Natural Resources Committee on March 6th, 2014

[Joan Crockatt, Conservative, Calgary Centre, AB]

I think we heard a very clear explanation from Mr. Boag on the challenges for refineries these days, to keep them viable and open.

Mr. Boag, what is the best way you can think of that Canada can keep refineries viable and open?

[Peter Boag]

It's a realm of making sure the economic environment...and that includes a number of variables. One is the infrastructure issue—we've talked a bit about that today—and making sure that Canadian refineries have access to a diversified supply of crude, where they can make crude selection choices based on availability, quality, and price. Their choices are much more limited in eastern Canada right now; certainly, that's a factor.

The other factor, which we haven't talked about, is the kind of regulatory environment we have. There are regulatory pressures. That's not to say that increasingly stringent environmental performance requirements are wrong. We have a very strong record of continuous improvement in our environmental performance.

We can look at how Canada, whether at the provincial level or federal level, imposes new regulatory requirements on our refining sector. We want an approach that is clearly validated by solid cost-benefit analysis, that we're investing money that's going to deliver value, an improved environment, and improved Canadian human health. We want it to be done in a way that recognizes that we can't eat the elephant all in one bite, sets some priorities, and paces new regulatory requirements in a way that they are digestible by the industry.

Let's not forget that we compete in an environment where other jurisdictions may have different environmental requirements. For the most part, we need to ensure that we look at alignment. To Canada's credit, and most provinces, we've done a very good job of making sure that the substance and pace of our environmental regulation is largely aligned with that of the U.S. They're certainly our significant competitor.

There are definitely things that government can do in terms of helping to create the kind of economic and regulatory environment, and infrastructure environment, that sustains a viable and competitive Canadian refining sector.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Okay.

I want to bring this down a little bit. I think we've heard from both of our witnesses that communities can be dramatically affected if the oil and gas industry is developed.

Do you believe we can keep marginal or economically fragile refineries open or see the reopening of some refineries that have been closed—or expansion—through development in the oil and gas industry?

I'd put that to both of you, please. If that is the case, where, and can you give me examples?

[Peter Boag]

Certainly.

We've talked about the challenges for the refining sector. We mentioned that there have been some recent closures, but there's also been some expansion of existing refining capacity. We are seeing the first new refinery in Canada in 30 years being built to the north of Edmonton.

It's not all just the challenges and retrenchment of the sector. Certainly we've seen—

[Joan Crockatt, Conservative, Calgary Centre, AB]

Well, that one's been delayed, I'm sure you're aware.

[Peter Boag]

Yes, a significant expansion of the co-op refinery in Regina over the last number of years going from 100,000 barrels a day to 145,000 barrels a day.... The North West Redwater upgrader refinery project north of Edmonton, the first phase now under construction, 50,000 barrels per day initial capacity.... We've seen expansion in Irving; we've seen expansion in Petro-Canada refineries.

[Joan Crockatt, Conservative, Calgary Centre, AB]

What about Quebec? Could you go—

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Crockatt. Your time is up.

We go now to M. Giguère followed by Mr. Trost and then Mr. Julian.

Go ahead, please, Mr. Giguère.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I want to thank the witnesses for coming to meet with us. Some of them had to get up very early this morning to be here. I appreciate the fact that, by participating in this meeting, they are helping improve the economic performance Canada can produce by developing its natural resources.

I heard the government representative say that the National Energy Board would be excluded from the approval process for building pipelines and that this process would be handled directly by Enbridge.

Does this mean that the oil industry is officially asking the committee to recommend the abolition of the National Energy Board?

[Peter Boag]

Absolutely not, if that question is posed to me. I'm not sure why anyone would have thought we would have been asking for that.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

I really appreciate this answer. So we can be sure that the government will not vest this regulatory power in a private company.

My next question, which is about value added, is for Mr. Harrison.

In Canada, we will export oil from the oil sands, which already require special processing in terms of refining and cracking.

Before that natural resource is exported from a port like Gros-Cacouna, couldn't an initial processing method be developed to increase the value added and facilitate the global exportation of that product?

[Trevor Harrison]

I think that's one of the things that I'm hearing, that I'm saying and a number of people are saying is that there are real jobs at stake here in terms of if we do the refining ourselves, as opposed to effectively exporting jobs. One of the ways of protecting Canadian workers and their communities and the Canadian economy as a whole is to refine to the largest extent possible the raw product here and to, in terms of pacing again, consider the export of a smaller quantity of the product but with greater value added, as opposed to trying to ship all of the raw product as much as possible out all at once.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

Thank you.

A document indicates that, in Canada, the refining capacity is 1,973,000 barrels per day. However, that is optimized maximum capacity. Unless I am mistaken, Statistics Canada said that this capacity is more likely around 1,600,000 barrels per day and that our actual consumption was 1,800,000 barrels. So Canada is a net importer of gasoline.

Don't you think it is a bit strange that Canada, a country swimming in oil, has to import gasoline?

[Peter Boag]

Canada is not a net importer of gasoline; we're a net exporter of gasoline. We export substantial quantities of gasoline to the northeast United States. Our current refining capacity in Canada is about two million barrels a day; our actual production is closer to 1.6 million or 1.7 million barrels a day. What that reflects is that our capacity utilization of our refining sector is really only running in the low 80% today so we are underutilizing our existing capacity to a certain extent. Notwithstanding that fact, we are still a net exporter, principally, to the U.S.

[Alain Giguère, NDP, Marc-Aurèle-Fortin, QC]

In Montreal, there was a Shell refinery, which closed its doors mainly because Shell now imports its gasoline from a refinery in the state of New York. If you ever wanted to bring back a Shell refinery to Montreal, I assure you that you would be welcome to do so. We by far prefer using gasoline produced in a Quebec refinery than importing it from the state of New York.

We were also told about value added. Oil tankers will be brought into the Gulf of St. Lawrence to export our oil. Similarly to what is being done in Alaska, why wouldn't those oil tankers be Canadian? Why wouldn't they have a Canadian crew....

[The Chair, Conservative, Leon Benoit]

Mr. Giguère, you're time is up. You won't have time for a question, so I guess we'll consider that a comment.

We go now to Mr. Trost, followed by Mr. Julian, and then Mr. Calkins.

Mr. Trost, go ahead for up to five minutes.

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

Yes, thank you, Mr. Chair.

As the title of our study says, we're looking at the cross-country benefits of the oil and gas industry. In the last few days, I've often asked witnesses about benefits in areas where one normally doesn't think about. One of our witnesses, or a couple of our witnesses, talked about benefits to parts of Atlantic Canada that you don't think of as being predominant in this industry, for example, New Brunswick was talking about possibly having enough development to get off equalization and be a “have” province.

Mr. Smillie, if there was substantive development in provinces like New Brunswick, Quebec, if things like tight shale start to open up, what would be the ability for your members to supply the labour for that? You talked earlier about 51 being the age mode for your members. Would you have enough workforce if all of a sudden there was an explosion of growth in Quebec and New Brunswick? How would you deal with that situation?

[Christopher Smillie]

We're operating at 100% capacity today in the available workforce for these projects. We're in a place where we need to be developing young people in the tens of thousands to get them ready for the mass exits that are coming.

BuildForce Canada is an industry-led think tank. It used to be the old Construction Sector Council. They just released their workforce projection numbers, and I believe it's somewhere in the high 200,000s that will be required in order to fill gaps past 2018. We need to change the focus of our education system and make sure that young people understand the opportunities that will exist and even today for opportunities that exist. If growth in New Brunswick and Quebec exploded and offshore Newfoundland doubled or tripled, we would have to add thousands of more people to the construction workforce.

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

If I understand this right, if we let the oil and gas industry develop in eastern Canada, we would have good-paying jobs for young people. Instead of having high unemployment in that region, we could easily see a labour shortage across the board.

[Christopher Smillie]

We would easily see that. First, those people would come home. They wouldn't be forced to work in western Canada or B.C. or Saskatchewan. You'd see a redistribution of the workforce. I believe they would go home and work close to where their families stay. Then, you'd have the ability to train local forces where those projects exist in their home provinces, if we get the training thing right and if we make sure that we're educating our young people about the opportunities that exist.

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

Mr. Boag, you also noted that your industry, or the refineries and certain elements of your industry, is more concentrated in eastern Canada; again, in places where we don't often think of the benefits accruing for this industry.

If there was more industry development in New Brunswick, Quebec, etc., would that have positive spinoffs directly for the refineries? We're mostly talking about gas here, but with large supplies of natural gas, there tends to be more ability for petrochemical industries to develop. Would there be more benefits for your segment of the industry?

[Peter Boag]

It's difficult to say for our segment of the industry. I'm not an expert on natural gas, and I'm not an expert on that component of the sector, but certainly any positive activity like that will have spinoff benefits that ultimately would impact our membership.

On the natural gas issue, one thing is that natural gas is the principal fuel of choice for operating a refinery. One of the disadvantages eastern Canada refineries have, particularly when you go to a refinery in Newfoundland, is the absence of natural gas as a fuel. As a result, you would need to use much more expensive fuel, so certainly access to natural gas would be a factor in increasing the competitiveness of Canadian refineries in eastern Canada.

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

So this would actually bring your costs down if natural gas were developed, an inexpensive local source...?

[Peter Boag]

Yes. For those who don't currently have access to natural gas, yes.

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

Going back to—