MONTREAL - Quebec is sending a discouraging message to potential investors by dithering over development of its potentially huge oil and gas reserves, says former premier Lucien Bouchard.
Those who oppose hydraulic fracturing to extract shale gas have essentially won the battle because the government has indefinitely suspended all such activities, said Mr. Bouchard, who recently stepped down as chairman of the Quebec Oil and Gas Association after his client – Talisman Energy Inc. – withdrew from the group.
His comments add fuel to the heated battle over Quebec's energy future. While the industry pushes for the province to move quickly to set clear rules on oil and gas exploration, the government says a cautious approach is needed to deal with the environmental issues that surround hydraulic fracturing.
Fracking, as it is commonly called, uses large quantities of water and chemicals to fracture rock to release trapped gas. Opponents say fracking compromises groundwater, a claim the industry disputes.
Similar arguments are being heard in many jurisdictions, but in Quebec the topic has become particularly touchy.
Mr. Bouchard, a senior partner at law firm Davies Ward Phillips & Vineberg, says environmentalists, farmers and others in the province reacted viscerally to the sudden appearance in their backyards of English-speaking exploration crews, mostly from Western Canada and the United States, doing test drilling.
"Overnight, derricks were being put up on the banks of the Richelieu River. It was almost a repeat of the 1837 troubles, when British troops went there to put down the rebellion," he said, jokingly, though he acknowledged that industry officials went ahead hastily with test drilling without fully educating the public.
The upshot is that well-organized opposition groups capitalized on the initial confusion, and the debate became highly emotional, Mr. Bouchard said.
The minority Parti Quebecois government of Pauline Marois isn't shutting the door on oil and gas development, but Mr. Bouchard warns it will take some time before the first well starts commercial production.
In the interim, the uncertainty in the province over what rules will apply to oil and gas extraction isn't helping Quebec's image, he says.
"The reaction of investors can't be good. This isn't how you go about attracting investors, that's for sure," he said.
Meanwhile, a province that is struggling under a massive debt load is losing precious time by not tapping into the rich source of funding to be had from oil and gas taxes and royalties, Mr. Bouchard contends.
Quebec environment minister Yves-Francois Blanchet counters that the province's natural resources will always be sought after, and says that government's job is to strike a balance between economic and environmental objectives.
"If it was only up to the association, there would be very few rules, and if it were only up to the environmentalists, there would be no oil development at all. Our role is to make sure reasonable action is taken, to be the referee," he said in an interview.
Asked about the criticism that Quebec is missing the boat, he said: "If you look around at surrounding jurisdictions, most of the activity is occurring in the United States and you see that there, since the economic crisis, they haven't softened the rules. In fact, they've become more vigilant."
It's not clear how many companies have halted activity because of the province's stand on hydraulic fracturing. Low natural gas prices may have also deterred activity.
Calgary-based Talisman, once a high-profile player in shale-gas exploration in Quebec, has stopped capital spending plans in the province but says the decision was made for business reasons and not because of the government's planned moratorium on shale-gas activities.
Peter Dorrins, president and chief operating officer at oil and gas exploration company Junex Inc., says his company has kept its options open by investing in oil plays in the province.
"The government has essentially taken a fairly strong position on the whole subject," he said. "At the same time, the government has shown more openness to oil exploration.
"That means shale gas will be on the back burner until the dust settles. We hope the government will eventually proceed with some demonstration projects to show it can be done safely. The general population needs that comfort factor."
Copyright (c) 2012 Dow Jones & Company, Inc.
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