The Gasland effect

I thought the movie Gasland was a straight up Michael Moore moment.  A guy investigates shale gas development – takes a very narrow and one-sided view – and ends up likely becoming a millionaire on the profits.

The truth is Gasland probably was one of the best things that could happen to the shale gas industry.  It helped to clarify the regulatory environment.  It helped the industry and governments understand the importance of public support and acceptance for new ways of doing things.

The reality is there have been very few – if any – broad-based drilling bans as a result of Gasland.  Even the Governor of New York is said to be rethinking the ban in upstate New York (and the Quebec ban has an expiry date).

Gasland’s biggest impact was to bring more clarity.  Now, I suspect the industry might not necessarily agree with me on this.  It has caused significant headaches.  It can’t be fun to have Mayors and other politicians using the industry to score populist political points.

But in the end, a clarified regulatory environment and broad public debate will be better for the industry.

That is the benefit of Gasland.

Of course, in New Brunswick the effect of Gasland may end up being a ban on drilling (two of the three main political parties are calling for a ban).

And to this I say again, why New Brunswick?

Why not use the lessons of recent history to get the regulatory environment right and to ensure that economic benefits flow back to communities?  Why not use this moment to reinforce the linkage between economic development and our quality of life?  To explain to people that shale gas is an opportunity  – the richness of NB’s deposits give us an advantage over some others – an advantage we can rarely claim these days.

Alberta, Saskatchewan, BC and Newfoundland have exploited their oil and gas to great benefit.  Why can’t we?

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9 Responses to The Gasland effect

  1. Paul says:

    It is my opinion, and your post supports it, that most of the opposition to shale gas exploration can be laid squarely at the feet of the the Industry and Government.

    It amuses me to find folks who support this industry decry the misinformation and ignorance of those who do not support it. I don’t disagree that there is a lot of misunderstanding, but whose fault is that? in my opinion it is the industry that holds the lions share of blame.

    In fact, if the industry had any interest in NB’s  people and our future they would impose their own moratorium, and then engage the public and the government in setting up the regulatory environment that would gain enough public support before starting. That means more than buying a few ads in the Irving papers. That would be a little to forward thinking, I know, but I think it would work.

    There will never be unanimous support, but I do believe if industry were more transparent, instead of having to be legislated into it, (i.e. Chemicals used in the fracking  process) they would have more support, or, at the very least, less cynicism and suspicion.

    Right now, New Brunswick is a province in desperate need of revenue to support our public services. If you read this blog, you will know  we are on the wrong side of the demographic curve and all sorts of other curves to be overly optimistic, so when a resource industry comes along with the wealth and influence of the oil and gas industry politicians and bureaucrats swoon at the revenue potential, and seem to forget everything else.

    I think that we should develop this industry, but with a strategy for the future. We have allowed other natural resources in this province to be harvested with no strategy for the future.  All those forestry leases to the big forestry companies did nothing for the long term interest of the the province, and they have just up and left. 

    I suspect oil and gas companies will do the same, unless the government acts to build a framework where people can see that the environmental trade off we are making as a province is worth the limited risk. As it stands now, the Government seems to cater to the industry in a less than transparent way, and only acts in the interest of it’s citizens when people protest.

    Your post  sort of confirms the worst of industrial growth strategy. I realize it is not your point that it was not a strategy but perhaps a positive unintended consequence, however, the less oversight the better in the minds of industry. “Trust us” is contrary to what you need in order to gain public confidence.

    Like former Premier Graham, who blew a great deal because he treated the citizens of this province as subjects in his kingdom, as a opposed to citizens in a democracy, the government and industry went at this whole thing ass backwards, and then wonder why people get angry?

  2. richard says:

    It’s true that the govt was slow off the mark on this issue – perhaps due to a lack of local expertise, or perhaps they preferred to wait for a public response. In any event, I do not believe they can counter the social media delivery of counter-arguments at this point. If they want the development to proceed, they can try to bring in some legislative constraints on gas development, some significant regulatory oversight, and some compensation mechanisms if they wish, but they will still take a PR hit.

    As to the gas industry, the info meetings they held were in my view quite informative. But no matter how transparent they were, questions from the public often referred to Gasland and demands for a guarantee of ‘no harm’. The public accepts the risks of invading wetland for the benefit of a Costco, but will not accept any risk for the potential benefit of gas. Certainly we should be trying to maximize the benefits of gas, but that means taking some risks. If you suggest that, e.g. we find a way to find end-uses for the gas here (as opposed to export) you still have to find and develop the gas. That means some will suffer for the benefit of the many.

    As to the corporate lumber barons, what has changed? Apart from ownership, the lumber industry has treated the province and the resource in a fairly consistent manner since the 1800s (i.e. rape and pillage). The main differences are that technology has provided new methods of harvesting and that, once the wood shipbuilding industry died, a lot of the value-added benefits of the forestry industry were lost. There have been many, many, many proposals to bring back that added value – from community forests to new innovative uses of wood fibre. A number of those proposals have been supported by this blog and various commentors. Many of them have been subject of legislature committees and consulting reports. Few of these proposals have generated much interest among the public, few have resulted in demos or social media campaigns.

    People say they want change, yet prefer to keep things simple. Its easy to be against something, but if people have some useful and practical suggestions as to how to get people to think about the hard things, the trade-offs, the real changes that are needed, please let’s see them. Perhaps the govts of NB are ill-equipped to deal with the corporate interests that want our resources, but that is largely a reflection of NBers themselves. We have always, in the end, chosen the easy fix. We are the ones to blame, not the govt or the corporations.

  3. Roy MacMullin says:

    David, I recognize the difficulty in talking with credibility about a wide range of subjects, so I rarely venture beyond the area of energy. In reading your comments on Shale Gas, it becomes clear that while you have some good points, you may want to do some more research. I agree that we need a better dialog. How would this happen? Would the newspapers in New Brunswick start to cover more than the press releases of the ministers of government? Would the government rectify some of the basic concerns of the citizens of the province?

    The legacy of the NB Power sale debacle runs deeper than many realize. The trust between citizens and the leading class of the province is broken on several levels. While there has been lip service to the shale gas issue, little has changed except for a few promises made in June. Consultation on the overall energy policy turned into a bit of a joke with the report issued by Thompson / Volpe.

    The depletion of shale gas wells is up to 80% in the first year. This means that drilling to maintain levels of production will be continuous. Some analysts have described the current situation as over-hyped at best and a “ponzi-scheme” at worst. The industry describes reserves as being 100 years or more, while others believe that it may be 10 years based on some of the current plays south of the border. http://www.theoildrum.com/node/8212 http://www.nytimes.com/2011/06/26/us/26gas.html?_r=1&pagewanted=1&sq=marcellus&st=cse&scp=12

    Minister Leonard suggests that we may have $250 million a year in royalties. However, given our past history of royalty setting leaves me a little sceptical. In 2010, the province received $606k on $29M in sales. The math appears to be a 2% royalty after deductions.

    Corridor suggests future wells at $10M a pop and EUR (overall recovery of gas) at 2.5M mmbtu’s / well. Right now the Boston price minus transportation would be about $3.3 per mmbtu. Revenue per well = $8.2M over a number of years. So a bit dicey to keep a company running. You can only sell so much stock.

    Shall I talk about subsidence and cracking that has ruined some of the homes in Penobsquis and how it sucks to be someone affected by industrial activity? Well, for redress, you can hire a lawyer and appear before the mining commissioner. Is that the support that the rural citizen can expect of his government if there is cross contamination between the NG fracking and the water zone. Of course, it won’t happen all of the time. What percentage of failures will there be? A government has to build confidence by its actions, not its words.

    You seem to suggest that more honesty is required on the part of those protesting. Could you also turn that pointing finger back at government who have bought into a dream that is unlikely to be true. At what time do we start moving away from a carbon based economy? When it is gone? Would we export all of our natural gas or would we limit production so that our children and grandchildren have some of the benefits that we do?

    I would be delighted to discuss this further with you if you are indeed open to discussing facts.

  4. Mr. MacMullin, the first point is that any debate should take this tone. It is a far different debate when one side is saying “hello shale gas, goodbye Miramichi salmon”.

    Your view that this is a ‘dream’ does have some supporters but I can’t find wide acceptance. According to the US Energy Information Administration the best estimates of shale gas are very significant and the U.S. government is expecting this to be a 50 year transitional fuel to move that country away from coal (Obama’s words). As for the price and business model, I can’t really comment articulately on this. If it turns out to be a ‘ponzi scheme’ why does that matter to you? You will get your de facto ban on shale gas drilling. If companies can make money drilling here the province will benefit from tax/royalty revenue and economic activity.

    The shale gas industry is being developed in over 20 states and provinces now and I still haven’t heard any good reason why it shouldn’t be developed here.

    I am sensitive to the disruption (noise, trucks, etc.) that this industry causes local populations and I think that has not be discussed in enough detail. But our social contract as a society has to be at least somewhat based on an economic foundation and that is slipping away in New Brunswick.

  5. @David Campbell
    David, five years ago, I was suggesting that peak oil existed, when the consensus (IEA et al) was that we had oil for hundreds of years. Today, that is changing rapidly, despite the main stream media. Indeed, economic growth will soon be a quaint antiquated concept as the world economy goes into terminal decline. If you wait for wide acceptance to a story, it means you are behind the wave.

    I really don’t care about the economic prospects of SWN, Corridor or any other gas producer. My interest is: 1) in a sound energy policy that is based on realistic expectations. Assuring ourselves that we retain sufficient reserves for the future of this province, if those exist. You should be aware that Sable Island gas will be done in 2017, which leaves us with LNG from some exotic and no doubt unstable regime. In the absence of a sound policy, we would allow all of the native gas to be exported in a year if that were technically possible. 2)The province has indicated that they will revise the royalty regime. http://www.facebook.com/photo.php?fbid=2376867460407&set=o.132079906855023&type=1&theater We get an average of 5% versus 17% in Alberta. All is hear are words. 3)The main concern of rural residents is the quality of water. Citizens suspect that the promises to protect the quality of water via a bond or other method is hollow. http://www.penobsquis.ca/ David, if someone’s industrial activity were to have destroyed your basement and ruined the value of your house by subsidence, would you have a good reason to question the promises of government. Action, not the words of a government impress me.

    You may be aware that the social contract of the whole world is under constant tension from many sources such as the globalization of trade which contain the seeds of our economic destruction on several levels. Just as an aside, are you aware that 99% of the provincial pension funds (8 billion) are invested outside this province? As of this week it may be only $7B with the recent stock decline. One can only imagine the resilience of our economy that would be created by investing in local agriculture and manufacturing of say, solar thermal panels used to heat hot water and homes. (NB Power leasing to customers, manufactured in the province) Money rolling around the economy, reducing our electric demand and need for coal, heavy oil. But let’s not get too creative. Invest some more money in highways… Lots of payback there LOL How bout a subsidy for forestry – effectively free wood.

    The key to economic development is more likely to be the path of Korea and Japan who protected certain aspects of their economies versus the one we’re on in New Brunswick. But I’m off the track and beyond my competence. I’ll leave the management of the world’s economy to Ben Bernanke and the money printing crew.

    David Alward has many opportunities and shale gas is not the only avenue or perhaps the most promising, certainly not with his present approach that risks a full scale confrontation.

  6. Alberta has a 5% shale gas royalty rate as well as New Brunswick. From the Alberta government website:
    http://www.energy.alberta.ca/About_Us/1860.asp

    “Why is the Government of Alberta extending the 5% royalty rate beyond 12 production months for shale gas wells?
    Across North America, natural gas from shale deposits have been identified as some of the most attractive new drilling targets. Estimates of the shale gas resource in Western Canada vary from 86 trillion cubic feet (Tcf) to over 1,000 Tcf. While there may exist large potential in Alberta, shale gas production is in the very early stages and commercial development is not likely to occur in Alberta for a number of years.
    The intent of the Shale Gas New Well Royalty Rate is to encourage new exploration, development, and production from Alberta’s shale gas resources. This extension of the 5% royalty rate is designed to accelerate the acquisition of knowledge and ultimately to achieve commercial natural gas production from shale deposits. “

  7. Roy MacMullin says:

    @David Campbell
    David, from my memory 2009 royalty revenue from natural gas in Alberta was over $5 billion collected on a sliding scale from 5 to 36%. Average of about 17%. Now, royalty regimes are like tax codes, complicated and set up to accomodate the economic state of industry more than the owner of the resource. What does this tell you about the viability of the shale gas resource, the cost structure of the industry and the market weakness that doesn’t allow more than a 5% return on a non-renewable resource. I, for one, don’t agree with getting a 2% return on our natural gas, as we did in 2010. The market system is broken and we are structurally setting ourselves up to lose. Alberta can afford to give away their shale gas. OK for them, they have conventional gas at higher royalties. We need a different model. That’s where an energy, agricultural, and industrial policy comes into play.

  8. richard says:

    “David, five years ago, I was suggesting that peak oil existed, when the consensus (IEA et al) was that we had oil for hundreds of years.”

    What??? I don’t think that the consensus among oil experts 5 yrs ago was that peak oil was a long ways away. That, BTW,is very different from saying ‘we had oil for hundreds of years’. Of course, we will have oil for hundreds of years – it will just be too expensive for anyone to use. You’ve conflated two different things – now why would that be?

    ” We need a different model.”

    In addition to preparing a regulatory and compensatory system for shale gas, we do need to redo the current natural gas distribution system in NB. (Its too bad the sale of NB Power to HQ did not go thru – then perhaps we would have the bucks to fix that.) We also need to determine the best value-added use for shale gas. Export should not necessarily be the only option.

    Folks are focussed in stopping shale gas; if they don’t start focussing on what to do with it, we will end up getting only a fraction of the value.

  9. Paul says:

    Richard

    “Folks are focussed in stopping shale gas; if they don’t start focussing on what to do with it, we will end up getting only a fraction of the value.”

    So in essence perhaps a moratorium would be in order until we have those questions answered and a strategy devised. The gas is not going anywhere and the price is low and the technology for extraction will only improve.

    It’s the race to get the industry established at any cost. Since the whole problem, according to you, is the ignorance of the masses and not knowing whats good for them. Perhaps this is an opportunity to educate and inform.

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