GLOBE & MAIL (April 30th., 2010)

Five things you should know about shale gas

Steve Brearton

00:00 EDT Friday, April 30, 2010

Ever since natural gas was discovered in Dover, New Brunswick, in 1859, engineers have been searching for a safe, economical way to access the gas trapped in Eastern Canada's shale rock formations. In January, two Calgary-based firms, Questerre Energy Corp. and Talisman Energy, demonstrated that commercially viable quantities of gas were available in Quebec's Utica formation in the St. Lawrence Lowlands near Montreal.

"You always like best what you know least about," said Talisman chief financial officer Scott Thomson.

"And we don't know a lot about Quebec yet." Here's what we do know.

1 It's big

Questerre estimates that its recoverable gas assets in the St. Lawrence Lowlands could hold as much as 18 trillion cubic feet-far greater than gas estimates in Canada's Mackenzie Delta-making Utica one of North America's top 10 deposits. Canada's National Energy Board says shale gas may "partially offset projected long-term declines in Canadian conventional natural gas production."

2 It's valuable

Questerre Energy's stock price has more than quadrupled in the past year, rising from below $1 in early 2009 to around $4 in April.

3 Eastern gas is a western play

While a number of Eastern Canadian firms-notably Quebec's Junex Inc.and Gastem Inc.-are operating in Utica, the big money is coming from the West: Calgary's Talisman Energy and Houston's Forest Oil. Talisman has also committed to invest $1 billion toward developing shale gas properties in Pennsylvania.

4 It's not cheap

Shale gas wells are drilled horizontally. Millions of litres of sandy liquid are pumped into the layers of rock, causing fractures that ultimately release trapped natural gas. This process is known as "fracking." Shale gas extraction is more expensive than conventional methods because more wells are required, as well as vast amounts of water and specialized equipment.

5 But it's close to market

"It's kind of like real estate: location, location, location," says Jim Fraser, senior vice-president of shale operations at Talisman, which has a 75% interest in Questerre's shale leases, fortuitously located close to a pipeline and the U.S. eastern seaboard, where gas sells at a premium.