ANALYSIS: Is shale gas a panacea or a pipe dream?

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Premier Blaine Higgs has seized the spotlight of the national stage in attempts to revive what’s become a stubborn, decade-long pursuit: shale gas development.

Appearing virtually before a House of Commons committee, Higgs confidently said shale gas in New Brunswick is a better climate plan than the carbon tax.

The gas in the ground here should be shipped out to replace dirtier power plants in Europe and beyond, he said, contending the carbon price is barely going to make a dent in world emissions as long as China continues to build coal plants.

There’s a business case, he continued.

Recent calls from the leaders of Greece and Germany for Canadian liquified natural gas, coupled with commitments Higgs said he collected from his own trip to Europe, make a New Brunswick shale gas industry viable, the premier said.

So why hasn’t it gone ahead?

An analysis by Brunswick News on the status of New Brunswick’s shale gas industry shows a landscape that’s still ultimately unchanged since an unprecedented wave of protest and opposition scared off proponents.

The industry players that remain aren’t suggesting that expansion is imminent, even as the sole company with natural gas wells in the province is quietly earning millions off its New Brunswick production.

Meanwhile, First Nations opposition is still strong, if not stronger.

And regulatory hurdles remain, if not now higher than they were originally.

Domestic gas needed

The premier’s testimony in front of MPs included some acknowledgements of a liquefied natural gas export terminal’s failure to materialize.

Spanish energy giant Repsol announced last March it was abandoning plans to build a multibillion-dollar terminal in Saint John, citing the cost of shipping an abundance of western gas across the country.

“Following a study carried out by the company, it was determined to not continue with the Saint John liquefaction project as the tolls associated to it made it uneconomical,” Repsol spokesperson Mike Blackier said.

Calgary’s Pieridae Energy Ltd. also mothballed its proposed Nova Scotia export terminal, citing cost pressures, after it asked the federal government for nearly a billion dollars.

But Higgs had a counter to the idea the plan didn’t work because of the dollars and cents: “Repsol didn’t walk away from the project because they didn’t have a market,” Higgs said. “They walked away from the project because they didn’t have a gas supply.”

Corridor Resources turned Headwater Exploration

New Brunswick’s only active shale gas company has stayed relatively quiet since announcing a major shakeup, including a name change and a makeover of its board of directors four years ago.

Corridor Resources changed its name to Headwater Exploration in early 2020.

In response to a series of interview requests from Brunswick News asking about Higgs’s new comments and the prospect of expanding, Headwater responded with a single sentence.

“The moratorium is still in effect so we do not currently have plans for development,” said Scott Rideout, a vice president with the company.

The Higgs government also declined to respond to a series of questions asking whether the government has had any talks with Headwater Exploration on expansion.

In 2019, Higgs quietly carved out a small exemption to the Liberal moratorium for an area near Sussex where Headwater was already extracting gas.

But a larger lifting of the moratorium is needed for any expansion.

Still, the company maintains 32 producing shale gas wells from 11 well pads northeast of Sussex in what’s known as the McCully gas field amid the farming community of Penobsquis.

The company also owns in New Brunswick a gas pipeline that attaches to the Maritimes and Northeast Pipeline and a natural gas processing facility.

Its most recent financial statements show that the McCully wells are netting the company millions in revenue annually through a strategy that sees production only in the winter months to take advantage of “premium prices” it receives in the Boston area “demand driven” market.

Wells were to be back producing from December 2023 to March 2024 with the expectation to provide approximately $15 million of free cash flow for the company.

That’s after similar plans in past years were to bring in up to $28 million.

But gone from the company’s statements are a push to expand.

Shortly after restructuring in 2020, Headwater president and chief operating officer Jason Jaskela said publicly that it remained “committed” to pursuing an expansion to its operations after it had identified “numerous drilling and recompletion projects that can significantly increase production from the McCully Field to the benefit of Atlantic Canadians.”

A third-party engineering firm hired by the company had previously said in public reports that roughly a dozen wells “would be drilled over a four-year period commencing in 2021,” at a cost of $77 million.

Instead, Headwater states in quarterly reports that it wants to continue its seasonal production of existing wells until at least until 2026.

“This asset is long-life, low decline and adds to the sustainability of Headwater’s dividend,” reads a recent quarterly update.

Chesapeake

Meanwhile, the only other prospective industry player is in flux.

Higgs welcomed earlier this year a major natural gas merger when Houston-based Southwestern Energy, known as SWN, announced that it had been purchased by shale gas giant Chesapeake Energy in an all-stock transaction valued at $7.4 billion.

The merger makes the company the largest independent U.S. natural gas producer.

That’s as SWN still holds 32 separate licences to search for shale gas on land stretching about a million hectares, or roughly a seventh of New Brunswick’s land mass, in regions around Chipman, Minto, McAdam, Doaktown and Richibucto, along with a swath of land between Shediac and Petitcodiac.

“I think it has good news potential,” Higgs said at the time.

But what it means for New Brunswick is still unclear.

“Because the merger hasn’t closed, I am not able to speak on behalf of Southwestern,” Chesapeake said last week. “We expect the merger to close in the first half of this year, and then we will be able to evaluate our operations as a new company.”

SWN declined to comment.

The company was issued a five-year extension to its licence to search for shale gas in New Brunswick in 2021, meaning its current licence extends to 2026.

It paid $1,600 to renew 32 separate licences that allow exploration, but don’t permit seismic work or wells to be drilled that would require additional approvals.

That said, SWN has made no moves to restart its efforts in New Brunswick after closing down its only office in the province in 2016. If they were to give up the licences, New Brunswick regulations state the company would have to turn over all the data that it acquired during its exploration work.

First Nations

SWN Resources began its exploration program in New Brunswick in 2010, but seismic testing in Kent County, near Richibucto and Elsipogtog First Nation, sparked protests and blockades, including along Highway 11, which resulted in a standoff that saw police vehicles torched and more than 40 protesters arrested.

A subsequent moratorium on shale gas development then largely shut down the industry in the province.

When the ban was introduced, then-premier Brian Gallant laid out five conditions to be met before the moratorium could be lifted, including “a social licence” to do so, a royalty structure, and a process to consult with First Nations.

There are question marks as to whether any of that has been achieved.

Mi’gmawe’l Tplu’taqnn Inc., which represents the province’s eight Mi’kmaq First Nations, say its opposition to the idea hasn’t changed, and that the government hasn’t formally spoken to its leaders.

“Mi’gmawe’l Tplu’taqnn continues to have serious doubts about the economic and environmental viability of shale gas in New Brunswick,” MTI’s executive director Dean Vicaire said last week.

“While natural gas may have lower carbon emissions than some sources, it has higher emissions of methane, which is a more powerful greenhouse gas.

“The idea of developing the LNG industry as a means to address climate change doesn’t hold water.”

Vicaire added: “We know the premier is keen to develop this industry and the Mi’gmaq Chiefs have committed to sitting down and discussing this with the premier, but those discussions have not happened yet.”

Higgs sent a letter to chiefs roughly a year ago outlining how they could potentially see between $800 million and $1.6 billion in revenue shared among them over 20 years if a shale gas development expanded near Sussex.

Any progress is unclear.

MTI says it has made presentations to the provincial government on resource revenue sharing, “but there has not been significant movement on those files.”

But MTI did acknowledged that Natural Resources Minister Mike Holland has been meeting with chiefs “regularly” on resource issues, “and we hope those meetings will bring results and get revenue sharing discussions back on track.”

Federal rules

Meanwhile, damning for the industry’s prospective growth in the province is the federal Trudeau government’s stance on natural gas, but also the environmental targets that the New Brunswick government has already agreed to reaching.

Federal Energy and Natural Resources Minister Jonathan Wilkinson’s office confirmed to Brunswick News that the federal government isn’t interested in subsidizing future liquefied natural gas projects.

“Ultimately, investment decisions in the LNG sector will be made by proponents based on their ability to comply with federal and provincial regulatory standards, and to be competitive within the global market,” Wilkinson’s office said in a statement.

But it adds that’s not stopping New Brunswick moving forward on its own.

That said, any future LNG projects would need to meet Canada’s 2030 climate goals, which includes a target to reduce oil and gas methane emissions by at least 75 per cent from 2012 levels by 2030.

Meeting that reduction target will require LNG production to rely on clean electricity, according to Wilkinson’s office, and not burning natural gas, while maintaining that “in a world that achieves its climate commitments, global demand for oil and gas will peak this decade and begin to decline.”

Exactly where that extra clean energy would come from imminently in New Brunswick is unclear, with prospective production from small modular nuclear reactors still more than half a decade away, at best, the more recent unreliability of Point Lepreau, and the need to spend billions on the Mactaquac Dam to extend its life.

Higgs battles on

What Higgs is also banking on is what he calls a “growing realization” at home that the pace of transitioning to non-emitting technologies is too fast in Canada, and that the shutdown of emitting baseload plants risks even the stability of the country’s own power grid.

The premier has gone as far as to say that his own government’s recently released energy strategy isn’t “practical” or “realistic” as it quadruples New Brunswick’s reliance on renewable sources of energy such as wind and solar in order to meet federal requirements, although without contemplating what happens when that power is not available.

Higgs has also latched on to federal Conservative party Leader Pierre Poilievre’s rising support, potentially in hopes that a new federal government could rewrite the country’s climate change approach.

“We can do so much better. If we’re sitting idle, costing people more money and we’re not impacting world emissions, who are we fooling?” Higgs said to a committee of MPs in comparing the carbon tax to global emissions.

“Maybe the Paris accord should be modified to say those nations that can have a greater impact should have an opportunity to do so.”