QUEBEC HAS CONVENTIONAL OIL, NOW WHAT?
Posted on February 24, 2015
Quebec runs a chronic trade deficit (2013: C$30 billion). Lower oil prices coupled with higher exports to a resurgent US should narrow the deficit but it will remain high until certain structural issues are addressed. Oil is Quebec’s number one import. Quebec’s oil consumption is rising and it is expected to do so for some time to come.
Quebec’s two refineries meet nearly all of Quebec’s needs for refined products. They even export some products. Quebec’s refineries represent approximately 20% of Canada’s refining capacity.
Junex Inc. and Petrolia Inc., two Quebec-based juniors listed on the Toronto Venture Exchange (TSV), recently issued separate press releases indicating that their test wells located on the Gaspé peninsula had daily oil flows of 316 and 340 barrels, respectively.
Other juniors, including privately-held MundiRegina Ressources, have acreage with identical geology and expect similar results.
The oil companies report that, unlike Anticosti, the oil in Gaspésie is conventional and does not require fracking, merely horizontal drilling.
Oil flows at these volumes mean that commercial development is feasible. Petrolia Inc. would like to commence commercial production in 2016 with Junex Inc. to follow later that year.
Behind closed doors the Quebec government is supportive of conventional oil in large part because Quebec’s finances are poor and something must be done about Quebec’s trade deficit. The two main opposition parties are likewise supportive.
The Quebec government is mindful, however, to avoid the mistakes made a few years ago in connection with shale gas. In 2010 industry assumed that Quebec was ready for shale gas and attempted, without thinking to secure the public’s support, to develop Quebec’s condiderable shale gas reserves. The result is that after five years there is no shale gas industry, poll after poll show strong opposition to fracking and even today’s modest request by the shale gas industry for the right to drill ONE demonstration well is falling, at least for now, on deaf ears.
The current government has stated that hydrocarbon development can proceed in Quebec if (i) it can done in an environmentally sound manner, and (ii) there is “social acceptability”.
In order to maximize the likelihood of hydrocarbon projects reaching social acceptability, the government is methodically and deliberately rolling out the following framework:
- Water: On August 14, 2014 Québec adopted regulations confirming its jurisdiction over drilling within municipalities and providing for clear rules regarding drilling close to houses and wells. These regulations satisfied the town of Gaspé which subsequently ended its lawsuit against Petrolia.
- Strategic Environmental Study: In 2014 Government tasked an interministerial committee with carrying out a study on the whole of Québec’s oil and gas sector. The study will examine, among other things, how Quebec’s hydrocarbon resources can be exploited economically and safely. The process will include public consultations. The final report is due at the end of 2015.
- New Hydrocarbon Law: Hydrocarbons are currently covered as an afterthought in the Mining Act. This was fine when hydrocarbons in Québec were viewed as a pipe dream. Now that they are a reality the Minister of Natural Resources, Pierre Arcand, has promised a special purpose statute for early 2016. The Strategic Environmental Study will help with the drafting and adoption of the new hydrocarbon law.
- Social Acceptability: In November 2014, the Minister of Natural Resources announced that its Ministry would study what conditions foster the social acceptability of projects. The idea is for the Ministry to come up during the Fall of 2015 with a set of guidelines and best practices that can be followed by all stakeholders. Two things at this time are already clear: social acceptability does not imply unanimity, and local communities and First Nations must directly benefit from projects. Quebec intends to provide for a framework for direct payments by projects to local communities and First Nations.
All this means that while the outlook for conventional oil in Québec looks positive, industry is going to have to continue being patient for a little while longer.