Canada: The Six Conditions That Must Be Satisfied For Quebec To Become An Oil Producer

Quebec has a well-deserved reputation for excellence in hydro-electricity. Less well known is its potential as an oil producer. The province is home to at least three likely production zones: Gaspe Peninsula, Gulf of Saint Lawrence and Anticosti Island. Aside from the basic question of whether there is sufficient recoverable oil, there are five other conditions that must be satisfied before Quebec can become an oil producer.

Below is a look at each condition, and its current status.

1. Oil. It has long been known that there is some oil on the Gaspe Peninsula; but it is in the Gulf of Saint Lawrence and on Anticosti Island that very large quantities are thought to be recoverable thanks to newer techniques. Further exploration work is required in all three zones to confirm reserves. Status: More work required.

2. Political Will. There is considerable popular opposition in Quebec to shale gas. The attitude is different with oil, in large part because nearly everyone is a consumer. Electricity and oil currently vie for first place in Quebec's energy mix, but natural gas is a distant third. Quebec already has oil refineries in Montreal and near Quebec City. Energy independence is a vote magnet: it creates jobs and helps Quebec's balance of payment. Status: Ready.

3. Adequate Laws. Oil is currently a legislative afterthought. The sudden interest in 2008-2009 in Quebec's shale gas brought into sharp relief the need for an adequate legal, tax and institutional framework for hydrocarbons. The Quebec government has promised legislation for the end of 2013. Status: In progress.

4. Environmental Approvals. Gaspe Peninsula: drilling on Quebec's only oil well was stopped in January 2013 by the town of Gaspe due to water quality concerns. The matter is currently before the courts, even though the Quebec government has promised to enact appropriate standards and define more precisely what falls within municipal jurisdiction. Status: In progress.

Gulf of Saint-Lawrence: There is a moratorium on offshore drilling in Quebec waters. Quebec has tasked an outside consultant to make a preliminary environmental study. It is expected to be completed mid-year. The government will then most probably task Quebec's independent environmental review agency to examine the matter in greater detail. Status: More work required.

Anticosti Island: Quebec currently views Anticosti as the most promising opportunity. Over the objections of NGOs, Quebec is allowing exploration work to continue this summer. The government's position is that an environmental impact assessment need only be carried out once there is clarity on oil reserves. Status: More work required.

5. Oil Prices; Alberta Oil: Anticosti and Gulf of Saint Lawrence oil will be expensive. Oil prices will have to be sufficiently high to warrant the necessary investments. Also, it is not clear what impact, if any, Alberta oil would have on Quebec production. TransCanada and Enbridge each have plans to pipe oil to Quebec and early indications are that the Quebec government is sympathetic. Connecting Alberta oil to Quebec would materially reduce costs for Quebec's refineries and create oil export activities. The fact that tankers already ply the Saint-Lawrence importing oil should also lessen environmental resistance, since this will not be a new activity. Status: More work required.

6. Third Party Agreements: Agreements may be required with (i) Newfoundland regarding the Old Harry oil field between Anticosti and Newfoundland, and (ii) municipalities and First Nations regarding the Gaspe Peninsula and Anticosti Island. As detailed in a previous post about the failure of the Great Whale project, a conscious effort on the part of government to consult and involve First Nations is the preferred development route. Status: More work required.

All of the above conditions can be met, but overall there is a fair bit of work to be done before Quebec may become an oil producer.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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