Natural Resources Committee on March 4th, 2014

[Colleen Mitchell]

The benefits are that we have a small production of natural gas in the province, in particular with Corridor Resources and signing with the various pipelines, Maritimes and Northeast, and with Enbridge.

We also have Canada's largest oil refinery, the Irving Oil refinery, producing approximately 300,000 barrels a day. They employ 2,000 people every day across their network and currently they are undertaking a maintenance turnaround. I bring this up just from the standpoint of annual maintenance. They're spending $60 million, which is 2.5% of New Brunswick's GDP, on this one project, and they're hiring an additional 2,000 people for this maintenance turnaround.

So when you try to extrapolate the importance of having Canada's largest oil refinery and having it competitive with other refineries around North America and around the world and having a source of energy such as natural gas for local communities and industries, it's important as well. It also helps with respect to the mining sector and the forest products industry because they then can offer a source of competitive energy pricing.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Mitchell.

Thank you, Ms. Block and Mr. Trost.

Go ahead, please, Mr. Julian. You have up to seven minutes.

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

I am sorry, Mr. Chair, but I think there's a problem with the simultaneous interpretation system.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

It's just because, when Ms. Mitchell speaks, the sound fades in and out. The interpreters can't translate what she's saying into French.

[The Chair, Conservative, Leon Benoit]

We'll see how it goes.

Go ahead, please, Mr. Julian.

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

Thanks, Mr. Chair.

Thanks to all our witnesses for being here today. This is all interesting.

I'd like to start with you, Mr. McGowan. That was very important testimony. We appreciate that you represent certainly more Albertans than anyone else around the table, so your testimony has a lot of weight. I'd like to get back to your point about the ripping-it-and-shipping-it approach of the current government around value added. You very correctly cited somebody I've always admired, Peter Lougheed, who understood the importance of looking at upgrading and refining. We seem to have moved away from this. You raised a number of concerns, so I'm going to ask you a number of questions.

First off, with regard to the move away from tying development of the oil sands to upgrading and refining in Alberta and in Canada, what has that meant in terms of potential lost jobs?

The second issue is around Keystone. I know that the Alberta Federation of Labour has done some analysis in terms of shipping raw bitumen through Keystone and what that would mean in terms of potential lost jobs.

Could you comment on those two concerns, and then tie them in, coming back to the issue of temporary foreign workers, to the exploding number of temporary foreign workers in the oil sands, and what this means in terms of lost economic opportunity in Canada?

[Gil McGowan]

As part of our testimony before the National Energy Board hearings on various bitumen export pipelines, we have contracted with economists to do the kind of calculations that we've heard from the Conference Board about induced job creation and multiplier effects.

Our analysis has suggested that if the same volume of bitumen that is planned to go down the Keystone XL pipeline, or the Northern Gateway pipeline, for example, was instead to be upgraded in Alberta or other parts of Canada, it would create literally tens of thousands of jobs. In the case of Keystone XL, it would create about 41,000 jobs, and in the case of the Northern Gateway pipeline, 28,000 jobs.

These are jobs that we're essentially just flushing down the pipeline because we're allowing other nations to add value and create those high-value jobs.

On the subject of value added, we've heard from a lot of people in the industry that the economics don't add up. I think one word we have to keep coming back to in this discussion about value adding is “pace”. Right now it's the Wild West in the oil sands. Basically every project that comes across the provincial government's desk is approved. The result is that it drives up cost. We have so many projects chasing a scarce number of resources that it actually drives up the cost, drives down productivity, and makes the more desirable value-added projects less economic. By not setting a reasonable pace, we're actually pricing ourselves out of reach for the kind of development that would actually be in the longer-term best interest of Canadians. That pace also is what's driving the call for an increased number of temporary foreign workers.

Basically we're creating a situation in which some employers.... I won't mince words here; some of the bottom-feeders can't attract high-quality staff people, so they use the temporary foreign worker program. That's what we see over and over again. These employers use the program not as a last resort but as a first choice, and in the process they displace Canadians.

These are not just isolated cases. We're talking about case after case, and it will just get worse as work in the oil sands heats up.

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

Thank you for that.

Roughly speaking, then, when you include the temporary foreign workers, the number of jobs that would be thrown out of the country or exported down the line for Keystone and you look at Gateway, you're talking about 100,000 good Canadian jobs that are basically lost because of the mess that this government has created, rather than putting in place a really strong economic framework that allows for value-added jobs.

When you talk about the pace of development as well, in Alberta, you're also talking about lost jobs that come from the fact that we're not tying—the way Peter Lougheed certainly saw as part of his vision—directly into upgrading and refining development of the oil sands.

I guess that's why the Canadian Chamber of Commerce provided some pretty compelling figures just a few days ago, that 95% of jobs created in Canada over the last year were part-time, which means they're not family-sustaining.

Could you comment, then, on what this means in terms of economic costs? Poor management from this government in terms of the blessing that we have, as you say, is leading to this becoming very much a mixed blessing because of all the lost economic opportunity.

[Gil McGowan]

I think one number is really telling. Only a few years ago about two-thirds of bitumen extracted in Alberta was upgraded in the province before being exported for sale. That number has collapsed to about 50%, and by the Alberta government's own estimates—according to testimony they gave before the Northern Gateway Pipeline hearings—in very short order, in the next 10 years or so, we could be looking at a situation where only about 26% of our bitumen is upgraded.

This represents a huge lost opportunity in terms of job creation, and as one of the other witnesses, the woman from New Brunswick, pointed out, when you build an industrial plant like a refinery, it doesn't just create employment for people in that particular refinery; there are all sorts of spinoffs. Refineries and upgraders have huge supply chains, and they also—as she pointed out—have these big turnarounds and maintenance every year that create almost as much work for tradespeople on an ongoing basis as they do for operations people. But if you don't build the plant, if you don't build the upgrader, if you don't build the refinery, all those opportunities are lost.

What we're afraid of is that with the current approach to development, which is focused almost exclusively on bitumen export rather than value adding, we're looking at an historic lost opportunity, not just for Alberta but for Canada.

It's true that even the rip-it-and-ship-it approach that we're currently looking at creates jobs, but we're saying we could create that many more if we were to move up the value ladder rather than down. The same is true of revenue generated through royalties and taxes. Why accept a half loaf when we could have a full loaf?

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Julian.

We go now to Mr. Regan, for up to seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thanks very much, Mr. Chairman.

Thanks to all the witnesses for coming today.

Let me start, Ms. Kenny, with you, if I may.

Saskatchewan premier Brad Wall told the Manning conference last week that having the federal government introduce long-overdue greenhouse gas regulations for the oil and gas sector would send a strong signal that Canada is taking action on the environment.

It seems clear that the time the Obama administration has taken to approve Keystone is largely being delayed because of the lack of action in Canada on greenhouse gases and because of the impression overall of Canada's environmental performance, particularly related to oil and gas.

What's your position as an association on this?

[Dr. Brenda Kenny]

There are a couple of things.

First of all, the issues surrounding any given project are highly politicized at this point of view, particularly in the United States, and I'm not convinced that any given action from within Canada would necessarily outright remove some of the political pressures for or against. That said, I think that industry overall is supportive of movement toward climate change in a measured approach that allows Canada to remain effective in our own sovereignty with respect to the right choices.

I personally sit on the board in Alberta for the Climate Change and Emissions Management Corporation, where $1.3 billion worth of innovation projects are under way that have been funded outright by a levy program within that province.

Canada's jurisdiction is very complex, as you well know, with respect to environmental legislation, and we're blessed with a variety of great pilot projects across the country right now from coast to coast in how to address that. So we are supportive of appropriate action on climate change, our gas pipelines are designated as large final emitters, we are involved with national programs and inventories, and we've been investing, ourselves, in technology to reduce the overall emissions of those major transport systems.

[Geoff Regan, Liberal, Halifax West, NS]

But you don't think that if Canada were seen in the U.S. to have acted seriously on greenhouse gases, that would make it easier?

Sorry, if you could give me a quick answer as I have a very short time.

[Dr. Brenda Kenny]

I don't think that it's a direct conclusion.

[Geoff Regan, Liberal, Halifax West, NS]

Let me ask you another question. You've heard Mr. McGowan's comments about “rip it and ship it”. Why aren't more petroleum products upgraded, refined, or fractionated here in Canada? Should it be at a much higher rate?

[Dr. Brenda Kenny]

I don't have any opinion on the issues of upgrading where in the value chain.... Clearly from the wellhead through to the fuel tank in a car or a moped in Kenya, or what have you, there's a series of different events that happen in that supply chain to enable the use of energy.

My position from pipelines is simply this. In order to move large quantities of energy, you need tubes of steel a metre under the ground. We have a shortage of that in Canada right now for the type of energy production that's under way, regardless of whether you're shipping diluted bitumen, refined product, or synthetic product.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Mr. Burt, do you have a view on that?

[Michael Burt]

We focus a lot on value added. Sure, I agree wholeheartedly you want to maximize the value we're getting out of our natural resources. We focus too much on the upgrading and the refining. There are a lot of other inputs that go into the industry. It's become world-class at those products as well.

[Geoff Regan, Liberal, Halifax West, NS]

Could you give an example?

[Michael Burt]

A good example would be lots of different types of equipment that go into the oil sands. One of the few manufacturing industries that's been a success story in Canada in the last decade has been manufacturers of oil and gas equipment. So how do we make our businesses successful across the supply chain, and not just focus on upgrading?

[Geoff Regan, Liberal, Halifax West, NS]

Ms. Mitchell, speaking of the value chain and value added, I wanted to ask you a bit about the energy east pipeline, which I'm certainly interested in as a Nova Scotian. They're talking about 1.1 million barrels per day. What's your understanding about how much of that would be potentially refined in places like Montreal, and how much of it would be refined in Saint John, and how much would be shipped out of Saint John? What's your expectation?

[Colleen Mitchell]

At this particular time, it's at the preliminary stage with respect to determining exactly how much of the crude oil would be supplying Quebec refineries versus the refinery in Saint John. Certainly, the Saint John, New Brunswick, refinery has the capacity to receive this and to upgrade it. I think the important thing is the actual economic benefit overall to Canada of receiving a higher value for the Canadian crude, reducing foreign imports of crude into Canada, as well as the opportunity for the refineries in Quebec and New Brunswick to be more cost competitive because they will have access to a lower priced crude.

There have certainly been numbers bandied about of around 100,000 barrels per day of capacity that they would be taking here in New Brunswick, and also the potential for upgrading in the Quebec refineries, and potentially, of course, in Saint John as well. The investment in upgrading capacity is significant. As I mentioned, the low end is $2 billion to upgrade a refinery, as an example for coking capacity, up to even $8 billion. There's a 95% correlation of that—$95 million of a $100-million investment is actually realized in gross domestic product, so it is significant by any standards.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much.

Mr. Burt, has the Conference Board carried out a study of the impact of federal tax breaks for oil and gas companies in Canada? Can you tell us how much those tax breaks are worth? Do you know what kinds of profits were recorded by the same companies that received these tax breaks?

[Michael Burt]

I can't say...we haven't studied...I don't know what the value is of the credits currently in place. We have built models looking at the existing regime, but unfortunately, right now I can't say if you changed the regime what the values would be.

[Geoff Regan, Liberal, Halifax West, NS]

For example, recent reports suggest that Canadian taxpayers have given more than $400 million in subsidies to some of our largest oil companies for green projects. One would hope they would want to do those on their own. It raises the question of whether we think profitable companies like Shell, Suncor, Husky, Enbridge, need to be subsidized like this.

We also have the problem, as I understand it, that several millions of these dollars have gone to companies from state-owned companies in China, Mexico, and Colombia. Do you think that's appropriate?