Regulatory Paralysis Deciphering the writing on the wall
Industry experts weigh in on what fracking application withdrawals in the Sahtu means for the territory Walter Strong Northern News Services Published Monday, June 9, 2014 LLI GOLINE/NORMAN WELLS
Two oil exploration companies' abrupt departures from the Sahtu region should be taken as a message on the territory's transportation and regulatory systems, according to one energy analyst.
Husky Energy recently announced it was putting exploration work in the Sahtu on hold. A Ziff Energy analyst said there is a message in Husky's sudden decision to put its exploration in the region on hold. - NNSL file photo |
Bill Gwozd, senior vice-president of gas services with Calgary-based energy consultants Ziff Energy, sees regulatory uncertainty as a part of a two-pronged problem the territory faces when it comes to oil and gas development.
“On the oil side, while prices are quite high, transportation to market is questionable,” Gwozd said.
Canada’s oil industry faces mounting export problems in Alberta due to pipeline proposals stalled by regulatory processes and bogged down under their own weight.
This means that even if a company were to make a major oil discovery in the NWT, the lack of export options would make it very difficult to get the product to market economically.
The second problem facing the NWT, Gwozd said, surrounds regulatory policy.
“We need clarity on the (regulatory) process timeframe,” Gwozd said. “Regulatory delay becomes an impediment. It incurs cost.
“Some people have figured that out,” he added, referring to the recent campaign to delay Husky’s fracking application in the Sahtu by having it referred to a full environmental assessment.
“Husky has lots of other projects to do,” Gwozd added. “They may come back in the future, but they can just park this for a while. They don’t want to get tangled up in (a) drawn-out affair where they are incurring costs.
“This is what we call regulatory paralysis.”
Regulations not to blame: minister
Industry, Tourism and Investment Minister David Ramsay said Husky representatives assured him that their exit had nothing to do with regulatory concerns.
“In discussions with Husky recently, the first thing they said was that their hiatus has nothing to do with the regulatory process in the NWT,” said Ramsay.
“They made that very clear from the outset. It was a business decision.”
But according to Gwozd, separating regulatory processes from business decisions may be a false distinction.
When faced with open-ended regulatory processes, “companies like Husky just can’t afford to wait around,” Gwozd said.
“They have to put their money in the right basket. Husky has a lot of fish to fry.”
He pointed to ConocoPhillips' explanation for why they were putting their work on hold in the Sahtu earlier this year to support his argument, saying that a company deciding to pursue competing projects elsewhere in the world should send a message to those who would like to see such project contributing to the NWT economy.
Environmental assessment 'completely inappropriate' for exploratory wells: CEO
Before either Husky Energy or ConocoPhillips expressed interest in fracking in the Sahtu, MGM Energy applied to drill and frack exploratory wells on the oil play.
When, two years ago, MGM’s Shell Oil-backed application was referred to the Mackenzie Valley Review Board for a full environmental assessment, it effectively killed the project.
Shell backed out as a financial partner and MGM was unable to land another backer.
Henry Sykes, MGM president and CEO, said Shell - and most likely any other major energy company - would not be willing to invest the resources required by a full environmental assessment only to drill a couple of exploratory wells.
“There’s a still a risk that any application to drill an exploration well will be referred to environmental assessment,” Sykes told News/North recently.
“We think that’s entirely inappropriate. You should wait until a (resource) development stage.”
The risk that a preliminary exploration program will face that kind of burden is something Sykes sees as relatively unique to the NWT.
“You’ve still got regulatory processes that are opaque,” said Sykes. “How long is it going to take? No one knows. How much is it going to cost? No one knows.”
In other jurisdictions, Sykes said, “Things that are low risk are dealt with in a very straightforward manner. That’s not necessarily the case in the North.”
“Regulators (outside the NWT) are much more comfortable with what’s going on.”
However, both Gwozd and Sykes stopped short of criticizing the GNWT on this matter.
“I think the GNWT is committed to the responsible development of Northern resources,” Sykes said. “(Premier) McLeod and (Minister) Ramsay have been sound advocates for responsible development. They’re part of the solution.
“Unfortunately there are other things that remain problematic.”
For Gwozd, the GNWT has to take a leadership role when it comes to determining energy policy, and not allow policy to be shaped by special interest groups.
A very small percentage of a population can sway energy policy, Gwozd said.
“The bureaucratic slowdown to address concerns can paralyze projects and shut them down.”