MONTREAL - A boisterous public debate that shook Quebec's tranquil farmlands in 2010 threatens to reverberate next year over the future development of vast reservoirs of natural gas held captive in shale rock.
Local residents and environmentalists fought vociferously against provincial government efforts to permit industry to extract a treasure trove of energy trapped in shale deep below the surface.
"It was a stormy year," says Lucie Sauvé, member of a local committee in St-Marc-sur-Richelieu, which fought efforts by an Australian company to drill on the land near the town 40 minutes outside of Montreal.
"When the citizens of Quebec progressively over the first months of 2010 learned about the existence of this gas development project, it ignited a lot of anger."
Sauvé believes 2011 will be a year of transition toward a solution if the provincial Liberals respect the growing call for a moratorium on exploration.
Many residents are concerned about potential water contamination, excessive water use and threat to the local agricultural economy and its picturesque vistas. The gas is extracted by blasting chemicals, sand and water into deep, underground wells. The process is called hydraulic fracturing -- or fracking. About 28 wells have been opened since exploratory drilling began largely unnoticed in 2008.
Greenhouse gas targets threatened
But the overriding issue for many opponents is that the development would set back Quebec's efforts to meet its Kyoto targets to reduce greenhouse gas emissions, Sauvé says.
Quebec should instead be a beacon to the world by developing alternative energy from wind, solar and geothermal to complement its abundance of hydro-electricity, says Sauvé, who holds the Canada Research Chair in Environmental Education.
"If we in Quebec don't take advantage of this situation to become the leaders in a post-petroleum era and economy, I don't know who will."
She says the issue is so important that it should be decided by a referendum.
Companies such as Questerre Energy Corp. (TSX:QEC) have a lot riding on Quebec's decision.
About 90 per cent of the company's upside and more than half of its market capitalization is based on the value of its asset in Quebec, says chief financial officer Jason D'Silva.
"We have a 15-year investment in trying to find a big natural gas discovery in Quebec. We've made a discovery, the big question is now how commercial it is," he said in an interview.
D'Silva says the industry is on the verge of spending $300 million to prove the economic feasibility and fine-tune well costs, but needs a regulatory system that would also spawn the creation of a local service industry.
"Companies like Talisman and Questerre are not going to make a commitment to spending $300 million until there's a service industry there and until we've got a regulatory system in place that allows us to develop this stuff."
Lacking a history with the natural gas industry, many Quebecers have been swayed by misinformation and myths that have been imported from the United States, he says.
In full development, the fracking process will use less water than Quebec car washes and a fraction of what is lost annually through leaky pipes in Quebec City's water system, D'Silva says. He also maintains it's impossible for water to be contaminated from fracturing deposits thousands of feet below aquifers. However, he concedes that shallow gas could migrate from poor cementing of drilling pipes.
Quebec may be a very green province, but it must also recognize that natural gas is part of the solution on a continental and global basis, he says. He also believes development of the province's shale gas will reduce greenhouse gas emissions by reducing the shipment of gas from Alberta and because it is a purer product.
Commercial development, D'Silva says, also promises to make Quebec more energy independent and provide another source of revenue for government.
More than $1 billion in potential revenue
A report by advisory firm Secor estimated that Quebec's shale gas industry could generate between 5,000 and 19,000 jobs and more than $1 billion in annual royalties for the province.
The study conducted on behalf of The Quebec Oil and Gas Association says each gas well would generate $1.85 million in value added to Quebec and some 33 jobs annually during the drilling phase.
But the report also notes that only 28 jobs per 100 wells would be created during the production phase that stretches over 50 years.
Proponents say the tabulated benefits don't included higher corporate taxes that will be shared by the federal and Quebec government. Critics says the impacts will be much smaller, as low as $50 million a year.
Hugo Séguin of the environmental group Equiterre says the financial and employment impact is weak and outweighed by the potential environmental harm.
"We're not exactly looking at a Klondike or a big industry at all," he said in an interview.
Séguin believes the government will ultimately endorse a moratorium after it receives a report, likely in March, from a group it appointed to consult experts and hear from Quebecers.
He says there are many similarities to the proposed gas-fired Suroit project in 2004. The government ultimately backed down amid public opposition and a cool reception from the energy regulator. The environmentalist says it's totally inconceivable that the government will endorse the industry's haste to develop the sites, especially when natural gas prices are so low.
Pierre-Olivier Pineau, a professor at HEC Montreal, said low gas prices are a natural constraint on development of the Utica shale.
Higher natural gas prices would help justify development
The most socially acceptable solution would be to wait until gas prices are higher and a better way of overseeing the industry can be developed so people feel safer and government can get a better return, he said.
"Even if prices were high, it wouldn't be a game-changer in terms of the energy sector in Quebec, so there's really no rush."
Experts say the shale formation could eventually match Canada's current overall annual production for the next 30 years.
Natural gas currently represents only 11 per cent of the energy consumed annually in Quebec, but commercial production would only begin to flow in five to seven years.
Pineau said proponents of the project totally mishandled the situation.
Government was totally caught off-guard by the opposition and improvised its response. And industry, led by former Hydro-Quebec president Andre Caille, was not able to clearly address public angst.
Citizens suspected there was something going on behind the scenes because of the lack of information and general distrust of government and its ability to monitor the industry, said Pineau.
Marin Katusa of Casey Research said it will take time for people to grow accustomed to shale gas. Within five years, more than half of U.S. gas production is going to be from shale.
"As it becomes more the norm and it becomes more the standard in the industry, people will become more educated and more used to it and the unknowns will be proven through time."
Katusa believes opposition will also dissipate if various environment reports, including an 18-month study from the U.S. Environmental Protection Agency, minimize the potential risks.
