Thank you, Mr. Chair and honourable members of the committee, for the opportunity to appear before you today. My name is Nick Schultz and I am vice-president of pipeline regulation for the Canadian Association of Petroleum Producers.
My association represents the upstream oil and gas industry in Canada, the folks who explore for and produce Canada’s oil and natural gas. Our members produce about 80% of Canada’s oil and natural gas in an industry that invests multiple billions of dollars every year into the Canadian economy.
Access to export markets for our products is vital to our industry and also vital to the Canadian economy, which benefits from the activity that our industry creates. Operation of free markets is a cornerstone principle for our association, and free market principles are the foundation for free trade. Fundamentally we are very much aligned with the operation of free markets and free trade agreements.
When it comes to energy, the energy chapter in NAFTA dates back to the original 1987 Canada-U.S. Free Trade Agreement. The foundation for that free trade agreement is a fact that is sometimes overlooked but is nonetheless important, and that is that both countries—Canada and the U.S.—had already moved to free market policies for energy markets in the mid-eighties, and the free trade agreement then built on that in respect of energy.
Today both countries still operate on the basis of market-oriented energy policies, and Mexico, which joined the free trade area in 1994, has recently significantly liberalized its energy markets responding to the incentive that NAFTA provided it. From our perspective, NAFTA has been beneficial to all three countries—Canada, the U.S., and Mexico. The expectation of mutual benefit that drives nations to enter into free trade agreements is the reality of free trade in respect of energy, and we would say, in general.
Since 1987, and since 1994, the economies of all three countries have become even more interconnected and even more integrated, so the logic of a North American free trade zone is even more compelling now than it was 30 or 35 years ago. Free trade has done exactly what one would expect with regard to energy. The energy pie has grown and all three partners to NAFTA have shared in that growth. We did provide to the clerk copies of my remarks, which have some data. I'm just skipping over that in the interest of time.
I would point out that U.S. oil production has grown dramatically in recent years and is back to 1970 levels, and U.S. natural gas production has also grown enormously in the last 10 years. Markets that Canadian oil and natural gas producers had served in the U.S. have been displaced by domestic production. In fact in Ontario and Quebec significant amounts of natural gas are being imported to supply Canadian consumers, so U.S. natural gas producers have benefited from the market access that has been created by free trade. As well, U.S. oil producers now are the dominant supplier to the eastern Canadian refineries that rely on imported crude oil. Again there has been a benefit there.
If we were to speak about the room for improvement, we would begin with what other witnesses have said to you, which is “do no harm”. The free trade agreement has been beneficial, and while there is always room for improvement, the starting point should be “do no harm” and we should be sure to preserve basic building blocks of free trade agreements, such as national treatment and redress for individual investors.
I would note that in regard to the energy chapter, it is not the business community in any of the three countries that is seeking change.
From a Canadian perspective, any improvement would be around rules of origin. A very liquid natural gas market has evolved in North America in the last 30 years. One of the challenges of that liquidity is that it does not marry up easily with the complex rules of origin, so if we are to renegotiate, we need to address that issue.