Thank you very much, ladies and gentlemen. It's a pleasure for us to be here today.
I hope to take you through the presentation of the National Energy Board in the next few minutes, to give you some insight into the role of the National Energy Board and some of the issues that were identified in a recent report that we put forward.
I would first like to offer to you, for your information, the vision of the National Energy Board, which is to be an active, effective, and knowledgeable partner in the responsible development of Canada's energy sector for the benefit of all Canadians.
First, I would mention that the National Energy Board is an independent tribunal that was established in 1959, which reports to Parliament through the Department of Natural Resources. We moved to Calgary in 1991. Our organization has roughly 300 employees with various energy-related skill sets. Ninety percent of our costs are recovered from the industry that we supervise. We are a separate employer within the Public Service Employment Act and Treasury Board guidelines.
Next I will take you quickly through the areas of responsibility of the National Energy Board; our mission statement on the safety, security, environmental protection, and efficiency of the energy infrastructure; and markets as they relate to energy on behalf of the Canadian public interest within a mandate that is set out for us very clearly by Parliament in the National Energy Board Act.
From a regulatory standpoint, we look after the construction, operation, and integrity of interprovincial and international pipelines and international power lines throughout the full life cycle of their existence, from the initial application for the construction of the infrastructure, throughout the operation of the infrastructure, and eventually through the retirement of that infrastructure.
We regulate the transportation of energy--oil, gas, and electricity--as it moves across these means of transmission. We also set tolls and tariffs for the movement of that energy. We regulate the international trade in oil, gas, and electricity. We also regulate the exploration and production of oil and gas in the non-accord areas where there is no provincial jurisdiction yet enabled to do that.
From an advisory standpoint, we monitor the smooth functioning of energy markets. We provide advice to Parliament when requested to do so. We frequently issue reports that demonstrate the fact that we monitor the smooth functioning of the energy markets.
It's also important to note what we don't do. We do not regulate energy or the development of energy within provincial jurisdictions. We do not regulate interprovincial electricity trade, and we do not regulate energy emissions.
On some of the benefits that have accrued to Canadians in 2005, the NEB monitored the safe transportation of approximately $120 billion worth of energy product. This amounted to some 12% of Canada's GDP. Toll revenues were administered that amounted to some $4.5 billion on behalf of Canadians, and revenue from regulated energy exports was in the order of $70 billion. This amounts to Canada's largest real export.
As we look at the challenges in terms of what has changed, the most recent report looking at the oil sands, released in June of this year, is an update of a more substantial report that was released in 2004. On some of the major changes that have unfolded in more recent times, undoubtedly the global demand for energy continues to increase. We've seen a new pricing paradigm in the order of $55 to $75 for a barrel of oil. There has been recognition of Canada's oil sands as the second-largest global reserve, which is indeed significant for the development of Canada going forward.
There are depleting conventional reserves in the western Canada sedimentary basin. Liquid natural gas is coming on the scene to respond to many of the demands for energy throughout North America. We have before the board at this time consideration for the Mackenzie gas pipeline, and we may play a part in the future in the Alaska pipeline. These are two significant endeavours that offer the possibility of opening up another basin for North America and the world's global energy requirements.
Throughout all of this, what makes Canada most attractive is the fact that it has an extremely stable political climate compared to many other countries around the world.
So these initial remarks provide the backdrop for the most recent report that was released in June 2006.
Since the report was published in 2004, oil sands development conditions have greatly changed. For example, as I said, oil prices have more than doubled, while capital expenditures and operating costs have increased sharply. That's why the Board found it necessary to update its outlook, among other things by emphasizing the most important changes and developments with regard to the oil sands. The Board intends to present an objective and independent evaluation and to encourage public dialogue for all Canadians.
On the eighth page you'll see the topics that the report deals with throughout. It looked at resources, supply costs, crude oil supply, markets, and pipelines. It sought to identify some environmental and socio-economic concerns as well as the impact that is offered to electricity in the petrochemical industry.
I know that from the briefings you've had from previous witnesses you're familiar with the locations shown on slide 9. Slide 9 shows the primary locations in Alberta, in the Peace River and Athabasca regions. There has also been some examination of oil sands and the potential for oil sands recovery in the Firebag region in the northwest sector of Saskatchewan, as well as in Pasquia Hills in the eastern central area of Saskatchewan.
The table on page 10 outlines some of the most significant changes that have shown the need for re-examining the developments between 2004 and 2006. It points out clearly the changes that are so real in terms of the price of oil per barrel, the price of gas, the light and heavy differentials and how they have figured out, and the exchange rate between the Canadian and the U.S. dollars, all of which have been significant drivers in terms of the continued and enhanced development within the oil sands.
The chart on page 11 indicates that the NEB has identified 46 major bitumen recovery projects, which encompass approximately 130 individual project phases that, as has been publicly announced, will unfold beginning in 2006 and ending in 2015. The blue columns in that chart show the all-up case. In other words, if everything was to unfold as it has been announced, the black line would represent the base case, the tempered case, given the market dynamics and forces that are at play, which are tempering some of the announcements that have been made in the public domain. The base case, then, shows some $94 billion being invested in total, which means in the order of about $9.4 billion or $10 billion per year between now and 2015.
Moving to slide 12, you see again low case, base case, and high case, in terms of how things could unfold in the actual development, and the amount of production that would arise from the oil sands, with the base case demonstrating an eventual growth in production to about three million barrels per day. The low case would be just in the order of two million barrels a day, with the high case being in the order of just over four million barrels per day.
The low case represents a situation in which oil prices might fall to $30 to $35 per barrel, so the economics involved in the projects temper themselves considerably, and obviously it becomes less attractive for the development that might unfold. The high case, obviously, represents continued growth with high returns in terms of the value of oil per barrel, and doesn't, perhaps, recognize many of the other dampening factors around labour and capital costs and things of that nature.
Slide 13 shows that the oil sands require large amounts of natural gas for their development. There is indeed a high-intensity energy requirement for the development of the oil sands, and we could see that reaching about 2.1 billion cubic feet a day by 2015, in comparison to 0.7 billion cubic feet a day as it stood in 2005 at the time the study was developed.
The flattening of the curves as you approach 2010 reflects an assumed start-up of some of the more advanced technologies that will reduce the intensity of the gas requirements. You will see a flattening of the curves as technology continues to mature, reducing the overall demand of gas per barrel of oil as it is developed.
On slide 14 you will see the study went on to examine the requirements for pipelines. If the production does grow in the manner in which it is predicted to grow, there is a need for additional transportation in order to bring the oil that would be produced to market.
This map illustrates the major Canadian-U.S. crude oil pipelines that are currently in place. The Enbridge main line, which originates in Edmonton and extends across the Canadian prairies to the U.S. border near Gretna, Manitoba, connects to a Lakehead pipeline system and then reaches down into the United States and travels back up to Sarnia to reach refineries in the Toronto area.
Kinder Morgan's Trans Mountain Pipeline originates at Edmonton and extends west across British Columbia for delivery to markets in that province, as well as for the export off the Westridge Dock in Vancouver, as well as down into Washington State.
Kinder Morgan's Express Pipeline originates at Hardisty, Alberta, and delivers crude to locations in the U.S. Rocky Mountain area and connects to the Platte system in Casper, Wyoming, for delivery of crude oil into the Midwest United States.
With the reversal of the Spearhead and Mobil Pipelines in the U.S. Midwest in the spring of 2006, western Canadian crude oil is now being delivered to Cushing, Oklahoma, and reaching as far south as the U.S. Gulf Coast as a result of that as well.
On slide 15 you will see a bar chart, the dark bars at the bottom of the chart being the current production that comes out of the western basin. The line that shows growth out and to the right, as you look out to 2015, demonstrates the growth and production of oil that could be coming from the basin, with the smaller bars representing the various projects that are either being considered or are before the National Energy Board at the moment, in order to support the growth in production that would need to be taken out of the basin.
What I would bring your attention to, in looking at that chart, is the time period of 2007, where you will see that production begins to outstrip the current capacity of transmission. This would induce some constraint, obviously, should the production grow in the way it's currently forecast.
Apportionment on some of the pipelines--bidding and trying to win capacity on the pipelines in order to get product out and to the markets--is definitely going to become an issue if there isn't some capacity increase and if everything unfolds as it is currently laid out.
While we don't regulate the environmental issues as they pertain to the considerations that unfold in the province, the study did seek to point out some of the environmental challenges that do arise, given the rapid growth of the oil sands. And as it pertains to water, the oil sands require large amounts of water in order to develop and there may not be sufficient water available during certain periods of the year.
Technologies have become much more efficient in terms of dealing with that, and some areas of the industry have established holding ponds in order to ensure that they have sufficient water stock and to not draw from the aquifers, thus seeking to minimize the impact they will have. These are all measures that are being taken to try to mitigate some of the impact that the demand for water has as the industry goes forward.
In terms of greenhouse gas emissions, the intensity per barrel of oil produced has decreased by over 20% from 2000 to 2005, but the overall rate of growth and production have outstripped those decreases, so the total amount of greenhouse gas that is released does continue to grow over time.
Carbon dioxide capture and carbon dioxide flooding do present viable technologies and viable opportunities to try to reduce the amount of carbon dioxide that is released into the environment. There is considerable promise here as the industry looks to the future as well.
Land reclamation remains an issue as well, as the water is drawn off and there is disturbance. Again, regulated at the provincial and the federal level, they're monitored very closely in order to see that mitigation measures are put in place and monitored pretty closely as the projects continue to develop.
In the oil sands region, certain major factors affect socio-economic conditions. There is a labour shortage. Alberta currently has only a limited number of skilled workers. Not only is the oil sands sector experiencing difficulty finding the workers it needs, it must also attract them to the region. A skilled labour shortage could slow implementation of scheduled projects.
Over the next five years, capital expenditures of $1.2 billion will be necessary to meet public infrastructure needs in the region. These infrastructures will include municipal projects, water supply systems, sewers, road works, recreational facilities and educational institutions, highways, health facilities and low-cost housing.
On slide 18 you see a chart that shows the growth that is forecast on the base case at the moment, from 1.1 million to 3 million barrels per day at the end of this period, in 2015, which the study examined, with the dampening factors shown above the arrow you see on the page and the factors that tend to precipitate or support the growth that is forecast shown below the arrow: high crude prices; rising, continued global demand for energy; enhancements in technology; a very stable investment climate in Canada; and a large U.S. market. These are counter-balanced by the need for market and pipeline development, rising capital and labour costs, rising operating costs, labour and infrastructure shortages, and the need to manage the environmental impacts that the projects introduce as well.
As I say, ladies and gentlemen, the study really sought to provide an update to the much more in-depth study that was authored in 2004 by the National Energy Board. It seeks to bring balance and to identify all of the issues that need to be considered in order to manage this rapid growth that's unfolding. The report is done on behalf of Canadians in order to bring these issues to light and to encourage debate, and I'm sure they are addressed effectively.
Mr. Chairman, that concludes my comments.
