Study No. 165 June 2017 CANADIAN ECONOMIC POTENTIAL OF ONSHORE OIL ENERGY AND GAS IN NEW BRUNSWICK AND RESEARCH INSTITUTE NOVA SCOTIA Canadian Energy Research Institute | Relevant • Independent • Objective ECONOMIC POTENTIAL OF ONSHORE OIL AND GAS IN NEW BRUNSWICK AND NOVA SCOTIA Economic Potential of Onshore oil and Gas in New Brunswick and Nova Scotia Authors: Paul Kralovic Andrei Romaniuk Anna Vypovska Raphael Akaeze Dinara Millington ISBN 1-927037-50-8 Copyright © Canadian Energy Research Institute, 2017 Sections of this study may be reproduced in magazines and newspapers with acknowledgement to the Canadian Energy Research Institute June 2017 Printed in Canada Front photo’s courtesy of various Google searches Acknowledgements: The authors of this report would like to extend their thanks and sincere gratitude to all CERI staff involved in the production and editing of the material, including but not limited to Allan Fogwill, Ganesh Doluweera and Megan Murphy. The authors would also like to personally thank Peter Howard of Arundel Information Systems Inc. and President Emeritus at CERI, as well as the extensive list of peer reviewers for providing helpful and valuable insights for this study. ABOUT THE CANADIAN ENERGY RESEARCH INSTITUTE – CANADA’S VOICE ON ENERGY The Canadian Energy Research Institute is an independent, not-for-profit research establishment created through a partnership of industry, academia, and government in 1975. Our mission is to provide relevant, independent, objective economic research in energy and environmental issues to benefit business, government, academia and the public. We strive to build bridges between scholarship and policy, combining the insights of scientific research, economic analysis, and practical experience. For more information about CERI, visit www.ceri.ca CANADIAN ENERGY RESEARCH INSTITUTE 150, 3512 – 33 Street NW Calgary, Alberta T2L 2A6 Email: [email protected] Phone: 403-282-1231 Economic Potential of Onshore Oil and Gas in New Brunswick and Nova Scotia iii Table of Contents LIST OF FIGURES ............................................................................................................. vii LIST OF TABLES ............................................................................................................... ix ACRONYMS AND ABBREVIATIONS .................................................................................. xi EXECUTIVE SUMMARY .................................................................................................... xv CHAPTER 1 INTRODUCTION ........................................................................................ 1 Setting the Stage ................................................................................................................ 1 Structure of the Report ...................................................................................................... 10 CHAPTER 2 OIL AND GAS POTENTIAL IN NEW BRUNSWICK AND NOVA SCOTIA ........... 13 New Brunswick’s Oil and Gas Potential ............................................................................. 13 Hiram Brook Member .................................................................................................. 16 Frederick Brook Member ............................................................................................. 21 Nova Scotia’s Oil and Gas Potential ................................................................................... 24 Horton Bluff Formation ................................................................................................ 28 CHAPTER 3 ENVIRONMENTAL AND INDIGENOUS PEOPLES ISSUES ASSOCIATED WITH OIL AND GAS DEVELOPMENT IN NEW BRUNSWICK AND NOVA SCOTIA ................ 31 Regulatory Requirements and the Current Regulatory Status of Unconventional Gas and Oil Development in New Brunswick and Nova Scotia ........................................ 31 Key Environmental Concerns Associated with Oil and Gas Development ........................ 32 Environmental Concerns: Context and State of Knowledge....................................... 33 Potential Impacts on Water ......................................................................................... 34 Overview of Potential Groundwater Impacts ........................................................ 35 Subsurface and Surface Water Concerns .............................................................. 37 Chemicals used in Hydraulic Fracturing ................................................................. 38 Water Use .............................................................................................................. 39 Wastewater Management and Wastewater Disposal ........................................... 40 Greenhouse Gas Emissions .......................................................................................... 42 Air Quality Effects ........................................................................................................ 44 Impacts on Land, Wildlife and Wildlife Habitate, and Induced Seismicity .................. 45 Public Health Issues ..................................................................................................... 48 Environmental Perspectives of Unconventional Gas and Oil Development in New Brunswick and Nova Scotia ................................................................................ 51 Aboriginal Rights and Indigenous Peoples Issues Influencing Oil and Gas Development .................................................................................................................... 52 Indigenous Peoples in New Brunswick and Nova Scotia ............................................. 52 History of Treaties in New Brunswick and Nova Scotia ............................................... 55 Canadian Aboriginal Law and Major Legal Cases Clarifying the Nature of Aboriginal and Treaty Rights and Aboriginal Title ..................................................... 56 Potential Impacts on Aboriginal Interests, Aboriginal and Treaty Rights .................... 57 June 2017 iv Canadian Energy Research Institute The Crown’s Duty to Consult with Indigenous People and the Role of Project Proponents .................................................................................................... 57 Aboriginal Consultation and Engagement Issues and Key Approaches to Address Them................................................................................................................... 59 CHAPTER 4 PRODUCTION, SUPPLY COSTS AND MARKET DYNAMICS ........................... 61 Description ......................................................................................................................... 61 Methodology and Assumptions for Supply Costs ........................................................ 62 Royalty Regime in New Brunswick ......................................................................... 63 Royalty Regime in Nova Scotia .............................................................................. 65 Methodology and Assumptions for Production Modelling ......................................... 66 Scenario 1: We are Importers ........................................................................................... 68 Outline of the Scenario ................................................................................................ 68 Production Outlook ...................................................................................................... 70 Supply Costs ................................................................................................................. 71 Infrastructure Costs ..................................................................................................... 71 Market Dynamics ......................................................................................................... 71 Scenario 2: We are Self-sustaining ................................................................................... 73 Outline of the Scenario ................................................................................................ 73 Production Outlook ...................................................................................................... 75 Supply Costs ................................................................................................................. 80 New Brunswick – McCully Field ............................................................................. 80 New Brunswick – Frederick Brook Shale ............................................................... 81 Nova Scotia – Horton Bluff Shale ........................................................................... 82 Infrastructure Costs ..................................................................................................... 83 Market Dynamics ......................................................................................................... 83 Scenario 3: We are Exporters............................................................................................ 86 Outline of the Scenario ................................................................................................ 86 Production Outlook ...................................................................................................... 89 Supply Costs ................................................................................................................. 92 Infrastructure Costs 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