Good morning, everyone. It's good to be back again.
We have, in the first hour, a witness on our study. In the second hour we will deal with future business of the committee. Some discussion on that started at the last meeting, and we'll continue that.
We have with us today Michael Binnion, who is president of Questerre Energy Corporation. Thank you very much for coming. We had a long list of witnesses who were asked and just couldn't accommodate us right at this time. Many are coming later. So we really do appreciate your being here today.
If you could start with your presentation for up to 10 minutes, we'll then go to questions and comments from the members. I know you've given us a brief, but the presentation is in one language and the other information in another. We have to get them translated before we can circulate them. So they will be circulated later, through the clerk.
Go ahead, please, Mr. Binnion, for up to 10 minutes.
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.
Our company has published a fact sheet on water use in shale gas in Quebec. It is on our web page at Questerre.com.
Just to give you a quick summary, we believe that in full-field development at approximately 400 wells per year, which is about the higher end of the range that has been predicted for Quebec, we would be quite a light industrial user of water, using approximately three billion litres of water per year, which would be less than car washes in Quebec, which would be maybe 20% of the water that the city of Quebec loses just through its leaky pipes. It is less than 1% of what agriculture uses. It is less than 1% of what pulp and paper uses.
I understand that when we are talking to people and say we are using 12 million litres of water, people imagine it to be a huge number. It is hard to grasp what the number really is. But in an industrial context, it is actually a small amount of water and will be barely noticed, if at all, on the Quebec water table. MDDEP has already put in regulations restricting us such that if there are local areas of shortage of water, we would be restricted in how much we take. I don’t expect that in the lowlands that would ever be a problem.
In addition, to put it into another context, we have calculated the amount of water it takes for one well and compared it with how many homes the gas from that well would be able to heat or service in one year, if you are on natural gas service. The amount would be less than one litre of water per year per home in Quebec, compared with the current usage in Quebec of 360 litres per home.
I drilled my first well in Quebec in 1989. We were not successful then, and that's when I went to the Republic of Georgia, as I mentioned. I came back in 1998 to try again, with the idea that we could find unconventional resources. So we've been at this now in Quebec for 12 years. We've been through a number of different economic and energy cycles in that time.
The real dream was to be able to find a big discovery of gas in Quebec and do something that would have an impact on energy independence for Quebec.
I would mention that Quebec is Canada's second biggest market for natural gas. It is a very large market, second only to Ontario. The local market is more than a big enough prize for our shareholders, although of course my shareholders are always asking me to do more, so export would be a possibility. I don't think export could happen for at least 10 years, and I think it's going to take us quite a number of years just to satisfy the size of the local market.
Concerning farming, one of the great things about the oil and gas sector in western Canada is just how well it mixes with farming, because we have a very small land print. People continue to farm. It's not as though we turn their farms into a factory and then they have to lose their farm; in fact, just the opposite. There are many examples of people on family farms having been allowed to stay on a family farm and keep farming because an oil and gas operation has come and has supplemented their income.
I think it has been extraordinarily successful as an industry in mixing well with farming, but also in spreading the economic benefits, not just in Calgary but also throughout the regions. That's why we think that in the lowlands it's going to be a very complementary mix to the current use of land there.
I admit that our education of people as to the potential benefits and how well we mix has not been as good as it could be. But I can tell you that when you examine the dozens and dozens of different types of jobs that are involved in oil and gas, there will be people in Quebec who can do those jobs today. We've been in communication with the CEGEP at Thetford Mines about training people. There are many jobs that in a very short period of time local people will be able to do as well.
I can tell you that to be profitable, because shale is a very high capital cost operation, we have to have local service and local employment, because it just won't be competitive to be flying people in from Calgary every two weeks.
Opponents of natural gas, which are organizations like ProPublica and groups like that in particular, are all funded by political action committees and foundations associated with the Democratic Party, which is also strongly associated with the coal lobby.
The public relations coup that our opponents managed was to link problems associated with conventional drilling, which have existed for 100 years--and we continuously get better at that--to hydraulic fracturing. By making that link in the public's mind, they've been able to point to problems caused by conventional drilling and say, “Oh, you see? This hydraulic fracturing is dangerous.” But we are starting to win back on that issue. We now have a growing number of independent studies and reports showing that the idea that a few trucks pumping water on surface will break through one or two kilometres of solid rock is, if you really think about it, almost ridiculous on the face of it, yet in the public's mind it's a concern.
Within safe depths, the potential for us to fracture to surface or into aquifers is negligible--immaterial--and that's backed up by studies by MIT and the Ground Water Protection Council. Worldwatch has done a review, and Frac Attack has done a review. Most recently the department of environment and energy in New York State has put out a comprehensive report, which I think is going to be a 1,220- or 1,300-page study, and they have concluded that the risks are negligible. Finally, the 2004 EPA study, which was a study of fracking in coal bed methane, which is far closer to surface, also concluded that the risks were negligible.
I think that's one issue on which we're on really solid ground, but it has highlighted that conventional drilling can occasionally disturb aquifers and that human errors in procedures on surface can occasionally create the potential for groundwater contamination, and that's the issue we need to address.
Thank you, Mr. Chair, and thank you, Mr. Binnion, for being here today.
Decades ago one of our premiers made that comment that we were going to leave the oil in the ground for Saskatchewan residents. I think that was possibly the worst decision that was ever made in our province, because by the time things were done, we were left decades behind our neighbour province, which had decided to make that development.
I'm a bit concerned, because I think I'm hearing some of the same arguments or some of that same discussion today. It just about destroyed us--well, it did destroy us--in terms of population growth. We were leading the population in the west at the time, and when it was done, our population was a third of what Alberta's is. Our economic development lagged by many years. We spent decades taking equalization from the federal government before we were finally able to get away from that.
We've had good development recently, particularly in my area in southeast Saskatchewan. It's made a huge difference to the local economy. This morning you were talking about some of the things that it's impacted. Our young people are able to stay in the communities and stay around. I think that's a concern for all of us who have any rural areas in our ridings.
You mentioned the construction jobs. We have lots of folks around with backhoes and trackhoes and that kind of thing, and it makes it easier for those of us who live there to get services as well. I mentioned employment for our young people, and it's certainly boosted the economy, both locally and in terms of export.
We were talking a little earlier about the impact in Quebec in particular, and I see that the document that was prepared for us by the analysts states that the most noteworthy shale formations in Canada include the Horn River shale in northeast British Columbia and the Utica shale natural gas field in Quebec, which is what we're talking about.
Can you tell me a little bit about the contributions that shale gas in the Utica field can make to the Quebec economy?
Thank you very much, Mr. Chair.
I would also like to thank you, Mr. Binnion. I am from Drummondville and I know that you, or someone from your company, came to meet with a number of mayors. Thank you for doing that. Like everyone in Quebec, the people in Drummondville are quite suspicious of this situation.
I will continue along the same lines as Mr. Anderson's argument. Quebec is not Saskatchewan. Quebec will decide what it wants to do. We have multiple sources of energy and it is up to us to decide whether we want to use electricity instead of natural gas, regular gas or wind energy. That will be decided in Quebec. It is up to us to decide whether our cars will run on natural gas or on electricity in 40 years. We have all the types of energy we need to do that. So, the problems in Quebec are very different.
You must know what the situation is like in Quebec, since you participate in the BAPE hearings. Before I ask one or two quick and rather technical questions, I would just like to point out—since it will be read by other people eventually—what draws companies to Quebec. There are major reserves, as shown by the Utica example, and future markets in Quebec or in Ontario. There is no shale gas in Ontario. There are also the emerging markets, including China and India, which will be consuming a lot of energy in 15 or 20 years. We have a great capacity to connect our discoveries to the Metro gas pipeline, which covers precisely the area where Utica is. There is also a lot of water for drilling needs. We have very clean gas. That's what we are told at least. As a result, the refining costs are probably much lower.
The subsurface does not belong to people. It is really surprising. I have just found that out. Whatever is under my land is not mine. If the subsurface does not belong to the people, that benefits the companies that only have one client, meaning the Quebec government. The industry has great connections or contacts with the government. At the moment, a number of people are leaving the government to work for the industry. It is rather extraordinary.
That's what draws businesses to Quebec. That's quite fine. On the one hand, these are very objective things. On the other hand, there is something subjective that is significantly harmful to what is to come. That's what the public is getting from all that. We know that the Quebec government is currently losing steam in terms of credibility. Every day, something new undermines its credibility. People are wondering if this government is still very solid. I always say that it is as solid as the Berlin Wall, five minutes before it fell. We've reached that point.
As soon as the government takes the industry's side, it ends up harming it because of its lack of credibility. That's what we are dealing with at the moment. I feel that Quebeckers will choose to wait a year or two, in order to first get the results of the studies to be done in the United States, which will be completely neutral in terms of what is happening here. If Quebeckers decide to get on board, they will be at the back of the bus.
In this context, I would like us to clarify a situation that the government made very confusing. Is it true that, in the United States, the subsurface belongs to the landowners, unlike here? Is it true that a prospector in the United States can pay up to $28,000 per hectare to drill a well? If the well produces, is it true that the people can claim 12% to 20% in royalties for what comes out of that well?
Mr. Binnion, I want to thank you for coming here today.
I have to admit I knew very little about the shale gas industry, but this has been an experience. I appreciate the direct and complete way that you've responded to questions from all of the parties. What I'm gathering is that we have a pretty good news story here, from the point of view of energy security, of cutting greenhouse gases, and also from the economic benefits.
I guess I'm not surprised to see how fast our colleagues from the NDP and the Bloc appear to be trying to run away from this good news story. It's really a shame, because this is going to have a monumental impact on our energy supplies for decades to come. So I thank you for the way you've responded to those questions and particularly to their concerns.
I just have a couple of questions. We have for many decades been getting conventional natural gas from conventional sources. When we go from that to extracting it from shale, are we going to see a dramatic decrease in the conventional sources of natural gas? Is one going to replace the other, or is there enough demand that both will stay around? One, of course—shale gas—will likely be a bigger item than conventional natural gas.