Evidence of meeting #23 for Natural Resources in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was oil.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

  • John Quinn  General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.
  • Michael Ervin  Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group
  • Keith Newman  Director of Research, Communications, Energy and Paperworkers Union of Canada
  • Joseph Gargiso  Administrative Vice-President, Quebec, Communications, Energy and Paperworkers Union of Canada

9:30 a.m.

Administrative Vice-President, Quebec, Communications, Energy and Paperworkers Union of Canada

Joseph Gargiso

I think what we don't have right now as a country is a national energy strategy. There is an absence. What I mean by that is that it's as if the left hand doesn't know what the right hand is doing.

If all of a sudden we became number two in the world, after Saudi Arabia, with proven reserves, and became an oil powerhouse, how would we use that status to maximize economic benefits? The larger question, and I'm not talking just about this plant making a profit, is how, as a country, we maximize.

If I have an undisputed study that says that if I take raw bitumen and don't upgrade it.... I'm not talking about already refined products. I'm talking about not even separating the sand from the bitumen, which is the first upgrading. If I export 400,000 barrels of oil a day, that's 18,000 jobs. These are not trickle-down jobs. They are direct, well-paid jobs. We're talking about jobs that pay $40,000, $50,000, and $60,000. People who earn that pay taxes and spend money and so on and so forth. What am I doing? The raw bitumen is destined for the refinery capacity that was built on the gulf coast of the United States, which we want to feed. That's where it's going.

So what are we doing? We have a resource, and we're going to create the jobs elsewhere. I'm not saying that we're not going to make any money by selling this natural resource, the raw bitumen. I agree, but we're not maximizing.

When it comes to refining capacity, be careful. If we're not careful, if we don't do the right thing, we're going to close some of the refineries that we have presently.

9:30 a.m.

Conservative

The Chair Leon Benoit

Thank you very much.

Thank you, Mr. Trost.

We'll go now to Mr. Stewart, for up to seven minutes. Go ahead, please.

February 2nd, 2012 / 9:30 a.m.

NDP

Kennedy Stewart Burnaby—Douglas, BC

Thank you, Mr. Chair.

Welcome to the witnesses, and thank you very much. It's been very illuminating testimony over the last two sessions, and I look forward to the next two.

The NDP introduced the motion to study refineries and pipelines for three reasons. First, we're really concerned about the decline of Canadian-based refining. Second, there is much talk about pipelines, and we're interested in getting to the bottom of the benefits and risks associated with pipelines, especially new pipelines. And probably most important, the Minister of Natural Resources promised that he would produce an energy strategy for Canada. He talked about this last June, but it hasn't yet materialized.

The NDP is using the information you're providing to us over these days in our own research. We have a large team working on our own energy strategy, which we'll be presenting later this year. We'll be focusing on domestic oil security, export markets, our climate change response, and, perhaps most important, how to move to greener energy sources.

I will just move to a first question about refining. Statistics presented at our last session show that since 1980, the number of refineries operating in Canada has dropped from 39 to 15. That's about a 60% decrease. At the same time, our refining capacity over the same period has declined from about 2.2 million barrels a day to about 1.9 million barrels a day. That's a decline of about 15% over that period. To us the outlook for domestic refining capacity seems pretty bleak.

To all three of our guests today, what would be your outlook for the oil refining industry in Canada over the long term?

9:35 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

I'll take a crack at that first.

9:35 a.m.

Conservative

The Chair Leon Benoit

Go ahead, Mr. Ervin.

9:35 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

As per my comments, I think the outlook is generally towards the continued decline of capacity as a result of what is inevitably going to be a declining gasoline demand. Given that gasoline constitutes about 40% of production of all petroleum products, that is going to be weighting the overall decline.

Diesel demand could very well increase in North America, but again, that does not constitute the majority of the barrel at refineries. Diesel is also going to be made, and is being made, by upgraders. That's going to take, again, some of the demand off the refineries for making diesel.

The outlook really is for lower demand, not just in Canada, but in North America. Given that, BRIC countries will be building capacity—probably ahead of their expected demand—in order that as demand continues to grow with those growing economies, the refinery capacity will already be in place.

Over the next decade in particular, therefore, I would see a glut of capacity brought about by that very factor, in addition to those factors I have mentioned.

9:35 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Let me just talk about Suncor's experience here. Previous to that, of course, we merged with Petro-Canada a few years back and with what the Petro-Canada experience was.

The Oakville closure was brought up. That was a refinery in Oakville, Ontario. It came down in 2005. That was a very tough decision. I've been involved over the years in several of those refinery closures, which started as the industry began to rationalize back in the eighties. They are not happy decisions. We looked at Oakville every imaginable way to see how we could save that plant, but the problem is we're not immune to the economies of scale in the world. It was a small plant, and it was facing a massive investment in order to reduce sulphur in gasoline and in diesel specifically.

It just got to the point that the plant simply couldn't sustain the level of investment that was needed. We chose instead to expand Montreal, and we did expand Montreal. We didn't expand it so it had the same production capacity for light oil that Oakville had, but it was pretty close. We replaced all of the production capacity for diesel and about half for gasoline that Oakville had had.

The reason we didn't go all the way on the gasoline replacement was that, given the configuration of the Montreal plant, the cost of taking that extra increment on gasoline production capacity would have meant another major step change in the investment we needed to make there.

We were also concerned, even back in 2003 and 2004 when we were looking at this, about the long-term decline in gasoline demand in North America, which has been predicted for a long time now. We thought we would be better to import a small amount of our supply into eastern Canada, rather than building the capacity and finding out that we couldn't take advantage of it over the long haul.

That strategy has actually worked out very well for us, and we feel that's one of the reasons Montreal continues to be well positioned to face the future. Diesel supply is probably okay. Diesel demand is not bad. We're well positioned to absorb reduction in gasoline demand, and if we could—and I'll come back to support—with a line 9 reversal.... There's no guarantee western crudes will stay less expensive, necessarily, but that option sure gives us flexibility. The more places we can source crude from, the more viable plants are.

It may be a long way around.

The other piece is that I don't want to ignore—because we don't shorten our refining stats—the upgrader capability of producing diesel, which is where the growth will be, if anywhere, in Canada.

9:40 a.m.

NDP

Kennedy Stewart Burnaby—Douglas, BC

Following on that, we've heard that as we pipe the high-end products like jet fuel and gasoline, the longer the pipeline is, the more you might get some kind of contamination.

If you're looking at diesel, though, do you have the same kind of contamination problems with diesel as you do with...?

9:40 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

We sure do.

In fact, diesel is probably the one we're most concerned about, because it has a tolerance of only 15 parts per million of sulphur delivered into the customer's tank.

We actually produce diesel at our sites with probably around five parts per million of sulphur. We inject in the lines. We have our own internal specifications to inject into pipelines at eight, and it does tend to pick up sulphur because it's batched with other products in the line, with different levels of sulphur in each of those various products. We protect the diesel even more closely than all the products. Part of the challenge in moving around refined products versus crude is the requirement to maintain product specifications at the end where we deliver it into our terminals and where we ultimately deliver it to the customer.

There is a lot more handling required and a lot more care around product movement and pipelines than there needs to be. Forget safety and reliability; those are important whether it's crude or products, but product specification on refined goods is much tougher to deal with.

9:40 a.m.

Conservative

The Chair Leon Benoit

Thank you very much, Mr. Stewart.

We go to Mr. McGuinty, who has up to seven minutes.

9:40 a.m.

Liberal

David McGuinty Ottawa South, ON

Thank you, sir, and good morning, gentlemen.

I want to pick up on a couple of things and ask Mr. Ervin to begin to respond.

Our guests from the union here today testified that the two pipelines being contemplated are wrong-headed because it places us in a dependency position on the U.S., that we shouldn't be exporting our energy without securing our own energy security first, and that the NAFTA proportionality test should be revisited.

Can you take a second to comment on that? Do you agree?

9:40 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

I'll talk about the consequences of not building the Keystone XL pipeline or the Northern Gateway pipeline.

That would really close in production of Canada's oil sands to a significant degree. The line 9 reversal would by no means be sufficient to continue the progression of Canada's oil sands production. That's the first fundamental concern, if you will, or consequence of not proceeding with those first two pipelines.

Vis-à-vis energy security, I don't think there's as much of a concern there from a Canadian perspective as some might imagine. There certainly are a lot of safeguards already in place in a North American context. Should a worst-case scenario occur, the United States, for example, has a huge strategic reserve of crude oil that would keep that country going for quite some time—not weeks but months. Again, in a North American context and given the NAFTA provisions, we have a degree of security by that means alone.

I simply cannot imagine a scenario where the east coast could not receive supplies of crude oil from some source, given their proliferation of upstream capacity in non-OPEC countries, for example, non-Mideastern countries, right around the globe.

9:40 a.m.

Liberal

David McGuinty Ottawa South, ON

Mr. Gargiso raised the important question that we've all been kicking around here, which is this question of where we are going as a country with respect to energy.

Mr. Quinn, your company is a very large company. You're involved with refining and marketing, but your company is also involved in renewables. Has your CEO, your board, or your company spoken publicly about the need for a more coherent examination of where Canada is going on the energy front?

9:40 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Yes. In fact, our current CEO, Rick George—who, as most people are aware, is stepping down in May, but he is still our CEO—has been quite vocal on the subject and very supportive of a national energy strategy.

I think what he would say is that it needs to go beyond energy production. We need to look at how we move ourselves around in this country. We need to look at how we build our cities and how we build our homes. We need to work on conservation ethics. We have what we call our sustainability triple bottom line: we have to worry about the economic well-being of our business and our broader economy; we have to worry about the environment; and we have to make sure that the social well-being of the country is considered in everything we do in our business. Rick's been quite vocal on that. He thinks we need to take a 10-, 20-, or 50-year view of where we're going on energy in this country, and we need to do it broadly—we can't just deal with one sector at a time.

So he's been very supportive—

9:45 a.m.

Liberal

David McGuinty Ottawa South, ON

This is a quick study on the current and future states of oil and gas pipelines and refining capacity, but when you say “broadly”, is your company, your board, or your CEO saying that we have to connect things that remain unconnected?

For example, what is the future of nuclear power in Canada? What is the future of geothermal in Canada? What is the future of biofuels in Canada? What is the future of energy conservation and renewables in Canada? What choices are we making as a nation-state, as a federal government? How are we partnering with provinces to give rise to different forms of energy?

Is that what he's talking about?