(c) Chartered Professional Accountants of Canada. Contact CPA Canada for permission to reproduce this article., Energy, Environmental Reporting

What’s the Story Behind Fracking in Canada?

By Alex Mlynek

By now, you’ve heard at least a little about fracking. You know it’s controversial, but unless it’s happening in your community, you may think the debate is over. It isn’t.

Steve Moran is acutely aware of what’s at stake when the government — and the public — isn’t on your side. Moran is president and CEO of Halifax-based Corridor Resources Inc., a natural gas producer. It uses hydraulic fracturing, or fracking, at its only producing property, the McCully gas field in southern New Brunswick and would like to use fracking at other properties in the province. But in September 2014, a week before Moran started at Corridor, New Brunswick elected Liberal Brian Gallant as premier. Gallant campaigned on introducing a moratorium on fracking in the province. If the moratorium passes, it could strand Corridor’s assets by making it impossible for the company to extract gas from them.

Moran says it’s too early to tell what effect a moratorium in New Brunswick might have on Corridor’s bottom line since it’s not yet known how extensive the moratorium might be. But he agrees there is a risk to operating in a region that has less experience with the oil and gas industry. “There’s a certain amount of fear that’s associated with the industry coming into their areas,” he says. And that fear can lead to delays that may not make it profitable to develop in those places.

“Getting access to the assets in a reasonable, cost-effective time frame is one of the things that we measure,” he explains. “At the end of the day, if for the same prize somewhere is half the risk, half the time lines and half the cost, then the capital is going to flow there.”

Moran faces an uphill battle in part because New Brunswick residents such as Ann Pohl are putting pressure on local governments to keep a close eye on the industry. Pohl’s property in eastern New Brunswick is in a region of extensive shale gas leases, the bulk of which are owned by oil and gas producer SWN Resources Canada Inc. Pohl cofounded the group Upriver Environment Watch to get her message out. She supports a moratorium on fracking in New Brunswick and wants the government to create a robust plan to directly engage in and monitor environmental protection from predevelopment to decommissioning. “The government can’t rely on companies to monitor themselves,” she says.

The shale gas revolution of the past several years has dramatically changed how we look at global energy supply and demand. Led by production in the US and later in Canada, it has been touted as the road to a secure domestic source of energy and a way to cut down greenhouse gas emissions. And all this is possible because fracking, in combination with horizontal drilling, made it viable to get at oil and gas trapped in shale and sandstone. In just a few years North America went from not having enough energy to supply our needs to having such an abundance that we almost don’t know what to do with it. But Canada may be at a crossroads now in terms of business risk to investment in unconventional fuels such as shale gas, as the global economy is slowing down, concerns over greenhouse gas emissions from fossil fuel companies rise and a number of communities weigh in on whether they’re willing to allow fracking in their backyards. So what does the future hold for fracking?

When asked what they think of fracking many would say it’s evil. And while evil is a strong word, there is reason to be cautious as we move forward, particularly about issues of water use, says Matt Horne, associate regional director for British Columbia at clean-energy think-tank Pembina Institute. “Risks around water contamination are certainly significant,” he says.

“Likely areas where that could happen would be where well casings fail.” And despite the industry’s best efforts, ensuring these casings stay secure in the long term is not guaranteed, according to the Environmental Impacts of Shale Gas Extraction, a 2014 report commissioned by Environment Canada.

“There needs to be more evidence collected about how the wells behave,” says Rick Chalaturnyk, a professor of geotechnical engineering at the University of Alberta in Edmonton and one of 14 authors of the report. “How they behave after six months, after a year, after two years and so on, so that we know they’re not going to serve as leakage paths for fluids into the shallow environment.”

Groundwater contamination is particularly relevant because many shale gas wells are drilled in rural areas that rely on groundwater for their domestic wells. Horne notes some other troubling areas are water availability and the disposal of flowback, or wastewater. The danger here is at both the transport and the storage stage, says Horne. “Fracking produces a lot of wastewater,” he explains. “The regulations and the structure of [wastewater’s] management aren’t necessarily designed to deal with the volumes of wastewater that are now being produced.” In 2007 a spill of fracking fluids in Kentucky is believed to have caused a die-off of Blackside dace, a type of minnow, according to a study by the US Geological Survey and the US Fish and Wildlife Service.

However, there has been positive industry movement since then. Forward-looking companies that use fracking are increasingly following the International Energy Agency’s golden rule to treat water responsibly (one of seven best practices described in its Golden Rules For a Golden Age of Gas report in 2012) by recycling the flowback.

Best practices are all well and good, but proving you’re not impacting the environment is tricky. Regulators in BC, Alberta and Saskatchewan say there are “no confirmed cases” of groundwater contamination caused by hydraulic fracturing in any of those provinces, but that is difficult to say definitively, explains Chalaturnyk. “The only way you can measure the impact is to know what the conditions were initially, and it’s very rare to have that data on multiple shale gas projects.” He recommends the testing of shallow groundwater and air quality before fracking gets underway, followed by continuous monitoring.

That kind of transparency will help producers gain the public’s trust, Chalaturnyk says, but for now, the lack of trust is a real disadvantage for companies. People hear about the thousands of trucks that rumble down previously little-used roads at all hours as sites are prepared for production. They hear about First Nations land being fracked, which could affect their ability to hunt and fish. They hear about chemicals being used in fracking, some benign, some not, and worry about what these chemicals can do to their health. This fear impacts the ability of companies to gain social licence to pursue fracking. “The business risks around fracking aren’t the scientific issues, they are the public perception issues,” says Barry Munro (photo below), leader of EY’s oil and gas practice in Canada. “It is brutally obvious to energy companies today that those issues around social licence have a direct and real impact on their overall costs and availability of capital,” he says. Availability, allocation and cost of capital drive the business decisions of oil and gas companies, and fracking is an asset- intensive technique, explains Munro, so the public’s acceptance is definitely important to producers.

Munro says that thanks to the shale gas boom we have moved to an abundance model, which means gas prices will drop or remain flat. That gives companies even more reason to innovate to squeeze out efficiencies. One example he cites is well-pad drilling. “Breakthroughs on horizontal drilling technology led to companies drilling multiple wells off one single well pad,” he explains. “So the site disturbance [where less land is disrupted because there are more wells on each well pad] is about 10% of what it used to be.” And while Munro is confident producers will continue to finesse operations because it makes good business sense, he acknowledges the need to keep a watchful eye on them to ensure they address the public’s concerns. “Are companies doing it perfectly? For sure not. Are they learning as they go? For sure. Should the pressure stay? Absolutely,” he says.

Where does all this leave fracking?

In Canada, New Brunswick’s election results could cement an East-West divide when it comes to exploiting unconventional resources. Newfoundland and Labrador, Nova Scotia and Quebec have moratoriums on fracking, although Quebec’s allows exploration in some areas. There is greater acceptance in Western Canada, where fracking is more established. But the practice is not without its detractors there. Research firm EKOS recently released a survey commissioned by the Council of Canadians that said 70% of those polled in BC and the territories and 67% in Alberta supported a moratorium on fracking until it has been scientifically proven safe.

Chalaturnyk and Horne believe there’s a place for fracking if the risks are mitigated with good practice and regulation. Chalaturnyk thinks now is the time for governments to make sure they’re on top of their regulation game, especially in BC. Production could ramp up quickly in the province if any of the 18 proposed liquefied natural gas facilities set for BC’s coast were approved and built, as such a facility would allow producers to export gas overseas. Factors that could hinder their go-ahead include high costs, environmental approvals and local opposition.

Several years ago the energy abundance the North American shale gas revolution has brought seemed inconceivable, so it’s not outside the realm of possibility that we could see a rapid shift in the other direction when it comes to fracking. A number of factors, including a global economic slowdown, public opinion and efforts to fight global warming, as well as water availability, could tilt things toward the antifracking or go-slow camp. Momentum just might be on their side now.

“The remarkable thing is that this is the first time that First Nations, Acadians and English-speaking people in New Brunswick have really united around something,” says Pohl of the struggle to get the government to protect the people and land in her home province. “There’s going to be no turning the clock back on this.”

How Fracking Works

Fracking (or hydraulic fracturing) is designed to break up rock that holds hydrocarbons such as natural gas or oil and allow them to be brought up to the surface. It works by drilling a minimum two-kilometre-deep hole, which first runs vertically through the fresh groundwater zone then shifts horizontally when it reaches the depth at which the fuel is located. Several layers of steel pipe, each secured by cement, are then inserted into the hole. To fracture the rock, fluids — often water, but sometimes propane-based gel — chemicals and proppant (usually sand) are shot at high pressure down the well to break up the shale or sandstone and let the oil and gas out. The chemicals vary depending on the makeup of the rock formation and the proppant helps to keep the fractures open. As the hydrocarbons start flowing upwards through the well, fluids and some of the chemicals come back to the surface — this initial production of fluids is known as flowback.

Alex Mlynek is a freelance writer based in Toronto.

This article was originally published in the January 2015 issue of CPA Magazine.