Natural Resources Committee on April 1st, 2014

[Ryan Leef, Conservative, Yukon, YT]

Thank you.

Mr. Larson, the fertilizing end of it is an interesting angle that we don't hear a lot about. It's really some downstream discussion here, and I'll take this vein. Your industry's involvement in the oil sands and the utilization of natural gas for fertilizers is helping the farmer. Of course, there's cross-utilization of infrastructure between roadways and rail, and then, you know, you support the farmer. The farmer needs to get their product off the fields and into market, and if there's cross-competition with rail—

[The Chair, Conservative, Leon Benoit]

Mr. Leef, I'm sorry, but I'm going to have to leave that as a statement, a great statement—

[Voices]

Oh, oh!

[The Chair, Conservative, Leon Benoit]

—but there's no time for an answer, so we will go now to Ms. Charlton for up to seven minutes.

Go ahead, please.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much, Chair, and thank you very much for your warm welcome.

I want to thank everybody who made presentations this morning. I have questions for just about all of you in the long seven minutes that I have to do so.

Let me start with Ms. Allan. Thank you so much for focusing us on the lost opportunities, if you will, in terms of having adopted a rip-and-ship policy when there's so much more that we could be doing if we wanted to be serious about maximizing the benefits out of the oil sands.

As you're an economist, I have a specific question for you in that regard. You'll recall that the International Monetary Fund, which is hardly an NDP think tank, for any of you who are wondering, suggested that there's a lot of dead cash in the economy right now. They in fact chided Canada for having the most dead cash in the G-7. That amount now actually exceeds our national debt, so we're talking about a significant amount of money. I think that right now it's in the neighbourhood of $626 billion, and 60% of that, the IMF suggests, is actually in the mining and energy sector.

Given your position that we could do so much more, I wonder if you could comment on how we could best use some of the dead cash and how much of it, frankly, would be reasonable to think about reinvesting, and on what we could do with that to move towards sustainable development and really maximize the oil sands in the way that you talked about in your presentation.

[Robyn Allan]

Exactly. I think it's very important to recognize that over the last decade or so, the subsidization of industries—particularly in energy—with a reduced tax rate has resulted in a stranded amount of capital, and it hasn't been re-injected back into the economy at its maximum potential.

If we actually recognize that Canada is the only major country that does not have an energy policy to support its economy in enhancing value added, we need to figure out how to develop a value-added policy that will actually deliver the maximization of our vast wealth.

Most countries have national oil companies. They deliver public goals. Most countries have policies to support the value added. If you look at the U.S., you see that they have the 1975 energy policy and export act, which restricts crude oil exports until that crude oil is turned into valuable products like petroleum, gasoline, jet fuel, diesel, etc. They have the Jones Act in the United States, which restricts the shipping industry, and somehow, at a cost of around four times what it would cost without the legislation, that industry is profitable.

Really, we need to take a look at redirecting the policy to ensure that the energy sector delivers industry that will diversify our economy to its potential and strengthen our economy, so that when the inevitable booms and busts happen, we are so strong that we can weather those storms. If, for example, all we delivered was what Mr. Harper promised, which would be that bitumen would not be exported to Asia, upgrading and refining in Canada would become profitable pretty quickly.

That would get industry doing what they should be doing for the Canadian economy, because they're already doing it for their bottom lines, and four national oil companies are already doing it for their countries. All we need is a policy in place to provide them with the incentive to take that money and reinvest it in value added. That would slow down the pace of development of production, and that would allow sustainable solutions to be determined so that in the next 30 or 40 years we actually would remove the kind of dependency we have today and the kinds of problems we're dealing with today.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you.

Mr. Myers, I'd like to ask you a similar question. Jotting down some of the figures you gave us—I'm right-handed, so I couldn't get them all, sorry—I think the way you presented them was that the benefit to the manufacturers and exporters of oil sands development was roughly 15%.

Is that right? For every dollar invested in the oil sands, your members—

[Dr. Jayson Myers]

Overall it's about 20%.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Even better: 20%.

Have you done an analysis of what kind of benefit your members would experience if there were more value-added production in the oil sands, and of what the spinoffs would be in your sector?

[Dr. Jayson Myers]

We haven't really done an analysis looking at the refining and upgrading part, but I know that the fuel association has looked at the spinoffs of the refining. Clearly, if we were to develop more refining capacity, more upgrading capacity, there would be much more opportunity for inputs for manufacturing from other sectors of the economy. That is important, I think.

I would like to say a couple of things about maybe some of the issues around making those investments. There is a considerable amount of investment already being made. Sometimes when we look at this issue of stranded cash, there is a lot of cash sitting on books, but there are also a lot of short-term liabilities as a result of the financial crisis. We have to take that into consideration too.

At the end of the day, though, there has to be a return on investment. One of the biggest constraints that...and this goes to some of the issues we've been discussing. Clearly an upgrading of refining capacity or expanded capacity in Canada would have significant economic benefits for the country. The issue is how do we encourage that type of investment? Is that through subsidies, as many have referred to? We're seeing it in manufacturing. American governments are paying a lot in terms of subsidies to expand capacity in the United States. Some of it just comes down to the price that producers are able to get in markets, too. We are trading on a reduced, discounted price level here. If that price does not provide the return on investment, it's hard to make the argument that there is an economic reason for those investments.

I think the whole investment argument or the return on investment calculations need to be reviewed. We do need to ask, okay, if clearly more upgrading, refining is good for the economy, how do we then try to encourage more of that investment to take place?

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you.

Do I have any time left?

[The Chair, Conservative, Leon Benoit]

Your time is up.

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

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

Thanks to the witnesses for appearing, and in some cases for getting up very early in the morning to do so.

Let me start with you, Mr. Myers. I'm sure you saw yesterday's story in The Globe and Mail about their C-suite survey of Canadian CEOs. They reported that 62% of those CEOs said that governments put too much emphasis on the extractive industries in Canada, because they're concerned that it's a very cyclical sector, obviously.

Obviously some of those people would be members of your organization. What's your take on that, and how would you respond to them?

[Dr. Jayson Myers]

First of all, I think the whole point of our analysis is that we shouldn't look at the extractive sectors in isolation. An awful lot of manufacturing, construction, utilities, service sector and public services are all part of that.

I think I would agree with everyone who says, well, we can't simply look at the extractive sector in isolation and put all of our eggs in that one basket. It was, by the way, a very effective basket in terms of the economic recovery from 2009 to 2011, but we see the impact as prices have come off and global demand has come down a bit. We're not seeing as much activity in that sector right now.

In terms of what we need to focus on, as Roger Larson was saying, what is it, across all of industry, that encourages more investment? These are things like regulatory policies, infrastructure development, skills development, our trade agreements, and measures to strengthen investment. I don't think we should be looking at one sector at a time but rather at that whole broad approach to investment and innovation, skills development, and economic development in Canada, which, by the way, is changing not only in the resource sector but across manufacturing and in many of the services. It's changing very dramatically with the introduction of new technologies here. We need to be on top of that as well.

[Geoff Regan, Liberal, Halifax West, NS]

Some Canadians would argue that we don't need to put any of our eggs into the oil and gas sector because it's doing very well on its own and doesn't need subsidization or tax breaks and so forth.

I was going to ask you, related to that.... You're talking about how to encourage value added in our economy and what our value added policy should be. My first question is, did you just answer that question with your last answer? If so, I'll move on to the next question.

[Dr. Jayson Myers]

A great deal of the economic and job potential of the Canadian economy going forward is going to depend on our ability to bring new products, new services, and new resources to market. I think we need to look at the development and discovery of new resources and at production—how we add value to those resources—as part of the innovation challenge we're facing.

It depends on investment and capital, on our ability to find the people and develop the right skills to capitalize on all of those developments, and it depends on our ability to get our products to market. And that's not just in the oil and gas sector; it is also a question of our ability to penetrate new markets through either new trade agreements or through encouraging....

Frankly, one of the biggest challenges we're facing in manufacturing and in resource development in Canada is access to the United States. That has to be a very important part, I think, of our consideration of various options to develop our value added strategy here in Canada.

[Geoff Regan, Liberal, Halifax West, NS]

Speaking of access to the United States, let me turn to Ms. Annesley.

You mentioned that one third of U.S. oil imports come from Canada. What do you see happening to that figure over the next five or ten years?

On a related note, what is your response to the argument about diluent, and to what degree is it recycled?

[Janet Annesley]

First, it's anybody's guess what's going to happen with Keystone XL, that being a major project for access to the United States market. Regardless, we see our ability to export crude to the United States increasing. There are some other projects that will increase the amount of capacity.

[Geoff Regan, Liberal, Halifax West, NS]

So, despite U.S. development of—?

[Janet Annesley]

Despite U.S. development, there are still plenty of foreign imports to displace from the U.S. market. Growing economies in Asia could use those barrels from Saudi Arabia or Algeria much more than the U.S. could. Canadian production has the opportunity to displace those barrels. The U.S. is a major consumer of oil, and there's still quite a lot of running room, despite the increase in production out of the North Dakota Bakken, for example.

[Geoff Regan, Liberal, Halifax West, NS]

How does that fit with the argument about the need to be able also to get it to tidewater to export our oil outside of Canada?

[Janet Annesley]

The key there is that we have to have another customer, so that market diversification will allow us not to suffer a discount or see inefficiencies in the market such as we have seen over the past couple of years with the flood of crude oil at Cushing.

That was a good example of what some people are talking about today. If you flood a local market with cheap crude oil, you can bolster your refining industry, but as soon as that margin disappears.... It's essentially a false economy.

We have to find efficient markets as crude producers, in which we can get the maximum value for our crude oil. That market may be in the U.S.; it has been for a large number of years—that's why pipelines all go there. But now, the growing energy market is in Asia, and we need to access the prices there.

[Geoff Regan, Liberal, Halifax West, NS]

And the diluent...?

[Janet Annesley]

Some of the diluent is recycled, for sure. We import diluent and we also have the opportunity to produce more diluent in Canada. Fracking in the Bakken, for example, produces a lighter oil that could also be used for diluent. But diluent can be recycled. It's not a major input cost to the business; it's simply a part of doing business that ends up back in the hydrocarbon value chain.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Regan. Your time is up.

We now go to the five-minute rounds, starting with Ms. Crockatt, followed by Ms. Block and then Ms. Duncan.

Go ahead, please, Ms. Crockatt, for up to five minutes.