Well costs are high because of no service industry in Quebec. Every new shale gas play has high costs, and they come down so to say that in the exploration phase doesn't make sense. As they go through, they'll start putting in pipelines etc. Quebec already has an advantage in the fact that they have Gaz Metro (company that I hear is high regarded in Quebec) to get pipelines up, close to markets that get a premium to NYMEX. Those are pretty solid. Drilling in upper BC is said to need a $6.50 gas price to break even...from what I last heard.

I wouldn't worry about costs at the moment, but that will be important when they plan to go in and drill 200+ wells a year. In a full production case though, I am sure they'll be going in with many rigs and they be at constant work all year, so that alone will drop prices big time...not having to keep sending them away and then calling them back.

Binnion last year said Quebec will need a $3.50 gas price to work. On a full scale go, probably might be close. The thing is we're in a phase of find how to drill and maximize results...by doing that it helps dramatically with the final costs.

I am sure the government will put incentives into place. And you're right, I am sure they know what huge royalties might do and how companies will react. These people have all the information we go and know exactly what is happening with shale gas everywhere. With gas prices this low, we'll probably see a switch from coal to natural gas in plants etc...read an article today about the US wanting to export LNG. Prices won't be this low for long.

The drilling isn't stopping because the companies need to drill in order to keep leases in all these places. Frankly at $3.50 today, don't know really any shale play that is making money. Devon Energy said prices are too low to sustain production recently:

http://www.star-telegram.com/2010/10/05/2523048/natural-gas-price-seen-as-too.html

If the government really wants this badly, and they do...they'll do what it takes to have these companies get on board. Seeing as how they'll be recieving royalties for 50+ years, doubt they'll get greedy too early on...sometime years and years later...maybe? lol possibly.

Rocco