Environment Committee on March 5th, 2009

[The Vice-Chair, Liberal, Francis Scarpaleggia]

Good morning, everyone. Welcome to this eighth meeting of the Standing Committee on Environment and Sustainable Development and our first meeting devoted to our resumed study of the oil sands and Canada's water basins.

Our Chairman, Mr. Bezan, apologizes for his absence; he had to travel to Manitoba this morning. In order for the Liberal opposition to be able to put its usual number of questions, at second round, I will give my speaking time to a member of my party.

The theme of today's meeting is the role of the federal government in oil sands development. We have with us representatives from the Department of Natural Resources, the Canadian Environmental Assessment Agency and the Department of Fisheries and Oceans. Each group will be making a 10-minute presentation, and that will be followed by questions from committee members.

Mr. Stringer, you have the floor.

[Kevin Stringer, Director General, Petroleum Resources Branch, Department of Natural Resources]

Thank you, Mr. Chairman.

We will begin, and then you will hear from the Canadian Environmental Agency and the Department of Fisheries and Oceans.

Thank you for giving us the opportunity to meet with you and make this presentation before you. I will be giving you a brief overview of the situation with regard to the oil sands. I will start on the second page of the deck and talk about the economic opportunities, federal and provincial regulatory oversight, the environmental challenges, technological improvements and the role of the federal government.

My presentation will be a little broader than the other two. It will speak to the oil sands generally and then get to the issue of water specifically. The other two presentations will be about water issues specifically.

I have with me, and should introduce, Dr. Kim Kasperski, the manager of water quality research with CanmetENERGY in Devon, a government lab just outside of Edmonton that deals with oil sands issues.

The third slide gives you a map of where the oil sands are.

As you can see, the oil sands are primarily located in North-Eastern Alberta but there are also some in Saskatchewan.

And the three different areas that you can see, the Athabasca area, the Cold Lake area, and the Peace River area, are where the oil sands exist.

The fourth slide provides a very, very high-level scientific sense of what this is. It's really bitumen. Bitumen is a molasses-like viscous oil that will not flow unless it's heated and diluted with lighter carbons. It can be blended with diluents and shipped to refineries, or it can be upgraded into a synthetic crude oil. But it's basically in the ground, and has the consistency of a hockey puck, and when it's heated up, it starts to look like the picture you have on slide four.

Slide five is quite significant. It speaks to how this is done. There are two ways that the oil sands are delivered to market. The most well-known way, and the one that's being done the most at the moment, is mining—open pit mining—as you've seen in the pictures of big dump trucks and large shovels, etc. However, it's very important that about 82% of the resource is available only through what we call in situ extraction, which is similar to what is done at oil wells elsewhere, where you inject steam into the ground and then pull it out via wells. In other words, the mining, which is a large percentage of what's happening now, is only 20% of what's going to be happening into the future. So we need to be concerned about both issues.

As slide six shows, about two-thirds of the bitumen is currently upgraded to synthetic crude oil before being shipped to refineries, and the remaining one-third is blended with diluents before being shipped to refineries.

I want to spend a little bit of time on slide seven as a set-up to the rest. In other words, where are we going with the oil sands? What are the projections for how big they are going to get over the next number of years? What you have on this slide is the previous 2007 forecast.

I'll just walk you quickly through the different areas. The bottom three layers are the traditional sources of oil in Canada, mostly from the western sedimentary basin in Alberta, Saskatchewan, and part of B.C. Apart from the east coast, the ones that are growing are the oil sands. One piece of that is the mining, and one piece is the in situ, the stuff that is farther than 80 metres below ground.

You can see that as of last year, the sense was that it was going to grow substantially. We've tried to show here the effect of the economic slowdown—and this is the big question—on the growth of the oil sands. And I'll speak to that in a moment, but it's a very important issue relating to the other issues of water use, and everything else around the oil sands. This slide is based on the numbers from last year, but with a sense of what is also happening with the economic slowdown.

Slide eight indicates how important it is to note that this is a major economic driver for Canada, and the committee members, I'm sure, are aware of this. But here some numbers. Again, these are last year's numbers, and we need to look at what the economic slowdown is doing. But the numbers show that the oil sands have generated about 120,000 direct and indirect jobs. It's also notable that 60% of those jobs are in Alberta and 40% aren't. There's a good number in Ontario and in Quebec, and some outside the country as well.

Investment has been very substantial in the oil sands, with industry spending $47 billion on new capital from 1996 to 2006. The forecast, as of last year, was for another $110 billion to $125 billion over the next 10 years. The economic slowdown has had an effect: the estimate last year was that we would have $20 billion of investment in new capital into the oil sands in 2009, and we now think it's going to be in the range or $10 billion. So it's $10 billion instead of $20 billion.

Many of the projects that were under construction are still being constructed, and we will see what happens with respect to ongoing projects after those projects are done, which will largely be in 2009.

Oil sands are an enormous long-term resource. If you look at the International Energy Agency's world energy report, which was released last fall, between now and 2030 Canada is the only country that's going to show any growth in oil production because of the oil sands. There will be growth elsewhere in the world in OPEC countries and other countries, but the only growth in the OECD countries will be in Canada, and it's because of the oil sands. They make up 97% of Canada's proven reserves.

Slide 10 gives you a sense of the opportunity in the oil sands. The red at the bottom indicates how much is being produced. The oil sands are quite new, and it's only in the last couple of decades that they've been going.

The proven reserves are shown in green. Proven reserves mean that with current technologies and current prices, 173 billion barrels are available. That puts Canada at number two in the world in proven reserves, behind Saudi Arabia and ahead of the rest.

Recoverable reserves are shown in light blue. With the technological improvements we see coming down the road, the best scientific inspired guess is that the total recoverable amount will be in the range of 173 billion barrels. But the total amount that we believe is in place, as shown by the full scale here, is 1.7 trillion barrels, which exceeds the total amount of oil produced in the world to date by 50%. So in other words, 1.78 billion barrels of oil have been produced to date in history, and there's a significant amount more in the oil sands. It's thought that may result in 315 billion barrels with technological improvements that might be reasonably thought of.

I want to spend a bit of time on the environmental issues and federal responsibilities. My colleagues are going to speak specifically to water, but there are issues around air, land, and water. We've provided a deck with some overview information on that.

I want to speak a little about the jurisdiction issue. At the end of the day this is a national resource, but the Constitution suggests it's largely provincial jurisdiction. The provinces have ownership over natural resources. The provinces set the pace and extent of resource development within their jurisdiction. But the federal government has important levers with respect to the oil sands. They include the Canadian Environmental Assessment Act, the Fisheries Act, the Navigable Waters Protection Act, the Migratory Birds Convention Act, the Canadian Environmental Protection Act, the Species at Risk Act, and many other pieces of legislation as well.

I won't go through the rest of the presentation, except to highlight water use on slide 16. We are concerned about water use. In the question and answer period I'll be happy to walk through some of the things water is used for in the oil sands. But suffice it to say that one to four barrels of water are used for every barrel of bitumen that is produced. There have been improvements, and 75% to 90% of the water is recycled now. In one case it is 95%. DFO will be walking through the water management framework we have developed jointly with Alberta.

Another big water issue is tailings ponds, shown on slide 18. Alberta has put out a new regulatory regime that requires environment improvements in tailings ponds.

The final point, on slide 19, is technology. Dr. Kasperski is with me, and we believe that technology is hugely important in making improvements. We in the government are supporting research elsewhere, and industry is also working on technological breakthroughs to reduce tailings ponds and water use, and improve efficiency. We can speak to some of the work that's been going on there during questions and answers.

Thank you very much.

[The Vice-Chair, Liberal, Francis Scarpaleggia]

Thank you very much, Mr. Stringer, for going through those slides so efficiently.

We'll now move to the Canadian Environmental Assessment Agency and Mr. Burgess.

[Steve Burgess, Executive Director, Project Reviews, Canadian Environmental Assessment Agency]

Thank you very much, Mr. Chairman.

Before I begin, I would like to mention that I am accompanied by Mr. Steve Chapman, who is associate director of our western operations within our project review group.

What I'd like to do in the time available today, Mr. Chairman, is talk a little bit about our federal environmental assessment process and specifically how it relates to the oil sands.

I'd like to talk a little bit about federal-provincial cooperation. You heard from Mr. Stringer a minute ago that the resource is essentially a provincial resource, so there needs to be federal-provincial cooperation on the EA front.

Then I'd like to talk very briefly about oil sands and water issues from the environmental assessment perspective.

Page 3 describes the purpose of environmental assessments. In most cases, the assessment is applied early in the planning phase of a project. This process helps predict and evaluate the possible environmental effects and cumulative effects of a project and propose measures to mitigate or eliminate adverse effects on the environment. A very important aspect of the process is that it provides an opportunity for the public to participate and influence the government's decisions regarding the project.

One of the aims of the Canadian Environmental Assessment Act is that it be a tool for the promotion of sustainable development.

It's important to understand a little bit about how the Environmental Assessment Act works. It applies to decisions made by the federal government that could allow a project to proceed. Those include regulatory decisions, such as those under the Fisheries Act; decisions where the federal government funds a project, for example, and is actually the proponent of a project; and decisions where the federal government provides land in order for a project to proceed.

In the case of oil sands, these triggers, as we call them, generally are regulatory decisions made under the Fisheries Act or, on some occasions, under the Navigable Waters Protection Act, which is administered by Transport Canada. It's a self-assessment process in the sense that departments that have regulatory or other decisions to make related to the project are the ones responsible for conducting the assessments.

There are several types of assessments undertaken pursuant to CEAA. There are screening level assessments, which apply generally to relatively small projects with non-significant environmental effects, all the way to review panels. I'll focus a little bit later in my presentation on the review panel process.

I think it is important to mention, though, that because our act is triggered in situations only where the federal government makes decisions, it's not necessarily the case that a project in the oil sands or anywhere else will undergo an assessment under CEAA; it's only in situations where the government makes a specific decision in regard to that project. There are many examples in the oil sands, particularly for in situ projects, where our act is not triggered and an environmental assessment is not required federally.

In terms of the roles and responsibilities of the various federal players in an environmental assessment, our agency essentially administers the process. Typically we don't undertake environmental assessments ourselves. That's the responsibility of individual departments that have decisions to make related to a project. We do have an important role in the management and support of public review panels that occur in respect of some projects.

Under the legislation, we call decision-making departments “responsible authorities”. As I mentioned before, they're the ones that actually undertake the assessments, for the most part. Those assessments must be undertaken before decisions are made to allow a project to proceed.

There are also expert departments. Although they don't have decisions to make, they must or may provide information to the environmental assessment. I'm thinking in particular here of Environment Canada, which has expertise and a mandate with respect to migratory birds, for example.

There is also the Major Project Management Office, which was created probably about a year ago now and is housed within Natural Resources Canada. It has the responsibility for assisting in the coordination of the EA and regulatory processes related to major resource projects. Obviously, oil sands projects are included in that group.

I will now say a few words about federal-provincial cooperation in the area of environmental assessments. I am at slide 6.

Environmental assessments are a joint responsibility. We have negotiated bilateral agreements in view of harmonizing the environmental assessment process with several provinces, notably Alberta. When a project requires a provincial and federal assessment, both levels of government carry out a joint assessment. The goal is to avoid duplication and promote efficiency within the process.

Slide seven basically gives a schematic of the environmental assessment process, particularly in the context of environmental assessment review panels.

I won't go into too much detail here, in the interest of saving time. It's worth noting, though, that there are several steps in the process wherein the public has an opportunity to participate. That would be in the review of the environmental impact statement guidelines, which set out the information requirements for the environmental assessment; during the course of finalizing the environmental impact statement itself; and then, of course, during public hearings.

I will now move on to a map showing the location of past and current oil sands projects that have undergone an environmental assessment. My map is perhaps somewhat difficult to read but it indicates those projects for which a review panel has carried out an in-depth study in accordance with the provisions of the act.

Next I thought I'd focus on some of the issues related to water that have been recognized through the environmental assessment process. These relate both to effects related to water withdrawals, and thus to water quantity, and to water quality.

You'll hear later from Fisheries and Oceans Canada about a framework for water management that they have developed recently in conjunction with Alberta. This is something that I think will assist us in the environmental assessment process in the future to better understand how these projects can affect water quantities in watercourses that might be affected by projects.

There have been concerns raised through the environmental assessment process regarding water quality and concerning the accuracy of predictions related to water quality. So for example, in some reviews—notably in the case of the Kearl, Muskeg River, and Jackpine projects—there have been requirements for water quality monitoring to ensure that adverse effects are detected and adaptive management measures put in place, if necessary.

We also have a bit of a regulatory backstop in the form of the Fisheries Act. As was recognized in the panel review for the Horizon project back in 2004, we see that as a mechanism to address potential concerns related to water seepage or other releases of deleterious substances.

I'll leave it at that, Mr. Chairman, and turn it over to Fisheries and Oceans. Thank you very much.

[The Vice-Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. Burgess.

Next we have the Department of Fisheries and Oceans. Is it Mr. Matheson or Ms. Flood?

[Ian Matheson, Director General, Habitat Management Directorate, Department of Fisheries and Oceans]

It will be me, Mr. Chair.

Good morning, Mr. Chairman, Members of the Committee. It is a pleasure for me to be here with you.

I would like to introduce to you Ginny Flood, National Director, Environmental assessments and major projects.

I'll go through the presentation. I'll be following it loosely probably, because what I'm really interested in doing is explaining what the law says and how it applies to the types of projects that we see in the oil sands. I'll be covering as well some of the jurisdictional issues that we have with the province as to how we work together with the province and with other stakeholders.

We'll look at slide three. The Fisheries Act has two main provisions for regulating fish habitat. One says that you're not allowed to kill fish by means other than fishing unless you have the authorization of the minister. The other says that you're not allowed to harm, alter, disrupt or destroy fish habitat unless you have the authorization of the minister. That's important to understand, because if you do require an authorization, then there's a trigger in the Environmental Assessment Act that says you do require an environmental assessment. So if you're going to either kill fish or destroy or alter habitat, you'll need an authorization and you'll also trigger an environmental assessment.

Of course this is all done on a project-by-project basis, so if the proponent has a development that it wants to undertake, we review that development as a stand-alone project and the authorization is issued with respect to a particular project.

The Environmental Assessment Act, however, does require us to consider cumulative environmental effects, and that's a concept that's important to bear in mind as well. I'll talk about that later when I get into the water management framework.

I would like to make note of the last point on this page. It relates to the cumulative effects. Looking at a project in isolation is useful, but because water is connected, projects do have a cumulative effect. When we think there will be a significant environmental impact, in some cases due to the cumulative effect of multiple projects, then we'll recommend or suggest that the minister recommend to the Minister of the Environment that a panel environmental assessment be held. In the last four developments, that's been our recommendation.

Slide four talks a little bit about Fisheries Act authorizations. An important concept to understand is that our preference would be that people not kill fish and that they not destroy or alter habitat. So the process we go through when working with proponents is actually to help them look for ways to avoid doing that damage. We're proposing, on the basis of science, different ways that they can mitigate the effects of their development. But in some cases it can't be avoided, and then we get into the discussion of authorization. To be able to authorize destruction, we'll seek some sort of compensation.

Typically oil sands projects, as you're aware, have two effects on the water system: one, they'll either divert streams or tributaries, because there's a big open pit and there may be streams running through the area. Compensation in those cases is typically a diversion of the stream around the area so that water can still flow, or in some cases creating a new water body to replace one that would be eliminated.

The second impact that these types of projects have is that they draw water from the watershed. That's something we need to be aware of as well, because the fish need that water to live in. So we'll evaluate the amount of water that's required for the fish to actually survive.

Slide five, to pick up on my last point, talks about how this is an area of shared jurisdiction, because the province regulates the volume of water that's being used by proponents and we're interested in the amount of water that's needed for the fish and their habitat to be viable.

We have to work quite closely together, and we've found a way to combine these two interests by developing a water management framework. This has been a product of discussions that began in a multi-stakeholder organization called the Cumulative Effects Management Association. The two key decision-makers in that organization are the province and the federal government.

I'll move on to slide six and talk about the framework in a bit more detail.

The water management framework is the tool we've developed to address the cumulative effects of all these projects in the watershed. The easiest way to explain this is to think about the watershed as being a series of tributary streams flowing into the lower Athabasca River. Every time you eliminate a stream or divert it, you're going to be affecting the flow of the water, not only in terms of the volume but in terms of the rate the water flows through the water system. Both those factors are important to us from a fish and fish habitat perspective. Fish need a certain amount of water to live in, but the rate and flow of the water is also important.

We know over the course of a year that the rate of flow varies naturally. The framework uses a scientific model to say what an acceptable variation in water flow is over the course of a year. It actually sets a range. If the water flow is above this level, usually a unit of volume of water per second in a unit of time, then we're okay, but if we go a little below that we're starting to get into a cautionary zone. There's also a red zone. We're of the view that if you get into that low level of water flow you're actually going to cause destruction to fish habitat.

This is a useful framework for industry to know how we will be evaluating their project. They can use it as a planning tool. And as a decision-maker, we can ask proponents what the rate of water withdrawal will be from the watershed and predict what effect that might have on fish habitat. Again, the goal is to avoid harm or destruction to fish habitat. We prefer that proponents find ways to avoid getting into that yellow or red zone.

It's the province that actually sets the conditions on how much water can be withdrawn. It's their legislative power that sets the conditions on water removal. We're interested, because if a proponent were to exceed that or put in a plan where there would be a risk of water actually being withdrawn at a rate that reduces the flow in the streams to a low level, that would cause the trigger for our authorization.

Right now, with oil sands being in the very early stage of development, there are not so many projects that in-stream flow requirements are a problem. But we can foresee that if there's further development we'll have to use this tool much more carefully. It will become much more important to the decision-makers, to guide our decision-making with respect to how much development we allow in the area.

It's quite a useful tool. It does allow people to monitor. It's the province that monitors the amount of water that's being used, and it can be used in real time to say what is happening today. The information can be shared with the proponents and decisions can be made to actively manage this process.

The final slide is just to say we're obviously not working alone. We're a full participant working closely with the Province of Alberta. We're consulting actively with all the stakeholders, including first nations, and in our decision-making process, although the legislation is primarily focused on environmental needs, there are mechanisms--and if you want, we can talk about these--that allow us to balance the socio-economic needs as well.

[The Vice-Chair, Liberal, Francis Scarpaleggia]

Thank you, Mr. Matheson.

We'll now proceed to the first round of questioning, with Mr. McGuinty.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you very much, everyone. I apologize for being late this morning.

I want to go back, Mr. Matheson, to your last points, if I might.

Is DFO participating in the CEMA process? What does CEMA stand for, again?

[Ian Matheson]

Cumulative Effects Management Association.

[David McGuinty, Liberal, Ottawa South, ON]

Right, and it was struck as a public-private, governmental-non-governmental, aboriginal steering committee, or a committee to help guide the overall development of the oil sands?

[Ian Matheson]

That's right.

[David McGuinty, Liberal, Ottawa South, ON]

Has that group examined the water question in detail?

[Ian Matheson]

Yes, to answer your question, we are a participant. There are, I think, 44 members of the association at this point, and they have working groups. There is one working group in particular that is focused on the water work, and it is that group that has given us the water management framework. It took it to a certain point, then the federal and provincial governments finalized it.

[David McGuinty, Liberal, Ottawa South, ON]

What did they conclude about this issue? Didn't they just issue a report in the last year about the overall state of the oil sands, and was there not a subsection or a chapter dealing with water?

[Ian Matheson]

Sorry, did the Cumulative Effects Management Association issue a report on water usage?

[David McGuinty, Liberal, Ottawa South, ON]

Yes.

[Ian Matheson]

I have to consult on that question.

We're not sure. I can look into that and get back to you.

[David McGuinty, Liberal, Ottawa South, ON]

Okay. I'm just trying to get a sense here of how much we really know about the hydrogeology of that area. How much do we know?

[Ian Matheson]

I guess we know more than we used to and not as much as we want to. The water management framework actually focuses on the part of the lower Athabasca River where most of the development is right now, but we know that in the future we'll have to expand that knowledge into the greater reaches of the river.

There's a lot to be learned yet, and we're beginning this work. It's a model that we've developed. The model needs to be refined, and that is best done with data that's collected over time. DFO has a lot of scientists working on this particular issue, and our focus is on the instream flow needs as compared to the volume questions.

[David McGuinty, Liberal, Ottawa South, ON]

Can you describe the area as a watershed?

[Ian Matheson]

Yes.

[David McGuinty, Liberal, Ottawa South, ON]

And is there not a trend or an increasing demand in Canada and worldwide to look to the concept of watershed management? I think, for example, of the Fraser Basin Council; I think of the Ottawa River, right here in this community, and the Ottawa riverkeeper is calling now for joint federal-provincial-municipal-aboriginal participation in reflecting the fact that there is just the one watershed.

[Ian Matheson]

That's right.

[David McGuinty, Liberal, Ottawa South, ON]

Is that something that's being contemplated or been discussed, either through Mr. Stringer's department or yours, going forward?

[Ian Matheson]

Yes, that's exactly what CEMA has been set up to do. You may not have been here for my presentation, but our legislative system is set up to look at project-by-project decisions. Although CEAA--the act--does say that we should consider cumulative effects, we didn't really have a good mechanism for doing that, which is why the Cumulative Effects Management Association established itself and said okay, let's find a way that we can actually think about these things on a watershed basis--so going beyond the bounds of particular projects and looking at it as a watershed.

The model is a watershed model.