Quebec Halts Most Shale-Gas Activity

(Dow Jones Newswires), March 9, 2011

Quebec's provincial government said it would halt most new natural-gas exploration and development, putting a new regulatory spotlight on shale-gas extraction amid environmental worries in the U.S.

The move puts the brakes on a promising exploration play in eastern Canada, where drillers hope to exploit shale-gas deposits--pockets of natural gas trapped in pores of sedimentary rock called shale. Shale-gas development has grown quickly in the U.S., with companies flocking in recent years to long-ignored deposits in places like Pennsylvania, Texas and the Rocky Mountains.

But late Tuesday, Quebec's government, which has authority to regulate energy and environmental issues inside the province, issued its first environmental assessment of shale-gas development there. The assessment didn't cite specific findings but concluded that more studies are needed.

Shortly after, Quebec's government halted further exploration in the province, except for drilling that might help the assessment, stopping short of a full moratorium.

Shale gas has been a boon for U.S. consumers, helping to drive down natural-gas prices. But regulators recently have raised concerns that extracting shale gas can contaminate water supplies.

To get at shale gas, drillers use a technique called hydraulic fracturing, or fracking, in which water, sand and chemicals are injected into the ground to crack the shale and force out gas. Some of the mixture is pumped back out and either discarded, used for other hydraulic fracturing or treated before it is reintroduced to local water sources.

Pennsylvania has become a center of the shale-gas boom in the U.S. Earlier this month, the U.S. Environmental Protection Agency asked the state's regulators to step up testing of treated wastewater that is used for drilling. Pennsylvania has said the treated water has met or exceeded federal standards. The EPA is studying the environmental impact of hydraulic fracturing generally.

The energy industry defends the process. Mike Dawson, president of the Canadian Society for Unconventional Gas, said the public overestimates the dangers of hydraulic fracturing and that the procedure has been used safely for decades on hundreds of thousands of wells. "If the well is constructed properly, then you probably won't have any issues with the fracturing process," said Mr. Dawson, whose trade group represents shale-gas producers.

Shale-gas exploration has grown rapidly in Canada, as well as south of the border. But Quebec is a new player, with no production so far, so the hiatus won't affect near-term supply in Canada or elsewhere. Energy producers have been drawn to the province's deposits, clustered around the St. Lawrence River and Gulf of St. Lawrence, however.

Wednesday's move represents a setback for some of the small players that have staked out the region for growth.

Shares in Questerre Energy, which is based in Calgary, Alberta, were down about 20% Wednesday afternoon on the Toronto Stock Exchange. The company said the halt wouldn't slow down its development because it still plans to conduct its drilling and hydraulic fracturing as part of the Quebec government's assessment.

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