Higgs talks shale gas revival, but global price spike may not last

Premier Blaine Higgs says he'll tread carefully with public opinion as he encourages the revival of shale gas development in New Brunswick.

But his toughest opponent may be the uncertainties of the world market.

"The big question mark is, we've got a big price spike now, but is that going to continue for the next couple of years or couple of decades?" said Kent Fellows, an economist who studies the gas market at the University of Calgary.

The premier has been talking for weeks about whether the war in Ukraine, and the need for Europe to find new supplies of natural gas to replace what it bought from Russia, warrants a new push for shale gas extraction here.

It is a politically delicate subject, given the confrontations between the RCMP and anti-fracking protestors near Elsipogtog First Nation in 2013. 

"There's a lot to this. Believe me, I don't want to relive 2014, or '12. I don't want to go through any of that," Higgs said recently.

"So we would need to work with communities, First Nations, and have a general understanding of, 'Can we be of assistance here to ourselves and others, and is the time right to do that?'"

Higgs said he's not planning to repeal a Liberal moratorium on exploration, but wants to instead find a way to satisfy the five criteria in that legislation, including public acceptance.

"We'd have to address those," he said. 

Unstable view of gas

The bigger challenge, however, may be the hesitation of gas companies to invest in development that may not be as lucrative in the long term as it would be today.

Add to that the lengthy regulatory approval process and it's virtually impossible to move quickly for short-term gain.

"There is a long lead time on getting this infrastructure in place and it comes with a high capital cost, so you need long-term expectations to make it pay off," says Fellows.

Should the war in Ukraine end quickly with a deal that allows Russian gas back into Europe, prices would drop again and the business case for a New Brunswick industry could evaporate.

That's the same question looming over another gas project Higgs is touting: the conversion of Repsol's Saint John LNG import terminal to allow the liquefaction and export of Canadian natural gas to Europe.

Todd McDonald, president of Halifax-based gas trading firm Energy Atlantica, said Repsol is unlikely to spend the money required without a 10 or 20-year agreement to lock in a fixed price on natural gas.

And that's a commitment European politicians may hesitate to give, he adds.

An end to the war, and a return of cheaper Russian gas, might anger consumers stuck with a locked-in higher price for Canadian gas.

"If you're in office and you say 'I've got an election in two years, do I want to be the guy who signs up for 20 years right now?'" McDonald said. "It's a tough call."

Higgs has linked the two gas scenarios, suggesting shale gas from New Brunswick could be shipped via Repsol to help Europe reduce its reliance on Russia.

"I talk about it because it's another possible solution right now," the premier said last week.

But McDonald said while a supply of New Brunswick-produced gas could help clinch Respol's decision, it's unlikely to come online fast enough.

Gas extracted in New Brunswick would be cheaper for Repsol to export because it would travel a much shorter distance than gas coming to Saint John from Alberta or the U.S. and be subject to much lower pipeline tolls.

But New Brunswick's regulatory regime moves much slower than its Alberta counterpart, said McDonald.

And Repsol's been stung before by abrupt changes in the global market.

The company opened its import terminal, known as Canaport LNG, in 2009, in partnership with Irving Oil.

At the time, importing foreign gas looked like a solid bet. But the shale boom in the United States led to a glut of cheap North American gas on the market, making imports unattractive.

"So that facility largely sits unused for 80 to 90 per cent of the year because of that exact equation," McDonald said.

Repsol, which bought out Irving Oil's stake in the terminal last year and renamed it Saint John LNG, would not comment in detail.

"The company will look at any/all business that enhances or creates value at Saint John LNG, including the potential to add liquefaction capabilities [for gas exports] to the existing facility," spokesperson Mike Blackier said in an email.

Buy-in

Higgs emphasized repeatedly last week that he doesn't want to take a hard line and will be sensitive to public opinion.

"It isn't a matter of enforcing options, it's a matter of discussing options," he said.

The Opposition Liberals say Higgs has yet to meet the five conditions they attached to lifting the moratorium while in power:

• A "social licence," or public acceptance, through consultations.
• Clear information on potential impacts on air, public health and water so that proper regulations can be in place.
• A plan to lessen impacts on public infrastructure and deal with issues such as disposal of waste water from fracking.
• A consultation process with Indigenous people.
• A "proper" royalty structure to ensure New Brunswick benefits from development.

"There's nothing suggesting we have social acceptance," said Liberal natural resources critic René Legacy.

"The premier seems to think that because of the geopolitical situation in the world, we can toss aside environmental needs." 

Jennifer Coleman, spokesperson for Mi'gmawe'l Tplu'taqnn Inc., which represents Mi'kmaq chiefs, said the organization "has not received any recent outreach from the provincial government on shale gas."

The Higgs government carved out a small exemption to the Liberal moratorium in 2019 for the area in Penobsquis where Corridor Resources was already extracting gas.

But so far, the company, now known as Headwater Exploration, has not taken advantage of that exemption to explore for more gas.

Even so, McDonald said Higgs is right to relaunch a conversation on shale gas. He says it's hypocritical that voters want quality health care and education, but oppose the gas development that would help pay for them.

McDonald says he believes there's a better-than-50-percent chance European nations will eventually sign deals for North American gas.

"Yeah, I think they'll sign on the dotted line, if I were a gambling man, for a long-term contract," he said, whether it's with Repsol or another supplier.

"Whether Higgs can rally the public to say 'hey there is social licence,' I just don't know. That's a tough one. That, I don't think I'd bet on, because I've been in the business 20 years and I used to be an optimist about that, but I've just been wrong too many times."