Natural Resources Committee on April 3rd, 2014

[Ron Watkins]

Yes. We're very aligned with what happens in manufacturing broadly, and we and CME actually are pretty eye-to-eye on a lot of these issues.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thanks.

I heard you say that now the energy sector is almost on par with the auto sector in terms of being an end user for steel.

In Germany, the second-highest end user for steel is wind energy now. When you talk about the energy sector starting to parallel the auto sector, are you talking specifically about steel's engagement in oil and gas, or are you talking about the energy sector more broadly?

[Ron Watkins]

No, energy more broadly.

For example, as you know, Ontario's had a fairly substantial wind power project. Domestic companies have been very much a part of that as well. If you think of windmills, they're large steel structures, with a steel-reinforced base. So part of our energy calculation includes other forms of energy. But I focused on oil and gas this morning, which I thought was the theme of this proceeding.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Fair enough, but we're also exploring benefits, and obviously benefits down the road. If you're talking about the sustainable development of oil and gas and you're talking about the introduction of greener technologies, that would obviously have an impact on the steel industry as well.

In terms of your projections, where do you see the growth in the natural resource sector for steel? Is it in green technologies? Is it...? Well, I'll just leave it open-ended. Where do you see that?

[Ron Watkins]

I think the growth will be in both conventional, let's call it oil sands and shale, and all those oil and gas sectors will certainly be growing strongly—

[Chris Charlton, NDP, Hamilton Mountain, ON]

Oh, as a sector for sure, but there are opportunities even within the sector, right?

[Ron Watkins]

There are opportunities within that sector, but also within other forms of energy generation. Even electricity generation and distribution is a very steel-intense activity. There's no single energy form, if it's going to grow in the country. We're not arguing for this versus that. We think there's opportunity in them all for steel.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much.

Mr. Leach, I'm going to turn to you next.

I'm almost afraid to ask this question. I think when you first enter politics, especially in question period, people tell you, “Don't ask questions to which you don't know the answer.” I'm going to ask one to which I don't know the answer.

Has there ever been an attempt to cost social licence? Certainly in debates people have tried to cost carbon. There have been tons of studies done on that. Social licence is a bit of a broader concept. Could you explain to me whether it's been done, whether it could be done, and how?

[Dr. Andrew Leach]

I wish I could phone one of my colleagues in our strategy group. They would have a better answer for you.

I would have to start with whether we can even define it. The term “social licence” means a lot of different things to a lot of different people, and obviously different things in different industries even within the natural resources or oil and gas sector.

At this point, no, I don't think there is a clear definition of what it would cost to obtain “social licence” for any of the sectors of the oil and gas industry, or more broadly.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Is there any merit at all in trying to come to some kind of agreement on what it ought to mean?

[Dr. Andrew Leach]

I think the broader concept is in terms of what Canadians expect in general from industries operating within our borders, the oil and gas industry specifically. We heard a lot on different parts of that, in part from Ms. Kennedy's testimony. It's going to mean different things in different regions. I think we should absolutely be having those conversations. Whether we have to agree on what a national definition for social licence is, I do not know that we'll ever agree on that.

[Chris Charlton, NDP, Hamilton Mountain, ON]

Thank you very much.

[The Chair, Conservative, Leon Benoit]

We'll go now to Mr. Calkins, for up to five minutes.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

I am going to start with Mr. Mallay. I want to ask you some questions. I'll give you the context.

I represent the riding of Wetaskiwin, which is in central Alberta. In my constituency, I'm proud to represent companies like NOVA, which also has a large facility in Sarnia. We have a large value-added petrochemical industry. We have Dow. We have everything located out at Prentiss and Joffre. I am sure you're familiar with the installations out there. I want to talk to you a little bit about that.

In your opening comments, you said that in your area you are now positioned better than you've ever been in 30 years. Could you elaborate on what kinds of policy conditions, what kind of economic conditions and labour force conditions, whatever it happens to be, that have given you that position to be there?

A few years ago, NOVA, as an example, was not in a good position, and the economics of scaling back in central Alberta based on the economics was a reality. We saw share prices plummet. It was bought up. A few short years later, they're in the middle of a $1 billion expansion for the value-added in making plastics there.

Can you tell me what's changed, and how bright the future actually could be for the folks in your region?

[George Mallay]

First, I would say that the existing refinery assets and chemical industry that we have in Sarnia that relies on crude oil from Alberta is really at the core of our complex.

What we've done over the last 10 years is we have looked at opportunities to grow that complex, realizing that we haven't been receiving a lot of investment in traditional chemistry.

We have seen the movement for more renewable energy sources. By being able to put forward brownfield sites, by being able to re-tool our workforce to become more common with fermentation processes, by working with our agricultural industries, we've been able to build infrastructure for bio-based companies.

We've also received a lot of support from our existing industries. We also realized there were opportunities around shale gas. We had a large shale gas conference in Sarnia about eight years ago. We really started to promote the benefits of shale gas.

NOVA was in serious trouble in our area with their operations, and it's really shale gas that has enabled them to have a competitive feedstock. They recently had a large ceremony to celebrate the turnaround of their operations in our area.

The key thing in terms of refining bitumen is that in a barrel of oil the real benefits are in the downstream. I would suggest to you that Imperial Oil makes more on their ethylene operations in Sarnia than they do on the refining of gasoline and diesel and those things.

On the Dow side, there used to be 20 petrochemical plants. We're repopulating those brownfield sites with new petrochemical operations. Some of them are going to be bio-based and some of them are going to be hydrocarbon-based.

Marcellus shale gas is really generating a lot of new interest in our area. We also have a strong commitment locally to try to get an upgrader. It may not come from local companies. We may have to find a new type of partner.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Obviously, the future's looking bright. That's good for jobs and it's good for economic prosperity in the area. It's important that we get the policy decisions right to make sure that this stays enabled.

I want to move now to Mr. Watkins.

You talked about steel. I wonder if you'd comment briefly about some of the advances in technology in the steel industry to build some of these highly technical components that we see in the engineering of oil sands. Oil sands development, even the mining operations, have evolved dramatically over the last number of years, but the in situ, the SAGD, all these other developments have required, obviously, incredible advances in technology. Perhaps you could talk to the importance of that in your particular industry, how using innovation keeps you competitive.

The last thing I want to do is tie this all back, because we are talking about cars using steel and the energy sector using steel. I'm wondering, Heather, if you could tell us how many trucks are purchased from North American automobile manufacturing plants to work in the oil sands. That would be a great tie-in.

[The Chair, Conservative, Leon Benoit]

Mr. Watkins, we have a very little bit of time, so could you make the answer very brief, please.

[Ron Watkins]

I'll go very quickly, then, to the question.

Yes, it's absolutely important that our firms, particularly those making the highly engineered, highly advanced seamless pipe and tube products, for example, that you would use in an in situ development, engineering the couplings, as well as the pipe.... Going backwards across that cross-Canada supply chain, I'd say the other part of it they've worked with is getting the steel suppliers to the pipe mills to actually develop the types and grades of billets that they need. It's an innovation chain and not simply at the point of the pipe production. Our industry needs to work with the companies doing the drilling, actually, to make sure that the products, and so on are what they need. There's some relationship there.

Maybe with a bit more time we could talk about other investments in pipe-making technology.

[The Chair, Conservative, Leon Benoit]

We're going to have to leave the answer at that. Thank you, Mr. Calkins.

We go now to Ms. Leslie, for up to five minutes.

[Megan Leslie, NDP, Halifax, NS]

In my last round of questioning, Mr. Leach, I was thinking about your writing, and then shared my conclusion or my thoughts. I think that government would either have to heavily subsidize the industry or engage in those lobbying efforts to ensure those environmental regulations don't happen downstream. I'll leave it to you if you'd like to comment on that.

My next question is for you and Mr. Mousseau.

I'd like you to comment on the diversification of our energy sector.

When it comes to diversification of our energy sector, Suncor, for example, has internally developed a GHG strategy road map. What they've done is looked at risk assessment, and in doing that risk assessment, they decided to create a business unit that's active in renewables, recognizing that we're probably going to go there anyway, right? I see that as fitting into this idea of diversifying our energy sector.

Sarah Dobson from Pembina was her last Thursday, and we talked a little bit about this with her. One of the true benefits of the oil sands is the opportunity to leverage the knowledge and the skills that are there to help us in our transition to that inevitable shift to the green energy economy. One small example I used was the skill of drilling, which is very much a skill needed in the oil sands, but is also the exact same skill that we need for geothermal, and whether we could leverage those skills and knowledge.

I want to pose a question to both of you just about that need for us to diversify in this sector.

Monsieur Mousseau.

[Normand Mousseau]

That's a huge need. As you said, synergies are possible in many fields. In terms of energy storage, chemical storage is one option. And chemical storage is also the transformation of molecules potentially into hydrocarbons. There's definitely a lot to explore in that regard. Companies active in refining and hydrocarbon development could use their knowledge to move towards those new possibilities.

[Megan Leslie, NDP, Halifax, NS]

Mr. Leach.

[Dr. Andrew Leach]

I think we want to be careful about the line between diversification and picking winners. I'm just thinking of my experience working in this industry. What is the new green economy going to be? It has been everything from hydrogen to CCS, to wind, to solar, and that's probably over an eight-year span. So our ability to say what the energy system will look like in 30 years, and to engineer an economy for it is very challenging.

I might echo, in this case, Janet Annesley's testimony from earlier in the week, to the degree to which Alberta as a province and also the oil sands industry as a whole are driving the training in some of those disciplines. I think you've seen a really hard pullback to some of the trades which you've talked about. Stephen Gordon has written about this; a real pull-up in salaries in those trades, which has been driven right now by the oil and gas industry, but is going to have that benefit of future training and developing those skills wherever the economy leads, with or without that active push from government.

[Megan Leslie, NDP, Halifax, NS]

I understand what you're saying about picking winners, but I think about government investment in innovation in the energy sector broadly, and I think about the magic of being able to pull that oil out of the sand, right? Thirty or forty years ago that was crazy talk, but we still sent scientists up there to try to figure it out and to explore and fail a lot, but then eventually succeed. I think about the parallels there with tidal. In the Bay of Fundy, it blew the turbines apart and people immediately saw that as a failure. But it's actually a profound achievement that the tides are so strong that they actually had the power to blow this turbine apart. So I see we have picked a winner, essentially, because we're not actually investing in that sector anymore.

[Dr. Andrew Leach]

I think in some sense, yes, we did pick a winner. But there are also a lot of things we've invested in along the way that haven't worked out. Just looking at one that has, and saying therefore government investment is always a good thing no matter what, is not necessarily true.

I would highlight on your point, though, it is important that government have the space to invest in things that don't turn out. It shouldn't be a question of every government cheque must be tied to a success story. If you do that, you're going to end up investing in things that we already know will work. You want government to take the risk in these cases of R and D that the market may not take because the risks are too high or just not quite compatible with a market.

So absolutely it's yes on that.