformed Arkansas from a have-not state to a have state. Thousands of new jobs have been created directly by the shale gas industry, or indirectly as companies have moved to Arkansas to take advantage of the secure and relatively inexpensive energy source.
We believe a significant natural gas industry would have the same positive economic impact in New Brunswick. What our government is determined to do is to realize the benefits of this resource without suffering any negative consequences—and I just want to repeat that: without suffering any negative consequences.
We know there have been environmental problems in some parts of the United States. While the impact sometimes can be exaggerated, we do not take these concerns lightly. That's why our government support is based on the responsible expansion of the natural gas sector. The development of this resource must be done right. It is imperative that the social and environmental fabric of our rural communities continues to be substantial in the future. We won't sacrifice the safety and security of homeowners and their groundwater supply to make this happen.
Today we are confident that our present legislative framework is more than adequate to deal with the current level of activity. This activity is primarily at the exploration stage with very few wells drilled. In addition to our existing legislation, we have introduced a phased environmental impact assessment, an EIA process, as a tool to enable the proper planning for what lies ahead. The phased EIA is unique in Canada, and we feel it will address many of the issues raised by concerned citizen groups and other groups.
We also realize that if this industry moves forward as hoped, we must adapt our legislation and human resources accordingly. We feel this can be done right and that we have the necessary time to ensure this happens.
We are in the fortunate position of being able to learn from other jurisdictions like Arkansas that are a decade or so ahead of us in developing shale gas reserves. In some states, development outpaced the regulatory regimes, and the environment was the big loser. In New Brunswick we believe we have a strong regulatory framework, and we're willing to make it even stronger if that's what it takes. Our objective is to be a leader in this area, and we feel we are in an ideal situation to achieve this goal. Consequently, our government is now re-examining legislation and regulations governing the exploration and extraction of minerals, oil, and natural gas. We see this as part of a continuous improvement process. We also believe in the close collaboration with people, communities, and interest groups to ensure they are engaged in the process.
It is the position of our government that we engage the public and conduct our business in a completely transparent manner. Just this weekend I hosted an open house in my hometown of Sussex, so that anyone with questions on shale gas development could get the answers directly from government officials or industry representatives. This was the first of what I anticipate will be a series of information sessions in different parts of the province as exploration and development activity picks up in other areas.
We are planning at least one additional fact-finding mission. This time we plan to go to northern British Columbia to see first-hand shale gas development there and to meet with residents and regulators. I also believe the hearings this committee is holding will help focus public attention on shale gas development and what it could mean for Canada's energy security.
It is well understood that the natural resources of New Brunswick belong to the people of our province and the responsibility to manage those rests with us. I believe we are up for the task. But New Brunswick is a team player, and I recognize there may be areas where cooperation with the federal government and our sister provinces and territories may prove mutually beneficial. Areas of cooperation that come to mind include the environment, economic development opportunities, research and development, investigation of value-added opportunities, and human resource development. These are all the areas where cooperation may lead to enhancing opportunities this industry brings to New Brunswick and the rest of Canada. This ultimately may lead to a very secure energy future for us all.
Again, I appreciate the opportunity to appear here today, and I look forward to answering questions from committee members.
Thank you very much.
Dr. Anthony R. Ingraffea:
I'll try to answer those three questions very quickly.
In a typical high-volume slick-water hydraulic fracturing operation in a shale gas formation, there are roughly five types of chemicals that are necessary. I won't give you their chemical names—one can look those up—but one needs to add a lubricant to the water so that pumping the high volume used under very high pressure over a very long distance can be done with a reasonable amount of horsepower at the surface. That lubricant is typically a hydrocarbon derivative. There is a biocide necessary to kill the bacteria that otherwise would grow in the well and clog the well. There is an anticorrosive to prevent rusting of the all-important steel casing—that's the first line of defence for the entire life of a well that's expected to last 20 to 50 years. There's an antifouling agent to stop scaling—that is, deposits of hard minerals on the inside of the casing in the well that would otherwise clog it. And there is an acid that is used to clean out perforations right before the hydraulic fracturing process and immediately after the start of it.
Those are the general categories of chemicals. Some of them are relatively benign, even though you would not want to be drinking them or having them in your trout streams. Others are known to be toxic, carcinogenic, and don't belong in the human environment. But I should also emphasize that once the fluid comes back—and I'm trying to answer your second question now—it contains not only the chemicals that were put in on the way down but the material that was picked up from the shale. As I mentioned before, notably, in black shales, shales containing gas, the most dangerous of those are the heavy metals--strontium, barium, uranium, and radium--some of which are also naturally occurring radioactive materials.
The industry is fond of saying that most of what they pump down stays down. What they fail to talk about is the timeframe in which they're counting. Typically, the returned fluid, after the fracturing process, is counted as returned fracturing fluid only during about the first week or two of flowback operations. However, all shale gas wells continue to produce fracturing fluid and brine containing heavy metals for the entire life of the well. One has to be very careful. One cannot say that on average, 50% of the fluid comes back. One has to say under what timeframe one is making that measurement. Typically almost all of the fracturing fluid comes back during the life of the well.
In answer to the third question, whether I take comfort from my friends in New Brunswick saying they're trying to keep up with regulations, I don't know. I don't know what their starting point was for their regulations. I don't know what the current, perhaps modified, set of regulations looks like. I would only suggest that they go to perhaps the closest match to New Brunswick, which I would say is Pennsylvania, and take a look at the substantially revised regulations that have been put in place just in the last year as a result of only three years of substantial development.
Mr. Richard Harris (Cariboo—Prince George, CPC):
Thank you, Mr. Chair.
Thank you, gentlemen.
In listening to the testimony today, I'm getting two distinct pictures of shale gas extraction. One is being given by Mr. Ingraffea, who describes it, as I understand him, as somewhat of a reckless endeavour that is fraught with the danger of spills, truck accidents, bursting valves, and every other kind of mishap you can imagine, and as something that we maybe shouldn't even be looking at up here because of all these potential hazards.
On the other hand, I'm hearing from Mr. Northrup, from New Brunswick, that prior to any development of shale gas extraction or exploration in his area, the regulatory people will set some standards and some criteria that must be.... After their study on how to do this safely and efficiently, the rules would be put in place so that this indeed would not be a fast and loose, reckless endeavour, but rather a very carefully monitored, efficient, safe, and environmentally friendly way of extracting shale gas.
So we have these two pictures. I wish we had more time to get an explanation from each one of you.
My question is this. Given the potential economic benefit to this type of gas development, I would assume that unless you have a fairly delinquent regulatory environmental body overseeing it, in fact there have to be prudent ways of extracting this, where all due diligence has been done, environmental safety has all been put in place, and we're good to go, providing all of this is adhered to. I think we do a pretty darn good job of that in Canada--maybe not in other jurisdictions outside our borders, but in Canada I think we have some of the toughest environmental regulations.
I'm wondering, Mr. Northrup, would you like to comment on my little dissertation there?
Mr. Randy Hoback (Prince Albert, CPC):
Thank you, Chair. I look forward to working with this committee. It looks like a great group of people here.
First of all, I want to welcome the witnesses to the committee. I appreciate your testimony and your interest in the topic we are discussing today.
This past year, I had the luxury of going to a fracking in process at the EnCana site just outside Dawson Creek. I talked to people in the community. We went to an opening of their local arena. EnCana had provided a substantial amount of money to build that arena in Dawson Creek. Without EnCana they wouldn't have been able to do it. We talked to some of the local people about the impacts and their concerns. There were concerns. There's no question about that.
There are concerns with everything we do. There are concerns when a farmer puts a seed in the ground, but you have to weigh that against the benefits. You talk to people about what they think and you move forward.
It was interesting to go to that fracking site to see the safety and security and the process. I get a little confused here today because I hear testimony about broken valves and stuff, as Mr. Harris talked about, and yet I never saw anything like that. In fact, what I saw was something that was very tightly controlled, very highly regulated; it is something where not just anybody is going to walk onto that site and not be accounted for. In fact, I looked at their safety systems and the monitoring, and it was very impressive.
That was my first site, so I'm not an expert on the topic. There might be more to it, I don't know, but I'd encourage the committee to at least look at these things before you start making judgments on what you're going to do in your own province.
Mr. Northrop, you're doing the right thing. You're actually going out and talking to the people in the field. You're going to the areas and getting the information first-hand and learning from other people's mistakes. That is a wise thing to do. I just hope you won't be scared away by extremists. When I look at what's happening in the communities and what they told us there, it is a very positive thing.
In Saskatchewan we had an NDP government for quite a few years, and they had this theory that we would let the gas stay in the ground. That was a good theory. We let the oil stay in the ground while the kids all got educated and moved off to Calgary, which became the biggest city of Saskatchewan people who weren't in Saskatchewan. You have to look at what's best for your communities and what's best for your province before you start making decisions.
That is going to lead into where David stopped. When we look at provincial jurisdictions and what barriers are in place, Mr. Angevine, what are those barriers? Where are we overlapping? On the agriculture side, we see overlap all the time, and it's more than frustrating. There must be a tremendous amount of overlap that could be removed. Could you identify some of those overlaps?