Natural Resources Committee on Nov. 29th, 2012

[Thomas Gradek]

No.

I could demonstrate to you. In the graphic I am showing you, on the right side is the tailings water subjected to five minutes of our process. What's on the left side is a control, which is after 24 hours. In order to get this fine result after five minutes and be able to send back over 75% of the water completely clean—it's cleaner than the Athabaska River water—

[An hon. member]

It's not as clear as tap water.

[Thomas Gradek]

Well, it's very clean. We have it down to drinkable water levels.

This is not what they're looking for; they are thinking, “Give me water that's suitable to go ahead and increase my production. If you can give me warm water, all the better.”

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Gradek and Mr. McKay.

We go now, starting the five-minute round, to Mr. Trost.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

One thing I find curious—and I hope I didn't misunderstand anyone here—is that we frequently hear from people in my office, etc, who say they have a great money-making idea “if only the government would give me money”.

You have to understand that from an MP's perspective, if it's such a great money-making idea, why do you need someone to give you money? I'm not necessarily implying that you gentlemen were going in that direction, but if these ideas are commercially very viable, with great margins, etc., does the government need to give projects money for those sorts of things through subsidies, backdoor tax credits, etc.?

This is to both of you gentlemen.

[The Chair, Conservative, Leon Benoit]

Mr. Nelson, start it.

[Scott Nelson]

Okay.

It's a very good question. I get the same reaction: “Scott, if it makes money, why does government need to become involved?” It's because it's new, because there's risk. Everyone is a stakeholder and everyone is going to benefit, so they should have some skin in the game.

We've suggested fiscal regimes are needed—perhaps some royalty holidays for periods of time until these things are built and making money—but not massive amounts of taxpayers' subsidies or anything like that, just the normal things that are done throughout the world. In Australia, if you're bringing on a new project, you're going to have a period of time to make your investment and recover your costs before you start paying royalties, and in some cases taxes.

That puts skin in the game by the government. That's really all we're looking for.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So for you, it's about risk management.

Mr. Gradek, your response to my question...?

[Thomas Gradek]

There's an article in The Globe and Mail today by the retiring president of Total that makes a very good statement concerning the oil patch's philosophy on new technologies. His comments are extremely good.

Second, what we're looking for from the government side is.... There is policy in place—and I've raised it in regard to CRCE,—whereby the metrics of evaluating the benefits of the policy, or a process that has been put in place, lag behind the times. CRCE was put into regulation in 1984; the metrics for evaluating innovative technologies that would be complying to conserve and recover waste heat are based on 1984 designs. If I can decontaminate a water stream and conserve 90% or 85% of the waste heat rather than put it through a heat exchanger and lose 50% of that heat, I have a much more efficient process, yet it's not recognized.

Therefore, metrics must be further in tune with new technologies being developed today.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Let me then ask my second question. It is somewhat similar in direction to where Mr. McKay was going.

Back when the natural resources committee was part of the industry committee in the 2004 Parliament, we heard a lot of about Canadians being pretty good with the initial technology and with the tail end, but in between, in that connection piece to get from the genius in the basement to the company out there, we tend to be a little weak.

Could you gentlemen very quickly give me the stages you have to go through to get from “Hey, we have an idea”—in the basement, on the napkin—to the end? Where do the blockages tend to be in the Canadian system? Is it that we don't have enough, for example, venture capitalists in this country? Is it that we aren't collaborative enough with our scientists?

Just give me a quick history, start to finish, saying where the blockages tend to be in Canada.

[The Chair, Conservative, Leon Benoit]

Mr. Gradek, would you start this time?

[Thomas Gradek]

We've been at this technology development for 20 years. It's a very disruptive and innovative technology, and so you won't have any industry stakeholders look at it and embrace it with open arms. They'll come to you and say, “Show me that it works; prove it.” They'll try to look at it from every standpoint whereby it might impact upon their efficiency or upon their bottom line in a negative way.

Among the programs available for research and development, the government is taking a stand whereby it has made some changes and cut down on what expenditures are eligible to be reimbursed through the SR and ED programs. That stance is going to have a marked effect on new technologies being developed and brought forward. There's a lot of—

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Can you walk me through your process very quickly, start to finish, showing where the—

[Thomas Gradek]

Do you mean the process, or the development stages over the last 20 years?

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Just make it quick, because we have to split about a minute and a half here.

[Thomas Gradek]

Well, we've had to come up and understand exactly what we're dealing with. You have to analyze what are tailings, what's involved, and from there how you approach it. You have to look at it from the standpoint of a life-cycle analysis in terms of thermodynamics and energy recovery, with the smallest carbon footprint possible, and take that into effect.

There are many iterations that have to come into play. You're looking at possibly designing new equipment that is not on the shelf, so you have a lot of engineering costs. You have to look at academia. You have to look at bringing in specialized engineering firms. You have to bring industry in as a partner, and such research institutions as NSERC and the National Research Council.

It has to be a collaborative effort. You can be the visionary; you can go ahead and be the orchestra leader. As long as you are able to provide the details and direction for that vision, you may end up with a possible solution. From there, you have to have partners who will come with you who bring expertise for scaling up.

[The Chair, Conservative, Leon Benoit]

Okay, Mr. Gradek.

Thank you, Mr. Trost.

Unfortunately, Mr. Nelson, you don't have time to answer this now. Maybe somebody will steer things back to you, but I can't prejudge.

Mr. Calkins, you have up to five minutes.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

I can't imagine how we would get directed back to Mr. Nelson other than by my asking him whether he'd like to answer Mr. Trost's question.

[Scott Nelson]

Yes. Thank you very much, and I'll do it quickly.

In our case, it was putting together a team of people with the right backgrounds and expertise to tackle the oil sands industry. We attracted those people from, in our case, Syncrude Research and organizations such as that, folks who had a vision that more could be done in these areas.

I had to get the money together; that's important. It's the same with the minerals; we had to hire minerals experts, who generally aren't in Canada. Then you align yourself with the best organizations you can find. We established our first research centre in Regina, Saskatchewan, at the Saskatchewan Research Council. We've now moved to Alberta, to CANMET.

So it's a question of getting the right partners together, which is a lot of what Tom was saying. In our case, it was people such as SGS: we did a tremendous amount of work here in Ontario at Lakefield Research, of all places, on the oil sands, and had some breakthroughs there. We went down to Chicago and worked with the Gas Technology Institute on solvent recovery.

You need to be flexible, and you're not going to solve these things on your own; you're going to pull together the talent that we have in Canada and certainly throughout North America to solve these problems. That's the challenge through that visionary R and D stage—lab scale to small pilots.

Then once you have solutions—and in our case we applied for patents and headed into that process—you're going to have to do a demonstration. For that you're going to need a lot of money, so you're going to have to convince investors that something is getting closer here—we went through about three years of demonstrations— and you have to get the oil sands people onside to provide you with tailings, to review results. That's where we brought in SDTC, on the federal government side; it is very helpful in getting you through that pre-commercial stage.

I would agree with you that Canadians are very good at doing all those things. What we're not good at, as a country and perhaps as an industry, is commercializing things. As compared with the U.S., Germany, Scandinavia, and so on, we're a little bit on the conservative side from a business point of view. We have all the skills and all the resources; we just have to finish them off. The whole business of the U.S. companies we dealt with is around commercial applications.

That's the challenge we're in now, and there we're not as competitive. It's maddening, to be honest, but we're not giving up. Don't run out of money, and don't run out of tenacity to get these through to the finish line.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Given the obvious, from the discussions that I've had at committee and other places....

I've been on the environment committee and I met Mr. Gradek before several years ago. You're still in the same place you were a couple of years ago, it seems to me, but these things do evolve over time. Sometimes they take a long time. The oil sands are only 40 years old, and it's amazing to see how far we've come already, which is going to segue to my question to Edmonton for Mr. Lakeman.

Can you give us an indication right now of what's in the hopper? We have not just the surface mining components as far as research and development go, but if you look at the developments in SAGD and toe-to-heel air injection, how many different projects do you have? You outlined the staff. You outlined your large budget. How many more projects are you working on right now, and what can we expect in the next medium to long term insofar as research breakthroughs, so that we can take the next step and go to the applied routes and get these technologies commercialized and in the field?

[The Chair, Conservative, Leon Benoit]

Mr. Lakeman, you have about a minute and a half to do all that.

Go ahead, please.

[Brent Lakeman]

Sure.

I can't speak that effectively to the production technologies. That's not part of my group at Alberta Innovates, but we do have major consortia that involve pretty well every major oil sands producer looking at new production technologies.

There's the AACI consortium, and I believe there are approximately 20 members from both Canadian companies and companies from around the world, so we're always investigating new technologies for SAGD, primarily, and how to unlock further resources. That consortium is a great way to do that preliminary investigation around technologies and get them to the point where some of the companies will decide to pursue those through their own further research and demonstration projects, either with our scientists or with other organizations in Canada or from around the world.

There is clearly lots of interest working with groups like COSIA and the former OSLI organization, which is focused on technology breakthroughs and provides new mechanisms to disseminate those technologies to either individual companies or groups of companies that would like to pursue them through joint projects. It continues to receive a lot of interest. Certainly there is a recognition that improvements in production can also result in significant improvements in environmental impacts, such as looking at solvent technologies for production, which recent reports have shown may be the place where the greatest improvements can actually occur from the CO₂ perspective.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Calkins.

We go now to Mr. Nicholls.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chair.

Thank you to the witnesses for appearing.

Mr. Trost asked a question: if a business is profitable, why does it need a subsidy? I think it's a valid question.

We see that the federal government has given $500 million in subsidies that have gone to CCS technologies, $1.3 billion in oil industry subsidies. I could redirect the question to Mr. Trost. If these businesses are profitable, why do they need subsidies?

Following that, in the 2011 joint report of the IEA, OPEC, OECD, and World Bank on fossil fuel and energy subsidies, there was a recommendation made to Canada to rationalize and phase out over the medium term inefficient fossil fuel subsidies that encourage wasteful consumption.

As you said, there can be signals given to industry. Subsidies can act as signals.

I would ask Mr. Gradek and Mr. Nelson this: you mentioned before that the oil sands seemed to be focused solely on increasing production, so what does a no-strings-attached $1.3 billion subsidy to the oil industry give as a signal from the federal government to the oil sands? Do you think it tells them without the environmental piece in place, “Go ahead, increase production, increase growth. We're going to let you go ahead and do what you want”, and we lose that value-added piece that you too could add to that industry?

[Scott Nelson]

I can't speak to $1.3 billion. I would just love to have a small piece of that, quite frankly.

Some of those things are not economic. Carbon capture and storage is a vision that is going to take decades. No one yet knows how it's going to make money. That's a whole different situation. Canada is a leader, but a leader in something that is going to take a long time and be extremely expensive. This is the tip of the iceberg on what it is going to cost. That's my understanding of it.

In terms of these other things, industries do need signals—from regulators, government, the other stakeholders, and the public—that these things are important. By and large, having spent my whole life in the oil industry—although I was with IBM before I took on this project—I think industry will do the right thing, but there is a role in public policy to send those signals. If they are not happening, then regulation is the ultimate answer.

We obviously don't like to go there unless we have to. It's more of a sharing; everyone is going to get something here. Hundreds of millions of dollars of taxes and so on will come back. A lot of jobs will be created, and so on. It's fair for all stakeholders to put some skin in the game, so it's up to all stakeholders—our company, the industry, and the government—to sit down and say, “Okay, we want this to happen”, just as they did with the petrochemical industry created in Alberta years and years ago. For whatever reason, normal commerce does not necessarily make them happen.