Industry Committee on Oct. 31st, 2006

[Jean Lapierre, Liberal, Outremont, QC]

But then, on regulations, if I understand well what's going to happen with this clean air bill, that probably will never see day, unless there was a good meeting today with your new friends--

[Voices]

Oh, oh.

[Jean Lapierre, Liberal, Outremont, QC]

We are old friends.

I just want to understand. We're talking now about more regulation, not less, aren't we?

[Richard Paton]

Yes, and we're not against regulation. We are against rigid, myopic regulation. We're for innovative regulation. Also, we don't particularly like regulation that doesn't take into account our performance, which is unfortunately what your government did, and regulation that doesn't understand the nature of the business cycle and business investments. So ideally, if you linked informed regulation with a capital cost allowance, I think you would actually end up with a pretty good approach to achieving both environmental performance and economic performance. I'm personally not confident we'll get there. I personally think the clean air act is a step forward, but we'll have to see whether the regulators are actually innovative.

[The Chair, Conservative, James Rajotte]

You have about ten seconds.

[Jean Lapierre, Liberal, Outremont, QC]

Thank you.

[The Chair, Conservative, James Rajotte]

Okay, thank you.

We'll go now to Monsieur Crête.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you very much for your presentation.

I support accelerated capital cost allowance. I think it is one of the key elements we will have to include in our recommendations. However, it would mean a tax expenditure for the government. How can we convince taxpayers that this is important? Improving the productivity and quality of equipment used in a particular industry can easily result in short-term job losses. That might not happen, but it very well might.

I would like you to talk about this.

To what extent is business ready to take responsibility for the consequences in terms of job losses? I am not necessarily talking about responsibility, but I would like to know how you see this. What are your thoughts on this?

[Richard Paton]

You want me to answer the employment question or the fiscal question, or both?

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I'd like you to answer the two questions.

[Richard Paton]

Okay, well there is a fiscal impact. I think Jay Myers estimated it at something like $1.9 billion. It depends on whether people actually make investments or not, and that depends on whether they've got any money, so there are a lot of variables. But if you took the full impact of this, it would have an initial fiscal impact.

On the other hand, though, as you can see from this chart, what simply happens is you have more fiscal impact early, and then after about five years it washes out, so it's even. So it sort of depends on whether you want to deal with it now or later. The CCA rate eventually hits the fiscal framework.

On employment, you're absolutely right. More investment in capital sometimes results in less employment, and personally that bothers me a lot, because I think employment is a core thing that we've got to do in this country. We need to keep high levels of employment. I'm glad to see our unemployment rate is fairly low right now. I think the reality is we've closed seven plants, and those people are not working. In order to maintain that business in Canada, companies are already doing a lot of things: outsourcing to India, restructuring, downsizing. So really this might help us maintain the viability of these companies and keep them--

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

That could minimize the negative impact.

[Richard Paton]

Exactement, oui. Yes.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Thank you.

My other question is about the discussion we had with your group during last week's presentation.

Can you give us a quick overview of how the use of additional natural gas feedstocks could be diversified in Canada, rather than having a single pipeline going to the United States just to heat homes? What would be the advantages of having other products?

Can you summarize this quickly for the committee members? This is an important value-added element in a sector where we have jurisdiction.

[Richard Paton]

Dave Podruzny's more of an expert in this issue than I am.

[David Podruzny, Vice-President, Business and Economics and Board Secretary, Canadian Chemical Producers' Association]

The main value would be to go after certain of the liquids that are entrained in natural gas. I mean, natural gas is also a good home heating fuel. It's very efficient, and there is a definite use as an energy product. We use some natural gas as an energy product. Between about 2% and 4% of the content is natural gas liquids, specifically ethane, and that's the product we extract from it. Then we put the rest of the natural gas back into commerce. That extracted ethane is increased in value by 10 to 20 times to make petrochemical products, anything from kayaks to Frisbees, but also more practical products like packaging material and auto parts.

So what we're talking about is taking a component of the gas, which might otherwise simply be burned, removing it, and making it into value-added products. The remainder of the gas is still used for its energy content.

I think that's a good, practical approach to value-added strategy.

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

Why are companies not doing that now? Because it is not as profitable as burning it?

What do we have to do to make them do it?

[David Podruzny]

In the case of natural gas, a little over half of the petrochemical feedstocks are being extracted from natural gas to make petrochemical products in Canada. We can do better. There are things happening at provincial levels to improve our access to the liquids for upgrading.

In the case of oil, I'm guessing you're referring to the tar sands and the movement of bitumen—

[Paul Crête, Bloc, Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC]

I was referring mainly to natural gas.

[David Podruzny]

Okay. In the case of natural gas, we can do better with what we are exporting, consuming, and burning. There is work under way. Our companies are working on better technologies for deeper cuts of the natural gas liquids from the natural gas.

We're also working with some of the companies that pipeline product down to the United States to establish straddle plants, so that we can extract the liquids and then put the rest of the gas back into the system and continue it to markets. Frankly, our industry doesn't have a lot of use for the methane portion. Its best use is for its energy content.

What more could be done? We've worked very closely with the Alberta government to improve the extraction economics. We think it would be very valuable if the natural gas coming out of the north, natural gas being landed through liquid natural gas terminals, and natural gas coming from the United States all came through Canada and offered commercial access to the same extraction and resource upgrading.

I think there's a wonderful opportunity to take advantage of a Rocky Mountain hub to supply natural gas liquids and add 10, 20 times value to the natural gas component.

[The Chair, Conservative, James Rajotte]

Mr. Shipley.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I'd like to get some clarification on the CCA. Are you then telling us that if this were on the accelerated type of CCA there would be a larger reinvestment in the equipment? If you could write it off, is it all about the dollar value, or does it also mean you have the accelerated rate write-off for equipment? Does it mean that your business could get quicker reinvestment into the industry for new technology and equipment?

[Richard Paton]

Absolutely. It's cashflow. Companies would have much more financial flexibility to keep investing, reinvesting, and improving their equipment and technology as well as their emissions performance.

[Bev Shipley, Conservative, Lambton—Kent—Middlesex, ON]

I was interested in your comments about where the plants are going to be built. In the Middle East, natural gas is 75% of the cost. I guess that's an industry number.

[Richard Paton]

Right.