Posts from the “Energy” Category

Mindful not to repeat the mistakes of its predecessors, Premier Couillard’s government continues very deliberately to lay down a modern and comprehensive framework for hydrocarbon exploration and production in Quebec.

After many studies and considerable consultation, Energy and Natural Resources Minister Pierre Arcand tabled Bill 106 before the National Assembly on June 7, 2016. Bill 106 (An Act to implement the 2030 Energy Policy and to amend various legislative provisions) does three things:

It creates Transition énergétique Québec (“TEQ“). The mission of TEQ is to prepare an energy transition masterplan and to support, financially and otherwise, energy transition, innovation and efficiency in Quebec.
It adopts measures to increase electric transport and amends the Act respecting the Régie de l’énergie to increase gas pipeline capacity in and to Quebec. In recent years, a couple of very large industrial investments along the St. Lawrence River have had to be shelved for lack of readily available gas pipeline capacity. Quebec wants to avoid a repeat of this unfortunate and embarrassing state of affairs.
Finally, it enacts the Petroleum Resources Act (“PRA”), Quebec’s first modern statute dedicated to the development of oil and gas. The PRA is a comprehensive statute with more than 260 sections. It is designed to (i) foster the exploration of hydrocarbons in Quebec, (ii) ensure that any ensuing production is optimal, economically sound, uses best environmental practices, and has local and First Nations acceptance, and (iii) ensure that there are sufficient funds available when the time comes permanently to close wells and restore sites. The following points, relating to the process that Bill 106 would establish, are of particular interest:
- New exploration licenses will be awarded by auction. Up to now they have been awarded using the “free entry system” in the same manner as mining rights.
- Current exploration licenses will be recognized under the PRA.
- An exploration license holder may apply to the Minister of Energy and Natural Resources for a production license. Such license will be issued if (i) the Régie de l’énergie has issued a favourable decision regarding the application (the content of such application will be set out in regulations but will have at a minimum to describe the project, including its production plan and methodology), and (ii) the Government of Quebec has authorized the applicant’s production project pursuant to section 31.5 of the Environment Quality Act. A Section 31.5 authorization may only be granted after completion of a satisfactory environmental assessment. Such assessment may involve public hearings.
- Entrusting the Régie de l’énergie instead of the Ministry of Energy and Natural Resources with the review of the merits of any production license application has the dual merit of better insulating the approval process from politics and ensuring that government is able to secure, without civil service constraints, the specialized talent required properly to examine and evaluate production license applications. After all, this is a very new field of endeavour for Quebec.

Quebec public opinion: a growing consensus

Concerns have been raised about the PRA and Quebec’s “open door” to oil and gas. Critics contend that such a move is inconsistent with Quebec’s commitment to transition away from hydrocarbons. Government and business counter that the PRA is congruent with Quebec’s recently issued 2030 Energy Policy. The 2030 Energy Policy was well received across the spectrum and is viewed as green and ambitious while at the same time recognizing that (i) oil and gas is Quebec’s number one import (the annual import bill fluctuates but is consistently above $10 billion and adds substantially to Quebec’s chronic balance of payment deficit), (ii) in 2030 Quebec will require oil and gas to meet 39% of its energy needs, (iii) natural gas can displace dirtier fuels in shipping, trucking and remote northern areas, and (iv) Quebec industry requires oil as a raw material (what has come to be known in Quebec as “social oil”).

Also helping to create a consensus in favour of the PRA is the fact that many of the current oil and gas projects are in the Gaspé Peninsula, an economically challenged region in need of jobs. At least one authoritative opinion poll has found that more than 50% of Quebec adults are in favour of local production while fewer than 25% want to continue to rely on imports for all of the province’s oil and gas needs.

Where Bill 106 goes from here: the legislative process

Parliamentary commission hearings on Bill 106 have been scheduled for August 16-19, 2016 so as to allow early adoption during the National Assembly’s Fall session.

Regulations are unlikely to be published before adoption of Bill 106. These regulations, at least as they pertain to the PRA, promise to be comprehensive.

Other recent developments

The lack of a modern regulatory framework has not stopped Quebec from moving forward on oil and gas. Pétrolia Inc. announced on June 16, 2016 that Ressources Québec, a subsidiary of state-owned Investissement Québec, had invested $8.5 million in its Bourque Project located near Murdochville in the Gaspé Peninsula. Other work continues elsewhere in Quebec, including oil production testing.

Categories: Energy, Natural Resources, Quebec Oil & Gas

Energy East: Quebec’s Gordian knot

Erik Richer La Flèche

Posted on May 3, 2016

Energy East, when all is said and done, will serve as a fascinating case study for many decades to come. In the meantime, the project once publicly dubbed “pharaonic and utopic” by the CEO of a major energy corporation will continue to polarize Canadians. This division is nowhere more profound than in Quebec.

Quebec opposition to Energy East comes from every quarter and is concentrated along three axes:

Canada and Quebec must fight climate change and prioritize de-carbonization. The pipeline will increase western Canadian oil production and related greenhouse gas emissions, thus making it more difficult for Canada to transition away from oil and meet its environmental objectives and international obligations.
Pipeline accidents occur and big pipelines have big accidents. Energy East is projected to have a daily capacity of 1.1 million barrels, making it one of the largest pipelines in North America. Damage from spills will be amplified because Energy East is expected to cross more than 850 rivers and other bodies of water. An accident could therefore have serious consequences, including adversely affecting potable water sources.
Quebec does not need the oil from Energy East. It is an export project that will produce little lasting economic benefit for Quebec and the 65 municipalities along the project’s path.

A fourth axis of complaint is receding at this time. A chorus of elected officials and community groups have complained for some time about what they perceive to be arrogance, lack of consultation and information. Things have greatly improved in the last six months and criticism is more muted.

Opposition to the project is a broad coalition of diverse groups and individuals with different concerns. For example, most Quebec officials are primarily concerned with criticisms 2 and 3: safety and permanent economic benefits.

Quebec Government

The Quebec government will remain neutral until such time as it understands the project and has analyzed it. Its final decision is expected in June 2018.

Government has been trying hard to frame the Energy East debate in Quebec and bring order to an otherwise vociferous and politically corrosive debate. This has been difficult but Quebec has taken four very important steps:

In November 2014 the Premiers of Quebec and Ontario agreed on seven joint principles for approving pipeline projects. The principles are reproduced verbatim below:
1. Compliance with the highest available technical standards for public safety and environmental protection;
2. Have world leading contingency planning and emergency response programs;
3. Proponents and governments consult local communities and fulfil their duty to consult with Aboriginal communities;
4. Take into account the contribution to greenhouse gas emissions (Quebec at this time understands this to mean greenhouse gas emissions from building and operating the pipeline);
5. Provide demonstrable economic benefits and opportunities to the people of Ontario and Quebec, in particular in the areas of job creation over both the short and long term;
6. Ensure that economic and environmental risks and responsibilities, including remediation, should be borne exclusively by the pipeline companies in the event of a leak or spill on ground or water, and provide financial assurance demonstrating their capacity to respond to leaks and spills;
7. Interests of natural gas consumers must be taken into account.
Quebec has mandated the Bureau d’audiences publiques sur l’environnement (BAPE), Quebec’s environmental evaluation body, to look into the environmental aspects of the project. Government wants to de-politicize the debate by referring the matter to technocrats and experts best able to evaluate the project. Energy East recently agreed to present the project to the BAPE but wants to do so “voluntarily” as it does not recognize the BAPE’s jurisdiction. Quebec disagrees and insists that Energy East recognize the BAPE’s jurisdiction.
Quebec has tasked the Ministry of Finance with studying the economic benefits of Energy East. The BAPE has demonstrated in the past that it is ill equipped to deal with economic issues.
Quebec’s 2030 Energy Policy released early April 2016 (see our April 8, 2016 post) is very “green” but confirms that Quebec will continue to use oil well beyond 2030. Oil is part of Quebec’s future and Quebec states in the Policy that it will favor “the safest modes of transportation from an environmental and technical standpoint” (page 59).

Who Decides?

A number of factors have conspired to shift the Quebec government’s position on who has the final say on Energy East: relentless opposition to the project, political face-saving measures required by successive and very public faux-pas, federalist vs. independence politics, etc. The position of the Quebec government has gone from participation in the NEB process and letting the federal government have the final say to Quebec deciding matters regarding the Quebec portion of the pipeline. This represents a significant departure from accepted Canadian constitutional law.

But the decision on Energy East will ultimately be political and the current timetable for the federal and Quebec processes confirms this. The NEB’s report is scheduled to be delivered to the federal government in March 2018 and the federal government is expected to make a final decision by September 2018. The BAPE is expected to deliver its report to Quebec’s environmental minister in February 2017. The Minister in turn is expected to deliver his recommendation to the Quebec government in May 2018, with Quebec’s final decision scheduled to follow in June 2018. Quebec City will decide before Ottawa. But 2018 is an election year in Quebec and Energy East is the kind of issue that could loom large in the campaign leading up to the vote (which, in accordance with Quebec’s fixed-date election law, will be held in October 2018).

The Parti Québécois, Quebec’s official opposition, is not irremediably opposed to Energy East but has made it very clear that Quebec must have the final word. The last thing Premier Couillard wants to do during an election is defend an unpopular federal decision and one can expect that Ottawa does not want to force the federalist Liberals to choose between its electorate and Canada.

Pipeline Killers

Any of the following would make it very difficult for the Quebec government to support Energy East:

British Columbia is considered an environmental leader. If it were to reject the passage of an oil pipeline through its territory on safety or environmental grounds, then Quebec would have a very difficult time defending a different outcome. Thus, what happens in B.C. will have repercussions in Quebec. If Alberta’s neighbour is refractory, then why should Quebec, more than 2,500 km away, come to a different decision?

The BAPE, Quebec’s expert body, concludes that (i) Energy East is inherently unsafe and/or environmentally unsound, and (ii) no changes to the project would modify such finding. In other words project risks cannot be reasonably mitigated.

Quebec’s Ministry of Finance concludes that the project generates insufficient economic benefits for Quebec and Energy East is not prepared to improve the bargain.

Conclusion

A lot has been said about Quebec’s lack of enthusiasm for Energy East. Much of it has been unhelpful and unfair. While Energy East is viewed at best as an unfortunate distraction by the Quebec government, it remains that Quebec is doing its best to provide a framework within which both sides can present their case and the pipeline can be impartially studied on its merits.

Categories: Energy, Natural Resources, Quebec Oil & Gas

“Pétrole social”: What’s That?

Erik Richer La Flèche

Posted on April 18, 2016

On April 7, 2016, Premier Philippe Couillard and four of his ministers unveiled Quebec’s 2030 Energy Policy. As discussed in our April 8 overview post, this initiative is a “green” policy that sets ambitious de-carbonization goals.

The last chapter of the Policy deals with fossil fuels (pages 57 to 62). Page 58 refers to “social oil”. What is social oil? A quick search of the internet does not show prior uses in French or English. The expression appears to be the work of a clever government wordsmith.

The Policy states that about 10% of the world’s oil consumption is used to make a multitude of products, e.g., drugs, plastics, automotive parts, textiles, road surfaces. This is oil that government considers useful and beneficial, hence the expression social oil (we will call it “good oil”). The Policy strongly implies that good oil must be distinguished from the other kind of oil, i.e., oil that is burned.

The Policy does not quantify Quebec’s consumption of good oil but it does state that the Quebec plastic sector alone employs 20,000 and has a turnover of $5.3 billion (2013). The inference here is that good oil is necessary both socially and economically.

The fact that the Policy opens the discussion on fossil fuels with social oil is reflective of the need for government at all times (i) to carefully choose its words when speaking about oil in Quebec, and (ii) to ground in fact any discussion about hydrocarbons. In other words, the population’s environmental aspirations must be tempered by reality and this requires a didactic effort on the part of government. What may be known and accepted elsewhere is not necessarily known or accepted in Quebec.

The Policy acknowledges in its opening pages that in 2030, despite Quebec setting some of the world’s most ambitious GHG reduction targets, 39.1% of Quebec’s energy requirements will still come from oil and gas. Hydrocarbons will thus be part of Quebec’s energy future for some time to come.

Note that the share held by natural gas in 2030 in the overall mix remains unchanged from 2016. In most jurisdictions natural gas is seen as a beneficial transition fuel whose consumption is expected to rise in the next decades. Government appears to have other objectives. Except in very limited circumstances (e.g., isolated northern communities) Quebec does not seek to replace oil with natural gas. Rather, Quebec aspires to reduce oil consumption primarily with energy efficiency and renewable electricity.

The Policy has been generally well received across the board, including by established environmental groups. The only group openly upset at this time is Quebec’s wind power supply chain. It was hoping for additional wind power projects to provide it with a market in the immediate future. The government’s answer at this time is that Hydro-Québec has a surplus and that the industry should look outside Quebec for customers. Needless to say this answer has failed to satisfy the industry and it appears that government will have to don its thinking cap once more.

These green credentials now give government leeway to proceed in a deliberate and surgical manner with hydrocarbons, including their transportation. In other words, project analysis should from now on concentrate on project risks and benefits rather than be distracted by larger societal issues outside of a project’s control.

Categories: Economy, Energy, Natural Resources, Quebec Oil & Gas

Quebec releases its Energy Policy 2030

Erik Richer La Flèche

Posted on April 8, 2016

On April 7, 2016, the Government of Quebec released its much-anticipated Energy Policy 2030 before 500 guests at Montreal’s Place des Arts.

Since its election on April 7, 2014, Premier Philippe Couillard’s Liberal government has issued a steady stream of economic and industrial policies that would put dirigiste France to shame. In the last 18 months, it has issued policies, strategies, guides and papers on a broad range of subjects. To name only a few, these include the Maritime Strategy, the Quebec Aluminium Development Strategy 2015-2025, the Strategic Vision for Mining Development in Quebec, the 2013-2020 Action Plan on Climate Change, the Plan Nord toward 2035, 2015-2020 Action Plan, and the Green Paper on Social Acceptability.

But the Energy Policy is first among equals. It is Quebec’s keystone policy and, while it has been the subject of considerable debate within government, it is likely to be the foundation of Mr. Couillard’s political legacy. At the express request of the Premier, it was delayed and re-written to take into account the conclusions of COP 21, held in Paris from November 30 to December 12, 2015.

The Significance of Government Policies in Quebec

Why are such expressions of government thinking important, if not crucial, in Quebec? There are two reasons. The first and most obvious is that the documents serve to enlighten as to how government will legislate and regulate a sector. The second is that, in Quebec, the three levels of government (federal, provincial and municipal) account for nearly half of all investment and control nearly 50% of the provincial economy. The Quebec government is in effect the private sector’s joint venture partner and these documents are akin to joint venture business plans.

In neighboring Ontario and in the western provinces, the role of the state is more discreet, standing at most at 40% in Ontario and decreasing as one moves westward. Thus, the question of how government plans to spend its money (and which economic sectors it favours) has a greater impact in Quebec.

In addition, much of Quebec’s venture and expansion capital is governmental or quasi-governmental and such capital will perforce favour projects that conform to government policies and guidelines.

While it can be frustrating to wait for the issuance of a policy and to experience the administrative silence and sectorial stagnation that precedes it, one can take satisfaction in the fact that Quebec has a very positive track record when it comes to implementation. All one has to do is look at how Quebec, despite sometimes strident opposition, rolled out 4,000MW of wind power, as announced in its 2006-2015 Energy Policy.

What is in the Energy Policy 2030?

The new Energy Policy represents a departure from previous ones. It is at the same time far more complex and less detailed than former policies. Previous policies covered shorter periods and focused on additional electricity production and transmission.

The new policy has four primary objectives:

To decarbonize Quebec;
To reduce energy consumption and improve energy efficiency;
To make full use of Quebec’s natural resources; and
To innovate and develop its green economy.

Decarbonization

Quebec has set a very ambitious greenhouse gas (GHG) reduction goal. Quebec wants 2030 GHG levels to be 37.5% less than in 1990. To date Quebec has achieved a 8-9% reduction from 1990 levels. This was done with little sacrifice on the back of technology breakthroughs and energy choices made 50 years ago (e.g, 730kv transmission lines that allowed remote Big Hydro to be cost effective) and lower demographic and economic growth than in the rest of Canada during the last 25 years. Now comes the hard part. To meet its reduction objective, Quebec must – in half the time – reduce GHGs at a rate three times greater than in the last 25 years.

The Quebec Government wants renewable energy to meet 61% of Quebec’s needs by 2030 (it currently stands at a little more than 47%). Quebec wants to reduce fossil fuel usage, particularly in transportation. Measures will include the electrification of transportation (Quebec has half of Canada’s electric cars), the use of natural gas in trucking and the expansion and increased use of public transit (e.g., Montreal’s subway is the third busiest in North America after New York and Mexico City).

Reduction and Efficiency

The Quebec Government wants to eliminate the use of thermal coal and reduce by 40% the quantity of oil products used in the province. Quebec wants to improve by 15% the efficiency with which energy is used. To achieve this Quebec will assist households and industry to reduce energy consumption and expects to spend $4 billion doing so over the next 15 years. Among other things building codes will be modified and energy efficient renovations encouraged.

Natural Resources

The Quebec Government will encourage the use of Quebec-sourced energy, including hydro, wind, biomass and geothermal. Households may produce solar and wind electricity and obtain credits against their consumption. Future Hydro-Québec rate increases will be limited to inflation. Quebec wants 25% more renewable energy, including 50% more biomass energy. A new hydrocarbon law is planned and revenues generated from natural gas and oil production will be used to support further decarbonization. Finally, Quebec is willing to allow wind power projects to supply export markets. This is quite a departure from current practice.

Innovation

Quebec will establish research priorities and fund research and development, including in the electrification of transportation.

Conclusion

Energy Policy 2030 is more than an energy policy. It is also a climate change policy, a regional development policy and an industrial policy. Quebec hopes that “green energy” will boost innovation, entrepreneurship and foreign investment. In order for it to work, Quebec must ensure that it remains competitive whilst implementing its ambitious plan.

Categories: Economy, Electricity, Energy, Infrastructure, Natural Resources

The six conditions that must be satisfied for Quebec to become an oil and gas producer: an update

Erik Richer La Flèche

Posted on September 17, 2015

It is time to update an article I wrote in May 2013. In that article I listed the following six conditions for Quebec to become an oil producer. This update applies to oil as well as gas.

1. Oil and Gas. Two juniors, Junex Inc. andPetrolia Inc., continue to explore. Press releases recently issued by them regarding their activities in the Gaspé Peninsula arepositive. The Gaspé oil and gas play has one great advantage: it involves naturally fractured rock and does not require fracking.Status: More work required but recent findings are encouraging and both Junex and Petrolia hope to commence some commercial production at the end of 2016.

2. Political Will. The Quebec government remains publicly in favor of oil and gas exploration and production within the province. Investissement Quebec recently invested further amounts in exploration carried out by Junex and Petrolia. Pierre Arcand, Quebec’s Minister of Natural Resources, will be the keynote speaker on November 9, 2015 at the annual conference of the Quebec Oil and Gas Association in Montreal. Also, gas production in Gaspésie dovetails nicely with Quebec’s Plan Nord strategy. Quebec wants LNG to replace diesel in mining and aluminum smelting within the Plan Nord territory as well as in electricity production in remote and isolated northern communities. Status: Ready.

3. Adequate Laws. Quebec’s Ministry of Natural Resources has commissioned an inter-ministerial strategic environmental study of hydrocarbons. The study is expected to be completed shortly and its findings will help draft Quebec’s hydrocarbon law. This law is expected to come into force early 2016. Status: In progress.

4. Environmental Approvals. In the last two years Quebec has adopted a number of technical regulations and directives aimed at oil and gas exploration and production. The purpose of the regulations and directives is, among other things, generally to remind industry of its environmental obligations, protect water sources, and identify hazardous drilling residues. Status: The current interim regime is able to authorize exploration activities, but will be finalized when the Hydrocarbon Law comes into force.

5. Oil and Gas Prices. Oil and gas prices are relatively low. But Junex and Petrolia are confident that production costs in the Gaspé Peninsula are well below current prices. Both juniors estimate their per barrel oil production costs to be $25 or less. Status: Ready but to be confirmed once production begins.

6. Third Party Agreements. Quebec’s Ministry of Natural Resources should be putting the final touches to its guidelines regarding social acceptability. It is widely anticipated that one of the cornerstones of such guidelines will be to ensure that local communities and First Nations directly benefit from projects. To date this has been done contractually. This is expected to continue but most agreements are likely to be made public and subject to certain minimum requirements imposed by Quebec.Status: Ready but subject to “improvements.”

Careful not to repeat past mistakes, Quebec wants to proceed step by step and in a focused fashion. Current projects being favored by Quebec and its investee companies (i) do not involve fracking, (ii) are located away from population centers, and (iii) provide demonstrable benefits for local communities. The purpose here is to demonstrate that oil and gas can be developed responsibly. Quebec hopes that over time industry will be able to create a constituency for further and more diverse oil and gas development.

Categories: Economy, Energy, Mining, Natural Resources, Quebec Oil & Gas

Future Imperfect

The business of infrastructure, energy and mining in Quebec

Posts from the “Energy” Category

Welcome clarity for Quebec’s oil and gas industry: the new Petroleum Resources Act is introduced

Erik Richer La Flèche

Posted on July 4, 2016

Quebec public opinion: a growing consensus

Where Bill 106 goes from here: the legislative process

Other recent developments

Energy East: Quebec’s Gordian knot

Erik Richer La Flèche

Posted on May 3, 2016

Quebec Government

Who Decides?

Pipeline Killers

Conclusion

“Pétrole social”: What’s That?

Erik Richer La Flèche

Posted on April 18, 2016

Quebec releases its Energy Policy 2030

Erik Richer La Flèche

Posted on April 8, 2016

The Significance of Government Policies in Quebec

What is in the Energy Policy 2030?

Decarbonization

Reduction and Efficiency

Natural Resources

Innovation

Conclusion

The six conditions that must be satisfied for Quebec to become an oil and gas producer: an update

Erik Richer La Flèche

Posted on September 17, 2015