Why provinces and First Nations are wise to put a hold on unconventional gas

November 1, 2014

Eastern Canada is turning its back on hydraulic fracturing.

Following the release of the Wheeler report in late August, the Liberal government in Nova Scotia quickly announced that "high-volume" fracking for onshore shale gas will not be allowed in the province "at this time." Within days, the voters of New Brunswick had ousted pro-fracking Conservative premier David Alward and voted in Liberal Brian Gallant, who has promised to institute a moratorium on the unconventional drilling technique.

These decisions followed a November 2013 recommendation by a Prince Edward Island standing committee on agriculture, environment, energy and forestry that fracking not be permitted on the island, and a moratorium in Newfoundland and Labrador announced that same month. The Newfoundland government has just appointed a panel to further review the issue of hydraulic fracturing in the province.

There has been a moratorium on fracking in Yukon since 2012. The government's select committee assessing the risks and benefits of hydraulic fracturing will make its recommendations any day now, but the Council of Yukon First Nations passed a resolution in July 2013 unanimously declaring traditional territories "frack-free."

Going ballistic

Several mainstream media columnists have predictably gone ballistic over these actions. Marilla Stephenson, columnist for The Chronicle Herald in Halifax, claims Nova Scotia had chosen "doom and gloom" instead of "hope and prosperity." The Financial Post's Terence Corcoran moans that, "Nova Scotia's shale potential will remain in the ground, buried under a mountain of social and political waste generated by growth-killing theories and activists."

Konrad Yakabuski writes in his September 11 Globe and Mail column that, "Nova Scotia turned its nose up at a potential $1-billion-a-year industry," while Gwyn Morgan, former head of natural gas giant Encana, says in the same newspaper (October 6) that New Brunswick voters have chosen "building debt" instead of "building wealth."

Morgan claims U.S. regulators "have found no supportable evidence of fracture-induced water contamination [and] more than 200,000 wells have been fractured in Alberta, British Columbia and Saskatchewan with a similarly sterling record." He conveniently ignores the lawsuit underway by Alberta landowner and scientist Jessica Ernst against his own former company and the Alberta government for allegedly contaminating her drinking water by fracking the aquifer in her community.

Yakabuski even criticizes federal Liberal leader Justin Trudeau for saying that more study is needed before the shale industry expands—even though this view merely echoes the findings of a report by the Canadian Council of Academies (CCA) released in May.

The scientific research group, which was asked by the federal cabinet in 2011 to review the impacts of shale gas development in Canada, concludes there isn't enough information to declare the process safe, and that provincial regulatory systems "are not based on strong science and remain untested."

In most instances, says the CCA report, "shale gas extraction has proceeded without sufficient environmental baseline data being collected (e.g., nearby groundwater quality, critical wildlife habitat) [and] without a corresponding investment in monitoring and research addressing the impacts on the environment, public health, and communities." It further notes that, "shale gas development is occurring largely in the traditional territories of Aboriginal peoples who depend on the local environment for food and water and whose culture may be particularly affected."

New technology

Canada's former minister of natural resources Joe Oliver (now at Finance) claims that "fracking has been going on in Canada for over 50 years" without incident. But the industry's technological combination of horizontal drilling with multi-stage fracking is only about 15 years old, and it has been applied on a massive scale in areas of North America (outside of Texas) only since about 2006. The so-called "shale revolution" has advanced exponentially with little scientific oversight, as the CCA report emphasizes.

In fact, contrary to what the federal government is saying, "Physicians and public health scientists from around the world have nearly unanimously stated that the health dangers surrounding shale gas are potentially devastating," writes Jim Emberger, spokesperson for the New Brunswick Anti-Shale Gas Alliance, in a recent op-ed for CBC News. "Research has already associated many of the chemicals used in shale gas extraction with cancer, birth defects, developmental disorders, respiratory and neurological diseases, and more."

A concise summary of the facts is contained in a September report from Food & Water Watch, The Urgent Case for a Ban on Fracking, which says the practice is "so dangerous...that it cannot be regulated, even if there were the political will." The group calls for an immediate ban and a transition "to a renewable and efficient energy system."

Shale bubble

On top of the environmental threats, critics like Emberger raise the prospect, increasingly likely, of a shale gas "investment bubble" that is about to burst.

"The industry has not profited from the actual sale of gas since 2009," he explains in the same CBC column. According to the Energy Information Agency, industry costs exceed the cash coming in from fracking operations by billions of dollars. "Expenses and dividends are met by borrowing and from the sale of company assets," including the flipping of quickly-depleted wells to clueless (usually foreign) buyers.

"Of the 97 energy exploration and production companies rated by Standard & Poor's, 75 are below investment grade (junk status), as are 80% of the 115 firms tracked by Moody's Investors Service," says Emberger, suggesting a classic "investment bubble."

Canadian natural gas expert David Hughes explains shale wells are depleted in about three years, causing a "drilling treadmill" just to maintain production. The resulting surplus of gas has pushed prices way down.

"Although the bankers made a lot money from the deal-making and a handful of energy companies made fortunes by exiting at the market's peak, most of the industry has been bloodied," reported the New York Times two years ago. "Like the recent credit bubble, the boom and bust in gas were driven in large part by tens of billions of dollars in creative financing engineered by investment banks like Goldman Sachs, Barclays and Jefferies & Company."

Insiders have called the industry "a Ponzi scheme" that hops from one promising shale gas deposit to the next. They also sometimes refer to natural gas as "the crack cocaine of energy fuels," since initially low prices hook utilities, which then have nowhere to go when the price rises.

U.S. energy industry analyst Deborah Rogers discusses these issues in a crucial report, Shale and Wall Street: Was the Decline in Natural Gas Prices Orchestrated?, released through her Energy Policy Forum in February 2013. Rogers explains that Wall Street promoted the shale gas drilling frenzy, "which resulted in prices lower than the costs of production and thereby [investment bankers] profited enormously from mergers and acquisitions and other transactional fees," amounting to US$46.5 billion in 2011 alone, according to KPMG.

"In much the same way as mortgage-backed securities bolstered the banks' profits before the [economic] downturn, energy M&A had now become the new profit center within these banks," says the report. Drillers sold assets to bigger firms that believed the shale hype or had their own long-term agendas for other resources. In fact, shale oil and gas reserves have been overestimated by "as much as 400-500%," claims Rogers, while the fact that wells become depleted in about three years has been ignored. "The purported economic benefits of shale gas and oil have been consistently and egregiously overstated by industry in every shale play to date."

Deflating the bubble

In northeastern B.C., the Fort Francis First Nation has called fracking on their traditional territories "the largest and most destructive industrial force that our waters have ever known." In April, the community informed the government and industry that, "B.C.'s LNG strategy is on hold."

The pipelines proposed to carry this fracked gas to the west coast would pass through the unceded territory of the Wet'suwet'an First Nation whose Unist'ot'en Camp is entering its fifth winter. The camp is strategically located to protect the territory from eleven proposed oil and fracked gas export pipelines.

Gitxsan First Nation communities, also in northwestern B.C., have declared their traditional territory permanently closed to fracked gas pipeline development, and in August they began construction of Camp Madii Lii, a long-term base camp. In Alberta, the Lubicon Lake Nation is continuing an anti-fracking campaign initiated in November 2013 against Penn West Petroleum.

Like these communities, the people of Nova Scotia and New Brunswick have seen through the hype and refuse to become another "sacrifice zone" for the industry, though risks remain. Ken Summers, a member of the Nova Scotia Fracking Resource and Action Coaltion (NOFRAC), warns in a September 4 article for Halifax Media Co-op that the pending legislation might not prevent fracking for coal bed methane and tight sand gas.

More worrisome is the suggestion from Morgan and other pro-fracking voices that eastern provinces could be penalized through a reduction in federal equalization payments—a threat summarized in the "no fracking, no cheque" quote that Morgan says "went viral on the Internet."

The reality is that the provinces are wise to go slow on shale development, as the investment bubble could blow up in their faces.

Toronto Star business columnist David Olive wrote in February 2013, "roughly three-quarters of a trillion dollars invested in shale oil and gas has either gone down the rat-hole or been re-directed away from smarter investments," such as alternative energy. "We are approaching the end game of yet another boom and bust cycle," he said, spurred by "Wall Street dealmakers preying on the greedy and gullible."

More recently, Andrew Nikiforuk told a Squamish, B.C. audience that given the questionable economics of the shale and LNG industry, and all the impacts and uncertainties of fracking, "Maybe one of the best things you can do in British Columbia at this time is keeping this resource in the ground." And as Rogers warns: "Every region in the U.S. which has shale development provides a cautionary tale. Economic stability has proved elusive. Environmental degradation and peripheral costs, however, have proved very real indeed."

Joyce Nelson is an award-winning freelance writer/researcher and the author of five books.