Thank you, Chair.
Good morning, members. It's a pleasure to be here today to support your study on propane markets.
Natural Resources Canada seeks to enhance the responsible development and use of Canada's natural resources. The department develops policies and programs to enhance the contribution of the natural resource sector to the Canadian economy. This study is timely as we head into the winter months and the importance that the propane markets play for Canadians who rely on this fuel to heat their homes.
In my presentation this morning, I'll briefly outline the federal role with respect to energy supplies before getting into the events that took place last winter and our response to them and the market outlook for the propane industry this year.
As a clean-burning, cost-effective fuel, propane plays an important role in Canada's energy mix. In addition to heating Canadian homes, propane markets support thousands of jobs and economic benefits to many communities across Canada. Canadian propane production mainly comes from natural gas development with small amounts also produced as a by-product of the crude oil refining process. Approximately 192,000 barrels a day of propane are produced in Canada, 85% of which comes from natural gas production.
The Canadian propane industry is fully integrated as part of the North American market for energy. Canada produces more propane than it consumes domestically and exports the surplus product to the U.S., our only export market for propane. Canada also imports small volumes of propane, primarily into eastern Canada. Again, that's just a sign of the integrated nature of the market.
In terms of the management of resources, this is a shared responsibility between the federal and provincial governments. The provinces are the owners of the resources within their provincial boundaries and are responsible for their development. The federal government is responsible for the management of energy resources on frontier or federal lands. The National Energy Board regulates international and interjurisdictional movement of energy and energy goods. The government is also involved in energy matters to the extent of its interest in economic development and energy security, and plays an important role in promoting energy efficiency and alternative energy sources.
The federal government's overall policy is to follow a market-based approach to energy development. Markets are the most efficient means of ensuring adequate supply, demand, prices, and trade while ensuring a competitive and innovative marketplace.
That being said, the Government of Canada has taken significant steps over the last number of years to support the responsible development of the energy sector, including: establishing a modern, effective, and efficient regulatory system with clear timelines to support investment decisions; building world-class safety systems for rail, tankers, and pipelines around the principles of prevention, preparedness, and response; developing new partnerships with aboriginal communities to support the development of these resources; providing investments in innovation and energy use; and promoting international trade and a competitive investment environment.
The provinces and territories, as I mentioned, are primarily responsible for the development, supply, and use of energy within their provincial boundaries. The provinces also benefit primarily from the production and collection of royalties and taxes from this development. Some of the provincial jurisdictions do regulate energy pricing and distribution within their jurisdictions. For instance, Prince Edward Island, Newfoundland and Labrador, New Brunswick, and British Columbia have all chosen to regulate markets in some manner.
In terms of authorities in an emergency or a supply disruption, the provinces are generally the first line of defence in this situation. For example, the Government of Ontario has the Emergency Management and Civil Protection Act, which establishes the authority for the province to implement emergency orders in the event of a provincial emergency situation. These would be temporary measures that could be implemented to help respond to a short-term disruption.
The federal government's role in the event of an energy supply disruption is more limited. Federal measures can only be implemented in the event of a national emergency and following the request of a province. The federal government has authorities under the Emergencies Act that could be implemented in such a situation, but these measures must be warranted under the circumstances.
In terms of the events of last winter, many Canadian residential propane customers in eastern Ontario and Quebec experienced propane supply interruptions and higher than normal prices. As a result, we saw wholesale prices for propane increase from about 40¢ per litre at the beginning of the season to above 76¢ per litre in major trading hubs in Edmonton and Sarnia. At the retail level, this led to prices as high as $1.10 per litre.
As I previously mentioned, the provincial governments had primary responsibility for responding to these events. That said, the federal government, recognizing the impact that this supply disruption could potentially have for Canadian families, particularly those relying on the fuel to heat their homes, asked the Competition Bureau and the National Energy Board to do a joint investigation at the request of both the Minister of Natural Resources and the Minister of Industry—and I'm certain you'll hear more about that in a few moments—to look at the factors that led to the propane market issues and identify what the contributing issues were behind the price increases and the scarcity issues.
The National Energy Board is Canada's energy regulator and is responsible for managing supply and demand scenarios for all energy commodities, including propane. The Competition Bureau is responsible for ensuring a competitive marketplace in Canada. These two organizations were well situated to carry out this study and provide findings and recommendations to the government.
The final report coming from the Competition Bureau and the National Energy Board concluded that the events last winter were the result of a combination of various unusual factors, including unusually high demand in the U.S. for propane for crop-drying purposes, low inventories heading into the winter season, unusually cold weather here in Canada which led to unusually high demand for propane, as well as, given the cold weather, interruptions to the logistics network at the local level, which led to some of the temporary supply issues that we experienced last winter.
The report also concluded that these localized shortages of propane were not indicative of long-term supply issues within the Canadian marketplace but were really the contribution of a variety of unusual extraordinary circumstances, if you will. In addition, our colleagues at the Competition Bureau did not uncover any evidence of uncompetitive behaviour in the marketplace during this period of time.
In terms of the current market situation going into this winter, propane prices have fallen considerably and propane inventories have grown significantly. Here in Canada propane inventories are at an 11-year high heading into this winter, and they're at record levels in the U.S. As a result, propane prices heading into the winter are significantly lower than they were at this point last year. In Edmonton, they're 30% lower than at this time last year, and they're 18% lower in Sarnia. As well, we anticipate that the demand in the U.S. for crop drying will not be as significant, and so, overall it appears that we're in a strong position heading into this winter.
To close, the propane market issues that we experienced last winter were not indicative of long-term supply issues within the Canadian market. Again, we see that industry has responded by preparing and building inventories this year in advance of the winter heating season.
The federal government, for our part, is committed to continuing the work we do at Natural Resources Canada to monitor market developments and, working with our provincial colleagues, to ensure a stable, reliable supply of energy in Canada.
I'll close there, Chair. Thank you.