By CHIP CUMMINS And EDWARD WELSCH
Concerned about environmental damage, a pair of Canadian provinces have stepped up scrutiny of two unconventional means of extracting fossil fuels from the ground.
Quebec halted shale-gas extraction, while Alberta ordered tests on the environmental effects of the country's vast and growing production from its oil-sands deposits.
The two sources of fuel have become increasingly important to the U.S., especially with crude-oil prices rising amid turmoil in the Mideast. Crude oil closed at US$104.38 a barrel, up 64 cents, Wednesday on the New York Mercantile Exchange.
Oil-sands production is expected to contribute an average of 68 billion Canadian dollars (US$70 billion) a year to the country's economy over the next quarter-century, according to the Canadian Energy Research Institute, a nonprofit research group. That would be about 5% of the country's current gross domestic product. The country's entire industry, including oil and natural gas, contributes about 6% of GDP, according to the government.
Quebec's government late Tuesday issued its first environmental assessment of shale-gas development there. The government didn't cite specific findings but concluded more studies were needed and halted further exploration in the province, except for drilling that might help the assessment. It was unclear how long such a study might take, but industry analysts said it could be at least a year.
Shale-gas deposits are pockets of natural gas trapped in pores of sedimentary rock called shale. To get at the gas, drillers use a process known as hydraulic fracturing—or fracking—in which water, sand and chemicals are injected into the ground to force gas out. Some of the mixture is pumped back out and discarded, usually in deep wells; used in other fracturing jobs; or treated before it is reintroduced to water sources.
Shale gas has been a boon for U.S. consumers, helping to drive down prices for natural gas, which is mostly used for heating and generating electricity. But regulators recently have raised concerns over possible gas contamination of water sources and the cleanliness of treated drilling wastewater.
Pennsylvania has become a center of the shale-gas boom in the U.S. The Environmental Protection Agency this month asked Pennsylvania regulators to step up testing of treated drilling wastewater. The state has said the treated water met or exceeded federal standards. The EPA is studying the environmental impact of fracturing more generally.
John Dunn, a Houston-based energy analyst for consulting firm Wood Mackenzie said the immature state of the shale-gas industry in Quebec, which hasn't yet moved from shale-gas exploration to production, makes the government's move insignificant in terms of broader supply and demand. But it "could potentially add weight to the bigger-picture" concerns over fracturing in the U.S., he said.
The energy industry defends the process. Mike Dawson, president of the Canadian Society for Unconventional Gas, said the public overestimates the dangers of 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 group represents shale-gas producers.
Shale-gas exploration has grown rapidly in Canada, as well as south of the border, with energy producers drawn to Quebec's deposits clustered around the St. Lawrence River and Gulf of St. Lawrence.
The move represents a setback for some of the small players that have staked out the region. Shares in Questerre Energy Corp., a small producer based in Calgary, Alberta, fell 25% Wednesday on the Toronto Stock Exchange. The company said the halt wouldn't slow its development because Questerre plans to continue drilling and fracturing as part of the Quebec government's assessment.
Meanwhile in Alberta, a scientific panel commissioned by the government there said Wednesday that previously published research showing water pollution from the oil-sands industry is inconclusive and that more study is needed.
Canada's oil sands are essentially thick mixtures of sand and thick, sulfurous oil. Separating out the oil and thinning it down for export by pipeline is costly and energy intensive. But the size of Canada's reserves and the high price of oil in recent years have triggered a development boom. Canada exports more oil to the U.S. than any other country—about 1.9 million barrels of oil a day. More than half of that oil—used in a variety of products, including fuel and plastics—comes from oil sands.
Canada's oil sands have been a major source of revenue for Alberta and the country as a whole, and provincial and federal officials have said they will work with the industry to address any environmental issues that arise.
The Alberta panel was created last fall after research by a prominent water scientist suggested that air pollution from the oil-sands industry was settling onto the ground and draining into the nearby Athabasca River. The panel said those claims were inconclusive but said the research had shown evidence of increasing concentrations of mercury in animals living near the river and of arsenic in the sediments in Lake Athabasca, which needs further study.
Alberta Environment Minister Rob Rennersaid the panel's work would be incorporated a government review of the province's monitoring system, which is expected to be complete in June. He defended oil-sands production, saying its impact on water and air quality is "minimal" and "far below the limits as far as recognized standards for air and water."