Natural Resources Committee on Nov. 23rd, 2010

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

And you capture it when it comes to the surface. Very good.

Is it so far below the water table, the water and the sand that's going through these perforations, that there is no chance that it's ever going to reach back up to the water table?

[Kevin Heffernan]

It will not. It will stay in the shale. That portion that isn't returned to surface stays in the shale.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Is there any chance, through pressure and normal movement of the earth's crust, that there would be any sinkholes that form as a consequence of the gas coming out?

[Kevin Heffernan]

No, the nature of gas storage in shale is nothing like that. The fractures that are created are the thickness of a sheet of paper.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Gallant.

And thank you for your answers.

If you were to see a sample of the rock this gas is coming from, you'd see that it's a solid material with very, very small areas of porosity, I guess. It's fascinating to see. I hope later on that our committee will travel to some operations to actually see these things.

I go next to Monsieur Pomerleau for up to three minutes.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you Mr. Chairman.

Thank you for having come to meet with us today.

Mr. Fraser, in your brief you seem to imply that you are one of those who provide full disclosure of all additives used in fracturing liquids. What we read in the papers does not reflect that. They say that companies keep this information secret, that these are trade secrets.

Do you mean that you do not make that information public but you do share with two or three individuals who then decide whether or not to give you environmental rights? Is that made public?

[James Fraser]

I can only speak for our company, Talisman Energy Inc. We put on our website, the Talisman U.S.A. website, the exact components of that fracturing fluid.

[Roger Pomerleau, Bloc, Drummond, QC]

Fine, that was my question.

You claim that you comply with all the regulations, all your rights and that you have all the necessary permits to dig and to store water. You claim that you have all the necessary permits in order to carry out your work.

What is it exactly that you are in violation of currently, if you are complying with all the rights and regulations? That is what is being reported in the papers.

[James Fraser]

Are you speaking of Quebec specifically, sir?

[Roger Pomerleau, Bloc, Drummond, QC]

Yes.

[James Fraser]

Yes, sir, we did get two infractions a couple of weeks ago. Those infractions were administrative errors when we were moving water. We had a permit to store the water on one site, and because we thought it would be more efficient to move some of that water from one site to the other, we didn't have the exact administrative paperwork to move it.

I want to emphasize that we did not put any water in the ground; we just moved it from one location to the other without the exact proper permit.

[Roger Pomerleau, Bloc, Drummond, QC]

The third question I have is, for me, the most important. You seem to say—as do other companies, and rightfully so—that social acceptance in Quebec, since this is what we are talking about, will be vitally important if and when you decide to restart your work in the spring.

My personal feeling is that the social acceptance, which is already quite low, will continue to be eroded for various reasons. As my colleague mentioned earlier, the way things were presented got you off to a bad start. The sales pitch was bad; the communications were bad, etc. And the government that is currently overseeing the file is losing more and more of its credibility, so much so that fewer and fewer people are placing their trust in it. That is why I think that social acceptance will be eroded even further.

What will happen if Quebecers' social acceptance of shale gas research does not meet your expected level?

[James Fraser]

You're exactly right. The ultimate decision for the development of this resource is going to be placed with the citizens of Quebec. They will make that decision and we will respect that decision, whatever one they come up with.

I would like to note that part of our process when we go into a specific area is that we meet with all the stakeholders of the area. At the recently conducted BAPE hearings we went through quite a detailed description of a 14-step process that we used on a specific well, where we met with the landowner, the municipality, and all the unions, and we had nine different approvals before we actually drilled that well. It took over a year and a quarter from when we had our first meeting until we actually started drilling that well. We're very respectful of all the stakeholders in the areas, and we use that process wherever we operate.

We do not go in without notice; we do not go in without permission. As I said, at the end of the day, the citizens of Quebec will make that determination of whether that resource is developed or not.

[Roger Pomerleau, Bloc, Drummond, QC]

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Allen, for up to three minutes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Mr. Chair.

I just have a couple of quick questions. One is picking up on one of Mr. Shory's questions with respect to the difference when you actually develop, fracturing the well, as opposed to when you actually go into operation for the fifth-year time horizon. What is the employment difference when you go in and set the original footprint on the ground? What kind of employment does that generate as opposed to what is the long-term employment for these wells when they start producing?

[James Fraser]

The first part of the process, the drilling and completion, is quite employment intensive. But even though that wellhead or those wells exist for many years, the employment continues for long-term job creation.

There have been economic studies cited in several jurisdictions in North America, such as the Haynesville project in Louisiana, where 50,000 jobs were created in one year and $6 billion of wealth has been created, and in the Barnett shale, which is the most active of the shale projects in North America, 130,000 jobs were created over a multi-year timeframe.

These aren't assumptions; these are actual studies that have been done by economists. The third one that I can refer you to is Marcellus shale in Pennsylvania, where over 57,000 jobs have been created in that state in the last couple of years with the shale development. These are long-term jobs.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Mr. Heffernan, when you say the majority of these wells use water but some use no water, what is the process when they're not using water, and what are some of the challenges they run into when they're not using water?

[Kevin Heffernan]

The approach that's being used—it's been tested in Quebec and also in New Brunswick—tends to be liquefied petroleum gas, basically a propane frac. That method offers a number of advantages in terms of management of the flow-back of the fluid, the fluid in this case being propane. It can either be recovered or, depending on the quantity that's coming back, left in the gas stream for recovery at gas plants.

Safety is probably one of the key issues around using propane, although it's being used in many places. It has been used in Alberta for a number of years, and the procedures are well understood. But unlike water, propane has some additional risks.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Chair.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Allen.

Thank you all for your presentations. They are very helpful to our study. We thank you for answering our questions. We appreciate it very much.

We'll suspend now for a couple of minutes, as we move some new witnesses in and get the video conferencing hooked up. We will then resume.

[The Chair, Conservative, Leon Benoit]

We now resume our meeting with our second panel. I would like to say, before I introduce the panel members who are here, either by video conference or in person, that Timothy Egan, president and chief executive officer of the Canadian Gas Association, cancelled out at the last minute due to some family issues. We may be able to get him at a later date. We'll certainly try for that.

We have by video conference from Calgary, from Encana Corporation, Richard Dunn, who is vice-president of the Canadian division, regulatory and government relations.

Welcome, Mr. Dunn.

We have, from the Department of Natural Resources, Marc D'Iorio, director general, director general's office; Denis Lavoie, research geoscientist, earth science sector, georesources and regional geology; and David Boerner, acting assistant deputy minister, Natural Resources Canada. Welcome to you.

We will start with Mr. Dunn by video conference.

Go ahead for up to seven minutes please, Mr. Dunn.

[Richard Dunn, Vice-President, Canadian Division, Regulatory and Government Relations, Encana Corporation]

Thank you, Mr. Chair.

Let me say right from the get-go, I appreciate the opportunity to present by video conference. It is probably a lot nicer in Ottawa: I think it was minus 28 degrees this morning in Calgary.

As mentioned, I'm Richard Dunn, vice-president of government and regulatory relations for Encana Corporation. Just a quick blurb about Encana: we are the second-largest producer of natural gas in North America, with production of some 3.3 bcf a day, that's 3.3 billion cubic feet a day. That represents about 5% of North America's total production. We are 100% North American, with 40% of our production in Canada and some 60% in the United States, with a market capitalization of about $25 billion Canadian.

The natural gas industry in North America is undergoing a technological renaissance that will go down as one of the biggest game-changers in the history of Canadian energy. Technology has unlocked vast new supplies of natural gas, providing an abundance the like of which none of us has seen in our careers. As a result of the new and fast-advancing horizontal drilling and stimulation techniques, North American natural gas resources are now estimated to be in the range of 100 years to 150 years of supply at current production levels. This technology has unlocked world-class places such as the Horn River and Montney Basins in northeast B.C. It offers significant promise in new producing regions across the country, including Quebec and New Brunswick.

I can create a picture of what this technology in action looks like. I am talking about multiple horizontal wells from a single pad location, which is roughly 200 metres by 200 metres on the surface. This taps into some 13 square kilometres of reservoir buried thousands of metres deep and accesses tens of billions of cubic feet of natural gas. You can have several high-tech operations under way at the same time. In one well, a high-tech well log is being run; another well is being completed, with as many as 24 separate stimulations in the horizontal well bore; and still another well is being prepared for production.

We look forward to showing the committee a truly high-tech operation sometime in the near future.

Canada is at the forefront of this energy renaissance. It's also at the forefront of environmental and economic stewardship. Communities do not have to choose between the vast economic opportunities that natural gas offers and the protection of their environment. What allows us to achieve this balance? First, we make use of best practices in quality engineering design across the breadth of our operations. Second, we observe solid regulations, which oversee all aspects of our development. These regulations pertain to diverse areas such as drilling, water management, air emissions, wildlife impact, and worker health and safety. Protection of groundwater is highly regulated throughout all phases of our operations. Regulations are in place to deal with the storage of saline water, setbacks of producing wells from local water wells, and protection of aquifers. From a design perspective, we've heard that engineering steelcase systems, which are fully cemented externally, provide multiple barriers to the migration of fluids from well bores to groundwater aquifers.

In Canada, we support the disclosure of increased information regarding the composition of the frac fluids we use in hydraulic fracturing. However, we go further. We are working to ensure that, wherever possible, we use the most environmentally responsible hydraulic fracturing fluid formations and fluid management practices. The industry as a whole is pressing forward with reducing our environmental footprint by drilling many wells—up to 16 in the Horn River from a single pad—from the same location, recycling water where practicable, and searching for new sources of water that would not otherwise be used. As an example, together with our partner Apache, Encana recently invested more than $50 million in a plant that provides a water supply from deep saline aquifers. This otherwise unusable water, as salty as sea water, is a substitute for fresh surface water that would otherwise have been used for fracturing.

I'd like to turn to the economic impact of the industry and spend a few minutes on the huge economic benefits that our industry provides across the country, including jobs.

According to figures from the American Natural Gas Alliance, in 2008 natural gas supported more than 600,000 jobs across Canada and contributed more than $100 billion to Canada's GDP. The studies show that every Canadian province has natural-gas-related jobs, and spending in the west brings significant benefits to the rest of Canada. Approximately 15% of the economic benefits from the investment in natural gas in western Canada goes to other provinces, much of that to Ontario and Quebec. Encana's spend includes millions of dollars directed toward Ontario- and Quebec-based suppliers, from high-tech suppliers to consultants to manufacturers, including such companies as Hoerbiger, Quadra Chemicals, and Tenaris Steel. As well, the industry brings significant benefits to local service sectors where we operate. In B.C., for instance, even though the service sector is relatively immature, more than 50% of our spend is directed toward local service providers, including a significant amount with aboriginal-owned businesses.

However, with the marked increase in shale gas production in North America, the price of natural gas has dropped, responding to basic supply and demand. As well, it's expected that the natural gas commodity prices will be low for the foreseeable future. Canadian shale gas plays are facing great challenges to compete in the northeast U.S. markets that we once supplied handily. The simple fact is that with the development in North American shales, the U.S. does not need our product to the extent that it did. While we have tremendous resources, we also face some inherent disadvantages, such as increased costs from operating in a northern climate and long distances to transport our gas to market. Large shale gas supplies are being tapped in Pennsylvania and Michigan, near our traditional and core markets. In large part due to these competitive challenges, since 2008, Canadian production has decreased some 20%, while over the same period the United States production has increased some 20%.

What can we do about these competitive challenges? In the short term, industry continues to improve its efficiencies. Provincial governments as well have done an excellent job in creating a competitive environment. One important thing the federal government can do is to adopt the CAPP federal budget proposal that will temporarily level the playing field by proposing an equivalent tax treatment to that afforded in the U.S. to natural gas developers. This tax treatment is roughly equivalent to the current tax treatment afforded to manufacturers and processors in Canada.

In the longer term, the health of the industry will be dependent upon creating markets both domestically and abroad, expanding natural gas use as a means of addressing the pressing demands to reduce carbon emissions. Natural gas is the cleanest burning fossil fuel, and greenhouse gas benefits through natural gas displacing hydrocarbon fuels in industries such as transportation and power generation are significant, providing between a 20% to 50% reduction in greenhouse emissions per unit of energy. Increased use of natural gas will create jobs and more government revenue through taxation and royalties.

Additionally, to turn to foreign markets, in transitioning to a middle-class society, Asia represents the other major market opportunity for natural gas. China, for instance, is expected to quadruple its natural gas consumption by 2020. Asia is injecting billions of dollars into growing our natural gas industry to meet its own energy needs. As part of this, LNG facilities on the west coast and supporting pipeline infrastructure will be required to access this market opportunity.

In conclusion, the Canadian natural gas industry is a responsible, sustainable, well-regulated industry that is a major contributor to the Canadian economy, yet this industry is facing significant competitive challenges. To maintain and grow markets domestically and internationally, it requires access to foreign investment and export markets, support for strategic infrastructure programs, and bridging fiscal policies so we'll continue to ensure this industry does not become further marginalized.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Dunn.

Now we go to our last group of witnesses. Who will be making the presentation today?

Mr. D'Iorio, please go ahead with your presentation for up to seven minutes.