Natural Resources Committee on April 1st, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

I imagine all members of the committee are aware that this committee will be sitting around the clock for the next 24 hours and possibly beyond. It's certainly something—

Was there a point of order, Mr. Regan?

[Geoff Regan, Liberal, Halifax West, NS]

I'd just like to ask what day is it today? What's today's date? I forget.

[The Chair, Conservative, Leon Benoit]

What day is today, clerk? I don't keep up on things like that.

Okay, I didn't get very far on that.

[Some hon. members]

Oh, oh!

[Geoff Regan, Liberal, Halifax West, NS]

Sorry.

[The Chair, Conservative, Leon Benoit]

This is April 1, isn't it? Yes, okay. I have to do better. Next time I'll try to do better.

Anyway, good morning, everyone. We are here today—hopefully not meeting around the clock—to continue our study of the cross-country benefits of the oil and gas sectors of the Canadian economy.

We have five witnesses with us today. I'll start with Jayson Myers, president and chief executive officer of the Canadian Manufacturers and Exporters. Welcome.

From the Canadian Fertilizer Institute we have Roger Larson, president, and Emily Pearce, director of government relations. Welcome to you.

We have from the Canadian Association of Petroleum Producers Janet Annesley, vice-president. Welcome.

We have by video conference from Vancouver today as an individual Robyn Allan, economist. Welcome to you.

By video conference from Calgary as an individual we have Michael Priaro, professional engineer. Welcome to you, sir.

So we will take the presentations in the order that you're listed on the agenda today, and the order I've just read. I'd ask you to keep your presentations to seven minutes or less. We'll go ahead starting with the Canadian Manufacturers and Exporters.

Go ahead please, Mr. Myers.

[Dr. Jayson Myers, President and Chief Executive Officer, Canadian Manufacturers and Exporters - Ontario Division]

Thank you very much, Mr. Chair. Good morning, everybody.

I would like to speak specifically to an analysis that we've completed of the economic benefits, particularly for Canada's manufacturing sector, of the oil sands developments and investments in the oil sands, although I'd be more than happy to comment or answer questions on any other aspect of the economic benefits of resource or energy development, particularly for manufacturing.

The analysis that we've completed is based on Statistics Canada's input-output analysis. It's based not on economic projections of projects under way, but on projects that we know are approved or under construction right now. More than anything else, it's based on 10 years' experience that we've had in trying to connect manufacturers across the country with the opportunities of oil sands development.

Canadian manufacturing sales are closely related to investment in oil sands projects as well as the operating expenses that these projects incur once they're under way. I want to point out that oil sands are a bit different from other oil and gas operations in that they're manufacturing operations. They continue to produce and they continue to generate demand for products and services as they run—for maintenance, repair, and other operating expenses. So demand for manufactured products is driven both by new project investments as well as by continuing maintenance, repair, and operating expenses.

I believe the executive summary of our report has been distributed to members of the committee. The full report, of which I'm going to just point out some highlights, is available on www.cme-mec.ca. I just want to point out a couple of highlights of the report.

One of the things we've found is that demand for manufactured products, both imported and from Canada, has been pretty stable over the past 10 years. It's not that difficult to try to project forward what the demand will be. Some of our findings are that for every dollar of new investment in new projects in the oil sands, 62 cents is spent on manufactured products, out of which 28 cents is derived from domestic manufacturing, and 34 cents from goods that are imported into the country. Every dollar in maintenance, repair, and operating expenses generates about 30 cents in demand for manufactured products, out of which 16 cents comes from domestic manufacturing and 14 cents from imported products.

The types of manufacturing products that are in demand on oil sands projects extend from heavy equipment—construction, mining, and excavation equipment—to heavy transportation equipment, and everything that's used in that equipment, from structural steel to the tubes, pumps, and valves that are part of the infrastructure not only of the oil sands projects, but also, as I said, the continuing maintenance and repair and operation. So the demand really covers almost every sector of manufacturing operations.

Let me give you some quick statistics. In 2012, the last year for which we have full statistics, $49 billion was invested in oil sands projects, $28 billion in new investment, and that generated $7.6 billion in demand for manufactured products from Canada. Twenty-one billion dollars was spent in maintenance, repair, and operations, and that generated demand for $2.9 billion dollars in manufactured goods from within Canada. The overall impact was $10.5 billion, and that is the equivalent of 105,000 person-years of work. A lot of that was captured within western Canada, about 66% from Alberta and Saskatchewan, but almost 10% was from Quebec, and 14% to 15% from Ontario. The Atlantic provinces were involved, particularly in fabricated metals.

So this really is of national significance.

In fact, over the past 15 years, from 1997 to 2012, over $300 billion has been invested in oil sands projects, with $173 billion in new projects or new investments and $118 billion in maintenance and repair in operations. In total, that generated demand for $64 billion of domestically produced manufactured goods, and that's about the equivalent of 640,000 person-years of work.

Based on projections going forward up to 2013—and there is a range of these projections—we're looking at somewhere between $972 billion and $1.8 trillion of new investment in oil sands up to 2030. If that is the case, then we'd be generating $211 billion to $387 billion of demand for domestically generated manufactured goods, and that's the equivalent of 2.1 to 3.9 million person-years of work.

Those are all numbers that can be found in the report, but let me point out just a couple of things very quickly. That does not include the services that are also generated to repair or to maintain the products that are being purchased by the oil sands projects. There's a huge array of services around this as well. It doesn't include the additional benefits from expanding downstream operations in terms of upgrading or refineries. That's a sector that already generates about $2.5 billion and about 100,000 jobs in Canada in value added. It doesn't include the economic benefits of having cost-competitive fuel for the entire Canadian economy. And it doesn't include the benefits of the infrastructure or the public services that are paid for as a result of the taxes paid by oil sands operations. So this is really only looking at demand for manufactured products in the oil sands themselves.

As I say, I don't think the numbers tell the full story either. First of all, if it were not for the oil sands, the downturn that we saw in manufacturing would have been much more severe than it was. The oil sands probably saved about 100,000 jobs between 2008 going into 2009 and 2010 in the recession. It also doesn't tell the story about the innovation that's being driven and the technological development that's being driven as a result of the need to develop new products and new technologies for the oil sands. Companies are taking those technologies and today have the capability not only to supply oil sands development but also to take those international as well.

There are a lot of constraints: skills, infrastructure, regulations that impede cross-border trade within Canada, innovation.... All of these things need to be a focus of government policy. We can talk about those in a minute, but I don't think we should take our eye off the value and the jobs and the potential for overall economic growth that can be generated as a result of this fabulous resource in Canada.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Myers.

We go now to the Canadian Fertilizer Institute.

Go ahead, please, with your presentation for up to seven minutes.

[Roger Larson, President, Canadian Fertilizer Institute]

Thank you very much for your invitation, Mr. Chairman, to appear before the natural resources committee.

Good morning, members of the Committee.

My name is Roger Larson. I'm president of the Fertilizer Institute and Emily Pearce is our director of government relations. I'll be handling the initial presentation.

CFI represents the basic manufacturers of nitrogen, potash, phosphate, and sulphur fertilizers, as well as the supply chain of major wholesale and retail distribution companies in Canada. Our members produce over 25 million tonnes of fertilizers annually, and over 75% of this is exported to more than 60 countries worldwide. Canada accounts for about a third of world potash production and 45% of world potash trade.

A recent report from Natural Resources Canada cited potash as the number one valued mineral in Canada. Canada is also home to a considerable amount of nitrogen fertilizer production, supplying about half of the United State's imports of fertilizers and making our country a world leader in the fertilizer sector.

We've accepted this invitation to appear before this committee to highlight a unique aspect of the oil and gas sector, using natural gas as a raw material or feedstock to produce other products. This can in turn generate investment, create employment, and help grow the economy.

Natural gas is a raw material essential to nitrogen fertilizer manufacturing, as well as the energy source for fertilizers and many other value-added industries. About 6% of ail natural gas consumed in Canada is used to make fertilizer. Natural gas represents about 20% to 25% of the total input costs for potash production and 70% to 90% of the input costs to manufacture nitrogen fertilizer. With Canadian natural gas exports increasingly facing being pushed back by U.S. shale gas production, Canadian natural gas needs to reach new and growing markets and some of those are in Canada.

The purpose of this study is to consider policies that will allow industries, including fertilizer, to capitalize on the further development of the oil and gas sector to benefit all Canadians. CFI believes there are several key components to this: ensuring that government policies support value-added natural gas resource upgrading to enable major new capital investments; transportation and export infrastructure to better move expanded volumes of fertilizers within Canada and exports to the U.S. and offshore; tax policies that support major new investments in capital projects; immigration policies and skills training programs that ensure the availability of skilled workers; and strong trade agreements to ensure fair access for new exports.

First, CFI recommends government policies that support value-added natural gas resource upgrading. These policies drive industry, including fertilizer companies, to make long-term capital investments. This means more cost-competitive products and enhanced access to key markets, including the United States.

Next, modern, reliable road and rail transportation is vital to maximizing traditional and emerging export markets. Our ultimate consumers are farmers and we must deliver our products to them in a timely and effective manner, whether those products are destined for Canadian farmers, U.S. farmers, or overseas to produce the world's food. This infrastructure must also be capable of responding to new export volumes. In short, we urge the federal government to be mindful of the importance of road and rail transportation when reviewing all policies and regulations to ensure accessibility, reliability, and cost competitiveness of transportation services.

On the fiscal side, keeping corporate tax rates low and the extension of the accelerated capital cost allowance have resulted in undeniable benefits for Canadian industry, including the fertilizer and oil and gas sectors. Canadian potash companies are undertaking major expansions of their existing mining operations and to date have invested or announced nearly $15 billion in new major capital projects in the last 10 years.

We encourage the federal government to make the accelerated capital cost allowance permanent. A predictable tax and regulatory environment is critical for business planning and will bring to Canada more large capital investments and more jobs. Indeed these policies not only benefit the fertilizer sector, but all industries in the supply chain.

On the labour front, our members face the same challenges as the oil and gas sector regarding the availability of permanent and temporary skilled workers. This skills shortage is a challenge for all regions of the country, but is especially felt in rural areas of Canada where resource-based industries are usually centred. We thank the federal government for introducing the Canada jobs grant.

Streamlining entry requirements for foreign skilled workers and allowing the entry of temporary foreign workers for these high-skilled, high-paying jobs will also ensure that the labour force supports the needs of the fertilizer industry to grow. Our industry stands ready to work collaboratively with the government to improve these programs.

Finally, strong trade agreements ensure fair access for new exports. If our farming customers are growing more crops, and exporting more of their products, and receiving higher prices on global food markets, they will need more inputs, more fertilizer and its components, including natural gas. Markets captured by the Trans-Pacific Partnership and other bilateral agreements in the Asia-Pacific region present tremendous economic growth opportunities for our industry and others. We encourage the government to continue an aggressive pursuit of international trade agreements, while ensuring that the outcomes maximize the long-term competitiveness of Canadian industry.

In closing, I want to thank the members for the opportunity to present our views. A good dialogue between government and private sector is important as industrial policies are contemplated, ensuring a good understanding of the opportunities and challenges that business faces, as well as opening the door for partnerships that strengthen Canada's economic competitiveness. We welcome the opportunity to continue this dialogue, and are pleased to answer any questions.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Larson.

We go now to Janet Annesley, vice-president, the Canadian Association of Petroleum Producers, or CAPP.

Go ahead with your presentation, up to seven minutes.

[Janet Annesley, Vice-President, Communications, Canadian Association of Petroleum Producers]

Thank you.

As the committee is aware, Canada possesses tremendous resource wealth with the third largest reserves of crude oil in the world, some 173 billion barrels. We are also the world's sixth largest producer of natural gas.

In terms of financial investment and jobs, the upstream oil and gas industry is today Canada's single largest private investor, forecast to inject some $68 billion into Canada's economy this year, and that capital provides direct and indirect employment for more than 550,000 Canadians and countless other sectors that do business from Main Street, Saskatchewan, to Bay Street, Ontario.

Overall, Canada's oil and gas sector's annual revenues are about $110 billion, which, measured against other major product selling categories, places hydrocarbons as Canada's largest product selling industry, larger, for example, than automobile manufacturing.

Importantly, domestic oil and gas companies typically invest every dollar of their cashflow plus more into the ground, which makes the sector unique. The multiplicative effect of these dollars circulating in Canada's economy means the stakes of maintaining the industry healthy are very high.

Today, crude oil is Canada's single largest export commodity, the value of which has increased more than tenfold over the past decade due to production increases and price changes. In 2004, 1.6 million barrels per day of crude oil exports netted Canada $7.1 billion. In contrast 2013 exports of 2.5 million barrels netted Canada $81 billion.

While the loud discussion about Keystone XL continues in the United States, each day Canada quietly provides one third of America's oil imports, making us their largest crude oil supplier.

But to ensure we can continue to fully realize the value of our non-renewable resource products, market diversification and access to new markets, especially to growing economies in Asia, is strongly advised. Because the benefits, be they safe energy or jobs or government revenues, are the reason we develop oil and gas, I'd like to touch briefly on what these benefits look like at the local level.

Let's start with B.C. British Columbia is Canada's second largest producer of natural gas and is home to some of the largest shale gas deposits in North America. With global demand for natural gas expected to increase by 55%, according to the IEA, B.C.'s endowment positions it perfectly to serve emerging markets in Asia.

With natural gas exports to the U.S. in decline, as we have heard today, developing LNG export facilities to Asia is needed and could contribute as much as $1 trillion to the B.C. economy over the next 30 years, creating 54,000 jobs and generating some $47 billion in tax revenue to support the delivery of B.C. public services. As natural gas development and proposed LNG facilities occur in and around first nations land, partnerships with and significant economic benefits to aboriginal people, such as the Haisla, are accruing and will continue to accrue.

To give you some scale, if one project alone, the Kitimat LNG project, proceeds it would be the largest construction site in Canada, providing training and well-paid union and non-union jobs in a region desperately needing employment, especially given the recently announced pulp mill closures.

Alberta, what is there to say about Alberta? Jobs for one. According to the recent RBC report, Alberta created some 67,900 new jobs, nearly two-thirds of all the net new jobs in Canada. Yes, these were in oil and gas, but they were also in housing, retail, and the personal services sectors.

While the image of oil and gas workers is often corporate like me, Alberta's oil sands industry delivers great jobs in many unexpected places. The industry is the single largest employer of skilled trades in Canada, including the largest employer of unionized skilled trades, and in a country needing skilled workers, Alberta has become a skilled trades training powerhouse. We have one third the population of Ontario, but twice the number of apprentices.

Oil and gas benefits also accrue to aboriginal peoples. Over the past 14 years, aboriginal companies have earned more than $8 billion in revenue through working relationships with the oil sands industries. Contracts awarded in 2012 alone were some $1.2 billion, and about 1,700 operations jobs are staffed by aboriginal people. This is certainly just a glimpse of the type of business partnerships and entrepreneurism that could become the aboriginal economic potential.

Saskatchewan today produces 480,000 barrels of oil per day, about 15% of Canada's total, second only to Alberta. Along with potash, this has firmly made Saskatchewan a have province.

Surprisingly to many, Manitoba is Canada's fourth-largest oil producer and more than 5,500 wells have been drilled in Manitoba. As of the end of 2012, the fields there have produced some 315 million barrels of oil. Many of these jobs, as I was told by Minister Struthers the other day, are in rural communities, providing boosts to local economies through not only direct employment but also through other business opportunities.

Although Ontario is home to 2,500 producing wells, the primary benefit Ontario receives from the oil and gas industry comes in the form of affordable energy imports and from the billions of dollars in goods and services that oil sands companies source from more than 500 Ontario suppliers, a number that is only expected to grow. As the former finance minister said, oil sands development has become such a major market for Ontario goods that projected sales for Ontario's goods and services to the oil sands sector could potentially surpass Ontario sales to traditional markets such as China or Hong Kong. According to the Conference Board, Ontario workers could earn $41 billion from natural gas and $36 billion from oil sands over the next 25 years, with the industries contributing $57 billion and $63 billion to GDP respectively over the same time period. Some examples of Ontario benefits were described here today by CME. More broadly, there are other ways that many Ontarians don't realize. Oil and gas companies comprise 20% of the TSX and many office towers in growing energy cities like Calgary are owned by Oxford, which is part of the Ontario Municipal Employees Retirement System.

Like Ontario, the majority of local benefits to Quebec result from oil and gas procurement of supplies of goods and services. Over the past few years, CAPP has featured Quebec companies such as Prevost buses and Ezeflow in our TV commercials and we have lists of hundreds of more companies, each of which has its own niche and own story. The list and stories of Ontario and Quebec manufacturers involved in the oil sands are multiplying like bunnies.

More obviously, Quebec's financial sector is heavily invested in the oil sands from the Desmarais investment in Total SA, which has leases in the oil sands, to the Caisse, which U.S. filings indicate holds some $4.7 billion in oil sands equities. The oil production potential around Anticosti Island and the shale gas resource potential are also both interesting developments to watch in the province.

Finally, Atlantic Canada has about 5,600 people directly employed and thousands more indirectly employed in oil and gas and we support over 800 local supply and service companies.

[The Chair, Conservative, Leon Benoit]

Excuse me, Ms. Annesley, if you could just wrap up as quickly as you can. I'm sure questions will bring out further information but you're running a little late there, thank you.

[Janet Annesley]

Of course.

New Brunswick also plans to develop its shale gas resources, the debate of which is ongoing along with the discussion with stakeholders.

In closing, I'd just like to say that in many cases when we talk about oil sands and oil and gas development, there's a propensity to want to keep all the value added or processing jobs in Canada. I would liken this thought to trying to keep all the jobs associated with pasta manufacturing in Canada, for example. The solution here is not to flood the market with cheap wheat in order to prop up the manufacturing industry but rather to create two vibrant sectors which can each sustain themselves on their own and be competitive on their own.

It's not likely in that scenario that Canadians would appreciate that type of pasta sector. They would say, hang on a second, look what we're doing to our farmers.

While farmers are far more sympathetic witnesses at a government committee than me, thank you for this opportunity to present.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Annesley.

We go now by video conference to Vancouver, British Columbia, and we have with us as an individual, Robyn Allan, economist.

Go ahead, please, Ms. Allan, up to seven minutes with your presentation.

[Robyn Allan, Economist, As an Individual]

Thank you, Mr. Chairman.

I appreciate this opportunity to appear before the natural resources committee to contribute to your study of the cross-country benefits of the oil and gas sectors of the Canadian economy.

This industry has historically played a significant role in providing Canadians with a high standard of living and quality of life. Continued development of our resources is an important component in Canada's industrial plan; however, benefits arise from resource development, not resource exploitation. There's a huge difference between development and exploitation. I'd like to address this difference by focusing on the strategy pursued in the oil sands today.

Development means enhancement, value added, wealth generation, and societal improvement. Exploitation occurs when benefits from rapid resource extraction are captured by large and foreign interests, while much of the costs are borne by the Canadian public and the Canadian economy. The excessive need for diluted bitumen export pipelines and condensate import pipelines, along with the significant tanker traffic these pipelines trigger, is characteristic of resource exploitation.

Pursuing the rapid extraction and export of bitumen by relying on a growing import dependency of foreign condensate is a plan to hollow out our oil sector and inject increased volatility and uncertainty into the industry. Bitumen is not an export-ready crude oil product. Oil sands bitumen is like tar. It cannot flow through a pipeline when it comes out of the ground. It can either be upgraded to synthetic crude oil to enable it to flow and be utilized by most refineries, or mixed with a diluent like condensate to change its chemical composition so it flows through a pipeline to a limited number of refineries configured to handle its density and sulphur content.

This committee is interested in assessing benefits, so clearly it is interested in understanding net benefits and maximizing those benefits. It would be silly to evaluate the business success of a company by looking only at its gross revenues, because this would not tell you anything about the company's commercial viability. Similarly, the economic success of the oil sector cannot be evaluated simply by looking at the gross benefits presented to you by pipeline proponents. Exporting a barrel of bitumen achieves 35% of the value of bitumen. Upgrading bitumen in Alberta captures 70% of its value, while refining it into petroleum products captures 100% of the value. To export diluted bitumen you need twice the pipeline capacity than what is required for a barrel of upgraded bitumen or synthetic crude oil. To export diluted bitumen you need twice the pipeline capacity than what is required to ship refined petroleum products such as gasoline or jet fuel. When diluted bitumen is water-borne, you need 50% more oil tankers than if synthetic crude oil or refined products are transported.

Canada is already a net condensate importer. Import dependencies are difficult to break. Policy-makers are struggling with an eastern Canadian import dependency for light crude oil that will not be solved even if TransCanada's Energy East is approved, unless requirements are put in place to ensure eastern Canadian refineries upgrade their facilities to accept oil sands bitumen or bitumen is upgraded to synthetic crude oil in Alberta before it's shipped east.

It's important to understand that the requirement for companion condensate import pipelines was not always the plan. As recently as five years ago, oil producers announced a wide range of upgrading and refining conversion projects to process bitumen at home. Alberta's oil producers planned projects that would have seen upgrading capacity in Alberta grow from 1 million barrels per day to 3.5 million barrels per day by 2015. These plans were to ensure upgrading capacity grew with extraction capacity. These plans would have ensured that much of the value added from our non-renewable oil resources would be captured domestically.

Then the financial crisis hit. Quickly thereafter the planned pace of bitumen extraction returned, but most of the upgraders and all of the refineries were shelved in Canada. Instead, investments in upgrading refineries were made in the U.S. in order for those facilities to accept Alberta's heavy bitumen.

The majority of those investments are linked to companies that produce bitumen in Canada. Those investments were facilitated by legislated U.S. subsidies.

In 2008 Prime Minister Harper promised bitumen would not be exported to Asia before being upgraded to synthetic crude oil. He stated bitumen export restrictions were necessary because domestic upgrading meant economic wealth from value-added job creation and control over environmental standards. This government continued to support upgrading in Canada until Enbridge filed its application for Northern Gateway in 2010. Publicly this policy has not been withdrawn.

Exporting bitumen is not good for Alberta and Canada's value added, and it's not good for the environment, but Canada's energy strategy is being determined in the boardrooms of a handful of multinational corporations, and by the governments of foreign countries through their state-owned oil companies. Their energy plan is to rapidly extract oil sands crude, mix it with imported diluent to allow it to flow through pipelines, and export it as diluted bitumen to the U.S. Gulf Coast, California, and Asia. To do this they need more heavy oil export pipelines, more condensate import pipelines, and more risky oil tanker traffic. Canadians deserve better.

It is important the committee recognize Canada is the only major country in the world not looking after its energy security, investment in value added, and control over price stability and volatility. It's time to design a made-in-Canada energy policy for the benefit of Canadians.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Allan.

We go now by video conference from Calgary, Alberta to, as an individual, Michael Priaro, professional engineer.

Go ahead please with your presentation, sir.

[Michael Priaro, Professional Engineer, As an Individual]

Good morning. Bonjour.

Extending an opportunity to benefit from the development of the oil and gas industry across Canada is a Canadian energy strategy. Maximizing that benefit to all Canadians is a “Canada-first” Canadian energy strategy.

The terms “oil sands” or “tar sands” refer to the same thing and are commonly used to frame the issues politically. This brief uses the scientifically correct and politically neutral term “bitumen sands”. By definition, bitumen is crude, having a density greater than fresh water.

Alberta enjoys a total original oil-in-place resource of 2,268 billion barrels. This exceeds estimates of 1,300 billion barrels by the United States Geological Survey for Venezuela's oil resource, and 716 billion barrels for Saudi Arabia's oil resource, the other rivals for the largest oil resources on earth, combined.

Alberta's oil reserves are sourced in the following ways: by strip mining shallow bitumen sands deposits, where 90% recovery of original oil-in-place is achieved; by in situ extraction of bitumen sands in deeper deposits using cyclic steam stimulation, now achieving recovery factors of 35% to 40%; by steam-assisted gravity drainage, typically achieving recovery factors exceeding 50%, and sometimes up to 70%; by in situ extraction of bitumen carbonate deposits, where two successful commercial-scale pilot projects in the Grosmont deposit are now both proceeding to full scale-development; and by multiple fracking of horizontal wells in tight oil shales containing a large oil resource little developed as yet, but classed as “proved undeveloped”, based on success exploiting analogous tight oil shales in the U.S.

These recent developments and improvements in recovery factors indicate Alberta's proved oil reserves are 848 billion barrels. Alberta's oil resource and proved reserves are the largest on earth by far.

The ERCB's reserves estimates widely reported as proved are in fact established reserves—a very restricted subclass of proved reserves, as detailed in the appendix to this brief—and vastly underestimate Alberta's oil reserves, especially in comparison to proved reserves of other countries.

In valuing Alberta's proved oil reserves, raw bitumen is valued at production costs of about $35 to $50 a barrel. Dilbit obtains the benchmark Western Canada Select price of about $60 to $75 a barrel. Upgraded bitumen, or syncrude, obtains the WTI price of $85 to $100 a barrel, and requires no diluent. Syncrude and conventional crudes obtain the Brent price of $105 to $115 a barrel at tidewater. Refined products such as gasoline and diesel obtain $200 a barrel at retail of $1.25 a litre, and U.S. $160 a barrel at U.S. retail of U.S. $3.80 per U.S. gallon.

The undiscounted value of Alberta's 848 billion barrels of proved oil reserves at $100 a barrel is $84.8 trillion, equivalent to $2.4 million for each and every Canadian.

However, economic benefits accruing to Canadians as a result of developing the oil and gas industry fall far short of potential.

This is due, first, to foreign ownership of bitumen production, which is currently estimated at 50% to 70%.

Second, it's due to exports of low value raw bitumen as dilbit because all in situ projects produce dilbit, of which only about 7% is upgraded at this time. The recently commissioned Imperial/ExxonMobil Kearl and, in development, Suncor Fort Hills projects, the first bitumen sands strip mines without upgraders, together with Imperial/ExxonMobil's announced Kearl in situ project, will produce a total of 687,000 barrels per day of raw bitumen, contained in almost 1 million barrels a day of dilbit for export.

Third, it's due to Alberta bitumen royalties of only 1% to 9% until project payout. In 2012, Alberta produced 1.5 billion barrels of oil equivalent, and collected $6.13 billion in non-renewable royalties, which is only $4 per barrel of oil equivalent.

Fourth, on Alberta's subsidy of raw bitumen production, which effectively encourages the export of raw bitumen, this disadvantages companies that upgrade bitumen and denies Canadians added value and tax revenues.

Fifth, with regard to high diluent costs, the cost to purchase diluent on the gulf coast at a premium to West Texas Intermediate, pipeline it to northern Alberta, pipeline it back to the gulf coast as dilbit, and then sell it as dilbit at a discount to WTI, approaches $25 per barrel of bitumen. As a result, Canadians are receiving not much more than 15% of the potential economic benefit of proved bitumen reserves.

Additional take-away capacity from new infrastructure projects, such as Energy East and a potential Energy East line 2, expansion of the Trans Mountain pipeline to Vancouver, expansion of Enbridge's Canadian mainline, reversal of Enbridge's line 9 in Ontario, and new railcar crude oil terminals in Alberta, will add 4 million barrels per day. That will be sufficient until about 2028, making Northern Gateway and Keystone XL pipelines unnecessary until then.

In conclusion, Alberta’s crude oil resources and proved reserves are the largest on earth, by far. Increasing exports of low-value dilbit, high foreign ownership, costs of diluent, low bitumen royalties before project payout, and subsidies for exports of dilbit, result in failure to capture more than a fraction of the potential economic benefits of the largest oil reserves on earth.

New pipelines connected to bitumen upgraders in Alberta, and refineries and marine terminals on Canada’s east and west coasts, maximize the cross-Canada value of the largest oil reserves on earth, provide energy security, and by adding 4 million barrels a day of capacity, together with new crude rail terminals, make low-value export pipelines such as Keystone XL and Northern Gateway unnecessary until 2028.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Priaro, for your presentation.

Thank you, all, for being here and for your presentations.

Before we get to the questions, first of all, I want to acknowledge that Chris Charlton is the new critic for natural resources and won a hard-fought election for vice-chair of this committee at the last meeting.

[Chris Charlton, NDP, Hamilton Mountain, ON]

It was my impassioned speech, right?

[The Chair, Conservative, Leon Benoit]

It was much better than usual. No, no, I'm just kidding.

Congratulations on that and welcome to the committee.

Before we get to the first round of questioning, I want to mention that we've had requests from three witnesses—I know our lists are closed—to appear before committee. I'll just note that. They are the Pacific Northwest LNG, Progress Energy, and the Business Council of British Columbia.

We will start our seven-minute round with Mr. Leef, followed by Ms. Charlton, and, finally, Mr. Regan.

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

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chair.

Thank you to all our witnesses for being here today. There's a lot of information and I'm rifling through everybody's testimony here to get down to really what we're hoping to achieve in this study. I appreciate the detail. Of course, there are lots of numbers and figures that at times are a bit staggering in nature when we're talking billions and trillions of dollars.

Being a member of Parliament for the Yukon, I know we're pretty localized, small, and we like to bring things back to that kitchen table kind of benefit that this sector brings to the Canadian economy.

I will get a chance to ask Ms. Allan a couple of questions on her presentation, but what's interesting is that one of the remarks in it was that we're being given a picture of the industry that the industry wants us to see. I guess what I see, and it has been articulated in some of these that I think are most meaningful to the Canadian public, is the largest employer of first nations people in Canada is the oil sands. I see development corporations in the Yukon being built not just around the energy sector but development projects, and for all intents and purposes development projects can be one and the same when we're talking about benefits purely. We see a quality of life that we haven't seen before, I think that would be the same realized in Alberta. I see Yukon workers who have gotten skilled training jobs and have left the territory, and continue to leave the territory and come back to seek jobs in Alberta, and work and then return those dollars to our territory.

Maybe, Ms. Annesley, you could talk about just what you see in terms of the Canadian workforce migrating around the country to find jobs, and what they do in terms of bringing that back to their home provinces when they seek employment. And what is the industry looking at doing to enhance and develop jobs within the workforce's own provinces to keep people working where they live? I think that while they all appreciate moving around to get those jobs, it would be nice to have people at home working as well. So maybe touch on those two things for us, if you can.

[Janet Annesley]

It will be my pleasure.

Skills mobility is one of the biggest issues the oil and gas sector faces. There's some debate about whether or not we have a skills shortage in Canada. I don't know a major project manager who does not have labour at the top of their risk assessment for major project execution. The risks of inflated costs for skilled labour could put Canada at a major competitive disadvantage.

That's where I think the oil sands has been a success story. Working, frankly, with many of the building trade unions, a lot of those sites, as I mentioned, have a huge number of apprentices. Ensuring that we use our industrial development in these large construction sites to train the next generation of skilled workers—up to 20% of the workers on some of these sites are apprentices—is essential. Having those apprentices come from the Yukon, from Ontario, from other areas to train in the oil sands and then return to their provinces, go to work on LNG facilities, maybe go to Muskrat Falls, go to work on the offshore.... Yes, Alberta producers know that they're competing with opportunities back in people's home provinces where they'd obviously prefer to work rather than be in camp.

[Dr. Jayson Myers]

Can I just add a couple of things that I'm seeing?

One is that because of some of the capacity constraints around where these projects are occurring, and particularly in Alberta and in Saskatchewan, companies are changing the way they're operating. We're seeing a lot of companies that perhaps once were suppliers directly to oil sands projects now becoming integrators and partnering more across the country to expand capacity in other provinces where labour issues are not as dire. That's giving a lot of new opportunity for arm's-length supply chain relationships and very innovative types of modular manufacturing, for instance, that don't necessarily have to occur locally but can occur in other places across the country.

The other thing too that we're seeing in all provinces is that people who have been employed and whose skill levels have really improved as a result of their work in these projects are coming back to their local communities and may not actually be working in resource development at all. These are the skills that are required in engineering and technology and in general trades that all communities need to set up very productive businesses. I think we do need to look at a more general, economic, value-added strategy that is not just focused on the benefits of energy development, but looks at our ability to translate some of those skills and some of the innovations that we're seeing to communities. That's what will be sustainable in the end around our energy developments.

[Ryan Leef, Conservative, Yukon, YT]

So it's the development of a highly transferable skill set that exists in or outside of the energy sector?

[Dr. Jayson Myers]

Exactly, especially in the future. The future of the Canadian economy is going to be based on our ability to use new technologies and on our ability to build things and to incorporate services in those as well. The oil sands, in providing energy and resource development generally, are providing a tremendous opportunity to develop those skills that are really in need right across the country. It's a tremendous opportunity I think, frankly, to develop skill sets that are not being provided in other areas of the country but that are coming out of northern development.