©Garth Lenz LNG water royalties

B.C. government urged to address ‘outdated’ water subsidies for oil and gas companies

Companies withdrew 4.2 billion litres of water under short-term approvals and licences in 2020 for a minimal fee, and another 316 million litres for no fee at all

The B.C. government is being urged to make oil and gas companies pay more for their use of billions of litres of water in fracking operations, as provincial officials review royalties collected by the province from the industry.

Several public advocacy organizations say the government’s ongoing review is “flawed” because it has failed to consider “outdated” water-use policies that are allowing some companies to extract fresh water for free.

Almost all the natural gas in B.C. is produced through hydraulic fracturing, or fracking, a process in which a slurry of water, chemicals and sand is pumped into horizontal wells, creating cracks underground. These cracks are kept propped open by the sand, allowing gas to flow through the fractures in the earth to the surface.

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Oil and gas companies withdrew 4.2 billion litres of water under short-term approvals and water licences in 2020, a spokesperson for the BC Oil and Gas Commission said in a statement to The Narwhal.

What a company pays for the use of that water varies from nothing to just a few dollars for every million litres taken.

In 2020, oil and gas companies withdrew 3.5 billion litres of water under water licences, at a cost of $2.25 for every one million litres — or just less than $8,000 for all licences combined. The charge is deemed a rental fee by the B.C. government and comes in addition to an application fee that ranges from $1,000 to $10,000 depending on the use and volume of water used.

Another 712.3 million litres of water were withdrawn by oil and gas companies under use approvals, which are intended for short-term use. According to the provincial commission, companies are exempt from Water Sustainability Act application and rental fees for water taken under use approvals. Instead the commission’s administrative costs are covered by the fees oil and gas companies pay when they apply for their operating permit, the regulator’s spokesperson said. These use approvals are good for 24 months and can be re-issued indefinitely.

The BC Supreme Court upheld the commission’s right to re-issue these use approvals, rather than issue full licences that require greater environmental considerations, in a 2014 case between Encana Corp. (now Ovintiv) and several environmental organizations.

Oil and gas companies also withdrew nearly 316 million litres in 2020 from wells that are at least 300 metres deep, and located in certain areas, from which water-taking is free.

LNG, B.C., water royalties
A water pit at the idled Cabin gas plant northeast of Fort Nelson, B.C. Photo: Garth Lenz / The Narwhal

Some advocacy groups and experts say the numbers show that the money collected is not enough to cover what companies are consuming.

In B.C., “you simply cannot have natural gas production, without water … and, I have to underscore copious amounts of water,” said Ben Parfitt, a policy analyst with the B.C. chapter of the Canadian Centre for Policy Alternatives. 

Canada’s main oil and gas industry lobby group, the Canadian Association of Petroleum Producers, estimates between five million and 30 million litres of water is used in each fracking well. Thirty million litres is roughly equivalent to the amount of water in 12 Olympic-sized swimming pools. 

There are currently 10,180 active natural gas wells in the province, according to the BC Oil and Gas Commission. Of those, 6,742 have been fracked.

“BC Oil and Gas Commission experts — including Regional Water Managers and Hydrologists — monitor northeast B.C.’s water resources, track oil and gas water use withdrawals and water availability and require quarterly and annual water use reporting from industry,” a spokesperson for the commission said.

The spokesperson added use approvals “can be rescinded in times of drought.”

In 2020, oil and gas companies used 0.0035 per cent of the average annual runoff from rain and snow in northeast B.C., according to figures provided by the commission.

In an open letter last month, the Centre for Policy Alternatives and 10 other organizations, including the Sierra Club BC, the Canadian Association of Physicians for the Environment and Stand.earth, urged the provincial government to include water in its review of the oil and gas royalty system.

“Both the subsidized access to water and the future liability resulting from the lack of wastewater treatment must be addressed when considering whether the industry is paying fair value for public resources,” the letter says.

“Otherwise, the royalty review will be seriously flawed.”

B.C. moving forward on campaign promise to review natural gas royalty system

The BC NDP committed in the party’s 2020 election platform to undertake a “comprehensive review” of oil and gas royalties in the wake of repeated calls from environmental groups for governments in Canada to end all fossil fuel subsidies. But there’s no mention of water in this promise.

Almost a year after being re-elected, the B.C. government released an independent assessment in October which concluded that the province’s oil and gas royalty system was “broken” and in need of a “comprehensive overhaul.”

Royalties are meant to be the public’s share of the profit private companies earn from extracting oil and gas from public lands, but a series of subsidies, called royalty credits, have eroded provincial earnings.

In a statement issued when the independent assessment was released, Energy, Mines and Low Carbon Innovation Minister Bruce Ralston said the provincial “government takes this situation very seriously and will work toward an overhaul of the current system that eliminates outdated, inefficient fossil-fuel subsidies and ensures British Columbians get a fair return on our resources.”

A large water and wastewater storage facility on farmlands north of the Kiskatinaw River, near Dawson Creek, B.C.. Photo: Garth Lenz / The Narwhal

Subsequently, the ministry released a discussion paper for public feedback outlining its goals for the new system and options for a new royalty structure.

The word “water” appears just once in the discussion paper, and only to note that many British Columbians use natural gas to heat their water.

This is a source of alarm for the organizations behind the open letter, who argue “the royalty review will be seriously flawed” if direct and indirect water subsidies are not assessed alongside royalty credits.

In a statement, a spokesperson for the Ministry of Energy, Mines and Low Carbon Innovation said “the Independent Assessment found there is no direct relationship between the royalty system and water use, which is why water is not currently a focus on the royalty review.”

The ministry did not provide details on why it felt there was no direct relationship between the two.

The ministry also declined to respond directly to The Narwhal’s question asking if the ministry is considering expanding the royalty review to include direct and indirect water subsidies. 

B.C. oil and gas industry’s water use ‘hugely subsidized’ 

The open letter was written in support of an analysis submitted to the government by Donna Forsyth, a former legislative advisor at B.C.’s environment ministry. Forsyth called for the royalty review to be expanded to address what she describes as “outdated subsidies, policies, and regulations governing water used by the oil and gas industry.”

Forsyth, who helped draft B.C.’s water management legislation, the Water Sustainability Act, raises several issues with existing water policies in her analysis, including the practice of charging oil and gas companies “rental rates” for water that is effectively removed from the local watershed.

While other industrial users that pay rental fees for water are expected to treat their wastewater at significant costs and eventually return it to the environment, where it becomes available for other users, oil and gas companies are required to do neither, she said in her analysis.

“This use of water rentals for the oil and gas industry results in the hugely subsidized rate of $5.62 for every Olympic-sized swimming pool of water the oil and gas industry is permanently removing from the water cycle,” she wrote.

B.C. water, royalties, oil and gas, fracking
Industrial water users are generally required to treat wastewater before releasing it back into the environment, whereas the oil and gas industry permanently removes it from the local watershed. Photo: Garth Lenz / The Narwhal

A spokesperson for B.C.’s Ministry of Environment and Climate Change Strategy said water rentals are “charged based on the purpose of the water use and the volume of water authorized, regardless of whether the use of water is considered ‘consumptive’ or ‘non-consumptive.’ ”

A spokesperson for the BC Oil and Gas Commission added in a separate statement that while water is removed from the water cycle, water is also created when the gas produced is eventually burned to produce electricity or heat.

“It has been consistently shown that a greater amount of water is contributed to the water cycle through the combustion than is lost by disposal of water used for fracturing,” the spokesperson said.

When asked for a source or study for that statement, the commission referred The Narwhal to research published in the journal, Environmental Research Letters, which also found that fracking resulted in impacts on climate and weather by releasing water that was “more likely to be distributed and/or far removed from the site of fuel production, thereby not directly offsetting the water intensity of fuel production.”

A spokesperson for the commission said the study was provided for informational purposes and not to suggest that the water vapour released during combustion was desirable or a justification for lower fees for water use.

Greenhouse gases that cause climate change are also released when natural gas is combusted.

Meanwhile, the B.C. government allows for the wastewater from oil and gas operations to be injected deep underground through disposal wells, a practice Forsyth argues amounts to a “huge indirect subsidy” by removing requirements for costly water treatment imposed on other industrial users.

Forsyth also said she worries about the long-term implications of pumping polluted wastewater deep underground and whether there are risks of that chemical-laden liquid migrating over time, particularly given the incidence of earthquakes associated with fracking projects.

“What we’ve created is a toxic dump,” she said in an interview. 

In response, the BC Oil and Gas Commission said in a statement that “all applications for disposal of wastewater are reviewed by the Commission’s reservoir engineering staff and hydrogeology staff and only where it is verified that any disposed fluids will be contained and isolated in the disposal reservoir is an approval granted.” 

“There are regulatory requirements for operation and monitoring of disposal wells that are developed to protect shallow groundwater resources,” the statement said.

With regards to the millions of litres of water that oil and gas companies can withdraw for free, Forsyth wrote in her report that ministry staff had previously recommended it be restricted to water with a certain level of salinity and therefore not usable for consumption.

Fracking Farmington B.C.
A fracking pad in northeast B.C. near Farmington. Multiple gas wells can operate on one pad. Photo: Garth Lenz / The Narwhal

However, today there are no salinity requirements for these deep well exemptions, she said, and no requirements for the industry to monitor potential impacts of using these wells on other groundwater resources.

The spokesperson for the BC Oil and Gas Commission said that under the Water Sustainability Act, adopted in 2016, the water drawn from these deep wells is considered “deep groundwater.” 

“And, by this definition, is considered separated from freshwater aquifers by a thick layer of permeable cap rock,” the statement said.

Wastewater from the fracking process is also disposed of below this impermeable layer, it said.

The Narwhal did not receive a direct response from the provincial government as to why these deep wells are exempt from water licensing and environmental assessment processes.

Instead, the Ministry of Environment and Climate Change Strategy offered background information on the existing rules for deep water wells. The spokesperson noted, for instance, that section 53 of the Water Sustainability Regulations under the act gives a provincial water manager the authority to order a company to stop using deep groundwater, if there are “reasonable grounds” that the use of that groundwater is negatively affecting the rights of another water user. 

For the oil and gas industry, this power is held by the B.C. Oil and Gas Commission who, the ministry told The Narwhal, has never issued an order for a company “to stop diverting and using deep groundwater.” 

Climate change creates urgent need for review of B.C. water subsidies and policies

In the context of a changing climate, Parfitt said a review of water-use subsidies for the oil and gas industry is particularly pressing.

“Climate change is affecting water supplies everywhere,” he said.

Northeast B.C., the hub of natural gas production in the province, is expected to experience “increased stress to water systems,” according to a 2019 climate projections report for the region by the Fraser Basin Council.

“Lengthened periods of low flows may challenge the oil and gas sector, causing more frequent suspensions of short-term water licenses by the oil and gas commissions,” the report says.

While the industry may be affected by climate change, it’s also contributing to it through the emissions of greenhouse gases.

The Narwhal asked the Canadian Association of Petroleum Producers what the lobby group thought about the concerns raised by Forsyth, the Canadian Centre for Policy Alternatives and others regarding direct and indirect water subsidies.

Geoff Morrison, the lobby group’s B.C. manager, sent an emailed response that did not specifically address those concerns, but instead touted the importance of the industry. Morrison wrote in the statement that “natural gas is expected to be one of the fastest growing sources of energy globally for decades to come as countries look to reduce their reliance on coal. British Columbia produces some of the cleanest and lowest emission natural gas on the planet.”

“The natural gas industry will work in earnest with the provincial government to enhance the competitiveness of our industry while protecting the value our resources deliver to British Columbians,” he said.

As part of its royalty review, the government says in its discussion paper that it is aiming to minimize the “environmental impacts of the sector while achieving a fair return on the public resource and encouraging economic development.”

The province’s new royalty regime is expected to be announced in February.

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