Bad Gas: Coalbed Methane in BC
The beast is stirring again in BC. The government is ready to launch a new wave of coalbed methane (CBM) projects and promotion around the province.
The new policy states: "Best coalbed gas practices in North America. Companies will not be allowed to surface discharge produced water. Any re-injected produced water must be injected well below any domestic water aquifer."
Sounds positive. Best practices must be good. And
produced water is one of the biggest problems with CBM production. It was a leading concern of communities during the first wave of promotion in BC, beginning around 2002.
The First Wave of Coalbed Methane Activity
In 1980 a tax credit for non-conventional fuel production was introduced in the United States, kick-starting a new CBM industry. CBM is now about 7% of the natural gas produced in the US.
In 2000, the low and relatively stable price of natural gas went apeshit, okay, okay, broke out of its long-term sleepy trend. Natural gas is now a very hot and volatile commodity in North America.
Investment dollars flooded into conventional natural gas plays in BC. The Liberal government, elected in 2001, brought an unabashedly fond-of-fossil fuels attitude to Victoria. An early initiative was to kick-start CBM activity in BC. The package looked very attractive to industry - high commodity prices, a give-away royalty deal, and fewer regulatory impediments by the week. No pesky and expensive environmental assessments. The icing on the cake was a team from the Ministry of Energy, Mines and Petroleum Resources (MEMPR) who were available on demand to overcome local resistance.
Resistance which, they would soon discover, would be intense. Wherever the Ministry and proponents showed up, local concerns followed - or worse, had preceded them. The Ministry frequently found itself playing catch-up. Farmers and ranchers, landowners, residents and community leaders, native and non-native - the rejection of CBM development was broadly based. And soundly based on its record in North America.
For some of BC's great little communities, coal mining is an essential and dramatic chapter of their settlement history - Courtenay, Nanaimo, Fernie, for example. Others suddenly discovered the misfortune of sitting on top of a coalfield - Telkwa, Hat Creek, Hudson's Hope, Merritt.
They all pushed back. All did their own investigations. All expressed concerns to government. The propaganda team from the Ministry was on the road continuously, seeking out private meetings with stakeholders and local decision-makers, avoiding public meetings where it could, and suffering the indignities of an angry public where it could not be avoided.
In 2003, the Union of BC Municipalities called for the provincial government to freeze all CBM activity and resolve the issues with consultation, cumulative impacts and produced water. The government ignored the resolution. And hired more people to "consult" with communities.
Calm before the storm
By early 2007, CBM exploration activity had settled down to the three places that represent about 97% of the estimated CBM resource in BC.
Peace River Region, Northeast BC: 60 trillion cubic feet (tcf), 68% of estimated potential in BC.
Hudson's Hope Gas has drilled 16 wells in Hudson's Hope. The project is half owned by Geomet, and half by Canada Energy Partners, which in turn was spawned in 2006 out of a complicated mix of mostly Louisiana-based companies. The company will announce in June its intention to proceed to production, the first company in BC to reach this stage.
Canadian Spirit Resources has completed four test wells in the Farrell Creek area, downstream on the Peace River from Hudson's Hope. An "Experimental Scheme" application was accepted by the MEMPR in January 2007.
East Kootenays, Southeast BC: 19 tcf , 20% of estimated potential in BC
The East Kootenay area has a long history of coal mining. Canada's largest open-pit coal mines operate there, yet much of the region is still unaffected by human exploitation, especially in the southern part, in the Crowsnest Coalfield and in the Flathead River drainage.
The area has also seen BC's most heated and protracted CBM battles. Storm Cat Energy has ten wells in production or de-watering in the upper Elk River watershed on former EnCana tenure. Shell Canada drilled four wells near Sparwood in 2004 on rights held by the Elk Valley Coal Partnership, but has abandoned the project following discouraging results.
According to Flathead Wild, the Flathead River drainage "is one of the most biologically important places on earth ... a magical place of great wildness." Proposals by the BC government to issue oil and gas rights in the Crowsnest Coalfield - also a part of the "magical place" - and to allow a new coal mine in the Flathead have met with fierce opposition locally and downstream in Montana.
In 2004, Premier Gordon Campbell's press secretary said the US concerns would be unlikely to have any impact on CBM development.
Klappan & Groundhog Coalfields: 8.1 tcf , 9% of estimated potential in BC
Shell Canada, now absorbed by its parent corporation, Royal Dutch Shell, has a long-term deal with the BC government in the Klappan Coalfield. The site is at the headwaters of four of BC's mighty rivers: the Klappan and Spatsizi which flow into the Stikine, the Nass, and the Skeena. It adjoins Spatsizi Plateau Wilderness Park.
Three test wells were drilled in 2004, along with seismic mapping. Shell's exploration plan was then stalled for two years, initially by the fierce opposition of Tahltan families from Iskut and later by failure to sign an agreement with the Tahltan Central Council. Once an agreement with the Tahltan is in place, drilling will start again.
The Remaining 3%
Many projects have been proposed elsewhere in BC, but little has happened on the ground. The meeting rooms once full in Campbell River, Courtenay, Nanaimo, Hat Creek, Merritt, Princeton, Fernie, and Hudson's Hope have emptied, if only for the moment.
In the Bulkley Valley, however, it hasn't been so quiet. In January, Outrider Energy walked away from a Telkwa Coalfield project, honouring a promise that if the community didn't want CBM development, then Outrider would not force it on them.
But Outrider was operating for Norwest Corp., and Norwest hasn't followed Outrider's example. A Cabinet Order in Council may be imminent, indicating Norwest's intention to advance a CBM project in Telkwa.
CBM in Telkwa does not just represent despoliation of a beautiful place. The Telkwa, Bulkley and Skeena Rivers are rich salmon bearing rivers of vital cultural and economic importance to the Wet'suwet'en. It was the Wet'suwet'en chiefs who led the second Rally for the Valley in Smithers in March, with 600 people organized by the Citizens Concerned about Coalbed Methane. Todd Butler's Coalbed Methane Blues received its premiere performance that day in Smithers.
Special Deals for Those Who Might Sue
Revenues to government from oil and gas come from two sources: the sale of drilling licences and leases ("tenures"), and royalties. Tenures have averaged $470 million a year in the last five years. Royalties are expected to be $1.7 billion dollars on net oil and gas revenue in 2007.
In 2003 the Coalbed Gas Act made it explicit that CBM would be governed under the Petroleum and Natural Gas Act (P&NG), just like conventional natural gas. If a company owned the coal, it did not thereby own the P&NG rights. A handful of companies and a few hundred individuals have freehold coal rights based on their land title. Perhaps fearing a legal challenge, the government negotiated sweetheart agreements with the four largest coal owners, so they can acquire tenures until the end of 2008, either at no cost with full royalties or at reduced cost with reduced royalties.
The four companies are Elk Valley Coal Partnership and Tembec in southeast BC, and Weldwood (since acquired by West Fraser) and Quinsam Mines (owned by Hillsborough Resources) on Vancouver Island. All four companies have until the end of 2008 to exercise their rights. All four have initiated requests for tenure.
In April, Hillsborough Resources and Cornerstone Gas began making calls to various stakeholders in the Campbell River area. They wanted to talk about "natural gas" exploration near the city airport.
In May, BP America wrote to Montana Governor Brian Schweitzer: "BP is undertaking an evaluation of the potential development of coalbed natural gas resources in the Crowsnest coal field, located within the Elk River Valley in southeastern British Columbia, Canada."
It is an odd way for British Columbians to discover what deals its government has been making.