My name is Michael Binnion and I am the President of Questerre Energy Corporation. I would like to thank you, Mr. Chair and all members of the committee, for inviting me to speak to you today.
Questerre's main focus is our Utica Shale Gas discovery in the St. Lawrence Lowlands of Quebec where we have been working since 1998.
There are various public estimates of the Utica shale gas discovery that suggest that the entire discovery is in the range of 25 to 50 trillion cubic feet of gas, which would put it in the top 10 natural gas discoveries in North America.
For the past 20-plus years I've been an entrepreneur involved in start-up and turnaround ventures in Canada and internationally, primarily in the energy sector. I have the perspective of someone who's been on a rig, at the control panel for a frac operation, at a compressor site, and a meter station, someone who knows the practical application of engineering, geophysics, and geology, and who risks his own money on the outcomes.
Formerly I was president and founder of the first western company in the Republic of Georgia after the civil war, working on their first hydrocarbon legislation, and with the international finance corporation. Now I'm immersed in the politics of shale gas in Quebec.
Today I hope to combine these perspectives to discuss the impact of shale gas on energy security, on the potential for regional economic benefits, and where there is room for the federal government to play a role.
The gas age has begun. The impact of shale gas on world markets has been enormous. In 2008 North America was running out of natural gas, and the price was well over $10 per thousand cubic feet, or $60 per barrel on an energy equivalent basis, and predicted to be much higher.
North America was expected to be competing on world markets to obtain significant quantities of liquid natural gas, or LNG. Several projects were at late stages of approval for LNG import terminals, three in Canada--Rabaska, Cacouna, and Kitimat. European headlines were about Russia's stranglehold on Europe's gas market and the political impacts it might have. China was signing long-term contracts to tie up world LNG supplies.
Only two years later the price of gas is under $4 per Mcf, or less than $25 per barrel on an energy equivalent basis. All LNG import terminal projects have been cancelled. Kitimat has converted to an export terminal for Asian markets. European headlines are about how Russia is worried about maintaining market share. In Europe, China is still tying up world supplies of LNG.
Today shale gas provides close to 10 billion cubic feet per day of North American demand. As a result, North America competes for a minimal amount of LNG on international markets. Prices in Europe and Asia are starting to become linked, due to their competition for the same supplies of LNG. The price in Britain is now about $7 per Mcf, with Asia being somewhat higher.
The inference is the benefit to consumers of shale gas in North America is not only security of supply but also a price at least $3 per Mcf lower than international markets. However, there's an even bigger advantage in international markets, although more difficult to quantify. We can only speculate what the international price would be if North America was competing for as much as 10 Bcf per day of LNG imports, when current total worldwide capacity is only 27 Bcf per day.
While the world was preoccupied with the financial crisis, the natural gas business was creating a new paradigm in world energy. I believe the technological innovations that allow us to extract natural gas from source rock are having as big an impact as that of Rockefeller learning how to refine oil at the turn of the last century.
That change created an oil glut, ironically almost bankrupting Standard Oil at the time. But it led to a century of growth based on a cleaner and more affordable energy, just as coal had done a century before. Shale gas can do the same this century, fueling over a billion people's aspirations to join a western standard of living, without threatening energy security in North America.
What are the opportunities and threats to the emergence of a natural gas age?
In terms of opportunities, one, with its abundant unconventional gas resources, Canada could become a world leader in a natural gas-fuelled economy. There are opportunities to expand natural gas use, such as a trans-Canada green highway, starting with Quebec to Windsor--city fleet and public transportation vehicles fuelled by natural gas; fuel switching for heating, industrial uses, and power generation from higher emission sources; and LNG export terminals to supply world needs for affordable and cleaner fuel. Given that natural gas currently trades at about one-third the price of oil, the capital required can be repaid from energy savings; it's a subsidy-free energy solution.
Two, emerging shale gas developments in eastern Canada bring the possibility for a locally based onshore service sector. The oil and gas service sector is currently concentrated in western Canada and is the main delivery point for technological advances, employment, and widely distributed economic benefits associated with the oil and gas industry. Having a service sector based in eastern Canada could deliver these same types of benefits.
We have provided you a briefing paper focusing on economic benefits that this industry could bring to Quebec.
In terms of threats, one, there is a general lack of public awareness about shale gas development, particularly in provinces without a long history of development of hydrocarbons. The techniques and processes, including hydraulic fracturing, are currently used in essentially all natural gas wells drilled in North America. However, it is still new for some of the regions where we've recently discovered shale gas. Social acceptability hinges on the education of the public at large about the real risks and benefits.
Second, it is our observation that the debate about shale gas has been framed thus far by political lobbies associated with competing fuels--such as coal and subsidized energy--that view natural gas as a direct threat. With new media, a U.S. political debate has permeated the Canadian one. In material respects, we do not believe this has served the interest of familiarizing the public with the natural gas industry.
Third, there is a first-mover disadvantage to funding the cost of new infrastructure required for natural gas. As common carrier pipelines and facilities, they will need to be regulated to allow many parties to use them. But first movers are disproportionately burdened with the costs and risks, and this delays necessary investment to promote adoption of this cleaner fuel.
These are our recommendations for the federal government.
Since the federal government does not have a jurisdiction over provincial resources, there is a role to be played as an honest broker to research and inform the public about technical risks and procedures involved in the shale extraction process. A successful example of this was the participation by Natural Resources Canada at the Munk Centre conference on the impact of shale gas on water resources.
Another recommendation with respect to the federal government’s role in interprovincial and international commerce is to support the construction of natural gas infrastructure. It is unlikely the private sector will be able to advance major projects for public infrastructure on its own.
Finally, we encourage the federal government to take advantage of recent events in the United States and abandon the idea of cap and trade. As seen in Europe, this system will result in political decisions about emissions credits and inevitably favour entrenched industries, which in a North American context means coal. The market has done a good job of delivering consumers the energy they demand, but to the extent that public policy imperatives require it, a carbon tax will be less distorting and more effective in encouraging consumer choices that reduce emissions.
Once again, I thank you for the opportunity to present these ideas. I hope they have been of use to your committee, and I welcome any questions.
