Subcommittee on Canadian Industrial Sectors Committee on May 5th, 2009

[Gary Leach]

From our perspective in the upstream exploration and development industry, the key workforce is engineering, geoscience, and financial people. Most Canadians understand that our workforce is aging. We're going to be losing far more of that kind of professional expertise and talent in the next 10 years than we are gaining from new entrants to the workforce. This is a very technical industry. It requires a lot of expertise to make this enormous oil and gas industry we have in Canada work from the drilling end of it right through the pipelines to the refineries.

As we lose that talent through the retirement of some of the key people in the workforce, we don't see the same number of young people coming in with the geoscience backgrounds, the engineering backgrounds. Canada is not turning out enough graduates. In the last few years we have seen some increasing international migration into the oil and gas sector, but probably not enough to offset what we described as looming shortages of some key technical and scientific people.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

One of the things we've talked about here, and we've had other industries come, is the difference between cyclical versus structural challenges that industries are facing. Some are facing more structural challenges, where there may not be a bounce back when the economy recovers. Some are more cyclical, in the sense that there's going to be that bounce back. What I'm hearing you saying is that the challenge for you, in terms of workforce shortages, might actually be an opportunity for many Canadians who may be working right now in more structurally challenged industries. With some skills programs and some of the things that we've put in place from a transition standpoint, there may be an opportunity for some workers to benefit, as we come out, by maybe making a transition to your industry.

[Gary Leach]

Our industry associations are collaborating through a national council called the Petroleum Human Resources Council of Canada on long-term career development issues by getting information out to young Canadians about careers in the oil and gas industry in Canada, what kinds of career opportunities there are, what kind of educational background is needed. As Don knows, recruiting has been done in the forestry industry in western Canada and other hard-hit sectors to encourage workers there to look at opportunities in oil and gas as well.

In fact, as many people know, there's been a huge migration to western Canada, particularly Alberta, from the maritime provinces for the last few years. To the extent that we can draw workers from other sectors, that's part of what we're trying to do as well.

Don, I don't know if you want to add to that.

[The Chair, Conservative, Dave Van Kesteren]

Sorry, Mr. Herring. Can you just hold that thought?

If we're going to go through the round, Mike, you'll get another chance.

Monsieur Bouchard.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

Thank you, Mr. Chair. Once again, any of our witnesses may answer my question.

I understood you to say that the main problem facing the oil industry was access to credit. How do you go about this? Are there loan guarantees or subsidies, or financial assistance to reduce the interest rate? Someone said that one company has to pay 12% interest to borrow money. Is that correct?

I would like to hear more about what sort of assistance you seek.

[David Daly]

I think we're asking for the federal government, to the extent that it can, to try to persuade the chartered banks to free up some of their capital, some of the available capital loans, to industry in general and oil and gas in specific. Not to single out oil and gas, but credit is still very tight. I think Mr. Herring and Mr. Leach have mentioned that it's still very tight in terms of interest rates and just in terms of being available. Even if you as a company are willing to pay the interest rate, the banks are not giving out loans. They're not freeing up lines of credit, and they aren't giving out any guarantees in terms of their ongoing support for financing this year or in multi-year projects.

I know that in the last budget, the federal budget, there were a number of funds devoted to try to help free up capital, and to the extent that can do some good in terms of persuading the banks to free up their capital lending, that is what we're looking for. We're not looking for any types of specific loan guarantees from the federal government itself. We're looking for the federal government to persuade the banks to free up their capital.

[Robert Bouchard, Bloc, Chicoutimi—Le Fjord, QC]

I have one other question, and once again, it is not directed to anyone in particular. The people I represent in my riding have noticed that when the oil industry is worth $150 billion, they pay about $1.50 a litre for gas, and when it is worth $80 billion, they pay an acceptable price at the pump. When that happens, I hear a lot fewer comments—no one complains.

In my riding, or even in my region of Quebec, when the oil industry is at $150 billion, people realize that we are all too heavily dependent on oil. What should I be saying to my constituents to urge them to support the oil industry, which is important? What should I be telling them?

[Gary Leach]

Well, there's no substitute for petroleum for transportation fuel. As far as we can see into the rest of the century, motor vehicles will be fuelled largely by petroleum products.

As I mentioned earlier, we cannot control the global price of crude oil. It's often established by events outside our control, but we often say in this industry that the best cure for high prices is high prices, because they tend to bring on more supply and to induce energy conservation measures. Most of the time when prices have been high in the past—and we've just seen this in the last year—they have also tended to come down fairly quickly, because there's an immediate demand destruction caused by high crude oil prices and an immediate response from our industry, as best we can, to bring on new supplies.

I would ask you to tell your constituents that if they have some uneasiness with the development of Alberta's oil and gas reserves, particularly the oil sands, they should understand that allowing us to develop these sources of energy is the best hope we have in North America to ensure that we can be somewhat insulated in terms of security of supply, and also to be somewhat insulated in Quebec from prices of transportation fuels.

As I said, the best cure for high prices is often high prices, because they cause the demand destruction that brings down prices and they bring on new supply, which also has the same effect.

So if your constituents can be patient, they'll often find that if they wait a few months, prices will come down. It doesn't help our industry so much to have to live with that volatility, but there's often a corresponding period of lower prices to offset the high price spikes.

David.

[David Daly]

I think there's one other thing to remember. First of all, we're the upstream petroleum industry, so we don't really speak on behalf of refiners and marketers who sell gasoline and other refined products. But from our general knowledge of that business, a lot of the fuel price, whether it's gasoline or diesel fuel or other prices, is taxes--taxes that go to the federal government and the provincial governments. So quite a bit of what you pay at the pump ends up going to Ottawa and Quebec City. That would be one thing to point out to a number of consumers.

As well, as Gary has pointed out, higher prices do spur more investment activity in alternative fuels, and they also support not just the industry in Alberta or Saskatchewan or British Columbia, but also a lot of the materials that the oil sands industry, for example, sources for new projects. A lot of that is sourced from foundries in southern Ontario and equipment manufacturers in Quebec and other parts of Canada.

So there is a spin-off and feedback relationship that goes into developing new and unconventional sources of oil and gas, which support the industry across the country.

[The Chair, Conservative, Dave Van Kesteren]

Thank you.

Mr. Lake.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

You stole some of my thunder, because that was the next direction I was going to go in, talking about the importance of the oil and gas sector to the rest of the country.

I think my first question, though, will just be for Mr. Herring to continue his comments from my last round on the labour challenges.

[Don Herring]

Sure.

What we have tried to do very consistently, and continue to this day, is to run job fairs across Canada. We also actively visit with educators and try to point out what we as an industry have available.

Of course, as Gary has indicated, we are facing a demographic that's interested in working outside. In order to recruit them, we look to places like Quebec, for example, in the forest industry, in the mining industry, in areas where a lot of physical work is required. If those industries are not functioning at peak capacity, then perhaps there is some additional labour that can work on our equipment.

So we actively do that, even though we are facing some pretty significant decreases in our ability to employ people.

[Mike Lake, Conservative, Edmonton—Mill Woods—Beaumont, AB]

Further to that--maybe each of you could comment on this--one of the things that I've seen from companies in the industry is a real effort to accommodate the fact that many Canadians across the country don't necessarily want to move all the way to Alberta. I don't know why they wouldn't want to move to Alberta, but some people like to stay where they're from.

There has been an effort to accommodate that in terms of a supplier standpoint--for example, having inputs manufactured in Ontario and then shipped to Alberta for use, as opposed to manufacturing them in Alberta, where labour has been a little bit tighter.

I've also heard stories that some companies actually will charter flights to fly workers from one place in the country to another. They'll pick them up, bring them in for a couple of weeks at a time, and then fly them back. The workers actually still live in the place where they grew up. They're able to come out and work, but then they're able to go back and invest their income into their own communities, which I think is important.

I've heard that when things were at their height in terms of the industry, there was a real impact in places like Cape Breton and parts of Newfoundland. Folks were building new houses. There was a construction boom, almost, that was fuelled, in a sense, by the income that people were bringing back from their jobs in the oil sands.

Could you speak to that and give some examples, if you have any?

[David Daly]

I think you're very right. There has been an impact on employment across the country in terms of sourcing workers from across the country in order to work in new development projects in Alberta.

You cited examples of where companies have tried to accommodate workers' concerns--about having to pick up and move the whole family outright, across the country--by flying them in, letting them do basically long-distance commuting for a time, and then flying them back. That's certainly something that we've seen, especially through the peak of 2007-08.

It's not so common today, as the industry is sort of in reverse, but that's a short-term phenomenon. I think we'll get back, as we talked about earlier, to a period where, once the economy recovers, we'll be having to source labour from across the country again, and from outside the country again.

I think it's also important to remember that it's a national industry. It's not just an Alberta industry that sources from around the country. It's a national industry. We have oil and gas exploration and development activity around the country.

We've seen developments of offshore processing off Newfoundland and Labrador, and off Nova Scotia. To the extent that those are continuing and growing, they demand labour right there. So Newfoundlanders and Nova Scotians have been able to find jobs in the oil and gas industry by staying right in their provinces. To the extent that industry is taking an interest in doing more exploration and development activity there, then that creates more jobs there.

Likewise, north of 60, there has been more interest and activity in the Mackenzie Delta. Certainly there has been a lot of growth in Saskatchewan, in British Columbia, even Manitoba, that didn't have very much interest before. There was always a little bit of drilling, but not as much interest as has been displayed in the last couple of years. There has been quite a bit of growth there as well.

Even Quebec and Ontario do have a bit of their own oil and gas production.

[Don Herring]

Mr. Lake, let me answer it this way.

The drilling industry, again, has been in Canada for 60 years. Up until the last decade or so, ours was a seasonal industry. I pointed that out in the charts. We put people to work in the winter in great numbers; in the spring, they'd do something else. Perhaps they'd go home or they'd go to school. They'd do something else, and then we'd start again in the summer.

In decades past, we were counter-seasonal to the agriculture industry, so we attracted a lot of people who were farmers. They would come to work for us in the winter and go back to the farm in the summer. Of course, the average age of a farmer in Canada is around 60, so we can't get those guys anymore.

Now we go across the country recruiting them. We go to Newfoundland, we go to Quebec, we go to Ontario, we go to northwestern British Columbia. We bring them to work on our rig in the winter and they go home in the spring. That's why, when we put the rig technician program together, we wanted it across the country: when we send them home in the spring, we want them to take their actual in-school training in Newfoundland or British Columbia or Saskatchewan.

[The Chair, Conservative, Dave Van Kesteren]

Go ahead, Mr. Thibeault.

[Glenn Thibeault, NDP, Sudbury, ON]

I'm from Sudbury. We also do a lot of drilling; it's just a little different.

I'd like to pick up on one thing Mr. Lake was talking about. We have a skill shortage as well in the mining sector. We can't keep enough people in the mines. Unfortunately, with the mine closures right now, we do have some people who aren't working. When we talk about boom-or-bust cycles, we know a boom-or-bust cycle as well.

What does your industry do to ensure that when the pendulum swings the other way, there will be people who are going to be there to work? Do we need to do something federally? Is it something we can look at? I'll open that question up to anyone.

[Gary Leach]

I think the depth of the current slump in our industry caught a lot of us by surprise. We weren't anticipating it. However, the expected labour shortage we're facing as an industry means that our industry won't let up in its efforts to encourage universities and colleges to turn out the graduates we're looking for and to encourage the drilling and service sectors to continue to do what they can to make sure they have an adequate and trained labour supply.

The extreme volatility in the oil and gas industry, or any commodity business, makes it difficult, because just when you think you're bringing on young people and convincing them they have a career, we have one of these sharp downturns, and unfortunately people have to be laid off. What's different this time, I hope, is that because we're this much closer to this demographic slump, companies are able to see through the current slump a little bit better and do more than they might have done a decade ago in terms of attempting to retrain, reassign, or otherwise hold on to their workforce. They know that three or four or five years from now, we are going to have a permanent, steady attrition in the workers we have, and we currently don't see enough coming on among the younger population.

[Don Herring]

Mr. Thibeault, we'll give you a blueprint that can help you establish a trade in the mining industry in your area.

[Glenn Thibeault, NDP, Sudbury, ON]

Great.

I want to go back to what I was talking about earlier in relation to the need to go green. You brought out some important statistics: 2% is going to be through wind and solar, and 70%.... I'd like you to quote that again, once the questions have....

Are there investments going into research and technology? Are there jobs there right now for people who may unfortunately have lost their jobs in the oil and gas sector? Is this something they can look to and get involved with, and can they perhaps create a small or medium-sized enterprise to do research and technology to help us get greener?

[Gary Leach]

Are you asking about alternative energies?

[Glenn Thibeault, NDP, Sudbury, ON]

No, no. Right now, can we take petroleum and make it greener? Is technology looking at making petroleum greener, or is it as green as it's ever going to get?

We've heard the stories of way back when. If you go back 50 or 100 years, we've come a long way. Are we looking at moving even further? Is research and development going on in this sector?

[Gary Leach]

My first response would be to never forget that natural gas is probably the cleanest and most benign fuel we have, and I include nuclear and hydro. Natural gas has the least environmental impact, and we have some tremendous natural gas resources that will last us many decades in this country.

Is the overall petroleum industry getting greener? Yes, it is. David could cite some statistics. I think he referred to a few in terms of reduction in flaring and venting and in terms of reduction in water use.

One of the members asked me about the four or five barrels of water that are consumed to produce a barrel of oil. I want to point out that what a lot of people don't realize is that it takes about 140 litres of water to produce a cup of coffee. It takes thousands of litres of water to produce a pound of hamburger. It takes four bottles of water to produce one bottle of water. Any industrial process of any kind consumes water.

Our industry has done a tremendous job in reducing water use in the last years and will continue to improve on that. There's a tremendous amount of research going on in terms of reducing energy use, reducing water use, and reducing all kinds of inputs in terms of producing energy outputs. There are some great career opportunities for Canadians to work in that field of the Canadian oil and gas industry.

[Glenn Thibeault, NDP, Sudbury, ON]

That's what I was trying to lead to. The pendulum is on this side. Instead of losing all these people moving back to different parts of the country, is there some way we can keep them in that area, so that when the pendulum swings this way, they can get right back into it?

[Gary Leach]

There are a lot of opportunities. I would argue that the Canadian government could be doing more to fund that kind of specific research, as opposed to funding alternative fuels outside the oil and gas sector. We know of all the interest in biofuels and that sort of thing, but a tremendous amount of research could be done in improving energy efficiency and in greening the oil and gas sector.

It may be worth further dialogue with the federal government to talk about opportunities there.