Natural Resources Committee on April 18th, 2013

[Joan Crockatt, Conservative, Calgary Centre, AB]

Are we going to get cheaper gas if we build a pipeline to New Brunswick, do you think? Or no?

It's fine if it's “no”, but—

[Jeff Labonté]

We can't answer the question and say, “Yes, there will be cheaper gas.” That's not an answer I can give you. I can tell you that there's a likelihood of less volatility in pricing. In eastern Canada you typically see regulated markets for pricing of gasoline in which the price of gasoline changes on a little more of a weekly scale than a daily scale. Different provinces have different abilities and approaches to changing and regulating gasoline prices.

We would say that it would offer some stability and an opportunity to preserve...but it's too difficult to predict that it would or wouldn't lead to lower gas prices. It's a competitive marketplace. The crude can be sold....

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Ms. Crockatt.

We'll go now to Mr. Julian for up to seven minutes.

Go ahead, please.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thanks very much, Mr. Chair.

Thanks to our witnesses.

To start, I have a couple of questions to expand on in your presentation. You were talking about $120 billion in exports. How does that break down?

[Jeff Labonté]

How does it break down? Sorry, by...?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Yes, by product, and whether we're talking about raw versus value-added.

[Jeff Labonté]

If you can hang on a second, I'll just reference.... We are probably going to have to get back to you on the specific details of how it breaks down by gas product versus crude oil versus all the elements, but a fairly hefty portion of it is crude oil exports, it being the largest commodity of the energy that is exported.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

It would be helpful to have those figures and also the destinations. Anecdotally we know that it's primarily the American market, but there are smaller amounts of exports that do go to other markets. So it would be helpful to have both of those figures.

[Jeff Labonté]

Sure. It is 99% of crude that goes to the United States, 100% of natural gas, and 100% of electricity. So 1% of our crude oil is exported to countries other than the United States.

The petroleum products go predominantly to the United States as well.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

But you'll be able to provide us with more of the details and the actual dollar value?

[Jeff Labonté]

We will absolutely do so.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

You may not have this either, but I wanted to ask you about it. You have the projections in terms of oil sands production by 2035. Do you also have the projections in terms of the upgrading taking place in Alberta? I admired Peter Lougheed quite a lot as somebody who stood up for upgrading capacity in Alberta. So it would be interesting if you could give us a sense of the extent to which we are looking at upgrading capacity there.

[Jeff Labonté]

Today about half of the oil sands production is upgraded into synthetic crude, based on 2011 figures. So it's about 860,000 barrels a day. It's projected that by 2020 that will rise to about 1.4 million barrels per day that would be upgraded. Those numbers are based on current proposals that exist within the regulatory frame and on public knowledge that companies have. Of course companies choose to increase or decrease and invest in capital to provide for upgrading depending on market conditions. So for synthetic crude, there is a certain marketplace in North America and that market, in terms of which refineries desire that crude, varies and depends and grows and shapes as investments and infrastructure like refining happen.

So it is projected to grow from about 860,000 to 1.4 million.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

You don't have figures beyond that?

[Jeff Labonté]

I don't have figures beyond 2035.

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Thank you.

I'd like to talk a little bit about export supports now since we are talking about market diversification. The chair and I previously served on the international trade committee, and one of the huge weaknesses that Canada has—and this has been under the current government and the reason we have the largest trade deficit in our history, tragically under this government—is that there aren't any on-the-ground supports. When I was going on trade missions, I was meeting trade commissioners who would tell me confidentially that they didn't have the budget to buy a cup of coffee for a potential client of a Canadian product or service. That's how bad it is. Yet the main exporting countries around the world, the ones that have succeeded, are those that provide substantial on-the-ground support for their exports. Australia is one example. They spend $50 for every $1 that Canada spends on export product promotion.

I'm wondering if you have any sense of what the on-the-ground supports are around the world, or if they even exist at this point, for Canadian energy exports. If we're talking about market diversification, it would be helpful to know what exists already or whether the department or the government has done any analysis about what would need to be put into place for market diversification primarily of value-added products.

[Jeff Labonté]

Did you mean energy products or value-added products?

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Value-added energy products, I would say. I should tell you I'm a former refinery worker, so I'm a person who actually believes that rather than exporting raw bitumen we should be looking at value-added. That of course is the position of our party as well. So the question is to what extent we have any on-the-ground support or any projections about the kind of supports needed to stimulate value-added exports.

[Jeff Labonté]

I can answer part of the question, and then I'll close and ask my foreign affairs colleague to join us. NRCan doesn't have any trade-promotion activities. Those activities predominantly fall within foreign affairs and the mission network and the embassies we have.

That said, the department has led a number of missions that relate predominantly to energy and natural resources in which senior officials will work with other countries. My assistant deputy minister is in India right now. In the past year, we have visited Japan, Korea, the Philippines, China, India, the United States, France, and the U.K. So we've been on a number of missions in which we promote energy opportunities, the investment climate of Canada's resource potential, and the energy projects we have. Frequently these countries are of the variety and culture in which a government-to-government contact is the opening to a conversation between the respective private sectors. In other cases the private sector joins the government officials in the conversations. It depends on the nature.

Certainly we do those missions to broadly promote energy diversification and the opportunity for Canada's energy. But we don't have any on-the-ground staff in specific embassies, if you will, who would be buying local people cups of coffee and having that dialogue. That is generally something that the Foreign Affairs network does. Perhaps my colleague Carolyn can add to that.

[Carolyn Knobel, Director, Multi-Industry Sector and Virtual Practices Division, Global Business Opportunities Bureau, Department of Foreign Affairs and International Trade]

Hi. I guess I can speak to our trade commissioner network abroad and the support we offer this sector as well as others.

As mentioned, we have a series of missions abroad, all of which have trade commissioners, some of whom are identified to be supporting the oil and gas sector and others perhaps infrastructure, which would include energy, etc. They are there to assist Canadian exporters to identify potential buyers or partners for their products and services abroad.

The group that I am resident in has a trade commissioner embedded in the Petroleum Services Association offices in Calgary. He is an identified key individual whose aim is to be expert in supporting Canada's oil and gas sector abroad. Our various trade commissioners who are working in missions in Malaysia, Qatar, or wherever can reach back and have access to this specialist who is linked with industry directly and who will assist them in their work. Apparently 44-odd missions within our network have identified the oil and gas sector as a priority for their various markets, so those ones would be most proactively working in support of that sector.

We do have, as you've alluded to, financial mechanisms. A program that the Department of Foreign Affairs has internally is our integrated trade support fund. Posts can access that fund to assist them in running events in their markets.

To use an example of a country, let's say in Malaysia they want to run a seminar highlighting Canadian expertise in the oil and gas sector. They perhaps could draw upon that fund for room rentals, etc.

[The Chair, Conservative, Leon Benoit]

Mr. Julian, you're out of time. I was just letting the witness give an answer of some kind, but your time is long done.

Mr. Garneau, again welcome. You have up to seven minutes.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you very much.

I'm the new kid on the block here, so I have some very basic questions to ask. I'll start with this one.

I was reading recently one of I guess a spate of articles a few months ago that talked about how the United States was sort of undertaking what appeared to be a massive effort at self-sufficiency. It was calling into question whether or not there would be future export markets from Canada in the years to come. I just wanted to get your take on it.

You mentioned this briefly in your presentation, but I'd like to get more of a sense of it from you. How aggressively is the United States trying to diminish its dependency on Canadian hydrocarbons? What kind of timeframe are we talking about here? Is this something that Canada should be genuinely concerned about?

[Jeff Labonté]

That is a very good question.

The report from the International Energy Agency was what I referenced. It made a fair bit of headlines in the fall of 2012 when it suggested that the U.S. would be energy self-sufficient by I think 2035.

Its projection was based on an overall system of energy that looked at coal, wood pellets, renewables, crude oil, hydroelectricity, and natural gas so that overall, net, the United States would be self-sufficient and would actually export more energy than it imported.

But the individual commodities were quite differentiated, so in the projection the IEA had even suggested, there was I think a lot of misquoting of that particular fact in the media. A number of stories suggested that since they would be self-sufficient, Canada wouldn't have a market in the future to sell our energy products to the United States.

In fact, when you dig deeper and you look at the numbers and you look at the details, the market for Canadian crude, for example, would continue I think to the tune of about 3.7 million barrels, even by the projection of 2035. The electricity trade would continue at even greater rates than it is today. On the flip side, however, the United States would be exporting more coal, for example, and using less coal. So there were a number of changes in terms of which energy products, some of which Canada does today sell to the United States, but in general the products that we sell other than natural gas would continue to have a fairly high degree of demand.

Natural gas was the only exception. It's projected that by about 2020, the United States would be a net exporter of natural gas. Today we export all of our natural gas exports to the United States. I think it's still close to eight billion cubic feet a day, hence the very strong push for considering liquefied natural gas or alternate uses of natural gas in the Canadian domestic marketplace.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

I haven't seen or read the IEA report to which you refer. Does it project, when it looks out 20 or 30 years from now, reduced use of hydrocarbons simply through the shift to other forms of energy? Is that factored in when those projections are made?

[Jeff Labonté]

It is. They tend to do it on a scenario basis, so they have different scenarios to allow for an understanding. That's why I referenced, in this most optimistic scenario, that hydrocarbons will remain at 47% of the energy mix.

Other scenarios, which suggest that renewables and reduced consumption of hydrocarbons would lead to lower emission profiles and higher use of renewables and other forms of non-emitting energy, also continue to grow, but even in the most optimistic scenario, 47% would still be the share of fossil fuels by 2035.

Where they tend to see a huge difference is with coal. Coal tends to be the one area in which you see a lot of variation. To the extent that non-emitting forms of energy enter the mix, they tend to offset the coal, but overall demand for energy continues to grow, so the rate of growth is smaller than it has been.