AS CANADA STARTS TO RUN OUT OF NATURAL GAS, THE ENERGY INDUSTRY IS FORCED TO DRILL WELLS THAT YIELD LESS BUT DISRUPT MORE. ONE NEW SOURCE, COAL BED METHANE, MAY BECOME OUR SALVATION – OR JUST REFLECT OUR DESPERATION

Originally puiblished by The Globe and Mail, April 29th, 2005. All material copyright Bell Globemedia Publishing Inc. or its licensors. All rights reserved.

In the scenic badlands of Alberta, an hour's drive northeast of Calgary, Jessica Ernst loved to savour the quiet of a prairie evening on her back porch. Then EnCana Inc. planted a new compressor station 870 metres away. The olive-green facility — what Ernst calls “an ugly piece-of-shit noisemaker” — is an inseparable companion to the energy industry's next big thing: coal bed methane (CBM). Unlike conventional natural gas, CBM — pools of gas trapped in coal seams — won't flow without some added suction. So whenever Ernst, a 47-year-old oil patch consultant, stands outside her farmhouse these days, all she hears is a racket. Like a growing number of Albertans who have seen and heard what the energy industry calls “the oil sands of natural gas,” Ernst is not impressed.

The drone of the compressor isn't the only aspect of this new energy source troubling people like Ernst in the hamlet of Rosebud. Last year, the artsy haven of 100 residents learned, to its surprise, that it's the beachhead of the CBM revolution: Rosebud sits in the middle of Canada's first commercial CBM project. Neither EnCana nor government regulators divulged the plan in advance.

Dozens of companies, including such big players as Nexen, Apache and Shell, are chasing CBM. Leading the charge is EnCana, the largest Canadian-owned gas producer, which counts CBM as a big part of its future. A report by CIBC World Markets calls CBM “the fastest- growing segment of natural gas production in Western Canada.” The National Energy Board, the federal government's eyes on the oil patch, goes further, identifying CBM as the future of Canada's gas supply.

Plainly put, the low-hanging fruit in the energy business has already been plucked. With unconventional sources like CBM, the economic returns decline but environmental costs increase (not least of these is the burning of fossil fuels in order to find more of the same). In Alberta, where landowners and the energy industry are already at loggerheads, the intense “industrialization” of drilling required by CBM is one more ingredient in a recipe for conflict.

Many people around Rosebud wonder if the two legs of the local economy - tourism and agriculture - will be crippled by the industrialization coming their way. By some estimates, communities throughout central Alberta will soon see 1,500 compressor stations planted in their backyards. “Can't they leave 10 square miles around Rosebud alone?” asks Alana Bowker, who owns a local guest house. “Will natural gas be the only industry left in Alberta?”

Having worked in the oil patch for 22 years, Ernst understands the business case for CBM. It could be “a fabulous answer to declining conventional gas reserves if they do it slowly and do it honestly,” says Ernst. But that's not what Ernst sees in Rosebud. “There is no plan here.”

Rosebud may be tiny, but the reason for its trepidation is as big as the continent: the natural gas crisis. With demand outstripping supply, the continent is running out of gas. Two years ago, the U.S. National Petroleum Council declared the shortfall critical: “North America is moving to a period in which it will no longer be self-reliant in meeting its growing natural gas needs; production from traditional U.S. and Canadian basins has plateaued.” It advocated a reduction in regulation, increased access to gas reserves - including on the continental shelf - and quick action on a pipeline from Alaska.

Conventional natural gas production peaked in the United States in the 1970s. It avoided a crisis only by importing lots of cheap Canadian gas. By 2000, the U.S. was importing three trillion cubic feet a year - half of our production. Thanks in particular to Americans' ravenous appetite for gas-fired electrical generation, Canada, which has only 1% of the world's reserves, is the globe's third-largest producer of natural gas.

Since Canada now has less than eight years' worth of proven supplies left, no one thinks we will hold that rank for long. Indeed, our natural gas production reached an unheralded apex in 2002 and declined 3.6% the following year. Exports to the United States, which in 2004 generated about $27 billion in revenue, peaked in 2002.

Many economists believe, in accordance with the National Petroleum Council, that new technologies, streamlined regulations and greater access to wilderness areas for drilling will solve the crisis. Geologists have their doubts. Given existing consumption trends, Dave Hughes, a Calgary-based coal specialist with Natural Resources Canada, optimistically calculates that North America could be short as much as 15 trillion cubic feet of gas a year by 2025. That's one big gap: the equivalent of turning off the furnaces in Canadian homes for 15 years.

And it's not as if Canada can just shut off the pipeline - under NAFTA, we're obliged to treat the U.S. on equal terms. If there's not enough gas to go around, the treaty says we still have to keep pumping southward.

Even today, the only thing preventing shortages and dramatic price hikes is the industry's unprecedented level of drilling - what Calgary-based gas analyst Rob Woronuk of GasEnergy Strategies calls “brute force.” A decade ago, Alberta's gas industry easily met its share of North American demand by drilling 4,000 wells a year; today it can barely keep production flat with 15,000 new wells a year. “In a sense, we are approaching a panic mode,” explains Woronuk. “We only have x reserves in the ground. Drilling more wells doesn't add to the reserves. It just depletes more gas, and it is an accelerating process.”

But for now, natural gas keeps our economy smiling. It fuels about a third of Canada's energy needs and powers up to half of our industry. About half of Canadian homes heat with gas. Ontario aims to ease its electricity-supply crunch with new gas-fired generators. Large helpings of natural gas are also used in production from the oil sands, the source of much of our gasoline. Without natural gas, production would simply stop.

Neither industry nor government has spoken much about the crisis. It may be 10 minutes to midnight for our gas supply, but for the business and royalty-collecting governments, the party's still roaring. Gas companies and trusts have all scored record profits in recent years as gas prices rose from less than $2 per thousand cubic feet in 1996 to the neighbourhood of $8 this year. The windfall has turned the oil sheikdom of Alberta into a kingdom of gas. In 2003-04, the province raked in more than $5.4 billion from gas revenues; oil revenues barely topped $1.2 billion.

At a series of workshops last year, the National Energy Board (NEB) offered two solutions to the crisis. The first is liquefied natural gas (LNG), which can be shipped in big tankers from abroad. But even a big tanker carries only enough gas to heat a community of 80,000 for a year. And it will take from three to seven years, and hundreds of millions of dollars, to build an LNG port facility. So the NEB placed its bet on answer 2: unconventional gas such as CBM.

An NEB report issued after the workshops noted that CBM differed from conventional gas in some critical ways. Most notably, CBM has relatively low well productivity and therefore requires “a high drilling density to achieve economies of scale.” The report said 50,000 wells might be needed to exploit Alberta's CBM motherlode, the Horseshoe Canyon, and that the whole endeavour would look like a “manufacturing process.” The report neglected to add that the Horseshoe Canyon play lies underneath one of the most densely populated and most fertile areas of the province, including both little Rosebud and the busy corridor between Edmonton and Calgary.

The push is yet to come, but even the acceleration of drilling to date has strained relations between landowners and the gas sector. Most of Alberta's 50,000 farmers now sport a well or pipeline on their properties. More than 250,000 wells and 332,464 kilometres of pipeline have been planted on the province's landscape in the past 40 years; many areas resemble industrial pincushions. Some farmers have difficulty manoeuvring their machinery around all the wellheads and pipelines on their land.

The pace of development is controlled by the provincial government, which sells off gas and oil leases. (All told, Alberta owns 81% of the turf; the rest is held privately or by the federal government.) Companies gain access to their mineral leases by negotiating withlandowners. The Alberta Energy and Utilities Board (AEUB), a quasi-judicial agency, enforces rules for the process, approves licences and adjudicates disputes.