Copyright of the Daily Oil Bulletin 2017
Fracking Bans May Pinch East Coast Gas Supply
Provincial bans on hydraulic fracturing in Canada’s Maritimes may yet come back to haunt the governments that passed them, recent interviews with industry insiders suggest.
At last count, Nova Scotia and New Brunswick had onshore fracking moratoriums in place, while the government of Newfoundland and Labrador described their version, not as a moratorium, but a “pause” in fracking. Euphemisms aside, the effect of the provincial bans has been much the same: to prevent or make most onshore oil and gas activity impracticable, with few exceptions, the most notable being seismic and coalbed methane work.
In Nova Scotia and New Brunswick, onshore activity has been minimal in recent years, but in fairness, was very limited even before the current fracking bans, as reflected in low well counts, but new activity appears to have come to nearly a halt since the fracking moratoriums took effect in both provinces in 2014.
If existing fracking bans are maintained, Nova Scotia and New Brunswick are likely to see current declines in natural gas production continue or accelerate, which could ultimately force them to rely increasingly on imports, according to a Canadian Energy Research Institute (CERI) study, which dealt only with these two provinces.
The June 2017 study offers three future scenarios, the most hopeful of which assume each province’s moratorium will be lifted, leading to natural gas self-sufficiency or even exports. Realistically, however, CERI’s chief executive recently said there is currently little evidence that either province is looking at lifting their bans, in place now nearly three years.
“There’s nothing we’ve read or seen that suggests [Nova Scotia and New Brunswick] are reconsidering their policies at this point,” said Allan Fogwill. “Barring any change, in order to service the natural gas demand in those two provinces, they would need to import [gas] from the U.S. through the Maritimes & Northeast Pipeline.”
Unlike Western Canada, natural gas is not the fuel of choice in the Maritimes, where heating oil is widely used, as is electricity, although gas had made inroads, thanks to production from offshore Nova Scotia — namely, Deep Panuke and Sable Island — and New Brunswick’s onshore McCully field, still producing, despite seasonal shut-ins.
Newfoundland, where heating oil is also popular, is in a different spot. While offshore projects like Hibernia generate gas as well as crude oil, the gas is largely re-injected or flared, since pipelines to shore are considered unfeasible.
Meanwhile, in Newfoundland’s onshore, very little is happening. Unlike Nova Scotia and New Brunswick, Newfoundland is considered prospective for tight oil, not gas, according to Paul Barnes, Atlantic Canada manager for the Canadian Association for Petroleum Producers (CAPP).
Newfoundland’s government imposed a ‘pause’ on fracking in November 2013. More recently, Siobhan Coady, the province’s resource minister, told the Bulletin by e-mail that her province has received no applications from anyone interested in onshore hydraulic fracturing since the moratorium.
At the same time, “no [such] application” would be accepted, at least not until her government has done a “thorough review of all issues surrounding hydraulic fracturing and the public has had the opportunity to comment fully,” she added. That approach puzzles Barnes.
“The [Newfoundland government] is saying ‘no one from industry is knocking on our door,’ but I would counter-argue,” he said. “No one is knocking on your door because you haven’t told the industry what the rules are.”
Until that happens, “you’re not going to attract companies that want to invest” he added. As for the government’s habit of describing its fracking ban as a “pause,” Barnes does not think anyone is fooled. “They don’t want to call it a moratorium, but in essence, [it] is one. If you’re not allowing any more [onshore] exploration licenses, then why would companies invest?”
Still, Newfoundland has what Nova Scotia and New Brunswick lack: offshore oil that brings security against a rainy day. In the latter two provinces, no resources of similar size have yet been discovered, and with fracking bans in place, it’s not clear if or when the situation will change, at least in the onshore.
In its study, CERI underscores the steady decline in Nova Scotia’s offshore gas volumes, noting the decommissioning of Deep Panuke and Sable Island is approaching, giving added impetus to the search for new reserves, including the onshore kind (Nova Scotia’s onshore gas production, mainly coalbed methane, is nominal).
As for hope that the decline in Nova Scotia’s offshore gas will flatten out, CERI’s chief is not counting on it. “I’d say there’s a greater likelihood of [it] accelerating,” said Fogwill. “We haven’t heard anything suggesting the decline will flatten or be delayed. It’s much more likely that the closure of at least the [Nova Scotia] offshore could happen before 2022.”
The fact that Nova Scotia’s offshore gas is running out, while New Brunswick’s is already in short supply, lends some urgency to the issues, including fracking bans, that the two provinces’ governments have to sort out.
“That’s a key point,” said Fogwill. “If [these provinces] don’t want to consider any changes to [the moratorium] policy, the default option is that they will have to import [gas], and it will be more expensive than if they were to [develop] it domestically.” That, at least, would be the case under the ‘business-as-usual’ scenario outlined in CERI’s study.
Others are concerned about Atlantic Canada’s dwindling gas supply. “I have been harping that the East Coast will have gas supply challenges by 2018, maybe earlier, maybe later,” said industry consultant Bill Gwozd, adding that much depends on the weather.
If CERI’s ‘business-as-usual’ forecast pans out, Nova Scotia and New Brunswick will keep their moratoriums, importing gas that will likely mean higher costs for both provinces, after pipeline tolls. Would those changes make local politicians re-think provincial fracking bans? Gwozd thinks so, but is cynical about politicians’ behaviour.
“[Those] in power eight years from now will be different than those in power today, and [many] don’t care what happens in three or four years, as long as they are re-elected,” he said. “There is no long-term strategy.”
Assuming CERI’s business-as-usual case prevails, Nova Scotia and New Brunswick will grow more reliant on gas imports over time. Yet, ironically, nearly all of the gas these provinces would import, whether from Western Canada or the U.S., is likely to come from plays that use hydraulic fracturing. That raises a key question for policy-makers. If, by banning fracking, a province later has to import gas that is produced through fracking, what is the point of a ban?
“This is the fallacy of [politicians’ anti-fracking] arguments,” said Gwozd. “If they were true to their skin, they would [also] ban gas that has come from a fracked operation.” Few, however, expect that to happen in the current climate. Gwozd blames hostility toward fracking on a public that, while educated in some ways, is largely uninformed about the technical side of fracking.
Banning provinces typically stress that they have outlawed only fracking, not other oil and gas activity. While strictly true, this overlooks the obvious: most North American gas is produced through fracking, and, but for coalbed methane plays, producers that cannot frack are hamstrung in operations from the outset.
Since imposing a ban in December 2014, New Brunswick’s government has set out five conditions for lifting it, but these have not been met, according to a government spokesperson. In the province’s onshore, several producers hold land, but few have been active since the moratorium.
One exception is Corridor Resources Inc., which produces gas in the McCully field. Asked if New Brunswick has sterilized itself against oil and gas activity by banning fracking, Corridor’s chief executive, Steve Moran was blunt. “That’s exactly the case,” he said.
Others with New Brunswick land include SWN Resources Canada Inc., by far the province’s largest landholder, with one million hectares. SWN invested heavily in onshore seismic a few years back, before the fracking ban, but it has done little in the province since. Company executives would not speak to the Bulletin.
Other onshore New Brunswick landholders include Pieridae Production Limited Partnership, which has 14,370 hectares, while Orlen Upstream Canada holds 11,147 onshore hectares. Another junior, Windsor Energy, formerly held an exploration licence for 150,000 acres near Sussex, N.B., but has since disposed of it, and launched a lawsuit against the province and a former provincial cabinet minister.
In Nova Scotia, onshore activity is minimal, but a manager from the province’s Department of Energy nonetheless acknowledged something his counterparts in Canada’s other frack-banning provinces have not.
“We know hydraulic fracturing takes place safely in other parts of Canada. What we don’t know is whether [it] can take place safely in Nova Scotia,” said Sandy McMullin, head of the Petroleum Resources Branch. At the same time, he believes others need to acknowledge “the average Nova Scotian’s fear that hydraulic fracturing is going to cause big problems. That can’t be ignored.”
Currently, junior producer East Coast Energy Inc. is pursuing coalbed methane onshore near Stellarton, Nova Scotia, on the province’s east coast. Yet, so far, no commercial volumes have resulted. “It could be a couple of years, and it may not happen at all,” McMullin said. In the meantime, with a fracking ban still in place, McMullin’s department is tasked with drafting new regulations for the province’s onshore oil and gas sector.
He acknowledged the task is still a work-in-progress, with no firm deadline, although it’s clear the government wants regulations in place.
Nova Scotia landholders include St. Brendan’s Exploration Ltd., which has exploration agreements covering 352,500 hectares in parts of Pictou, Colchester and Cumberland counties and in the Cumberland and Stellarton basins. Set to expire in 2018, the agreements are renewable
Newfoundland & Labrador
In Newfoundland, what interest there has been in the onshore has focused on Western Newfoundland’s Green Point Shale oil play. In late 2015, juniors with exploration licenses included Black Spruce Exploration Corp., which held two licenses, covering 29,200 and 35,221 hectares, respectively, in the Deer Lake basin, northeast of Cornerbrook (two exploration licences held by Black Spruce in the offshore were cancelled in 2016, according to the Canada-Newfounland Offshore Petroleum Board).
Another onshore Newfoundland rightsholder is Enegi Oil Inc., whose exploration licence covers 1,781 hectares.
East Coast wellcount
According to the Nova Scotia government, just four wells have been drilled in the province since January 2012, including two in the Shubenacadie Basin, drilled by Forent Energy Ltd. in Spring, 2012. Two other wells were drilled in the province in fall 2013 by East Coast Energy Inc.
In New Brunswick, the McCully gas field, northeast of the town of Sussex, has been the focus of nearly all onshore drilling in recent years. Currently, operator Corridor Resources produces gas from 32 wells in the McCully field, out of a total 39 wells drilled in the field to date (all wells pre-date 2012).
Newfoundland and Labrador
Onshore Newfoundland, just one well has been drilled since Jan. 1, 2012. Gobineau #1, an exploration well drilled in Western Newfoundland by Investcan Energy Corp., was rig-released in December 2012, although several other wells were drilled by other companies in earlier years. In all, 40 onshore wells have been drilled in the province’s onshore since 1995, including Gobineau #1.