Natural Resources Committee on May 1st, 2014

[Megan Leslie, NDP, Halifax, NS]

Thanks. That's helpful.

I'm going to go to Mr. Edwards, because I can't see if Mr. Aslund is nodding or not.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Edwards.

[Michael Edwards]

The creation of fuel poverty is obviously a concern to everyone. I would argue, along the lines of what the previous speaker said, that you can segment the problem into dealing first with the big consumers, who should really be on a market basis, and then deal with the social implications of what's happening programmatically.

I think you still have to start in some way with sending price signals, and therefore, Ukraine needs its market reforms to be in place.

[Megan Leslie, NDP, Halifax, NS]

Mr. Regan and I were having a bit of an off-line conversation when you raised the issue of price signals, because I'm very cautious about the idea of price signals—okay, you're nodding here, too—because I don't think we can rely on price signals alone. I do think it needs to go with programming offered by government because price signals.... If you don't have the money to put food on the table, you're going to put out the money to keep the lights on so you can cook the food; you're not going to have the food to actually cook.... You are nodding. You agree they have to be hand in hand.

[Michael Edwards]

I agree with that, absolutely.

[Megan Leslie, NDP, Halifax, NS]

If I have time—

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Leslie. You're out of time.

We go now to the Parliamentary Secretary to the Minister of Natural Resources, Ms. Block, for up to five minutes, please.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

I join my colleagues in welcoming all of you to the table today.

With great respect for my colleague, Mr. Regan, I do want to challenge the notion that this discussion has been futile. I think we have had a number of excellent witnesses who have provided tremendous information to help us identify not only the opportunities that exist, but also the challenges for Canada to enhance global energy security, not the least of which has been the observation that Canada has an infrastructure deficit.

Mr. Hill, I guess what I would like to do is provide you with the opportunity to comment on the momentum I think you have flagged within the Canadian energy industry to reach new markets for our energy products, and then perhaps speak to the imperative that exists for Canada to act.

[Dr. Geoff Hill]

Thank you for the opportunity.

You know that necessity is the mother of invention, and without pipelines, we've seen the upsurge of transportation by rail. There are challenges with that as we all know. There have been some substantial accidents, as well as the fact that economically there are some challenges.

The point is we often find a way around short-term problems. We're getting to the point where we have no more short-term fixes. If Canada really wants to be an energy superpower, if Canada really wants to recover from a very depressed gas market, if Canada really wants to harness the value of the oil sands, we need to act. It's very clear.

If you look at natural gas as an example, as one of the other speakers mentioned, we are competing with Australia and a variety of other countries. We are an attractive country to do business with for a bunch of reasons, but we're not that attractive that they are going to wait 10 to 20 years. The fact of the matter is we need to act now.

One of the earlier comments was talking about what price of gas we need. Do not underestimate the denominator in that calculation and the cost to construct plants in Canada. We can make a material impact when it comes to the fiscal regime, the tax royalty regime, to make us more cost competitive than other countries.

Right now we're setting ourselves up to be a little slower than other countries and not necessarily more economically viable so then the intangibles that come to Canada, being stable politically, stable economically, etc., are put in question.

I believe we have a very short window when it comes to natural gas. With oil I think that it's inevitable we need to export our product more to the U.S. and beyond the United States. We're going to have substantial financial challenges in our country if we don't.

[Kelly Block, Conservative, Saskatoon—Rosetown—Biggar, SK]

Thank you.

Mr. Dem’ianiuk, I really appreciate your participation on this panel. We recognized it was important to have someone from Ukraine providing us with some insight into what the issues are in Ukraine.

I want to give you an opportunity to expand on the comment you made. I don't know if it was in your opening remarks or whether it was in response to a question that one of my colleagues asked. You spoke to the need for Ukraine to become an inherent and integral part of the European energy market.

I want to give you a chance to expand on that, but also to identify if there is any role for Canada in assisting you in that regard.

[Vitalii Dem'ianiuk]

In this case I think Ukraine should perform, I would say, homework. We need to integrate our market into the European market. We need to implement European energy legislation on our territory, and this is our homework.

This is very important for us because the European market is quite huge. Even the prices for gas, as I mentioned previously, are lower on the eastern European market than in Ukraine. For us this is a real diversification. Probably you know just a few days ago, at least, Ukraine signed a memorandum with our Slovak colleagues about supplying gas from the European Union into Ukraine. At this stage it's only eight bcm per year, but it's still a very significant capacity for the Ukrainian market.

This is the answer.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Block.

We go now to Ms. Duncan for up to five minutes.

Go ahead.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I'd like to follow up a bit with whichever witness would like to address this, and again, thank you very much for taking the time to testify no matter whatever time zone you happen to be in. I know in Europe it's later than here.

I understand that Ukraine has signed the EU association agreement, and they're moving toward membership. That will require they move toward greater harmonization with the EU regulations. I know that the European environment commission has a number of environmental, energy efficiency, and so forth, requirements. There seems to be some agreement that the price will be the main driver, which is understandable, on energy efficiency.

I'm wondering whether Mr. Dem'ianiuk could speak to this, but probably also Dr. Aslund, or perhaps others know. I'm not sure who actually provides the electricity, or specifically the gas, directly to the clientele, whether it's different for the homeowners, big industry, small industry. The California PG&E some years back made a decision. Either they could invest in more, very expensive electricity generation, or they could choose to invest in helping small business, large business, and homeowners to retrofit, and then they could also reduce pollution and address climate change. I'm wondering if those kinds of solutions might be possible for Ukraine, given the IMF has already directed that they must move toward energy efficiency.

Can anybody elaborate for us on what kinds of options might be available, given the generation and supply regime for Ukraine at present?

Mr. Dem'ianiuk, perhaps you would like to speak to it first. Do you have any comment on that?

[Vitalii Dem'ianiuk]

Yes. Since...[Technical difficulty—Editor].

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Dem'ianiuk.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Is he saying yes? No? Did we lose him?

[The Chair, Conservative, Leon Benoit]

Mr. Dem'ianiuk, are you there still? Can you hear us?

[Vitalii Dem'ianiuk]

Yes. Sorry, I would not have liked to interrupt Mr. Aslund, but if you don't mind, I will quickly answer.

From an electricity perspective, the situation in Ukraine is absolutely different from the gas perspective. We don't have a problem with the electricity generation, and we have in our electricity energy basket.... The huge part we have is nuclear power energy generation and hydro energy generation. From this perspective, I think that in some sectors of the economy, especially in metallurgy, we need to switch from gas to electricity.

I am not sure if I answered your question.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Okay.

Dr. Aslund, you might want to also speak to the meeting that's happening, I believe, tomorrow with EU, Russia, and Ukraine, to talk about energy security, and if some of these issues might be involved in that meeting.

[Anders Aslund]

Yes. Ukraine has signed the first part of an EU association agreement, the political part. After the presidential elections probably in June, they will sign the economic part of it, which is a free trade agreement, also the substantial assistance agreement. Membership would come in 10 years or so, if Ukraine is successful. This is not the [Inaudible—Editor] process.

Therefore, what is in this association agreement, which is a big thing of 1,200 pages, is a big list of reforms that Ukraine will have to undertake, hundreds of reform laws, but the environment is, by and large, not there because the environmental regulations, as you mentioned, in the European Union are very expensive. The European Union has sensibly understood that this would not be right to impose now. This is much more about market, rule of law, and deregulation.

The electricity sector is essentially dominated by four different Ukrainian business groups. The nuclear energy is still state-owned, while other power stations, which are gas and coal heated, are privatized. As part of this gas reform, Ukraine is increasing...I think it's a 70% price increase from July 1. It's the same problem here with the gas price. That is far too low because it's related to the gas price, even if there are some other energy sources, as Mr. Dem'ianiuk mentioned. Ukraine actually exports electricity to Hungary. So it's not dependent on any import of electricity at all from Russia.

[The Chair, Conservative, Leon Benoit]

Thank you, and thank you, Ms. Duncan.

We go now to Ms. Crockatt, followed by Mr. Trost.

[Joan Crockatt, Conservative, Calgary Centre, AB]

I'm going to go back again to our last witness.

One of the things we have heard very clearly, Mr. Aslund, is there are ways for Canada to help in international crises like this, other than to have soldiers' boots on the ground. We have world-class energy supplies, and oil and gas technology and expertise. What we do not have is the infrastructure. If we tell the world we are prepared to act, to move ahead, then that is a very powerful signal in what's being called an energy cold war. If we do not build the infrastructure, pipelines and LNG terminals for example, we're reducing our non-military leverage in the world. I'm wondering if you would comment on that statement, if you agree or disagree.

[Anders Aslund]

I have a similar segment in my written statement. This is exactly what I think. Canada can simply declare that Canada in the medium term is prepared to export LNG to eastern Europe and Ukraine. That would have a positive impact on its own, and it would shake up the Kremlin a little. Essentially the United States seems to be moving in the same direction. I don't think that this impact should be disregarded. It could be quite significant, even if it's not practical in the short term.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you so much.

I'll turn the rest of my time over to Mr. Trost.

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

As we've looked at this issue, we've looked at it exclusively from the Canadian perspective in our interaction. Of course when something happens, it's a dynamic situation. Other actors are involved. The U.S. Congress is looking at the issue, etc. I was wondering, starting with Mr. Dem'ianiuk and going from there, if the witnesses could comment on what they anticipate other players will do relative to the situation in Ukraine, eastern Europe, and their need for energy security. As Ms. Duncan noted in her question, the European Union is dealing with it now, but there are other players, the large oil companies, Chevron and Shell. Qatar is going to be a player in anything because of LNG, etc.

As we go forward, Canada of course is not going to want to duplicate. We're probably going to want to coordinate with some other countries. Could you give a broad overview of what the other players are going to do that is going to influence the situation? I know it's always guesswork and crystal ball gazing, but it gives us some idea of maybe what we should study in the future. Should we specialize as Canada or should we, how shall we say it, coordinate with other nations' players in this? Could we start in Geneva, and then we'll work through the witnesses from there.