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A Talisman Energy worker walks from a shale gas drillng rig, on March 25, 2009 in Saint-Edouard-de-Lotbiniere Que. Commission says risks involved in St. Lawrence Lowlands gas production outweigh benefits, urges industry restore public trust.Jacques Boissinot/The Canadian Press

Quebec's environmental bureau has dealt a setback to companies that want to use hydraulic fracturing techniques to develop the province's promising shale gas deposits, saying it appears the economic benefits would not outweigh the environmental costs.

The advisory office of environmental hearings (or BAPE, as it is known in French) reviewed plans to develop the Utica shale formation, which proponents say could yield an important source of fuel for the Quebec economy and export markets. Its conclusions, delivered Monday, amount to a flashing yellow light for industry and the government of Liberal Premier Philippe Couillard.

The commission found that exploration and production of shale gas in the St. Lawrence Lowlands "would not be advantageous for Quebec because of the magnitude of the potential costs and externalities, compared to royalties that would be collected by Quebec," BAPE said in a release. "Other concerns also remain, including plans of social acceptability, legislation and a lack of of knowledge, particularly with respect to water resources."

It added that industry and government must work to restore public trust in order to gain widespread acceptance of the controversial practice known as fracking, which blasts chemically laced water under high pressure to split the hydrocarbon-bearing rock in order to extract natural gas or oil. Opponents worry about aquifer contamination from poorly constructed oil and gas wells, pollution of lakes and rivers from toxic waste water and even industrial truck traffic in rural communities.

Fracking has essentially been banned in places such as New York State and Nova Scotia, but has yielded massive new gas and oil supplies in Pennsylvania, Ohio and in the western states and provinces. Quebec is conducting a review of the entire oil and gas sector in the province, with a view to tabling hydrocarbon legislation by the end of next year.

An aide to Quebec environment minister David Hurtle said the conclusions of the report raise many serious questions, adding the document will help inform the strategic environmental assessment on hydrocarbons currently being undertaken by the government.

"We're conscious of the concern and preoccupation the population has toward the exploitation of shale gas," the aide said in an emailed statement. "The minister will take the time to analyze the BAPE's opinions with attention and rigour."

The province also insists that it is essential to have secure supplies of natural gas – in part to combat climate change. It has raised concerns about the proposed Energy East pipeline, saying it would leave Quebeckers short of gas because TransCanada Corp. would take some natural gas pipeline capacity out of commission and use it to ship oil.

Several exploration companies have acreage in Quebec but have been unable to drill in order to determine whether gas from the Utica field can be profitably extracted. With today's low North American prices, the firms face a high commercial hurdle, given there is no drilling infrastructure in the province.

"We agree with [BAPE's] point that social acceptance [for fracking] is not there and that public confidence must be built," said Michael Binnion, chief executive at Calgary-based Questerre Energy Corp. "And we agree that we need a new hydrocarbon law."

He said industry has to work with government to reassure the public that the industry will be properly regulated. However, he said the environmental bureau is not the best judge of economic benefits that would accrue to the province.

"Quebec is sitting on one of the biggest gas discoveries in North America, and it is close to the biggest markets," he said. "This could be a significant benefit for the province."

However, one expert said the industry faces an uphill battle. "It's a question of social acceptance. That's the only problem in fact," said Germain Belzile, a full-time lecturer at Montreal's HEC business school. "And I don't think it's achievable in the foreseeable future."

With files from reporter Nicolas Van Praet in Montreal

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