Shell Canada Ltd. is stepping into a hornet’s nest by targeting southeast B.C.’s already- controversial coalbed methane (CBM) deposits.
Shell and Calgary-based partner Elk Valley Coal Co. want to explore for CBM this fall beneath the coal company’s land between Sparwood and Fernie, according to a report out of Montana.
Shell hopes to start drilling four test wells between mid-October and November, and run tests until perhaps next spring.
The Fernie town council is already angrily abuzz that BC Energy and Mines offered 20,000 hectares of CBM leases for sale in the Elk Valley.
Montana government officials are also calling on B.C. or the federal government to do “baseline” water quality and other environmental studies before there’s any CBM drilling across the border from the pristine Flathead River system and Glacier National Park.
Also weighing in is the Vancouver-based West Coast Environmental Law group, which has asked Ottawa to intervene and appoint a federal panel to study potential environmental impacts prior to CBM development.
Shell insists it will show people who are concerned that the company is ready to develop CBM responsibly. But with the issue now so politicized, it will take longer than Shell thinks to actually start drilling in the Elk Valley.
Ivanhoe Irked
Ivanhoe Mines Ltd. of Vancouver says it’s keeping its options open for a partner to help develop the massive Oyu Tolgoi gold and copper mine in the Gobi desert in southern Mongolia.
The company has come out swinging against a national newspaper report that suggested Ivanhoe will partner with a Chinese or Japanese partner, rather than a Western mining company.
Ivanhoe says its options still include a series of partnerships with one or more Asia-based companies to finance the mine’s development, or a potential separate partnership with one or more established international mining organizations to build, operate and own the mine.
The eventual partner for Oyu Tolgoi, which is expected to cost $1 billion US to develop, is crucial.
Many politicians in the coalition Mongolian government believe their country is becoming too dependent on Chinese investors and would prefer to see a Western mining partner.
But Ivanhoe says that whoever develops the mine, the project will be done right. “The mine is being designed from the outset to meeting international standards for environmental management for operational safety and health.”
Ivanhoe’s exploration in Mongolia already is covered by ISO 14001 certification, considered one of the world’s best environmental management systems.
The company’s challenge, whether it finds financial backers in the East or the West, will be to ensure its partner lives up to the same high standards.
Time To Re-invest
Flawed it is, but the Pembina Institute’s new report claiming taxpayers in Alberta and B.C. are being shortchanged on oil and gas revenues contains a truth long known to economists.
Research by University of Calgary economist Robert Mansell and colleagues elsewhere has shown that, in most countries, an abundance of natural resources has most often not translated into long-term prosperity.
More often than not, “the large potential benefits are destroyed by excessive rates of production and other inefficiencies,” Mansell wrote for the U of C’s new Institute for Sustainable Energy, Environment and Economy (ISEEE), which he now heads.
The Pembina Institute’s report, When the Government is the Landlord, contends that governments in Western Canada and the North are undercharging companies for the development of public oil and gas resources while providing incentives to speed up extraction of the oil and gas.
The energy policy research group argues that governments are also failing to set aside revenues from these non-renewable resources for the future, and allowing the industry’s negative environmental impacts – along with huge costs to fix them – to mount.
Greg Stringham, vice-president of the Canadian Association of Petroleum Producers, is correct in pointing out the report’s flawed assumption – in comparing Western provinces’ low royalties of about $5 per barrel with Norway’s much higher $14 per barrel – that the oil and gas sector in both places is similar.
Norway’s individual oil wells are typically far more productive than those in Canada. The resource in Norway is also found in concentrated pools, unlike deposits in this country that are scattered beneath the vast and already well-tapped geological basin of Western Canada.
But the Pembina report is harder to dismiss in its criticisms that Western Canadian governments are not investing enough oil and gas revenue for the inevitable future rainy days, and are also allowing the industry’s environmental liabilities to pile up.
For one thing, Alberta hasn’t invested any of its massive oil and gas windfall in the Heritage Fund since 1987.
For another, a recent Alberta Energy and Utilities Board (EUB) report says there are now more than 31,000 oil and gas wells in the province that are abandoned and unreclaimed. There are also more than 400 abandoned oilfield facilities, from small compressor stations to large natural gas-processing plants, in the same sorry state.
U of C economist Mansell praises the EUB as a regulator that has ensured Alberta “has an enviable track record of conservation and sound management of its energy resources.”
But he notes that trends since the mid-1980 are worrisome, including the lack of growth in the Heritage Fund and the sharp decline in government and industry investment in energy research and development.
Earlier this month, Alberta Energy Minister Murray Smith announced a $1-million grant to ISEEE, aimed at developing new and cleaner technologies to more efficiently recover more of the province’s energy resources.
It’s a step in the right direction. But it’s also a small step, especially with Alberta’s annual oil and gas revenues forecast to amount to more than $8 billion this year – with higher revenues still to come.
More investment in our energy future is urgently needed, by western provinces and by the federal government.
(I declare an interest here, since I have been doing some contract writing for ISEEE. But my larger interest, as an Albertan and as an energy columnist, is in seeing that the province’s natural resources are developed in the long-term interest of all Albertans.)
Royalty Roulette
One of the big differences between the oilpatch in Western Canada and places such as Norway is the substantial cost of finding, developing and producing oil and gas here.
Capital spending by Canada’s conventional petroleum industry increased to $23.8 billion in 2003, a jump of 32.5 per cent over the previous year, according to a Statistics Canada report.
Yet, because large oil and gas deposits are getting harder to find in the Western Canadian Sedimentary Basin, natural gas production last year actually declined by 3.8 per cent to just over 16 billion cubic feet.
Producers such as Calpine Corp., Anadarko Petroleum Corp., ChevronTexaco Corp. and EnCana Corp. are selling off or have already sold off assets in Western Canada and shifted operations to easier-to-find oil and gas in other countries.
So the dilemma for Alberta and B.C. is if they crank up royalty charges, they risk killing the goose laying the golden – or rather, oil-black – eggs.
(Mark Lowey can be reached at mark@businessedge.ca)
