Natural Resources Committee on April 29th, 2014

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Very—

[Mark Salkeld]

So this involves economics and politics to a certain degree.

As for the regulatory regime, we have a very significant one here in Canada, a very good one, that we could always apply and adapt to an existing regime there and make the best of two worlds.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

I'll turn now to our Polish witnesses. Building on the question I asked Mr. Salkeld, and I realize you're speaking for Poland today, but looking at the broader context in other European countries, particularly eastern Europe, what is the potential there? This is not just a question for one country. What is the potential and what is holding back the potential for more domestic natural gas production?

I know that in Poland you're looking at doing things to go forward, but are there other countries that are being held back by regulatory and/or political issues? Or is this merely a geological issue, in that unconventional technologies may be great but there are only so many places where you can produce gas because of the geology.

What is the broader context in other European countries other than Poland and Ukraine?

[Anna Barbarzak]

Thank you very much.

I just want to point out that we have had this discussion on the development of unconventional resources and domestic resources in the European Union, including in the context of the current situation in Ukraine.

While we have been talking to our friends and colleagues from abroad and across the Atlantic regarding possible exports of resources, we are also aware that we have to do some homework at home. That means we need to work very intensively on possible development of the production of domestic resources in Europe. As you know, Poland is one of the pioneering nations among EU members and other European countries in the development of unconventional resources, unconventional hydrocarbons.

This is all related first to the regulatory process that has to go hand in hand with the investment and the technological development and work in place. We have had three years of intensive work on our regulatory system in Poland. We finalized the first stage in February of this year. There was a lot of public discussion about whether or not there should be the development of production of unconventional resources, but I think we have done quite a good job in developing and reaching compromise among all players in this respect.

There are some nations in Europe that are still very much against the production and development of unconventional resources. There are some countries that have introduced moratoria on the development of unconventional resources. I believe the discussion of the situation in which we find ourselves today will help convince the opponents that we will definitely need to use this opportunity to increase our energy security in Europe.

I hope this will be embraced within the entire discussion on how to work together on enhancing energy security in the European Union.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Trost.

We go now to Mr. Leef, followed by Mr. Nicholls and then Mr. Opitz.

Go ahead, please, Mr. Leef for up to five minutes.

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chair.

Thank you to all of our witnesses.

My first question will be for Mr. Salkeld.

We heard our witnesses from Poland describe energy efficiency in Ukraine as poor and well below European Union averages. There was some discussion as well about the challenges of trying to improve that efficiency and about how simply raising the cost would create some social challenges there.

What role do you see Canadian companies potentially being able to play in the improvement of energy efficiency, and what time frame are we able to deal with in that regard?

You talked about the medium and long-term game, and I think when we're talking about those aspects of conventional or unconventional drilling, or moving things to market there, it does make sense that it would be a medium to long-term game.

But in terms of Canadian expertise and energy efficiency, surely we must have companies that are able to deliver some more immediate solutions to those challenges.

Maybe I could get you to talk about that a little bit, if you have any insight.

[Mark Salkeld]

Sure. Thank you very much.

In regard energy efficiency, Canadian service company expertise can help by utilizing the latest technologies to develop resources in-country for those countries with unconventional resources. Those efficiency gains learn from the 70-plus years of experience that Canada has developed in our own natural resources, taking these technologies that are new into Europe today and applying them, drilling into those formations and producing resources locally. Part of the model that helps is bringing that technology in and then hiring locally, teaching locally, and opening up opportunities for local businesses and entrepreneurs to start supplying locally. That's what producers look for first and foremost. With respect to the economics, it's to lower the cost as much as possible.

The efficiencies are bringing modern technology into Europe to develop unconventional resources and developing their own energy services sector in-country, thereby becoming less dependent upon foreign technologies, resulting in lower costs. It's the efficiencies through domestic production based on modern technologies that are the biggest help.

[Ryan Leef, Conservative, Yukon, YT]

You touched a bit on the teaching aspect of it. Where do Canadian companies sit globally now and where could they sit in the European market with instruction and training?

[Mark Salkeld]

I've worked overseas, in Europe and Siberia as I mentioned. The basic model is that we come in on a contract to teach to the point where local nationals can take over. I won't say that's the overriding model for all Canadian producers exploring internationally, but it is a significant model because it simply makes sense to teach locally.

To answer your question, that is typically a Canadian model. Any kind of producer model is to support local economic development and support the creation of jobs and knowledge. As I said, it helps lower costs when you can source locally. We see that model here in Canada as well as internationally.

My first international stint was in 1980 on contract. When I left there after two years, the local nationals would service the rig and maintain their own equipment by themselves and my contract wasn't renewed. That's the general model still.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Leef.

Your time is up.

We go now to Mr. Nicholls, followed by Mr. Opitz and then Ms. Duncan.

Go head, please, Mr. Nicholls. You have five minutes.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chair.

Mr. Leef has put this proposal on the table to look at solutions for energy security in the Ukraine and the rest of Europe. I'm skeptical about a lot of these solutions in the short term.

Mr. Sorensen, you said that the timeline for an LNG terminal, yours in particular, is three and a half years. Did I understand that correctly?

[Alfred Sorensen]

That's three and a half years of construction. It's already been two and some years on the development side. It's like five to seven years in total that you need.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

I'm looking at short-term solutions for Ukraine's energy security. You've even stated that the price wouldn't necessarily be lower at the gas pumps because we function in capitalist markets. Is that correct?

[Alfred Sorensen]

That's correct.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Exactly.

I'm skeptical about all of this. If we then stimulate our own gas sector, that will probably mean there's an increased demand. If there's an increased demand, it means increased prices for Canadian consumers. Is that not correct, in a supply and demand system?

[Alfred Sorensen]

I suppose. In our scenario, the demand is going to be met by an increase in the supply at the same time. It's not taking the same molecules that are coming from one source and going to another. It's both a demand and supply increase.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

I see.

In the short term we can see that this won't answer the energy security problem in Ukraine and Europe. We should be talking about true energy security, which means the long-term that I think everyone would agree would be renewable. The fact is, the fracking process is problematic for increases in gases that cause climate change.

Mr. Salkeld, are you aware of studies lately that have talked about methane releases, particularly the study recently published in the Proceedings of the National Academy of Sciences of the United States of America by S. M. Miller et al that says that the methane releases from this extraction technology are enormous?

[Mark Salkeld]

I'm aware that there are a number of studies going on across Canada and North America. We're actually supporting one through the University of Calgary that is directly related to greenhouse gas emissions with respect to hydraulic fracturing. That study is just getting under way.

I support your comments with respect to renewables, but I also am a realist, in the sense that we are not going to get to renewables without first meeting the demands of energy supply today, which is natural gas. There is a cost to get it out of the ground, without a doubt, but in the long term that's what we're going to have to go with eventually to get to renewables.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

We've talked about in the short terms that natural gas won't answer the energy crisis in Ukraine. To be realistic, researchers at Stanford and the University of California recently did a two-part study on energy policy. They found that 90% of the world could be powered by renewables, and all that is required to make this changeover is political will. Now, with everyone around this table, the politicians and policy-makers, if there were the political will, it could be done.

For the long term, I believe that's what we should be focusing on. Looking at it in the short term, we won't answer this energy crisis that's going on because of the investments required. An LNG terminal costs up to $7 billion. If you're not going to get market prices by supplying somewhere like Ukraine, that's going to require considerable subsidy from government.

Is it not the case that the gas sector, in order to provide a lower price, would require subsidies from governments?

Mr. Sorensen.

[Alfred Sorensen]

I think that would be the case of Ukraine, but it's not the case for us or it's not the case of the European Union. In all those cases, energy is priced at the margin. Certainly that is the problem that Ukraine has today, in that Russia uses economic power through the pricing of natural gas. There is no doubt about that. That is the problem, and that's not going to go away any time soon. There's certainly no simple solution, as you've heard already, that could change it overnight.

As I said, a few weeks ago when we were in Germany, Chancellor Merkel was very adamant that in the last 60 years, Europe has been complacent over its dependence on Russia and that it's something that needs to change.

When you look at renewables as the answer, Germany is a very good market to look at. They use renewables probably more than any developed economy. Without fossil fuels or nuclear to balance out the load, they would have serious difficulties.

I think it's very naive to think that solar and wind are going to power an earth that has six billion people on it. It's just not realistic. Even Germany itself is finding in its experiment with renewables that they're still a long ways from a scenario where fossil fuels will not be part of the solution.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Nicholls.

We go now to Mr. Opitz, followed by Ms. Duncan and Ms. Block.

Go ahead, please, Mr. Opitz, for up to five minutes.

[Ted Opitz, Conservative, Etobicoke Centre, ON]

Thank you, Mr. Chair, and thank you for allowing me to be here.

Dzien dobry, drodzy przyjaciele z Polski. Bardzo sie ciesze, ze jestesmy dzisiaj razem.

Congratulations on the canonization of Pope John Paul II. I know that's a tremendous achievement in Poland today.

A lot of this conversation is focusing on energy security, and Mr. Chair, I appreciate your comments at the beginning.

There are three intersecting circles that have constantly been coming up in this conversation. They, of course, are natural resources, defence, and foreign affairs, which seem to have arrived at a crossroads here.

We've talked a lot about energy security, and Poland had a model, by the way, that my father fought by in the Second World War: Za Nasza i Wasza Wolnosc, which in English means “For our freedom and yours”.

I think that a lot of this discussion focuses on energy security and the ability to supply our allies with stable sources and supply of energy. In Ukraine, a lot of the issue has been the unpredictable supply of gas and the unpredictable pricing structure that Gazprom has put in.

As we recall, when President Yanukovych rejected the EU deal, all of a sudden as a reward Putin lowered the price significantly and now has arbitrarily raised it again. Part of Ukraine's problem is that there is political interference in terms of being able to subjugate them through price controls on Gazprom. That, of course, affects everybody in Central and Eastern Europe, which has become a problem.

Perhaps I'll start with Mr. Langrish. What would your view be, sir, on an east-west pipeline in Canada not only being able to supply our own energy needs but clearly being able to supply the energy needs of our allies through a safe, stable, fairly-priced commodity product like gas or even oil?

[Jason Langrish]

Yes, in terms of the east-west pipeline, you're talking about oil. This is primarily used as a transport fuel.

As I've said, within the EU, certainly there is a possibility. The EU imports oil and gas in significant quantities, so there is the potential. However, the question is unresolved as to how that fuel source will be treated within the EU because there is a debate that's ongoing that could have legal ramifications, which is that the products derived from the oil sands within the EU could be treated as different from bitumen that's derived from other sources that are deemed to be less carbon intensive.

If the EU decides to stay neutral, or they decide, for instance, to relax the debate on this issue, then there would probably be quite a market for this product. However, if they go in the other direction and they implement the fuel quality directive—I don't think they will, but if they did—it would make it more challenging. In all likelihood there would be a carbon tariff or a penalty you'd have to pay unless you could offset that through the production of other sources of energy that don't have emissions.

[Ted Opitz, Conservative, Etobicoke Centre, ON]

I have to stop you there if I may because I only have a couple of minutes.

[Jason Langrish]

I would just say that if that policy goes in place—