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Local residents demonstrate in Saint-Hyacinthe on September 28, 2010 before a public meeting called by the shale gas industry.CLEMENT SABOURIN/AFP / Getty Images

Canada's fledgling shale gas industry faces a growing clamour for tighter regulations and greater protection of local water sources amid fears that aggressive drilling techniques carry a heavy environmental cost.

The enormous potential of shale gas resources is considered a "game changer" in the North American energy landscape, promising large supplies of relatively low-cost fuel for decades. But the industry is encountering stiff opposition in Quebec, New York state and other jurisdictions where residents and environmentalists worry that drilling techniques using chemical-laced water, a process known as fracking, pose a threat to drinking water and wildlife.

As Quebec holds raucous and divisive hearings over the future of its promising shale industry, a new study to be published Thursday by the University of Toronto argues that Canadian regulators are wholly unprepared for the shale gas boom that is sweeping North America.

"To date, Canada has not developed adequate regulations or public policy to address the scale or cumulative impact of hydraulic fracking on water resources," says the report by Ben Parfitt, a Victoria-based researcher whose work was commissioned by the water program at the University of Toronto's Munk School of Global Affairs.

Mr. Parfitt said the federal government is virtually absent from the discussion, while provinces issue oil companies with individual water-use permits despite having little understanding of the cumulative impacts of increasing drilling activity, no public reporting on the chemicals or amount of industrial water withdrawals and no systematic mapping of the country's aquifers.

Without a more robust regulatory approach, "rapid shale gas development could potentially threaten important water resources, if not fracture the country's water security," Mr. Parfitt wrote in the study, which will be formally released Thursday at a day-long Munk School conference.

The international oil industry is investing heavily in North America shale plays. Just last weekend, Calgary-based Talisman Energy Inc. announced it is teaming up with Norway's Statoil ASA for a $1.3-billion (U.S.) acquisition of properties in Texas' Eagle Ford shale. As well, China National Offshore Oil Company (CNOOC) said it is investing $1-billion for a one-third stake in Chesapeake Energy Corp.'s Eagle Ford play.

In Canada, companies like Talisman, Encana Corp., and U.S-based Apache Corp. are planning massive investment in northeastern B.C. and western Alberta, notably in the prolific Horn River and Montney plays. Companies are also eager to develop Quebec's Utica shale zone and in New Brunswick. As well, the industry is applying the drilling and hydraulic fracturing techniques to other oil and unconventional gas fields in Alberta and Saskatchewan - using high-pressured, chemically-treated water to break open tight formations and release the trapped hydrocarbons.

The industry acknowledges that massive expansion of shale development through hydraulic fracturing could threaten water supplies if not properly done, but insist that provincial regulators and the companies themselves are prepared to meet the challenge through water recycling, and tapping salt-water aquifers.

In northeastern B.C., "there is a realization the full-blown development in some of these shale regions is going to tax the water availability if we go forward with a traditional, business-as-usual approach to how water is used," said Kevin Heffernan, vice-president of Calgary-based Canadian Society for Unconventional Gas, a industry-backed association.

"And certainly the industry is very, very aware that shale-gas development is water intensive and is working hard to find approaches that are going to make sense for the long term," Mr. Heffernan said in an interview.

But Mr. Parfitt suggests the industry - with the blessing of the B.C. regulator - is forging ahead with development plans in British Columbia and elsewhere while key questions remain unanswered.

While the industry claims there is no evidence that hydraulic fracturing has contaminated aquifers, the researcher cited a number of cases in the United States where ground water was tainted during nearby drilling activity. And there is no requirement in Canada for companies to disclose what chemicals they use in fracturing - as there is in several states.

As well, there has been no assessment in B.C. - or other provinces - of how the industry will be able to dispose of massive amounts of waste water that is produced during the drilling, a key concern regarding possible surface water contamination.

"The pace of the shale gas revolution demands greater scrutiny before more fracture lines appear across the country," he said.