Background

The exploitation of shale gas in Québec requires the issuance of various permits from public authorities, including the Minister of Sustainable Development, Environment and Parks. In order to give an informed consent when issuing a permit, the Minister may require the help of the Bureau des audiences publiques sur l’environnement to investigate any question relating to the quality of the environment.

Accordingly, on August 31, 2010, Minister Pierre Arcand, acting in response to mounting public demand, instructed the Bureau to form a commission of inquiry on the sustainable development of the shale gas industry in Québec.

The Commission’s mandate started on September 7, 2010 and ended on February 28, 2011, with the submission of its report to the Minister. The Report was then made available to the public on March 8, 2011, several weeks ahead of the 60-day statutory delay afforded to the Minister.

Recommendations of the Commission

In its Report, the Commission makes the following five recommendations (the referenced pages are those of the Report).

Suspension of hydraulic fracturing until the completion of a strategic environmental assessment

Hydraulic fracturing would not be permitted until a Strategic Environmental Assessment of the exploitation of shale gas in Québec is completed (p. 226).

No estimate of time for the period during which hydraulic fracturing would not be permitted (the Commission carefully avoids the use of the term "moratorium") is given.

This "suspension" period will depend on the time required for completing the different steps in connection with the Assessment, identified by the Commission. The Québec government would appoint members of governmental agencies, municipalities, universities and the private sector to form a special committee in charge of preparing the specifications of the Assessment and supervising its realization (p. 224). The Assessment would then be carried out according to the Special Committee’s timeline and specifications (p. 225). Finally, upon completion of the Assessment, the Special Committee would issue two reports — the first containing the findings of the Assessment, and the second containing recommendations for the creation of new regulations on the shale gas industry. Both reports would then be submitted for public consultation before the Special Committee’s final recommendations would be made to the Québec government (p. 226).

The government endorses the twin recommendation of suspending hydraulic fracturing and completing an Assessment, and has already taken measures to enact such recommendations. The 2011 Budget Plan provides for a three-year expenditure of $7,000,000 for the completion of the Assessment. Furthermore, based on recent announcements by Nathalie Normandeau, the Minister of Natural Resources and Wildlife, the prohibition of hydraulic fracturing would be extended beyond the scope envisioned by the Commission to apply to the entire Québec territory (whereas the Commission’s work focused on the geographic regions of Montérégie, Chaudière-Appalaches and Centre-du-Québec (p. 11)) and to hydraulic fracturing in connection with the extraction of shale oil. Minister Normandeau also announced that projects involving conventional drilling would not be permitted to proceed with production until the Assessment is completed.

Creation of a multi-layered approval process for shale gas projects

Shale gas projects would be required to be submitted first to the Minister for pre-approval, then to newly formed regional consultation committees named "Consultation Committees on the Activities of the Shale Gas Industry" (comité de concertation sur les activités de l’industrie du gaz de shale) for review, and finally again to the Minister for final approval (p. 235).

In addition, shale gas projects would be subject to zoning, development and planning requirements from municipalities and regional county municipalities. This is currently not the case (pp. 236-237).

Finally, the scope of the Ministry’s review of the project in connection with the approval process would be enhanced to cover all the environmental issues arising from each of the different stages of shale gas projects (pp. 239-240).

Changes to the legal, regulatory and institutional frameworks

Several statutes and regulations, identified by the Commission, would be amended in order for the government to implement some of the Commission’s recommendations (p. 237, 240). Other changes recommended by the Commission, such as the review and approval process described above, require changes to existing statutes that were neither identified nor discussed in the Report. As of the date hereof, no draft statute was in first reading at the National Assembly to enact any such changes.

The Commission also refers to Québec’s "future Petroleum Resources Act" (la future loi sur les hydrocarbures) (pp. 203, 229). The Commission, however, has not made this future Petroleum Resources Act the central part of its blueprint for a new legal framework.

The Commission does not recommend any amendment to the current legal framework to suspend the practice of hydraulic fracturing in Québec, likely because it deems none to be required.

The institutional framework would be modified as well, with greater oversight and authorization powers to the Ministry of Sustainable Development, Environment and Parks, resulting in part from a transfer of authority from the Ministry of Natural Resources and Wildlife. The Commission does not support, however, the creation of a centralized, autonomous and self-funded industry agency, such as the British Columbia’s Oil and Gas Commission, a step it deems to be premature at this stage of the development of Québec’s shale gas industry (pp. 241-243).

Increases to the royalty rates and to the price of exploration rights

Without formally recommending the increase of royalty rates and the price of exploitation rights, the Commission makes several observations to the effect that Québec’s royalty rates and the price of exploration rights are comparatively lower than in other North American jurisdictions, sometimes by a considerable margin (pp. 200-204). The government endorsed this point of view by announcing, in connection with the unveiling of its 2011 Budget, the increase of the maximum royalty rate to 35% (up from a maximum royalty rate of 12.5%).

Indentifying the role of shale gas in Québec’s energy strategy

The Ministry of Natural Resources and Wildlife should clarify the future role of the shale gas industry within Québec’s energy strategy (p. 221). The effects of an increase in the availability of shale gas on demand for renewable energies should also be investigated (p. 221).

Next Steps

The next steps will be determined by the government, and should be based on the Commission’s recommendations to varying degrees. Based on recent official statements, the appointment of the Special Committee is imminent, which should be quickly followed by the adoption by the Special Committee of the specifications of the Assessment. In the meantime, the government appears intent on continuing to withhold authorizations for operations involving hydraulic fracturing, in connection with the exploitation of gas or oil in Québec.