Natural Resources Committee on April 18th, 2013

[Carolyn Knobel]

Our relationship with our counterparts abroad identifies buyers. If we're speaking commodities, it's buyer identification. But to the extent that market diversification hinges on infrastructure, our contacts at post would not be able to....

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay. Shifting to a discussion of trade relations and trade agreements, how do they impact market diversification?

[Jeff Labonté]

I think one of the things we see, from a policy perspective in energy market diversification, is the need to ensure that our advocacy and diplomatic efforts, for example, in Europe, continue to recognize the responsible development of the resources that occurs in Canada and that there aren't trade barriers of a policy or regulatory context that emerge.

We see the same thing in the United States with renewable standards, and we see the same thing in other jurisdictions where there are efforts to protect domestic production of energy in certain markets at the expense of large exporters like Canada. So there is a fair degree of work that happens on the international collaboration side, from energy department to energy department and from international trade and foreign relations to foreign relations, to ensure that barriers aren't produced to prevent Canadian exports of crude oil, gas, etc.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'd like to focus on that a bit. Internationally, what are the main drivers in the diversification of energy markets right now? Over the next few years, what will be the main drivers of market diversification in terms of energy? You can talk renewables and non-renewables if you want. Clearly we've had some economic challenges over the last years, and I'm just wondering, what is going to drive that and how should we be able to respond to it?

[Jeff Labonté]

I think what's driving it is growth of economies, particularly developing economies that want to create a larger middle class and a larger society that reflects closer the one we have in Canada. Certainly, that demand is growing quite a bit. The fuel, if you will, to energize that demand is crude oil, natural gas, electricity, renewables, coal. It's all of the above. So as a nation with all the energy assets we have, we have the ability to serve those markets.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Where would you see the best business opportunities?

[Jeff Labonté]

Certainly in Asia Pacific.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I guess I'm also asking where you see it in terms of the technologies—if you want to call it that—or products that we have. What would you see as the things we should perhaps be focusing on if we want to maximize those benefits?

[Jeff Labonté]

From a technology point of view, I think it's a much broader landscape. Our neighbours next door still offer tremendous technology opportunities for Canadian firms to operate. If you take the oil and gas sector, Canadian expertise on flaring, exploration, development, the seismic, the geology, and the engineering services.... Countries around the world are beginning to unlock their unconventional gas—for example, shale gas and tight gas—and they're coming to Canada looking for our seismic expertise, our drilling expertise, and our engineering expertise. It exists in Poland, Estonia, parts of Africa, and even in parts of Asia. So that's an example in oil and gas.

On the electricity side, it's to places where there are still untapped hydroelectricity and renewable potential, which exists in South America, as well as in Asia Pacific predominantly. It depends on what type and part of the energy system we're talking about. It's a bit broader, if you will.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

From the perspective of global business opportunities, would you have anything to add to that?

[Carolyn Knobel]

As my colleague has said, it depends on what product or service we're talking about, nuclear being different from oil and gas. Innovations that we've seen take place in the Canadian oil and gas sector, for example, are the types of things that Canadian companies are looking to export abroad. Technologies that have been developed here would be the type of thing that we'd be looking to export abroad.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'm going to follow up with a question that perhaps my colleagues across the way should have asked, or could have asked. What are the risks to Canadians in terms of market diversification? What are the biggest risks we face?

[An hon. member]

Conservatives.

[Voices]

Oh, oh!

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I don't think so. I've had an NDP provincial government and they've put us 50 years behind, so I don't think we're any threat.

[Jeff Labonté]

I think that for us the risks are trade barriers that prevent the free flow and market-based solutions to things. To us, I think the risks are strain on capital, and strain on labour and resources and on our infrastructure that gets the energy to markets.

If we're going to sell to anyone other than the United States, we have to reach new markets, and we need the infrastructure to get there.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Ms. Knobel, do you see any other risks internationally?

[Carolyn Knobel]

No. I think that covers it.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay.

I would like to take a couple of minutes to talk about refineries. It came up in a couple of different questions. We did a study last year, looked into it in depth, and found out that we have refining capacity in Canada. It's not necessarily being used to the full extent that it could be. In fact, some of the refiners were complaining that they were just not able to make money at the levels that they were running at.

Could you speak a bit more to that issue of value added and the notion of refining and upgrading in the context of what we have in Canada already? I think Mr. Calkins made a very valid point, and it's one that we heard often at committee, which is that those finished products are not often refined far from the marketplace. They actually vary; the gasoline content, for example, varies in different places around North America. Can you just talk about the upgrading, the value added, in terms of some of those products?

[Jeff Labonté]

On the value added and upgrading in the refining sector, it's a global market. It's one in which the capital investments are extremely large. They typically occur over long cycles where you expect to have a return on your investment, with stability and with market growth and activities. In North America, the market for refined petroleum products is declining, and it's projected to continue to decline, while in Asia and the Pacific you see it growing tremendously over the next 20 years.

From an investment point of view, this is a declining market in North America, and we already have the existing infrastructure. In Canada, we have a refining capacity of about 1.9 million barrels a day, and we currently produce 1.6 million barrels a day. There are 300,000 barrels a day of production that are not being used. That's capital that's idle and, generally speaking, on investment and capital you want to maximize your production and output.

In broad terms, there hasn't been a new refinery opened in North America I think since the mid-eighties. We've seen a consolidation of the refineries, but we've seen an expansion of some of the existing facilities and an upgrading of those facilities to make them more efficient. Refineries generally are capital-cost intensive; they really follow and track differential, their ability to attract and lock into finding the crude inputs and the feedstock.

They want to typically be located in the markets because there are different standards, environmental performance requirements, and different features, and they change seasonally. Gasoline is different in the summer than it is in the winter. There are warm climates and cool climates, etc. There are the distribution costs about how you get it intermodally between warehousing and then to your retail market. Then there's sort of the issue of contamination: when you move it through pipeline infrastructure, you increase the risk of contaminating the product. It means that you have to handle it more carefully and be a lot more careful with it, because it does get contaminated when it's transported over longer distances.

Your ability to reduce those risks as a business improves your ability to maximize your return.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'd just actually like your comment, then, on transportation in the future. Do you see rail lines continuing to be one of the major modes of transporting some of these products? I think we have some of the investors in the States who have actually come out against the pipelines because they have significant investment in the railways. I'm wondering if you can comment on that.

We've discussed the safety of both of these. They both seem to be safe modes of transportation. Do you have any thoughts on that?

[The Chair, Conservative, Leon Benoit]

Very briefly, please.

[Jeff Labonté]

Yes, sir.

From a policy perspective, I think the speed at which rail has really taken on an ability to move has caught everyone a bit by surprise. It comes with some of the unconventional development, some of the unconventional development in the Bakken and in other areas in Saskatchewan, for example. It has a field life that's expected to be shorter than that of large oil sands operations, for example, or in the offshore.

Rail is much more efficient for a 10-year horizon versus a 30-year horizon. It adds flexibility. That's the easiest way to put it.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Do you have any comment on the new discovery in Texas?

[A voice]

Huge.