Natural Resources Committee on April 29th, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're having a little bit of difficulty getting all our witnesses online by video conference this morning, but progress is being made. We have three out of four witnesses now online. The others should be here quite shortly.

I want to start by thanking you all very much for being here today to give the first presentations for our short study of the opportunities that Canada might have to contribute to energy security in Ukraine and the rest of Europe. Again, it's a very timely topic, one of interest, certainly in Canada, but in Europe and around the world as well. I do want to thank you all for being here today, all by video conference.

The witnesses we have with us today are, first, from the Canada Europe Round Table for Business, Jason Langrish, executive director. We also have by video conference from the Petroleum Services Association of Canada, Mark Salkeld, president and chief executive officer. We have from Pieridae Energy, Alfred Sorensen, president and chief executive officer. He'll be here in just a few minutes.

We have with us from the Ministry of Foreign Affairs of the Republic of Poland, Anna Barbarzak, acting director of the economic cooperation department. I thank you very much for being here.

You have a group with you today. When your time to speak comes, could you introduce the others at the table? I think that would be the best way to handle those introductions.

We will start in the order on the agenda, and we look forward to your presentations. We start today from Toronto with the Canada Europe Round Table for Business, Jason Langrish, executive director.

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

[Jason Langrish, Executive Director, Canada Europe Round Table for Business]

Thanks very much. It's nice to be here in a virtual sense today. I'm calling in from Toronto.

I'll give you just a little bit about the Canada Europe Round Table for Business. We're supported by about 125 chief executive officers of large corporates from Canada and the European Union. We've been quite instrumental in and quite a strong advocate for the Canada-EU comprehensive economic and trade agreement. Essentially, it's a free trade agreement by another name. The reason it goes by another name is that it goes further than free trade agreements traditionally go, into the behind-the-border types of issues.

I think that's really the basis for my remarks today. There's a well-established line of cooperation between Canada and the European Union. There are strong diplomatic and strong intergovernmental ties, but with this agreement we're putting in place an architecture to govern the trade and investment that flow between Canada and Europe, which is substantial, with a bilateral stock of investment of probably more than half a trillion dollars now and bilateral trade of about $100 billion a year.

A lot of that investment at present occurs in the energy sector, and it goes into the energy sector, primarily into the Canadian energy sector, and that is across the board. This is for everything from supplying turbines to power projects, to hydro dams, to engineering services, and to the massive investments that European companies have been making in the Canadian oil sands and in areas like natural gas as well.

Reciprocally, there has been investment by Canadians into the European energy sector in the same sorts of areas. Also, probably the largest area of investment has been in the North Sea, in the United Kingdom and to a lesser degree in Norway. There hasn't been as much done at the continental level, largely because in Europe that's primarily utilities. Canadian expertise and investment dollars have tended to flow more towards the oil and gas sector and the exploration and development.

So right now we have this architecture, this agreement that's not quite ready but should be signed shortly, and you have a very robust framework that's in place to facilitate commercial exchange. Then you look at the energy relationship. It's healthy, but until now it's been driven primarily by investment. We don't trade a lot in energy, very little, in fact, and notably in oil and gas. There have been some efforts made to rectify that. I think there is an opportunity, notably for Canadian energy resources to be sold into the European market.

As for the degree to which they can offset Russian oil and gas, for instance, or Middle Eastern oil and gas, or that form of energy that comes from more volatile regions, I'm not really sure at this stage. I think it's more a question of there being potential, but there are a lot of questions that need to be asked about this. That's primarily because it's only recently that Canada has started to turn its attention towards potentially moving product off the east coast, as opposed to the more traditional focus of moving oil and gas either south into the United States, within the continental market, or a fairly big push to move it eastwards into East Asia, which is a very lucrative market.

However, there are some projects that have come up as a result both of having problems getting to those traditional markets and because of economic opportunities. One is Mr. Sorensen, who I know will talk about the LNG project and the potential to export gas off the east coast and into the European Union. Also, there's the Energy East project of TransCanada Pipelines, which is, if realized, a very significant project. I think it would be something like 500,000 to 800,000 barrels of oil a day. I assume that a lot of it could be destined for the European market. That would be interesting as well.

However, there's something to take note of, and that is, while we're talking about the concept of exporting energy potentially into the European Union, and I think for the purposes of this discussion, it sounds like we're talking about the European Union. I know that Ukraine is not a member of the European Union, but I would assume that if we were going to be exporting energy over to Europe and the region, it would be entering into the European Union. Europe has been promoting in some corner something called the fuel quality directive, which is a policy to in essence penalize, with tariffs, fuel that comes from sources deemed to have a higher carbon content than other sources. Targeted by that, at least ostensibly targeted by that, are the Canadian oil sands.

I know that the Canadian government doesn't look kindly on this policy. They believe it's discriminatory. It's run into some issues and is going through a bit of bureaucratic stalemate. We don't know where this fuel quality directive is going to end up, but I just point out here that there are a lot of unresolved issues if Canada is going to be a serious supplier into the European market. While there is potential for gas and there have been projects announced on that front that are less contentious, on the oil piece, should even the energy east project be realized, there are other forms of oil export into the European market.

On the one side there is that economic potential, but then on the flip-side there's no clarity yet around how Canadian oil would be treated, notably if it was derived from the oil sands, once it arrives into the European Union, into the European market.

To sum up, we have a very strong relationship, a much stronger commercial relationship than people believe, even in Canada. It's of a magnitude similar to of our relationship with the United States. It's not quite as great as that, but it is very substantial. About 30% of investment into Canada comes from Europe, and about 30% of our investment out of Canada goes into Europe. We trade a lot and we have this free trade agreement.

So we have a foundation to deepen our relationship, including in energy, but we don't have the infrastructure in place and the record of delivering product into the European market. The policies that are being pursued on the European and Canadian sides are at times somewhat divergent.

Those are the things that raise questions. So to sum up, there is lots of potential. I'm not saying it's something that we can't do. However, it would be more of a medium to longer-term initiative, and there needs to be further clarity over how Canadian energy products would be treated if the capacity is developed to export them into the European Union.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Langrish from the Canada Europe Round Table for Business. I appreciate your overview. What these first two meetings will provide, I hope, is a good overview of potential for Canada to contribute to energy security in Ukraine and the rest of Europe.

Our second witness today is from the Petroleum Services Association of Canada. We have Mark Salkeld, president and chief executive officer, appearing by video conference from Calgary, Alberta. Welcome to you, sir. Go ahead please with your presentation for up to seven minutes.

[Mark Salkeld, President and Chief Executive Officer, Petroleum Services Association of Canada]

Thank you very much, and thank you for the opportunity to participate in this study.

The Petroleum Services Association of Canada is the national trade association representing 250 of Canada’s leading oil field service companies that have a cumulative employee base of over 75,000 people. The petroleum services sector in Canada is the second largest contributor to Canadian GDP in the natural resources sector, coming in at approximately $65 billion. This number is based on 2006 census numbers, and given the continued growth and success of the petroleum services sector over the last eight years, I am certain that the numbers will reveal an ongoing increase.

I make reference to the number of companies, the employees, and the revenue simply because I feel that a measure of the success realized in Canada can be realized in Ukraine. Ukraine holds significant untapped unconventional gas resources and to achieve increased production growth, it will require development of these more challenging resources, including the introduction of advanced methods of horizontal drilling and multi-stage hydraulic fracturing.

This is an area where the Canadian petroleum services sector has also successfully brought together two established technologies in conjunction with innovative information communication technologies linking related equipment, software, and near real-time data during drilling and completion operations. This provides us directional drilling accuracy within meters as we tap into unconventional resources far below the ground.

Ukraine has unconventional resources, Canada has the expertise and technology. The Ukrainian citizens have what it takes to create their own oil field services and the Canadian oil field services have a desire to help. The success as a country we enjoy here is in part because Canada would not be what it is today without the rich Ukrainian culture of hard-working, business savvy, independent-minded citizens that immigrated here and contributed significantly to helping Canada evolve as a strong democratic society with a sound economic system.

The Ukrainian culture is woven into the fabric that makes Canada what it is and stands for, and I am confident that given the support to establish a safe, democratic political environment, and a sound economic business environment in which to do business, Ukraine could find itself in time far less reliant on foreign sources of energy.

Here I have to be blunt in that our member’s single largest concern in doing business in Ukraine today—and a few have tried at the request of producers in country—is how to do business in a fair, open, and transparent economic system which currently does not exist fully in the country today.

Some of our member companies have travelled to Ukraine on an Alberta government trade mission in early 2013 with some setting up offices there while assessing opportunities. They were unwilling to continue to try to build viable business opportunities because of the depth of the shadow economy that would have to be dealt with in order to do business and get the job done.

In 2009, 36 Canadian owned and operated services companies contributed to a survey PSAC commissioned to help determine revenue from international sales and operations. It was determined that just under $13 billion in revenue was generated, on which tax was paid to Canadian provincial and federal coffers.

Another survey recently completed showed a continued desire for our members to seek out international business opportunities, looking to countries that mirror the Canadian regulatory and business regime as closely as possible; countries in South America; the U.S.; possibly Mexico, with its upcoming reforms; and China, where there is significant effort being undertaken to share Canadian oil field best practices with regard to safety, regulation, and operating practices.

The technology being developed, tested, and proven effective here in Canada with regard to the tapping into resources once believed to be diminishing and too economically onerous to go after, have helped considerably in the resurgence of natural gas reserves here at home and across the U.S.

These same unconventional resources can be found around the world, for example, in the U.K. and other parts of Europe. Delegations from Canada have travelled to Germany and Poland, for instance, meeting with officials and business leaders there to discuss the potential of tapping in to their tight gas deposits using Canadian technology and expertise.

The model defined here in Canada—Alberta in particular—for the development of a robust oil field services industry is being replicated in much the same way across the western provinces and can be as well for Ukraine. In the early days of the oil and natural gas industry in Canada, supporting services and supplies were brought in by the explorers from the U.S., and over time these business people immigrated to Canada, established businesses, hired locally, and producers sourced locally.

We realized a similar trend in northeastern B.C., and we are seeing it Saskatchewan and Manitoba. The same type of integration of services and the establishment of local service and supply can happen for Ukraine in the long-run. It would serve the best interests of Ukraine and Canadian oil field service companies wanting to expand their business opportunities.

A significant benefit to be realized through Canadian support of an oil field service and supply sector in Ukraine will be the influx of Canadian oil field best practices when it comes to safety and regulation. Canadian oil field expertise is world renowned, and there are very few, if any, oil fields around the world that Canadian oil field expertise has not been a part of in one fashion or another. From petroleum and reservoir engineering to drilling and completion technology expertise, Canada is a leader. It behooves us to share this knowledge and to support initiatives that can raise the quality of life, improve productivity, and support independent economic development in other jurisdictions looking to responsibly and sustainably develop their energy resources.

The main areas where Canada could play a role in Ukraine’s energy sector, either directly or indirectly, are more accessible coverage by Export Development Canada for drilling and exploration equipment and technologies, including work over, horizontal, spare parts, and pumps, etc.; technical expertise in oil and gas reservoirs management, including depleted fields; and unconventional resource projects and expertise.

Whatever we are able to do, it will still be a decade-long project at best. The business environment in Ukraine would need to stabilize before a large number of our member companies would want to risk their time, people, and equipment in such a risky environment. Stability means not just the absence of military risk and force majeure, it also means stable governance and legislation, and confidence in a rules and laws-based business environment.

For the rest of Europe, as per your mandate, conventional oil and gas is a very mature market and has been dominated by well-entrenched players for over a hundred years.

However, as stated above, when it comes to unconventional oil and gas, there are real opportunities for Canadian companies. It depends which countries open up their territory by legislation, permitting—or at least not forbidding—horizontal drilling and multi-stage hydraulic fracturing and the technologies that support the safe, efficient, and productive means of employing these services.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Salkeld, from the Petroleum Services Association of Canada, for looking at the opportunities Canada has to contribute through innovation, technology, and equipment.

Next we'll go to Mr. Alfred Sorensen, president and chief executive officer of Pieridae Energy Limited. Mr. Sorensen is with us by video conference, from Calgary, Alberta.

Welcome to you, sir. If you could go ahead with your presentation, you have up to seven minutes.

Thank you for taking a jog from one office to another in Calgary this morning. It is much appreciated.

[Alfred Sorensen, President and Chief Executive Officer, Pieridae Energy Ltd.]

It feels like spring today, so that was okay.

Good morning. My name is Alfred Sorensen. I'm the president of Pieridae Energy.

We are currently developing a liquefied natural gas terminal on the east coast of Canada to export gas primarily to the European Union. About a year ago we concluded our first transaction with E.ON, the German utility, to export 5 metric tonnes and we are currently marketing the second train.

I would say, when you look at these big projects, they take a considerable amount of time to get up and running. We've been working on the development of the project for about two years and it will take about another three and a half years to four years before we'll be able to begin moving volumes into Europe.

There is an absolute opportunity, from a pricing perspective, to move large volumes of natural gas out of North America. Certainly in the United States the Marcellus or Utica basins have reduced the cost of developing unconventional gas reserves significantly, and that technology continues to be taken throughout North America. So from a supply perspective, the combined U.S.-Canada gas reserves certainly act as a potentially large supply basin for Europe, particularly western Europe.

When you look at how gas from Canada could access markets further east, certainly that becomes a more difficult opportunity given the fact that the farther you go away, the more costly it is to move the gas. We've begun speaking with both Poland and the Baltic nations as to how we might be able to move gas into those environments. Certainly, the continental gas market in Europe is already very liquid in terms of how gas moves between east and west, north and south. That's actually one of the reasons that I think Canada could play a very good role in opening up markets in both western and central Europe. We already have had 20-plus years of a deregulated gas market, which certainly lends itself well to bringing that type of technology and economic certainty to buyers in those markets.

One big aspect of our project is that it does bring a new supply, which would certainly diversify Ukraine and Europe away from having one big supplier, such as Russia. There is some degree of security of supply that comes from having multiple suppliers versus having one or two suppliers. Probably the one aspect of this whole transaction that might be interesting for other players is to bring in multiple players and perhaps reduce the influence of one player over the economies of western Europe. We have seen with the transaction that we recently completed with E.ON that a large part of the reason they came to our project was that it provided for some diversification away from Russia.

The things that buyers need to look into when they're looking to do these long-term contracts—because the amount of capital that's put into our project is roughly about $8 billion, and thus certainly on a Canadian scale, as large as an oil sands projects—is that buyers have to be able to commit for 20 years and have a credit rating that allows for the debt support, and there has to be a regasification strategy in place. Often these projects don't develop properly together so that liquefaction may come on before gasification, and in order for the whole process to work there has to be a considerable amount of coordination on both sides of the ocean. One area where we've seen a considerable amount of interest in the last little while is how volumes of natural gas can actually move into the European Union or central Europe, but it really does require significant new infrastructure.

Two weeks ago when I was on the Prime Minister's trade visit to Germany, Chancellor Merkel made a very good point that it's good to talk about moving away from one supplier, but that significant infrastructure needs to be in place before that can happen. What I've seen in the two or three weeks since we were there is that there is considerable interest in Germany particularly, to begin to build that infrastructure in-country.

In conclusion, I would say that in our dealings so far, there has certainly been significant interest from major European players to look at Canada as a major supplier of energy. I think, to date, some of that interest has been more on the west coast rather than on the east coast. Certainly, eastern Canada is geographically well-situated to be able not only to bring volumes through the United States but also to develop our Canadian volumes such that we can play a significant role in energy security for western and central Europe.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Sorensen, from Pieridae Energy Ltd., for bringing a perspective from a company that is building a facility that could, in fact, export to Europe.

Our last group of witnesses today is from the Ministry of Foreign Affairs of the Republic of Poland.

I want to thank you very much for being with us today, this morning here and this afternoon there. We have as our witness, Anna Barbarzak, acting director of the economic cooperation department at the Ministry of Foreign Affairs of the Republic of Poland.

You could start by introducing the others there at the table and then go ahead with your presentation for 7 to 10 minutes. Go ahead, please.

[Anna Barbarzak, Acting Director, Economic Cooperation Department, Ministry of Foreign Affairs of the Republic of Poland]

I will, Mr. Chairman, as long as the time won't be taken from my seven minutes.

[The Chair, Conservative, Leon Benoit]

Go ahead. I will allow you the extra time.

[Anna Barbarzak]

Good morning Canadian time, and good afternoon Warsaw time.

I'm very happy to be invited to this hearing. It's my great honour. I think today's discussion is a very timely and important one, so we really appreciate your time. Thank you very much for the previous comments. They definitely set the stage for a very interesting discussion.

Let me introduce my colleagues: Mr. Grzegorz Kozlowski, head of the department of America at the Ministry of Foreign Affairs; Mr. Stanislaw Cios, head of the international energy cooperation unit at the department for economic cooperation at the Ministry of Foreign Affairs; Ms. Beata Slonimska, from the department of America; and Mr. Tomasz Kijewski, from the energy unit of the economic cooperation department, and also a future diplomat at the Polish embassy in Canada.

Mr. Chairman, honourable members of Parliament, and distinguished participants of this discussion, I would like to use this opportunity to reiterate the excellent political and economic cooperation we have had over years between Poland and Canada, reflected also in last week's visit of the Canadian Minister of Foreign Affairs, Trade and Development to Poland. During the visit we had an opportunity to sign the statement of principles of coordinated engagement on Ukraine and eastern Europe, part of which was also dedicated to the energy issue, which confirms our common approach and our joint work towards this goal.

I would just say, because some things were mentioned about excellent business cooperation, that business cooperation was also a part of the visit last week. We have had an opportunity to also hold business-oriented meetings, which are a reflection of the very good cooperation between our countries, including the business communities.

Coming back to the topic, I would like to start by making two assumptions here. First of all, the energy situation in Ukraine is an important determinant of energy security of central and eastern Europe and countries beyond the region from the perspective of the short, medium, and long terms. Ukraine retains an important role as a transit country for Eurasian gas to Europe. In the short and medium term, the flow of gas through Ukraine is a key to the energy security of the region. I just want to point out that eight countries of the EU import gas from Russia.

Secondly, the way Ukraine will tackle the task of modernizing its energy sector and meeting energy security challenges will be critical in achieving the success of the entire transformation process of the country. Ukraine wasted the last two decades to move away from one dominant supplier and reduce consumption of energy; as a result, today Russia can arbitrarily set the price for gas and demand economic and even political concessions from Ukraine.

International assistance to modernize the Ukrainian energy sector is a challenging must today. Although the political situation in eastern Ukraine is changing day by day, one thing is certain: we should intensify our efforts, work on immediate assistance, and analyze all the possible options we have.

To set the stage for our discussion, let me sketch out the energy landscape of Ukraine right now. First of all, Ukrainian economy is highly dependent on natural gas, the fifteenth worst consumer of gas. It accounts for 36% of the total energy supply. Almost 60% of gas consumed in Ukraine in 2013 was imported from Russia. These imports accounted for 8% of Ukraine's GDP. The obsolete and ineffective system of transmission and distribution is a factor additionally complicating the problem.

Second, the challenges faced by the nuclear power sector should not be underestimated in our discussion. Ukraine is strongly dependent on nuclear fuel imports from Russia. As nuclear power accounts for almost half of the electricity production in Ukraine, the strong dependence puts the nuclear energy management at risk and can negatively affect the economy in case of possible disruptions.

Third, concerning the coal sector, despite the vast resources that Ukraine possesses in this respect, this sector needs modernization and improvement in cost-efficiency and safety procedures. An efficient coal industry would be a reliable domestic resource capable of delivering adequate energy volumes.

Fourth, the Ukrainian economy is one of the most inefficient in Europe. In 2013 the energy efficiency of Ukraine was merely 54% of the EU average. The industry consumes over 50% of natural gas, while its energy efficiency is estimated at 25% of the EU average.

Any disruptions of supply can lead to further destabilization of the economy and social unrest, especially in the eastern and southern parts of the country, which are home to the energy-intensive metallurgical and chemical companies. If Ukraine increases its energy efficiency to today's EU level, it could save annually an amount of energy corresponding to 34 bcm of gas.

Recent events in Ukraine and an increase in the price of gas imports remind us once more remind of the problems in the Ukrainian energy sector and call for immediate assistance to the country. With almost empty gas storage facilities, a growing debt, and Russia's threats to halt gas supplies, we can expect a severe crisis in the coming winters. The remedy lies in diversification of suppliers.

A reverse gas flow from the EU could give the Ukrainian government a much needed alternative supply and put pressure on Gazprom, but modernization of the infrastructure would be needed, as well as removal of existing technical and legal barriers. I would be happy to delve more into these details during our discussion. This is the short-term picture.

In the long term there are more prospects for change. However, this will require enormous investments, a coherent strategy, and competent people to help Ukrainians. Fast-track reforms and an accelerated process of engaging with foreign partners in various projects are necessary.

I would indicate four major components of prospective Ukrainian energy sector reforms in the medium and longer-terms.

First of all would be supply route diversification. Never before has the lack of an independent energy system in Ukraine, as well as in Europe, been shown so clearly. Developing diversified and integrated energy markets is a key to ensuring the energy security of Ukraine.

Second would be an increase in domestic energy resources production. Ukraine is blessed with domestic resources, both conventional and unconventional. Their development could be a remedy for the Ukrainian problem of high dependence on imports, and I was very happy to hear the comments of our previous speakers on this topic.

A shift from gas to coal-based power generation could also lessen the problem, but significant investment in technology transfer would be necessary to accelerate the process. Assistance in modernizing coal mines by implementing advanced technologies that improve the efficiency and safety in mining would further help to strengthen the energy security of the country.

Third would be improving energy effectiveness. The gloomy Ukrainian statistics indicate there is huge potential, which could result in a substantial change. International assistance, including from the international financial institutions, is indispensable.

Fourth is the need to decrease internal demands for energy. The liberalization of domestic energy prices by a gradual removal of subsidies and the implementation of the metering system is necessary to lower the internal demands and increase efficiency.

The international financial institutions' assistance, which was already discussed and is partly in place, will be decisive for these reforms and modernization. The World Bank, IMF, and EIB are already active in energy effectiveness and infrastructure projects.

More importantly, we need to help Ukrainians with necessary knowledge and capacities to eventually take ownership of their energy policies. Without this our efforts will take us nowhere. Some countries, including Poland and Canada, have already expressed readiness to assist the Ukraine bilaterally. Canadian experience and expertise in developing locally available resources, especially unconventional hydrocarbons, could help Ukraine in developing its resource base and limiting dependence on imports from Russia.

We hope that Canada would support Ukraine by developing projects and increasing energy efficiency. Development of energy effectiveness programs, including thermal modernization, offers huge potential in energy savings in Ukraine.

With the growing potential of energy resources, Canada can play a significant role in increasing the supply of oil and gas on the world market, which could also have a positive effective on Ukraine, and not only on the Ukrainian economy.

To conclude, I would like to say that we very much look forward to working together with Canada in addressing these challenges. Let me also emphasize that last week during the visit of the Prime Minister to Poland, we tabled a paper offering food for thought on how both our countries can work together in assisting Ukraine in energy modernization projects. I'd be very happy to share more details of this paper and discuss the proposals that were included in it.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Barbarzak, acting director, economic cooperation department for the Ministry of Foreign Affairs of the Republic of Poland. Thank you very much for a very concise and helpful presentation looking at this issue from the perspective of Poland and Europe.

We go now to questions and comments from members.

First of all, I want to welcome all the members of Parliament back from two constituency work weeks. It's good to see you back here.

I want to remind the members of the committee that we're not the foreign affairs committee; we are the natural resources committee, so let's keep our questioning and comments, as much as we can, to the natural resource component. The presentations have done that extremely well, and I encourage all members to do that. We will start the seven-minute round of questioning with Mr. Calkins, followed by Mr. Nicholls, and then Mr. Regan.

Go ahead, please, Mr. Calkins, for up to seven minutes.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Mr. Chair.

Thank you to our witnesses.

Dziekuje bardzo to Anna and your team there.

My question is going to start with Mr. Salkeld because there is something I need to work through here.

As a former rig hand and so on who has worked on directional drilling projects, when I look at countries like Poland, I see that there have been about 40, or even more, wells drilled there for some exploratory work. It seems like some companies in the Canadian sector that have been over there have given up on some of those exploration activities.

Can you enlighten this committee on how many wells it took to get into some of the tight shale? I'm sure we drilled a lot more than 40 wells in order to figure out how to get gas out of some of these formations.

[Mark Salkeld]

Thank you very much.

On the subject of Poland, I apologize in that I can't speak in detail on the exploration activities. I do know from talking to our member companies that had traveled over there that the efforts involved in identifying and tapping into the unconventional resources in Poland were some of the most onerous that they had come across. A lot of the effort with respect to seismic data and identifying the actual resource and then drilling into it was extremely difficult. I apologize, as I can't really expand much more on that.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

No problem.

I'm going to switch, then, and start asking some questions of our Polish colleagues, our witnesses who are at the table here.

I know the that the Chair has already admonished me for going down this road, I would just like to put the context of the question and note that article 2 of the North Atlantic Treaty says that we should be building stronger economic and bilateral relations with our allies. I'm just wondering whether you can expand on that.

You talked about the statement of principles that was signed between Canada and Poland insofar as dealing with Ukraine. Can you expand on how that statement, going forward, will strengthen, according to article 2 of the North Atlantic Treaty Organization, Canada and Poland's position in dealing and providing better energy security, not only within NATO but also for Ukraine?

[The Chair, Conservative, Leon Benoit]

Go ahead, please.

[Anna Barbarzak]

The discussion on the energy security is taking place when the situation is very serious in Europe. Everyone is looking into the possible constructive resolution of the problem in the short and long-terms, using the existing mechanism, as you know, along with NATO.

We have been working with Canada on the issue of Ukraine for some time. Right now we see an immediate need to enhance our efforts to provide well-tailored support to the Ukrainians in a very short period of time. That means possible diversification of supplies in the longer term, so that means reforms in the energy sector.

That has not changed. The modification is that we are now looking into a more intensive and more enhanced approach so that we can accelerate the process of change that we have been working towards together over recent years.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Given the current climate over there and your experience in the area, would you say that arbitrary price-setting by Russia for natural gas this coming winter is likely?

[Anna Barbarzak]

The situation in Ukraine is changing day by day, and it's very difficult to predict with the situation that we are in right now what will happen in the winter. What we are looking at is taking in all possible scenarios. The problem is that we can be faced with a challenge of shortages of energy resources supply in the wintertime, which is the most critical and most difficult in this respect.

But you are probably following the discussions between Russia and Ukraine on the issue of energy, and also the EU is actively participating in trying to find a constructive resolution to the problem.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

How difficult is the political and economic environment, particularly in eastern Europe, when it comes to reversing flows in your infrastructure, for example, in your gas pipelines, so that if you were to get more....

If continental Europe were to get more natural gas from sources they don't—perhaps the east coast of Canada, for example—how hard would it be to reverse the infrastructure, to basically displace any effect that Russia might have with its arbitrary price-setting techniques?

[Anna Barbarzak]

Perhaps I will let my colleague speak on this issue because he's following it also from the technical point of view. He will give you more details.

Mr. Stanislaw Cios is in my department.

[Dr. Stanislaw Cios, Minister-Counselor, International Energy Cooperation, Economic Cooperation Department, Ministry of Foreign Affairs of the Republic of Poland]

There are two problems associated with this issue. One is the issue of infrastructure. This means pipelines. The second one concerns the possibility of reverse flows. Both are hindering the possibility of diversification and increasing the supply of gas in the short term in this part of Europe.

In regard to Ukraine, Poland could supply this country with roughly 1.5-bcm annually. Also, Hungary could supply gas on more or less the same level. However, the only substantial possibility of assisting Ukraine in the delivery of gas from the European Union would be through Slovakia. There are ongoing talks on creating a reverse flow on the Brotherhood pipeline, but this would require substantial modernization of the pipeline itself, because it would have to be done not only on the border but also on the long stretch of the pipeline deep into Ukraine. Secondly, from the legal point of view, it would require certain adjustments and agreements, including a certain solution that has to be agreed on with Gazprom, a major stakeholder in this issue.

In regard to the central and eastern part of Europe, there are already some interconnectors that have been developed between the countries since the crisis in 2009—for example, the interconnectors between Poland and down to Czech Republic, the Slovak Republic, Hungary, Romania, Bulgaria, and other countries in the region. But at the moment, these are inadequate to deal with a massive crisis comparable to the crisis in January 2009. This requires many huge investments that cannot be done purely on the basis of market principles. They require substantial assistance from public funds.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, and thank you, Mr. Calkins.

We go now to the official opposition and Linda Duncan, for up to seven minutes. Go ahead please.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thank you very much. I would like to go to Poland first. I apologize for my rendition of your language.

[Member speaks in Polish]

[Anna Barbarzak]

[Witness speaks in Polish]

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I also wish to extend congratulations to you in Poland on your 10th anniversary of EU membership. You know that Canadians are very proud of our association with Poland and welcome the friendship and future relationships both in government and in business.

I listened very attentively to your presentation. It was very succinct and very helpful. One of the aspects that you mentioned is the challenge of the modernization of the infrastructure, probably not just for Ukraine but for the distribution of gases and alternative fuel across Europe. You mentioned, Mrs. Barbarzak, that it's going to require enormous investment. I wonder if you could elaborate a bit more on who would be likely to come forward to construct that infrastructure, including your LNG infrastructure that—congratulations—you're developing. What would be the complications with Gazprom?