Finance Committee on March 10th, 2015

[The Chair, Conservative, James Rajotte]

Thank you.

We'll go to Ms. Bateman, please, for seven minutes.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Thank you very much, Mr. Chair.

Thank you to all of our witnesses. I very much appreciate your sharing your perspectives with us this morning.

One that was a recurring theme for many of you was the volatility in the industry. A few decades back, when I was articling at Price Waterhouse in the eighties, people were leaving homes in Alberta because of the market volatility. Obviously this isn't a new factor, notwithstanding some recent comments.

I want to tie that to the job perspective, because as a member of the Conservative government I take enormous pride that our government has created more net new jobs, and good quality jobs, than any other member of the G-7.

Suncor is a big industry. It's one in a very complex industry, but you mentioned that you have 1,000 fewer people now. I would love to find out, with the volatility, do you have a plan to bring back...? Is there an opportunity for these people to...? I would suggest that you have clearly invested in these people over the years, so how are you recouping that investment?

[Steve Reynish]

We did announce a reduction of 1,000 people. That is a combination of some part-time, some contractual workers, but it does include some full-time positions as well. You're quite right. There was a lot of investment that's gone on in terms of training and experiences being provided.

That's 1,000 out of our total workforce of about 15,000 people so that gives you the context around that. But it was done, I think, as a result of recognizing over the last couple of years—this is not just as a direct result of this downturn—that we have to move our cost profile down on the cost curve. We don't see this as a temporary phenomenon. We just need to get more efficient in the long term.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

Mr. Dunn, you wanted to speak to that as well.

[Richard Dunn]

I'd like to talk to that as well.

It's not simply the workers at our company. What's changed since the 1980s, I think, is the breadth of the impact of the industry on Canada. Whereas, as you said, in the eighties you would have seen an industry that was much more based in Alberta with its manufacturing and such, and the rigs. Now what you're seeing is an industry that is coast to coast, and this is through a conscious effort of companies.

There are some 2,300 suppliers across Canada that supply the oil and gas sector. These suppliers in manufacturing, whether it's valves outside of Montreal, tubulars in Ontario, or legal and professional services out of Toronto as well, are much more of a national industry. These reductions in activity go beyond simply employees in our company but broadly impact the services and supplies we get from the breadth of Canada. That's a significant difference from the 1980s.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

In that supply chain, and clearly that's a very complex supply chain, there is probably a bit of a time lag in terms of impacts.

[Richard Dunn]

Respectfully, no.

Certainly there is a difference in time lag between parts of the sector. The oil sands would be more bulky investments and as Tim mentioned, those investments are longer timeframes so if you're in the middle, likely you have a lot of sunk costs and you're going to continue.

Where I work, on the upstream side of things, as Mr. McGowan mentioned, we react very quickly to the change in commodity prices and that is instantaneous on our suppliers across Canada as well. We do not need the same level. This is why it's imperative that we do what we can to retain Canada's market share through actions of companies and actions of the government to set ourselves up for that retention and to keep the economy strong throughout Canada.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

I am so very glad to hear that and to hear about that instantaneous reaction and how important that is to job creation in Canada.

I want to build on what I believe was Mr. McMillan's earlier comment about Albertans selling at a low cost and eastern Canadians buying at a high cost. Maybe we could meet in the middle, and we'd all do better as Canadians. How can that happen? By having a pipeline from east to west, right?

[Voices]

Oh, oh!

[Tim McMillan]

I think that's part of it. We have seen rail connecting those two over the last couple of years.

If I could, maybe I'll address what Mr. McGowan spoke about, which was that the refining capacity might not be linked between the heavies and eastern Canada, but there's a very great link between the light oils we produce in western Canada and the eastern Canadian refineries.

Manitoba has become an oil producer. That is quite important to their province. Saskatchewan has increased its oil production in recent years, and there are the lights that are coming out of different fields in Alberta. Connecting those two with rail has been important. A pipeline would be a very important option as well. Also, potentially, export is always important to meet growing markets around the world.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

That's wonderful.

You made a comment, Mr. Reynish, and I think it was that for every $10 change in the cost of oil, there is a billion-dollar change in cashflow. Just quickly, could you expand on that? That's enormous.

[Steve Reynish]

It is enormous. Yes, that's the Suncor position, if you like. It's that a $10 change in the price we receive results in a billion-dollar reduction in our cashflow over a year. I think I was just trying to put some context around the scale of the issue.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

It speaks volumes to the economic impact of this industry in Canada.

[Steve Reynish]

I think it does. Of course, that just means there is less cash for services, as we were talking about. It impacts taxation. It impacts everything we do.

[Joyce Bateman, Conservative, Winnipeg South Centre, MB]

That's for sure. Thank you so very much.

[The Chair, Conservative, James Rajotte]

Thank you, Ms. Bateman.

Mr. Dionne Labelle, you have five minutes.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

Good morning, everyone.

My first question is for Mr. Reynish.

You spoke about rationalizing the workforce, and you mentioned 1,000 positions. If I've understood correctly, this rationalization is not necessarily tied to the drop in the barrel price, but rather to efficiency measures that you are thinking about keeping.

Have I correctly understood what you said?

[Steve Reynish]

Let me add to that. That was the announcement we made. It was 1,000. It's right across the company, so many locations around Canada would make up that number. What I was trying to describe was that this is part of a longer-term journey in terms of moving our cost profile down. However, there is no doubt that the current dip in oil prices has caused us to accelerate those measures and look at them more closely.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

I'm wondering about these layoffs. Will foreign workers be dismissed before Canadian workers?

[Steve Reynish]

No. Foreign workers are the last resort for us in terms of employment. We have very few. I think there are maybe a dozen or so foreign workers working for us currently. It's minuscule in the scheme of things. As I tried to point out in my opening remarks, we find that it's one of the higher-cost options for us in terms of labour, so our policy remains “the more local the better” in terms of employment, and then we move from there.

[Pierre Dionne Labelle, NDP, Rivière-du-Nord, QC]

That's what I think, too.

I will now move on to the volatility of oil prices from a consumer perspective. Mr. Boag explained some of that to us earlier.

I remember that in July 2008, a barrel cost $147, and we were paying $1.40 a litre at the pump. A barrel now costs $49, but let's round that up to $50. I recently paid $1.09 a litre at the pump. I'm wondering if consumers are really benefiting from the drop in the price per barrel. I don't find the cost per litre at the pump to correspond to the drop in the barrel price. I don't know why the drop in the price isn't proportional.

[Peter Boag]

As I indicated in my opening remarks, over the long term retail fuel prices do in fact generally track price movements in crude. Certainly, as we've seen over the last two and a half years, while there has been volatility in the price of crude oil there has been relative stability in refiner margins and retail margins. The prices at the pump have generally reflected movements in crude prices.

This is not to say that there are not short-term variations. Largely those display seasonal implications, as the supply and demand balance changes with the changes in seasons, as well as short-term supply and demand disequilibrium, whether from a demand spike or a supply shortage brought about by unplanned refinery outages or the kinds of situations we've seen in the U.S. recently, with a number of refineries shut down because of a strike. It is a North American market, not a uniquely Canadian market. Canada is 10% of what is a much larger North American market.

Going back to the 2008 experience, what you saw there was that while oil was going up as a global commodity, the price of fuel in North America was declining as a North American commodity as the impacts of the recession were starting to bite, particularly in the U.S. At one point in 2008, margins had dropped to zero and in fact were negative on the refining side because of supply and demand dynamics for gasoline that differed from the supply and demand dynamics globally for crude oil.

[The Chair, Conservative, James Rajotte]

Thank you, Mr. Dionne Labelle.

Next is Mr. Cannan, please, for five minutes.

[Ron Cannan, Conservative, Kelowna—Lake Country, BC]

Thank you, Mr. Chair.

Thanks to the witnesses.

It's always interesting. I used to have a retail gas station in Edmonton, about 25 years ago when the price was 39.9¢, and I have friends and family in Alberta, where the price was 60¢ over the last month. I was trying to figure out why, back in the Okanagan, we always have higher prices, and that's something we will continue to debate. But today we're here interested in discussing supply and world economic impacts on global pricing.

The first question is for Mr. Boag. You mentioned that there are 18 refineries in Canada, in answer to Mr. Cullen's question. There was a study done in 2012 by the Standing Committee on Natural Resources here in Parliament, “Current and Future State of Oil and Gas Pipelines and Refining Capacity in Canada”. It talked about there being at that time 19 refineries. I'm wondering how many refineries we have built in the last 25 years.

[Peter Boag]

The answer is none. The last new greenfield refinery built in Canada was built more than 25 years ago. We have a bitumen refinery being built today north of Edmonton that is considered a refinery, not an upgrader, because it will actually produce the finished products.

But the number of refineries is one side of the equation. The more important side of the equation really concerns combined and aggregate refinery capacity. Although we may have had more refineries 30 or 40 years ago in Canada, we've gone through a consolidation process to make our refineries more efficient and we actually have much more refinery capacity today with fewer refineries than we had years ago, because those refineries have been expanded. They're larger and they're much more efficient, to be able to compete in what is a highly competitive North American market. So actually, today Canada is well supplied from its existing refining base. We produce more than we consume. Canada is a net exporter of refined products.