Evidence of meeting #22 for Natural Resources in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was sands.
A recording is available from Parliament.
9:35 a.m.
Conservative
The Chair Conservative Leon Benoit
Ms. Leslie, I want to remind you the committee is dealing with the cross-country benefits of the oil and gas sector of the Canadian economy, so if you could tie in your questions with that, that would be really good.
9:35 a.m.
NDP
Megan Leslie NDP Halifax, NS
How do we reap these benefits? I'm questioning whether or not we can because when I think about what you have just told us, all I can imagine for us to realize these economic benefits would be to heavily subsidize the domestic industry or engage in a full-scale lobbying effort internationally to prevent those kinds of regulations from being implemented.
I see you're furrowing your brow a little, but that's what I've come up with. Can you help me with this?
9:35 a.m.
Associate Professor, Author, Alberta School of Business, University of Alberta, As an Individual
It's my natural academic furrow.
9:35 a.m.
Voices
Oh, oh!
9:35 a.m.
Associate Professor, Author, Alberta School of Business, University of Alberta, As an Individual
Again, if you look at the International Energy Agency's low carbon scenario, oil prices are higher than what probably any oil sands company is using today to justify their projects, even in their 2°C scenario. It really does come down to what you believe the relationship is between global carbon emissions and that global oil price.
In response to the chair's question, I think the question is how at risk are these benefits. It really does boil down to whether you believe a low carbon scenario is also a low future oil price scenario as far as the revenue the producers receive is concerned. There are forecasts that will give you either side of that story. There's no universal consensus on high versus low oil prices tied to low carbon emission scenarios.
April 3rd, 2014 / 9:40 a.m.
NDP
Megan Leslie NDP Halifax, NS
I want to get back to government's role in trying to realize these economic benefits. What I see is a subsidy. You and I have had a brief discussion about how much that subsidy is, but there is a subsidy to the fossil fuel sector.
Then I look and I see lobbying against the fuel directive in Europe for example, lobbying against carbon tax or carbon pricing in other jurisdictions. That's what I'm seeing as our economic plan for making sure this is viable in the future.
9:40 a.m.
Conservative
The Chair Conservative Leon Benoit
Ms. Leslie, you're out of time, so I'll leave that as a statement.
We go now to Mr. Regan, for up to seven minutes.
9:40 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Thank you to all the witnesses for appearing, whether in person or virtually.
Ms. Kennedy, Professor Leach in his comments—I'm going to read from the notes he provided so it's a summary of his comments—says, and I think this is about the future benefits, how he's assessed the benefits of the oil and gas sector.
He says:
For a new, in situ facility, and assuming that oil prices remain at US$90/barrel, a prototypical project would likely continue to meet typical investment benchmarks of a 12%-13% rate of return even at carbon prices of well over $100/tonne, or equivalently with regulatory requirements for carbon capture and storage.
What's your assessment of that statement? Do you agree with it? What does it mean for Suncor in the future?
9:40 a.m.
Vice-President, Government Relations, Business Services, Suncor Energy Inc.
I couldn't comment on whether I agree on that particular statement or not. I apologize. It's not something I've studied long enough, but I can speak to the future of in situ. Part of the technology development either Suncor is doing on our own or through COSIA, Canada's Oil Sands Innovation Alliance.... We believe there is step-change technology—sorry, that was an engineering term—through in situ that is going to revolutionize the industry. We think that takes the current paradigm of natural gas consumption, which is what produces the greenhouse gases, and shifts it, maybe potentially reduces it in half, and so changes that whole dynamic and makes it that 12% or 13% rate of return. That changes the conversation.
That's the approach we're taking. Our next generation of in situ plants looking past 2022 or 2023 will, I think, look quite different from today.
9:40 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
You weren't able to comment on the whole statement, but let me get part of it. I'm not sure which parts you could or couldn't comment on. For example, what is your assessment of the impact on your rate of return of the kind of carbon price Professor Leach suggested, if it was well over $100 a tonne?
You mentioned that you, like others, have considered in your future planning having carbon costs and what implications that would have for you. I don't know what kinds of numbers you thought about as you made that calculation.
9:40 a.m.
Vice-President, Government Relations, Business Services, Suncor Energy Inc.
Well, it's not $100 a tonne, that's for sure. But I would say that kind of number does impact your rate of return by 3% to 4%. For our shareholders at Suncor and our CEOs, it needs to be an 11% rate-of-return project in order for us to consider it. That's our threshold.
As we look forward, if you have to account for that, then either you have to do a number of other things that reduce that impact down to 1% or 2%, or you have to do some other things around productivity and the supply chain—the steelmakers and others—that will actually improve your IRR, internal rate of return, to 15% so that you can account for that cost. We think that's actually viable. Suncor's position would be that the risk around carbon pricing is somewhat less than what Mr. Leach described.
9:40 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
By the way, as I listened to the testimony of all the witnesses, I came up with enough questions for about an hour of discussion. Unfortunately I don't see my colleagues agreeing to give me that much time; probably the seven minutes is going to be it for me.
I'm going to turn now to Professor Leach. I'm going to ask you about the point you made that rather than taking jobs from Canadians, foreign refining capacity, which can cost effectively transform bitumen into higher value products, has a very important implication for Canada. It increases the implied value of bitumen, which is, after all, what we should want as owners.
As parliamentarians and as Canadians, shouldn't our objectives be employment and broad benefits for as many Canadians as possible? When you say “owners” here, what's your take? How would you respond to that question?
9:45 a.m.
Associate Professor, Author, Alberta School of Business, University of Alberta, As an Individual
In terms of what we should want as Canadians, my rule of thumb would be, don't spend bitumen on something on which you wouldn't spend money. If you're not prepared to write a large government cheque, do not turn around and offer a company cheaper bitumen in order to underpin their operations.
What I meant by that statement was that if you have offshore refining capacity that is able to, at a very low cost—$10 to $15, or less, per barrel—convert bitumen into high-value refined products, that will create more demand for bitumen, and that in and of itself is going to raise the price and value of bitumen.
Our alternative there would be to say that we're not going to allow the export of bitumen, which would depress its price. That would enable, as you suggest, Canadian employment related to the processing of that bitumen, but we'd have to be clear that what was actually paying for those jobs was not new money; it was money taken in the form of a discount on bitumen.
That's why I made the point of saying don't spend bitumen where you wouldn't spend money. I don't think we would write a large government cheque to a new refinery. Don't give them discounted bitumen.
9:45 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Mr. Côté, could you tell us how the Energy East Pipeline would affect refineries in Montreal, especially yours?
9:45 a.m.
Jean Côté Vice-President, Montreal Refinery, Refining and Marketing, Suncor Energy Inc.
Refineries like ours are always very keen on and open to the idea of accessing new sources of supply. As you know, the Line 9B reversal project was recently approved. And that's good news for us because it gives us access to raw products at better prices than through our current supply source.
The Energy East Pipeline would have a similar effect. If it were to become a reality, it would represent another supply source for us, in Montreal, and give the refinery greater flexibility.
9:45 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Could you tell us what that would mean in terms of jobs and other advantages? Do you have any figures on that?
9:45 a.m.
Vice-President, Montreal Refinery, Refining and Marketing, Suncor Energy Inc.
Unfortunately, not. You'd really have to ask TransCanada that question. My standpoint is really based on our operations specifically.
9:45 a.m.
Liberal
Geoff Regan Liberal Halifax West, NS
Mr. Mousseau, you talked about the need to “encourage the development of world-class Canadian companies in the energy sector”.
Do you have any suggestions on how to achieve that objective?
9:45 a.m.
Professor, Université de Montréal, Department of Physics, As an Individual
As a physicist, I can't offer any economic models that could be used for that purpose. However, just making sure that the decision is always made in Canada is one way of ensuring greater benefits domestically. As everyone knows, when a company's headquarters are not in Canada, the benefits for Canada, as far as knowledge and research go, are minimal. It is imperative to develop a domestic company through various means.
As a physicist and an academic, I come at the issue from a broader standpoint, so I don't have any concrete suggestions to offer.
9:45 a.m.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Regan.
We'll start the five-minute round now with Ms. Crockatt, Mr. Trost, and then Ms. Moore.
Go ahead, please, Ms. Crockatt.
9:45 a.m.
Conservative
Joan Crockatt Conservative Calgary Centre, AB
Thank you to all our witnesses for being here.
As usual, we have a lot of expertise here and not very much time to get to it, but I thought I'd make one comment on what we've heard. It seems somewhat ironic to me that we have my colleagues across the way, the NDP, advocating for a carbon tax, when we've also heard that this may be the thing that's actually putting our industry at risk of losing some of the benefits to Canadians, and at a disadvantage in the market when our chief competitors, the U.S. for one, do not have such a carbon tax. We have some of the best examples of environmental practices in the world, Suncor being an example of one of them, and Kearl, which was mentioned today, being another example of them.
Seeing as we're here to talk about what the benefits are of developing the oil and gas sector, I want to go into the jobs issue a little more. I'm wondering if I can ask Jean Côté what benefits you expect to see in Quebec, and maybe you could just drill down a little bit, as a direct result of Line 9 and the east-west pipeline.
9:45 a.m.
Vice-President, Montreal Refinery, Refining and Marketing, Suncor Energy Inc.
In Montreal what we have there is the last refinery left in operation. We used to have six refineries. That being said, our refinery is not alone. We are part of a larger petrochemical complex, so we call that the polymer chain, and we call that an ecological industry. What I mean by that is that we are all interrelated. One refinery provides products for the next one, and so forth. At the end we have more products, like plastic that we can use in the local market.
The whole industry, that whole pocket of industry in Montreal, is pretty much alive and it provides as many as probably 6,000 jobs in the area.
9:50 a.m.
Conservative
9:50 a.m.
Vice-President, Montreal Refinery, Refining and Marketing, Suncor Energy Inc.
Yes, we used to have six refineries.