An oil and gas regulatory regime for Quebec

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Transcript

Una Jefferson: You are listening to compliance insights podcast by Nimonik. We discuss all things related to compliance with environmental health and safety and quality rules. I’m Una Jefferson. Few weeks ago, the government of the Canadian province of Quebec announced regulations to finally implement the Petroleum Resources Act, which was passed back in 2016. These regulations also filled in a lot of the details and what Quebec’s regime governing oil and gas exploration and production and storage will look like. Emily Bundock is an associate at Fasken. She’s been involved in some key cases related to oil and gas development and activity in Quebec. Notably providing research assistance in the Lone Pine Resources Incorporated versus Government of Canada case. She joined me to talk about the new regulations and what they mean for oil and gas activities in Quebec.

Una Jefferson:  Emily Bundock, thank you for coming on the podcast. It’s great to have you.

Emily Bundock: It’s my pleasure. Pleasure to meet you this morning.

Una Jefferson: Well, it’s a pleasure to meet you as well. Um, so this Petroleum Resources Act, it’s not new. It was passed at the end of 2016. Um, and we’ve seen a few drafts of these regulations to implement it since then. Um, so how much new information is contained in this announcement on August 20th of these regulations that would implement it?

Emily Bundock: Well, as you mentioned, the why the act was passed late December or late 2016 and December. It was not applicable in practice because we didn’t have the specific regulations that we’re required to implement it. And those entered just only about 10 days ago on September 20th. So the act and the regulations provide a comprehensive legal framework that’s applicable to the exploration, production, storage and transportation of oil and gas. Um, the English title, I think maybe a bit misleading because it states petroleum resources, uh, but however it regulates both oil and natural gas resources. Uh, so the title and French is probably more descriptive of the objective. Um, so the, the act itself was not sufficient to regulate both oil and gas activities and the transportation and all the ancillary work that needs to be regulated around those activities. The act provides the framework, the general principles, so for example, an obligation for a proponent to apply for a license, um, there’s a focus on ensuring the safety of persons and property. There’s also environmental protection that’s mentioned in there and the general principle is optimal recovery of their resources. The regulations provide further details on the obligations and the principles that are provided in the act. So for example, they set out the details of the license application process, what the proponent needs to file together with its application. So that’s something that we didn’t have before, uh, September 20th or we didn’t have the clarity or the real process before that date. And then the obligations of the license holder. So once the proponent has obtained the license, the various obligations and the technical requirements that must be met by anyone engaging in those regulated activities. Um, I think maybe what would be useful for the audience is if we just briefly state what’s in those three regulations that were adopted. So there’s the first one is the regulation, respecting petroleum exploration and production and storage on land. The second one is similar, but relates to those activities in a body of water. And the third one is about the, um, the actual licenses and the authorization process. So why the two first ones, let’s say, set out technical requirements applicable to the performance of those activities by the license holder. The third one is really about the license application process. Um, so anyone who was interested in engaging in those activities, must comply with the requirements that are set out in that regulation. And also what’s important to mention is that anyone who currently holds a license will have to comply with the, um, with the regulations to make sure that they maintain that license. So for example, current, um, current pipeline operators will need to apply for a use license to make sure that they can maintain their operations and there’s a search in a deadline for them to comply with the regulations. So there’s not very surprising in those regulations because the Quebec government relied mainly on regulations and standards that are enforced in other jurisdictions. So in terms of applicable standards and technical requirements, it’s going to be very similar to whatever you seen in other oil and gas, jurisdictions

Una Jefferson: To clarify similar to oil and gas in other jurisdictions or elsewhere in Canada or in the world, or similar to existing legislation in Quebec that was relevant to oil and gas activities like the mining act or environmental quality act.

Emily Bundock: Well, what’s interesting is there’s a very close relationship between the Environmental Quality Act and this new Petroleum Resources Act in that, someone will not like a proponent will not be issued a license unless and until they comply with the Environment Quality Act. So if they need to get an authorization pursuant to the Environment Quality Act, which they will, they will have to get one. So the, um, the license will not be issued under the Petroleum Resources Act until they get that ministerial authorization under the Environment Quality Act.

Una Jefferson:  So given this reliance on existing standards or best practices, how likely is this new regulatory regime to change oil and gas activities in Quebec?

Emily Bundock:  Um, so as I mentioned, I don’t think there will be much surprises in terms of the technical requirements. Um, so for example, compliance with CSA standards is something that’s very well known in the industry. Um, mandatory inspections and record keeping is also something that the industry is used to comply with. What’s probably more surprising is the new role of Énergir here in Quebec in issuing those licenses and let’s say overseeing the, uh, this upstream oil and gas sector, which is not something that Énergir has done in the past. Maybe to situate everybody a little more Énergir has historically been an economic regulation agency and it’s still, as of today, it’s mission is really to foster the conciliation of the public interest, consumer protection, the fair treatment of the electricity carrier and natural gas distributors. So Énergir role is really in fixing and modifying rates and conditions for the, the transmission of electric power, distribution of electric power and distribution, transmission and delivery of natural gas, the natural gas distributors. So it doesn’t touch on upstream oil and gas activities at the moment. So it’s there for quite a shift for Énergir to now being, let’s say broad into the, the bigger, the bigger spectrum of the oil and gas upstream oil and gas sector. Um, and the last time I looked at Énergir, website was yesterday and there was still no guidance for proponents to, to prepare and file their applications. So it’s going to be, um, I know that Énergir is working on elaborating such guidance and guidelines. They gave a presentation earlier this year about what how they are preparing to play that role. Um, so I’m sure they’re going to be ready. It’s just a matter for them to, um, to pick that up.

Una Jefferson: Okay. Um, I’d like to zoom out a bit and just talk about the regime, the broader regime, including the act itself, the Petroleum Reserves Act states that it is intended to govern oil and gas activities in accordance with the province of Quebec greenhouse gas reduction targets. Um, what, what does this mean in practice?

Emily Bundock:  This is a very interesting question. Um, the, the only statement about greenhouse gas reduction targets is found in section one of the act, so there was no reference to greenhouse gas and the regulations per se. However, there is a requirement for the license holder, for example, to ensure it to carry out activities in order to eliminate or reduce to a minimum the volume of gas released into the atmosphere. Um, so certain technical requirements have to be met, uh, so for example, contribute to the combustion of gases using a pilot technician at the flare or other device or their recovery where possible and implement a leak inspection plan. But that said, because no license may be granted unless and until the authorization required under the Environment Quality Act has been issued, this requirement may be assessed by the Ministry of Sustainable Development Environment and fight against climate change. So that’s going to be assessed via what the so called climate test. Um, and indeed the greenhouse gas emissions are attributable to a project. And the emission reduction plan, for example, will be required as part of the application for a ministerial authorization and will be taken into consideration by the minister when they assess the application and before the issue, the license. So that’s going to be looked at more under the, um, the Environment Quality Act part of the, uh, the licensed issuance process.

Una Jefferson: Okay. What about this idea of social acceptability? Um, this is the project social acceptability was introduced or setup as a criteria in for approval in the Petroleum Resources Act. Now that these regulations are out, do we have a sense of how the social acceptability of a project will be determined?

Emily Bundock:  It’s very hard to say because, um, we still don’t have a definition of social acceptability and it’s hard to provide or provide guidance with respect to what would be a real indicator of when a project can be considered as having reached social acceptability? The new framework, however, provides I think, a real opportunity for enhanced transparency, notices to land owners for example, public hearings, reporting, etc. Um, there was nothing of that before. So this is all new with the new regime and I think those are key elements I woUld say for a good contribution to improve social acceptability of the oil and gas industry in Quebec.

Una Jefferson: Can we learn anything from the ways social acceptability has been defined in other industries where it is part of the project approval process or at least in some measure it is claimed to be like a wind energy or mining for example.

Emily Bundock: I think there’s certainly very nice parallels, to make between the various industries. Local communities are key stakeholders. Uh, so I believe that whatever transparent approach, relationship building, the monitoring committees, for example, under the mining act or something that certainly help in terms of reaching that social acceptability standard. So yes, I would say there are parallels that we can make between the various industries and probably because of the oil and gas activity, uh, was not so, important in terms of scale in quebec, it was probably let aside or pushed aside for a certain number of years and that’s probably something that will be more of a factor, social acceptability with this new framework. And the machanisms, like I said, have notices to land owners, for example, or public hearings and reporting will certainly improve social acceptability of the oil and gas industry.

Una Jefferson: So, uh, the Petroleum Resources Act is now in effect as of September 20th. And as I think about the future of this legislation, there are a few factors I’m curious about. First of all, as we speak, Quebecer’s or going to the polls to elect a new government and you know, the announcement of these regulatIons was conspicuously close to the election. Um, and second, I know a quester energy, which is based in calgary, has announced its intent to bring a legal challenge to some elements of these new regulations, saying parts of them were outside of the authority of government. So how might these two factors determine the future of, uh, of this legislation?

Emily Bundock: Well, as you said, I mean this morning and as a 10 minutes ago, actually, the polls open, so come Quebecers or voting now for their new government, um, two of the major parties are probably more likely to take power, the liberals or the CAC. Um, the, the liberals position is very much in line with the recently enacted legal framework. Of course they were In power during the drafting of those regulations, uh, exploration and production of oil and gas resources will be allowed where it complies with the applicable laws and regulations. That’s the position that the liberals have taken throughout the campaign. And fracturing and shale would also be prohibited. So that’s all part of their, um, their messaging around the campaign. The CAC’s position is still unclear. And um, as for others, they are more likely to have, let’s say, distantiate from oil and gas activities in quebec, so they would stop subsidies to the oil and gas industry and their programs is more focused on transition toward renewable resources. Um, so while most candidates during the campaign have opposed, to the exploration and production of oil and gas as well as the construction of pipelines crossing quebec, the, uh, the act is now in force and proponents can have expectations that this act will be inactive, that the legal framework will allow them to file applications for licenses and go forward with their investments and their projects. But what will happen next, I mean, as of tomorrow, still remains unclear and so we have yet to see if, uh, if an in what is going to be the approach of the next government with respect to their energy’s news release. I know they’ve, um, they’ve expressed an intent to oppose to those regulations. I haven’t seen their brief, uh, so I can’t really comment on that, but my understanding is they question the actual process of passing those regulations. So that will also be an interesting task for the next government to take on as of tomorrow.

Una Jefferson: Well, it’ll be very interesting to see how this all plays out. Thank you very much, Emily, for your time.

Una Jefferson: Thank you for listening to Compliance Insights podcast by Nimonik. If you have questions, comments, or topics you’d like to hear discussed, we would love to hear them. You can send me an email at ujefferson@nimonik.com. That’s N I M O N I K .com. You can find us and subscribe wherever you get your podcasts or online at nimonik.com.