Tag Archives: moratorium

Lies our province tells them

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When I go abroad, I never fail to remind my felicitous hosts that New Brunswick enjoys the finest temperatures in the western world: Here, it never drops below zero, and, here, it never rises above room temperature.

Gosh, friends, it hardly ever snows.

I also tell my international confreres that the province where I currently hang my many toques bustles with sustainable, environmentally benign industries; its rural communities are economic dynamos that support entrepreneurial vigor and verve; its cities are jewels of downtown, cultural development; its public accounts are balanced; and, oh gee-whiz let’s just be honest, its future is as bright as the North Star on a late November night.

When I yak this way the English think I’m mildly amusing; the Scots couldn’t care less. In fact, only the Irish know that I am lying through my rose-colored shot glasses (after all, in their post Celtic-tiger phase, they should know blarney when they hear it). Fortunately, for representatives of this provincial government, the Americans are just a wee bit more gullible.

For, when New Brunswick’s cohort of trade officers and assorted politicos tells a Texas crowd of energy poo-bahs just how wonderful shale-gas development opportunities in New Brunswick might someday become, they may as well be speaking to a roomful of kindergartners. (Oddly enough, that’s exactly how New Brunswick’s cabinet members prefer to address the citizens who elected them on just about every subject anyway).

As John Chilibeck of the Saint John Telegraph-Journal reported earlier this week, “a moratorium on fracking hasn’t stopped the New Brunswick government from advertising the potential for a shale gas industry in the province. At an energy conference in Houston, an officer with Opportunities New Brunswick recently set up a booth showing a poster of shale gas formations in North America, including the possibility of deposits in New Brunswick.”

Did someone not get the memo?

It reads something like this, courtesy of the provincial government’s own website on the matter: “The moratorium (on fracking) will not be lifted unless there is social license in place; clear and credible information about the impacts of hydraulic fracturing on our health, environment and water, allowing us to develop country-leading regulatory regime with sufficient enforcement capabilities; a plan that mitigates the impacts on our public infrastructure and that addresses issues such as waste water disposal; a process in place to respect our obligations under the duty to consult with First Nations; a mechanism in place to ensure that benefits are maximized for New Brunswickers, including the development of a proper royalty structure.”

That’s a fairly tall order and, if I’m not very much mistaken, you can’t put it on a poster even if your eat-and-have-cake heart desires to.

Lamentably, Energy and Mines Minister Donald Arseneault appears to struggle with the conundrum. Responding to the news, he noted, somewhat confusingly, “Putting a moratorium on hydraulic fracturing doesn’t mean you can’t have conventional drilling as well. And a moratorium does not mean you have to stop promoting the province as a place to invest. We can’t hide from the fact we have a moratorium on hydraulic fracturing.”

Fine, but then why advertise to an international audience the province’s vast shale-gas reserves – resources that can only be obtained through fracking – when we have not yet crafted a commercially viable plan for lifting the injunction on the very technology that makes the business rational?

When this government goes abroad, it should remember that truth is a far better drawing card for investment than the banal and wretched alternative.

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Fracking’s other, hidden challenge

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New Brunswick Premier Brian Gallant did himself an enormous political favour during his recent election campaign by sticking to his guns, insisting that he would follow through with a temporary ban on hydraulic fracturing in the province until experts convinced him that the drilling practice is broadly benign.

After all, the one thing a lightly informed voter can get behind is a candidate for elected office who successfully appeals to the public’s expectation of clean water, air and soil.

But whether or not you believe fellows like Gywn Morgan, a former Canadian energy executive, who recently argued in a Globe an Mail commentary that the “technology. . .has one of the most impressive industrial safety records ever compiled,” that “in the United States, where some 1.2 million wells have been hydraulically fractured over the past 60 years, the Bureau of Land Management and the Environmental Protection Agency have found no supportable evidence of fracture-induced water contamination,” and that, “here in Canada, more than 200,000 wells have been fractured in Alberta, British Columbia and Saskatchewan with a similarly sterling record,” another problem emerges – one that’s not so cut and dry.

The chief argument for permitting the development of tight, onshore oil and gas plays in New Brunswick is economic. In fact, proponents routinely insist, it’s a no-braine:  the province needs jobs and the government needs new sources of money (i.e., taxes and/or royalties from production companies) to balance its books and pay down its accumulated debt. If fracking, girded by effective regulations, is safe, then what are we waiting for? Drill, baby, drill!

But what if the economics of shale gas extraction – at least to the host jurisdictions – are not always as attractive or predictable as they appear?

Jeremy Scott of Forbes magazine recently examined various U.S. state budgets, noting that, for the third consecutive year, overall tax revenues have risen. Referencing some enlightening numbers-crunching by Todd Haggerty, a policy specialist in the fiscal affairs department of the National Conference of State Legislatures (NCSL), Mr. Scott reported “state tax revenues went up 6.1 per cent in fiscal 2013 to a total of $846 billion, says the NCSL. Personal income tax revenues were up 10.3 per cent, while corporate collections surged 7.9 per cent.”

In fact, those states that opened their doors to frackers some years ago, have been leading the boom in tax dollars. Says the Forbes piece: “In 2004 North Dakota’s severance tax (a levy imposed on producers in the United States for mining or otherwise extracting non-renewable resources) raised $175 million a year. In 2013, it raised $2.46 billion. West Virginia’s boom hasn’t been as dramatic as North Dakota’s, but its severance tax revenue increased from $204 million in 2004 to $608 million in 2013.”

On the other hand, “in Kentucky, severance taxes raised $172 million in 2003, rose to $346 million in 2012, but then dropped back to $269 million in 2013.”

And herein lies the problem. The oil and gas industry is notoriously fickle and subject to its own pricing, supply and demand cycles. The industry can reliably guarantee a certain amount of economic activity accruing from its ministrations, especially at the outset of full, commercial production, but those assurances become less dependable as time goes on.    

“Kentucky illustrates the problem with relying on severance taxes and the fracking boom for revenue stability,” Mr. Scott writes. “As traditional energy states like Texas have shown, taxes on the extraction of natural gas can fluctuate wildly. Texas raised $974 million from severance taxes in 2004, $4.1 billion in 2008, $1.9 billion in 2010, and then $4.6 billion. That’s healthy growth, but it’s hardly consistent. Colorado is an even better example. Its severance tax revenue rose from $37 million in 2003 to $285 million in 2009, before falling back to $71 million in 2010.”

Of course, to fracking’s true believers in New Brunswick (and there are still a few), such revenue instability is better than no revenue at all.

But it could become a nightmare for any premier who, once convinced of fracking’s safety, relies too heavily on its proceeds to balance the public accounts.

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