Natural Resources Committee on Oct. 19th, 2006

[The Chair, Conservative, Lee Richardson]

Let me suggest, Mr. St. Amand, that you ask the minister that question and he would be obliged to give you some kind of answer. We're really looking for a technical briefing today, and I don't want to put the witnesses on the spot to offer opinions on these matters, if you will.

I think the time has pretty much run out, in any event, so we'll go to Madame DeBellefeuille.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Thank you very much for your presentation.

Page 2 of the document you submitted to us provides an overview of the oil sands and problem issues. We share your analysis of the issues.

What surprises me, Mr. Brown, is that you spoke about the labour issue separately from all social problems. However, members are increasingly being made aware of social problems. It is true that labour is a problem, but you still have to house, feed and care for employees. It seems this aspect is somewhat absent from your presentation. That's my first comment.

The purpose of my other comment is more to congratulate you. In the first point on page 10, I see that Natural Resources Canada's role is to see to the development of a Canadian energy policy for sustainable development. I'm pleased that a deputy minister has filed a document that clearly states that.

I attended a briefing session yesterday. The official referred to the responsible development of natural resources. I suppose that can be attributed to the lack of time given them. We far prefer the expression you use in your capacity as deputy minister: “sustainable development”. So I congratulate you, and I think that expression has the force of law. I'm going to cross out the word “responsible” in my briefing document.

Mr. Brown, can you tell me how much money is allocated to oil and oil sands research, and what percentage of that amount is allocated to research and technological development? In other words, what is the overall budget and what percentage is allocated to oil sands and oil? That's my first question.

Perhaps Mr. Hamza could answer. After the answer, I'll ask you another related question.

[Howard Brown]

Merci, Madame.

If you would permit me an anecdote, I have a son who was working in construction in B.C., and he thought for a time about going to work in the oil sands. The advice from his friends who had worked there was “If you go to Fort McMurray, get religion and keep to yourself.” I think that was a reference to the social temptations that might be in the way of a 20-year-old making a lot of money in Fort McMurray.

I think you're clearly right that there are social issues. I would put those in the category of labour issues, because at some point it's going to be impossible to attract people. One of the reasons wages are high is because housing is so costly due to a supply problem. To some extent the market is going to work that out.

There is clearly a role for government. I'm not a constitutional expert, but I do believe these issues would be the responsibility of the provincial government. As I mentioned, respect for the jurisdiction of the provinces on energy policy has been a cornerstone of Canada's energy policy under both Liberal and Conservative governments. It's not an area in which we would have an opinion or wish to intrude in any way.

There is a federal role in labour supply in immigration, and there are certainly measures under way with respect to training and the promotion of workers, etc.

As to your question about spending on research and development, I have numbers here, and I'd be happy to give them to you in writing, because they're fairly detailed. But the total amount of money spent on research and development within Natural Resources Canada for 2005-06 was $212.9 million, of which $81.7 million was spent by the two energy sectors. That means about 40% of the total spending on research and development was on energy. There would be small amounts from other sectors that apply to energy, but that would be roughly correct.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

I'm trying to get a better understanding of this. Are the research and funding that the Government of Canada allocates to Natural Resources Canada's budget allocated to reduce or clean up tailings in order to reduce greenhouse gas emissions? Is that the main objective of work under way? If so, will we be able to see these new technologies implemented and applied?

It's quite frightening to hear that oil sands emissions will double by 2015 and that the entire energy efficiency initiative will be reduced or nullified by oil sands tailings. I'd like to know the results of your research. Will we be able to see results in the short term or rather over the long term, within 10 or 15 years?

[Howard Brown]

A very significant portion of our spending on energy research and development would be for projects with an environmental dimension to them. I would have to go back to see if we could extract hard numbers on that, but reducing the environmental footprint is a very important dimension of the research and development.

I would also add that a lot of the work we do is on energy efficiency, which certainly helps reduce emissions and other environmental impacts. It also makes us more competitive and prosperous as a country. It makes us more secure, both as a country and a continent. A lot of work has payoff for more than one objective, so if we were to allocate by objective it would probably come to more than 100%, if you can see my point.

Oil sands production today is much less energy-intensive than it was ten years ago. Huge progress has been made, including work directly done by the centre in Devon. Perhaps it's a case of the glass half full or the glass half empty. There has been huge progress in this area.

[Dr. Hassan Hamza]

I would say that over 90% or 95% of what we do in Devon is related to environmental aspects of oil sands, whether it's to find new technologies that have less energy demand, fewer emissions, and so on.

You asked whether these have been implemented or not and when they are going to be implemented. They are already at different stages of implementation. We have one or two new technologies that are being implemented for tailings. In one stage of extraction we are using solvents to process the oil, so we have already achieved a paradigm shift, a quantum change, in how to process the oil sands. We do most of this work with the stakeholders as part of our activities. This allows the quick transfer of technology to the user of the technology.

On the 24th of this month there will a Shell day on the Hill here. One of the technologies we developed for them allows Shell to have their plan. They invested $6.7 billion on the first phase and about $10 billion on the second phase based on that. It is much better for the footprint, emissions, and cleanliness of the oil. They admit that without this technology they would not have been able to progress.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

Will your studies and your optimism put the lie to the statistics that show emissions will double by 2015? Normally, if your technologies work, should we be able to reduce them?

[Howard Brown]

The answer, of course, is that output is increasing faster than emissions intensity is falling.

[Dr. Hassan Hamza]

And this is another issue that I know should be looked at sometime as a piece of development, and this is a different issue completely from the technology side of things.

[Claude DeBellefeuille, Bloc, Beauharnois—Salaberry, QC]

So we should invest even more in science and technology in order to enable researchers to work. We find ourselves at a kind of dead end: growth is higher, the technology isn't following and we will never manage to reduce oil sands emissions. It's like an endless cycle.

[Howard Brown]

Perhaps I could make a couple of observations. I said at the start I wasn't going to talk about the Clean Air Act, but I am.

First of all, the question on the pace of development is really a question for Alberta. Alberta is the owner of the resource and it's really up to Alberta to decide whether it wishes to pursue that rapidly or not. There are limits to the pace at which the resource can be developed and we've talked about some of those in terms of the social issues and the labour availability and so on. It's really no more a question for the federal government to decide whether the resource should be developed quickly or not any more than it's up to the federal government to decide how quickly hydro potential in other provinces might be developed, for example.

I'll just speak from what I think is an analytical point, as opposed to a policy point.

Regulation of emissions, including greenhouse gases, but also other emissions, will create an economic incentive for companies to reduce emissions. It will also create an economic incentive for companies to invest in research and development for ways to reduce emissions, and I think that's the way one squares the circle here. It's the way you reconcile significant development of the oil sands, perhaps five million barrels by 2030, with a longer-term vision of absolute reductions in greenhouse gases. It is not impossible to reconcile the two.

[The Chair, Conservative, Lee Richardson]

Thank you.

Ms. Bell.

[Catherine Bell, NDP, Vancouver Island North, BC]

Thank you for your presentations. There's a lot of information in here, not a lot of words, but I think there's a lot more that you can add, so of course it's brought up a number of questions for me as well.

I too am concerned about sustainable development for the environment, for the economy, and for the social aspects as well. And you also talked about energy efficiency, and I'm curious, because you talk about the extraction process. What makes the steam get down there to extract the oil? What are they using to make the steam?

[Howard Brown]

The burning of a fuel, either natural gas, or in one project that's underway, a synthetic gas made from the residue....

[Catherine Bell, NDP, Vancouver Island North, BC]

And I heard, and I think you talked about it in one of the pages about nuclear energy.... I'm concerned about that because of the waste that nuclear energy creates and how that wouldn't necessarily be, in my mind, an energy-efficient way to go. I'm just wondering whether we are getting to a point where that is one of the only ways we can go.

[Howard Brown]

A couple of comments, if I could.

Large amounts of steam are needed for these underground, as opposed to the mining.... Well, mines need steam too. When you make steam, you can make electricity for nothing. One way in which people are looking to be more economically efficient but also more environmentally sustainable is to put cogeneration plants in place so you use that free electricity and feed that into the grid. That's an important potential future technology.

Whether natural gas continues to be used is fundamentally an economic question. The economics of it will reflect future regulation, how tight regulated caps on emissions might be. That would change the economic equation.

Whether nuclear is attractive or not is an interesting question. At the moment, I believe the Government of Alberta is opposed, and so long as the Government of Alberta is opposed, it's not really a live question. There are some challenges in using nuclear, in that there are limits to how far you can send steam by pipe. It's very hard to move a nuclear plant once you've constructed it, so this is an issue people would need to solve.

One of the most interesting developments is the gasification of the guck that's left over. It's got no other use, and it is technically possible to turn that into a synthetic natural gas, talking about our natural gas supplies in North America, and make the economics better.

A final comment I'd make on this is that in thinking ahead, if you talk to energy experts, and I'm not one, if you talk to the International Energy Agency or you talk to big oil companies or you talk to the Energy Information Administration, everybody sees hydrocarbons, oil and gas, as being the dominant source of energy supply for as far as you can see. At the same time, government today presented a goal of a very significant absolute reduction of greenhouse gas emissions by the middle of the century, and it seems to me that a very important way of meeting those two seemingly contradictory objectives is to capture the carbon dioxide and store it underground. And there is no better place in the world to capture and store carbon dioxide than the western Canada sedimentary basin. This is an area where there's been considerable interest to us, both on the research and development side and the policy side.

[Catherine Bell, NDP, Vancouver Island North, BC]

Another part of the sustainable development picture would be jobs. You talked about pipelines, and there's a big concern that when you put a pipeline through an area there's a potential for a leak or a spill or other things. But having said that, you talked about the capacity of Canada to refine, and I'm just wondering, are we building capacity here so that...? Because I looked at the map, and it looks as if all the pipelines are going down south and we're not doing a lot of refining in Canada. I wondered if there's any interest in expanding that aspect of it.

[Howard Brown]

There's not been a new refinery built in Canada for I believe 20 years, and there's not been a new refinery built in the United States for 30 years. It has not been a very good business to be in. Nobody's got rich.... I had better be careful here. It's not been the greatest business to be in over the past 20 or 30 years. What has happened is that existing refineries have expanded capacity. The technology is now such that you do not build a small refinery. If you're going to build one, it's going to be big. So there are questions about what's going to happen to energy demand in North America over the next 20 years. Does it make sense to make that investment in a big refinery? Not everyone thinks it does.

Having said that, there are some proposals to build a new refinery, one in eastern Canada and one in western Canada, and the market will sort that out.

On oil sands, though, it's important to understand that two kinds of refinery-like activities can take place. The first is turning this tar into crude oil, which is called upgrading, and that involves a big facility like an oil refinery. You either take carbon out or you put hydrogen in, correct? There you go, I'm an expert. At the moment it's something like two-thirds of the bitumen, the raw material, is turned into this synthetic crude. I think Alberta would like that to go higher, and there may be real economic sense in doing that.

So that's the first stage, and that's even more likely to happen than the oil refinery. But at the end of the day, it's really a question for the market to sort out.

[The Chair, Conservative, Lee Richardson]

Before you conclude, I wonder if Dr. Hamza could comment further on Ms. Bell's initial question with regard to some of the technologies of recovery, such as making steam, for example. He may have some research that may help.

[Dr. Hassan Hamza]

On making the steam, as Mr. Brown said, you can make it from a number of sources. One of them is trying to take the waste from the process, gasify it, and make it into a source of energy to transform the water into steam. Our sister organization in Ottawa is doing a lot of work on the gasification of different materials, including waste materials.

But there is another way, and that is to use chemicals in a state of steam. You can use low temperature, and you add different solvents to the material you put underground, and this will help. But this only applies in situ, to the deep deposits. For the surface deposits, you add water and some heat. The heat is not very high. It's only about 40 degrees, as you don't need to turn it into steam for the surface. For underground and in situ, though, you need to have a driving force, and that driving force would be steam or solvent. There are a number of projects in Saskatchewan in which they are actually using solvents to drive heavy oil, which is very similar to bitumen.

[The Chair, Conservative, Lee Richardson]

Thank you.

Monsieur Paradis.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Good afternoon, Mr. Brown. I'd like some clarification. I'm not from western Canada, but from the east. This may seem like a basic question to my colleagues, but I want to get a clear understanding of this.

On page 5 of your presentation, you briefly explain that this is a viscous oil contained in the sands. The challenge is to convert the sands to usable petroleum products. You explained that you could use the vapours or extract the sand, then extract the oil elsewhere. I understand that this is the crude product.

Is the process the same for refined products, the lighter products? What kind of oil product can be derived from this? Is it similar to standard fossil fuel that can be found in liquid layers? That's my first question.

I'm going to ask my second question. Do the companies that operate in the field have effective measures for restoring lands to their original state? If so, how does that process work?

[Howard Brown]

There are two ways of dealing with the bitumen, the raw material, if you will. One is to mix it in small amounts with crude oil, and then you can put it into a refinery, but there's a limit of 5% or 10% of the total. You would add 5% bitumen and 95% crude oil and then proceed.

There are real limits on how much of it you can use in that way. Bitumen sold in that way sells at a very steep discount to crude oil, so it's not very attractive for the companies. Synthetic crude, on the other hand, is a very desirable product that sells pretty much at the same price as light sweet crude. It's considered a very desirable product for refineries. It goes into the refinery and comes out in exactly the same way as crude oil does, in the form of jet fuel, lubricants, diesel fuel, gasoline, and so on.

The reclamation of the land is one of the most impressive things when you do an aerial tour of the oil sands. It isn't being put back exactly the way it was, because it was very flat and there was not much drainage. The land actually has some contour now, so people not from the Prairies might think it's actually better than what it was in its original state.

It really is quite impressive to see how much terrain is being moved and how pristine and attractive it looks afterwards. As part of their licence from Alberta and as part of their operating conditions, they're required to restore the land so that you would not know there had been a mine there when it's over.

[Christian Paradis, Conservative, Mégantic—L'Érable, QC]

Is that process working well?

[Howard Brown]

Yes, to the very best of my knowledge.