Finance Committee on Oct. 17th, 2012

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you.

On behalf of our critic for finance, I also have some questions for Ms. Milner.

I'm from British Columbia. My understanding is that one of the biggest trucking firms in B.C. is in the process of converting to natural gas. It's a huge potential future job creator for people in British Columbia.

In terms of the policies and measures in the Province of British Columbia, what are the keys that are leading to interest in investment there and that we could learn from in other parts of the country? Secondly, do you see this as a transition strategy to an even lower carbon future? If so, what is the life cycle of this transition?

[Alicia Milner]

Thank you for your question.

In terms of British Columbia, I think you're referring to Vedder Transport, which has a very large project out of Abbotsford. In terms of the driver for that project in regard to that particular fleet, they're the largest hauler of raw milk in Canada, and they knew if they could offer their customers a greener service that could mean more business. In fact, they have already won a new contract because of it.

That said, as an early adopter, they were fortunate that they were able to get incentive funding from the local utility to help strip out some of that front-end risk of purchasing the trucks. That was a big driver for them, but certainly the policies of the Province of British Columbia related to GHG reductions are also very important. They're looking to the future in wanting to be well positioned so they're not penalized in terms of their environmental impact in operating in B.C. There's definitely a lot of leadership there.

As to how we see this transition, we're often asked why we would even look at one fossil fuel when we're already married to another one, which, for 99% of heavy vehicles, is crude oil. Well, the answer to that is that not only is this a lower-carbon fossil fuel that can help in the transition by up to about 25%, but there is renewable natural gas, which is natural gas that's produced from waste sources. We see, for instance, that FortisBC in British Columbia now offers this to their customers: they can have a renewable blend. That renewable natural gas is a near-zero-emission fuel.

In terms of the timeframe, it's really at the beginning in North America. There have been a few announcements. The reality is that we're probably looking at a 10- to 15-year transition, but the beauty of going down this path with natural gas is that when the renewable is available, it can just be blended in or in fact totally displaced.... It totally complements without any further change or investment.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

This may be a technical question that doesn't relate to the transportation and natural gas industry, but I understand that there are technologies now that can convert coal seams in situ to gas that is scalable and that there are also technologies for converting crude oil into gas.

Do those technologies have the potential to produce far more natural gas product that can drive the price down even further through its use as a transportation fuel source?

[Alicia Milner]

I can't speak to the specific technologies, because we do have a focus on the downstream, on the use, but certainly we know that continentally we're now looking at more than a century of supply of natural gas because of some of those kinds of technological changes. I'm not sure, though, about the specific ones you mentioned.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Thank you.

[The Chair, Conservative, James Rajotte]

Ms. Murray, if you like, you have one minute left in your round.

[Joyce Murray, Liberal, Vancouver Quadra, BC]

Has your industry association put together something like a five-point plan that you're proposing for a federal initiative around this? I think it's clear that if one province is doing this, it's fine if they're delivering milk from the local producers and serving an urban area, but what's really needed is that these vehicles can refuel and can serve customers right across the country....

[Alicia Milner]

Yes, we do have a plan. To contrast it with what we've seen with Vedder, that's a single project, and they have a private station. The reality is that most fleets in Canada won't be able to do that. They have a challenge in getting access to the fuel. In that regard, our plan focuses on federal investment to help the end-user buy the technology and industry investment to build out infrastructure. That was the 1:5 ratio I mentioned earlier.

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Mr. Adler, please.

[Mark Adler, Conservative, York Centre, ON]

Thank you, Chair.

Thanks to all of you for being here today.

I want to start my questioning with Ms. Milner. I think what you're presenting here is really fascinating. I want to get a framework to all of this. In terms of costs, is the price of liquid natural gas now roughly $3 per million BTUs?

[Alicia Milner]

For the commodity itself, yes, it is.

[Mark Adler, Conservative, York Centre, ON]

Okay.

We have an overabundance of liquid natural gas now, not only in Canada but in the U.S. and pretty much around the world. Because there's such a huge supply, we're seeing a very low price. Is that correct? It's roughly 20% lower than what we see in Asia, for example.

[Alicia Milner]

Yes, natural gas has historically traded at a discount to oil, but it used to be that they would track, and now the analysts think that because of this supply change in North America, it has uncoupled. That's why we're starting to hear major vehicle manufacturers like Caterpillar, for instance, saying that they see this as the future, and they're investing to bring natural gas products for mine haul trucks, off-road trucks, and so on.

It's not there yet for the really heavy equipment, but we're hearing these kinds of announcements because they're looking at that supply outlook and are really repositioning strategy-wise.

[Mark Adler, Conservative, York Centre, ON]

Okay.

The U.S. exports liquid natural gas. Do we here in Canada?

[Alicia Milner]

No, we do not.

[Mark Adler, Conservative, York Centre, ON]

We don't have the facilities to do so, right? The Americans have—

[Alicia Milner]

That's right. We only have an import facility in Saint John, New Brunswick, which is pretty much idle.

[Mark Adler, Conservative, York Centre, ON]

The Americans have just one also, right?

[Alicia Milner]

I'm not certain.

[Mark Adler, Conservative, York Centre, ON]

Okay.

The manufacturers would like a deflated price. Is it a possibility that we could begin exporting natural gas at some point in the future?

[Alicia Milner]

British Columbia hopes so, yes.

[Mark Adler, Conservative, York Centre, ON]

Okay, so the price could go up. Is it not a problem, then, for us to be investing in a liquid natural gas infrastructure and getting everyone on board if in the future that price could go up, which would lead to higher costs for the manufacturing sector? Is there not a conflict? Are the lines crossing between the ones who want to export liquid natural gas, those manufacturers that would depend on cheap natural gas, and those that are building the infrastructure for cheap natural gas?

[Alicia Milner]

It's a good question, because obviously these are commodities that are subject to market factors, right? That said, across North America, a lot of the drilling rigs are being laid down because they can't get enough money for their product. They would love to have that dilemma of growing demand, whether it's offshore or continentally.

I think the other thing is that we have to go back to that point I made about the differential. At the end of the day, for natural gas to succeed, provided there's a differential with oil, that will be sufficient to move it forward. We think that with this uncoupling, we have this continental resource for 100-plus years up against oil, which is a global commodity, is very volatile, and certainly has its whole share of risks.

Nobody can predict the future, but that said, with this sort of resource base.... Also, the other thing that we in Canada have to remember is that while we have more of this stuff, so do the Americans. Our exports are declining precipitously. By 2035, the National Energy Board thinks that exports to the U.S. will be down by about 60%. We export half our gas right now, so we have a challenge with markets for this resource.

[Mark Adler, Conservative, York Centre, ON]

Okay.

On hydraulic fracturing, the environmentalists are against it, as you know. Is it a problem here in Canada? I know that it is in the U.S., where it's causing some issues for President Obama in terms of his base. Is it an issue here in Canada?

[Alicia Milner]

The Americans are probably about eight or nine years ahead of Canada in using that technique to extract gas. In Canada, of course, we've certainly heard about it in different jurisdictions. It has been challenging, because this resource is underground in areas that have never had mining or extraction activities, so there has been a lot of unevenness. We need to catch up.

You can look to Alberta. There, the Energy Resources Conservation Board will tell you that this technique has been used for about six decades, and safely, without contaminating or any issues. That said, though, obviously there's a lot of public education to be done, and industry really has to get on that.