Natural Resources Committee on Oct. 24th, 2006

[Jim Donihee]

I think you'd find the National Energy Board works within the mandate of the act. As I mentioned at the outset of the presentation, we look at it in terms of permitting the free market system to work. Lots of the factors you're seeing as to why many of the announced projects will not go forward are in fact coming into play. As various companies seek to develop competitive advantages, they are pushing into new areas of technology just by virtue of endeavouring to reduce their costs.

The board does not introduce measures of that nature in terms of the manner in which it assesses the projects. We look at the project that is put before us. If it is a contested project, we have a very open and transparent hearing. We solicit the views of all Canadians, of all interested parties, and then make a determination as to the viability of that project as it represents the Canadian public interest.

[The Chair, Conservative, Lee Richardson]

Thank you, Mr. Tonks.

We have crossed over several times, in the interests of the witness, the various roles of the witnesses and of the agencies of the government, and what your regulatory capacity is.

As you're well aware, Mr. Tonks, as the former chairman of the environment committee, there is CEPA. There are other acts in the environment department particularly that impose regulations and strict guidelines as to the operation of corporations and others. That just doesn't happen to be one of the roles of the National Energy Board.

But if you want to call some of those witnesses, again, I'd be very pleased to have them here so that we could have those questions answered--and the kinds of questions that Mr. Bevington was asking, too--because it is important to our overall theme here. It's just not always appropriate to the witnesses at hand.

Next we'll hear from Mr. Ouellet.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

Thank you, Mr. Chair.

First, I'm going to refer to the table appearing on page 2 of the National Energy Board's document. It states that Saudi Arabia has reserves of 260 billion barrels. I see that those figures date back to 1980, because, in Vienna, on June 15, 2005, Saudi Aramco, the national oil company, determined that it still had 130 barrels of oil in Saudi Arabia.

American investors say reserves are 30 billion barrels. If that's true, it's also true for reserves as a whole, which have been overestimated. We know that; everyone says it. We know that most countries have already gone beyond their peak oil reserves, and their production is declining, except in Canada.

I find Mr. St. Amand's question interesting and I'm going back to it. What is your strategy? What do you advise? If we quickly use up the oil we have, we're obviously going to produce maximum pollution. We're probably polluting enough to cause major climate change, which could lead to the disappearance of the human race by 2050. If we take our time and slow down the rate of pollution, we'll obviously have a chance of finding technical solutions to reduce greenhouse gas, or GHG emissions, when we use that oil.

However — and this is the catch-22 — I don't at all believe in the forecasts that state that our reserves could last 250 years; that makes no sense. We're currently using 30 billion barrels of oil a year. Do the calculations, and you don't even come up with 50 years of reserves.

So I go back to my two assumptions, and I ask you the following question: what strategy do you recommend for Canada? If we conserve oil — that would be somewhat Mr. St. Amand's idea, which I find very good and interesting — and if we're eventually the only people who have oil on Earth, that will cause enormous global conflict. We'll have our oil taken away from us. So what strategy do you recommend to us?

That's an economic question, Mr. Chair.

[The Chair, Conservative, Lee Richardson]

Yes, it is an economic question, but it's a question that's asking them for their opinion, their recommendation, their strategy. They don't have recommendations; they don't have opinions; they don't have strategies. They have a mandate provided to them by the government at hand. The minister to whom they are responsible will be appearing before the committee, and those questions can be suitably asked of him when he appears.

I don't mean to restrict your questioning in any way. I just want to make it clear that it's not fair to these witnesses to be asked an opinion in front of the committee when that is not their responsibility. Their responsibility is to carry out the mandate of their act.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

I withdraw my question, Mr. Chair. I apologize.

I would like to have a very brief answer to the following question. You talk about synthetic crude oil. Could you tell me exactly what that is? What is it made of and how? Who could answer that technical question?

[Jim Donihee]

Synthetic crude oil, sir, is the bitumen, and invariably they could add other types of product to it, such as a lighter oil, to reduce the viscosity so that it is able to flow through the pipeline. They could add a solvent; they could add a lighter oil; they could add any number of fluids to it that seek to reduce—because it's very tarry, very heavy in its composition—that viscosity by adding another product to it such that it can flow through the pipeline.

[Bill Wall]

I'll supplement that answer somewhat. Synthetic crude oil is really a result of the upgrading of bitumen. It's a kind of refining process. The bitumen is high in carbon and low in hydrogen compared with normal crude oils. The process is to either reduce the carbon or add hydrogen or both. The end result is that it's a synthetic crude oil that's not unlike a light, sweet crude oil that you might find in other situations.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

I'm no less surprised, Mr. Chair. We request an economic opinion from a research centre, from CERI, the Canadian Energy Research Institute, and from people working with the Government of Canada, and they give us a presentation that would not be accepted by a student with an MBA, a master's degree in business administration. In this kind of study, external factors also have to be considered. They are part of any economic assessment done today. Nowhere have external factors been calculated, such as the cost of water supply services, roads, health services, the cost to clean up land and air and so on. I'm very surprised.

Why don't you include the cost of external factors, which are calculated by all businesses operating in all fields, whether it be aluminum, Alcan, steel or others?

[Marwan Masri]

I can only say that CERI is ready to do that type of research if we're asked to do it. It is the other side of the picture. We presented what we were asked to do, which was the economic impact of a certain amount of development. We say this is what it is, factually. That doesn't mean it's the complete picture. There are other aspects to it that we were not asked to study, but we can. If we were requested to do that, we could do it.

Again, as the chairman indicated, we're not to make recommendations or give opinions, but we can analyze any issue, any problem, and give you our findings. It just did not happen to be in the scope of this report that we prepared.

[Christian Ouellet, Bloc, Brome—Missisquoi, QC]

I'm a bit shaken. I don't see how we can continue this discussion, how I can ask you questions, if you can only answer me on aspects that are part of your presentation. In other words, your answer is only, yes, we're making money; yes, that's marvellous; yes, everyone will get by and Canada will be at a very good advantage. That's all that you can tell me. I don't see how we can continue the discussion in these conditions, Mr. Chair. I'm going to stop asking questions; I find this report incomplete. We can't ask people to give us only part of the whole picture. It's as though we were inviting people and asking them only to talk about the environment, refusing to hear about anything else. Then people would say we had a bias. If we only talk about the economy, we show a bias. I can't continue. I don't understand how we can get a valid assessment of the oil sands situation from a totally distorted presentation, even regarding the current oil reserves of 20 countries. That's not right.

I pass my turn.

[The Chair, Conservative, Lee Richardson]

Madam Bell, did you have any further questions?

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

Sure.

I'd like to thank you for your very comprehensive presentations. I have to agree somewhat that it doesn't leave a lot of room for other questions, but I suppose that could be seen as good or bad, depending on which side you're on.

I hear a lot of concern for the environment at this table, and I'm just going to ask a technical question. Could you tell me what the prospects are for carbon capture and the storage of carbon in western Canada in the sedimentary basin?

[Bill Wall]

Certainly the idea of carbon capture and storage, along with the idea of enhanced oil recovery through carbon dioxide injection is being looked at quite seriously. I think there are five carbon dioxide EOR pilot projects under way right now. There is the operating Weyburn carbon dioxide project that has been in operation for two or three years in terms of carbon dioxide enhanced oil recovery.

Part of the problem is that the capture of carbon dioxide from smokestacks is relatively expensive, on the order of $60 per tonne. The folks who are doing the enhanced oil recovery can only afford to pay about $20 to $25 a tonne, so there's a bit of a disconnect there between the two sides.

Having said that, there are some projects by Penn West. They do plan to construct a small pipeline from, I think, Fort Saskatchewan to Pembina to undertake a carbon dioxide flood of the relatively mature Pembina field.

Beyond that, we recognize that there are some incentives or programs that are being sponsored by NRCan in terms of CCS.

[George Eynon]

I might add to that.

You were asking about the technical capability. CERI did a study about two or three years ago on the capability of the basin, working with the Alberta Geological Survey, SNC-Lavalin, and Adams Pearson Associates. They evaluated the capacity of the reservoirs in Alberta and western Canada to sequester carbon dioxide, and again for tertiary recovery, which my colleague has talked about. The technical capability of the reservoirs is very high. If you can get oil and gas out of these things, you can also put carbon dioxide into and take it out of these things as well.

So the technical capability is there, but as my colleague Bill Wall said, it comes down to the fact that there is a cost issue. How that can be done economically or commercially is another matter. But the technical capability to do it is there. The rocks will work.

[Bill Wall]

In chapter 2, we did quantify the quantities of carbon dioxide that could be sequestered.

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

I guess we're all concerned about whether it makes money or not. If it's good for the environment, though, then we should be doing it and mitigate our environmental degradation. That's what the big concern is here for most of us.

You mentioned incentives. Maybe we're not moving as fast on the environmental side of it as we are on the production and development side. Are there more incentives that might be needed to further stimulate the application of new technology to limit the environmental impacts?

[Bill Wall]

I'm not sure if there are any significant incentives as such. It certainly would be a good place to look to provide incentives. There are some research and development programs that are being funded by the federal government and by provincial governments. As I recall, the Alberta government provided $50 million to look into the support of pilot projects looking into carbon dioxide capture and enhanced oil recovery.

[George Eynon]

I also think there exist more recent incentives, in the sense that the industry itself and the Government of Alberta are looking at the number of alternative fuels.

To get to Mr. Bevington's issue about energy intensity, currently the amount of gas being used is an expensive process for the generation of steam and electricity. The companies are looking at alternative fuels, like the gasification of petroleum coke or creation of an emulsion from a bitumen that can be utilized, and there are pilot studies for each of these. There are strong economic incentives to reduce the energy intensity and the use of other fuels as well. Those are being looked at by the industry itself and by governments.

[The Chair, Conservative, Lee Richardson]

If we can do it quickly one last time, we'll go to Mr. Harris, then Mr. Russell, and then we'll close with Mr. Bevington.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Thank you very much, Mr. Chairman, Mr. Donihee, and guests.

The NEB is based in Calgary, and I have to wonder how you're being affected by the boom out there. Given the labour situation in Alberta, I wonder how that's affecting your capacity to do the job, because as government regulation increases, companies in the energy business out there have an increasing need to comply and fund people to deal with regulatory processes. Who better to hire than people from the NEB?

So I'm just wondering if your staff is being poached on a regular basis. Is that impeding your organization in any way? Are there some measures the government can take to deal with poaching, for example, if it's becoming a serious problem for you?

[Jim Donihee]

The board, quite honestly, is struggling to retain staff. Throughout all the sector, it is quite a challenge. The private industry is in a position where they can respond far more rapidly to the demands around salaries and so on. So unfortunately, the board has not been able to keep pace with what is unfolding in the sector.

As an example, of 300 staff, last year we lost 55, some of that due to retirement, but many of that due to moves that individuals chose to make to go to private industry. So we're actively engaged with Treasury Board at the moment to try to seek relief to this and to put in place a way to respond to the pressures we're feeling. Again, with the growth that's occurring in the sector, with the number of projects that we spoke to in the presentation, which you see coming before the board, and with the need to retain qualified staff on behalf of Canadians to deal with and to study these very technical issues, we do need some relief. It's posing quite a challenge for us.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

Is there a serious competitive deficit, from your point of view? Is your ability to match private sector offers a serious problem in what you're able to offer by comparison?

[Jim Donihee]

We tend to be very competitive at the entry level. We are able to recruit some very talented and competent young staff. With the staff at the more senior levels that we've lost in the recent past, most of the exodus that I mentioned would have been at the experienced and senior level. We are not able to attract experienced staff. We're just not in the game as far as the ability to match.... Quite honestly, we don't seek to match the salaries. The NEB is a very positive work environment. We're not seeking to achieve parity with industry--I think that's unrealistic--but to at least stay in the ball game in terms of being on the playing field, and then hopefully allowing the very concerted effort of the leadership and so on to keep the working conditions positive and to approach it from another number of ways to reward staff and offer training. It's fascinating and incredibly rewarding to work on behalf of all Canadians on issues such as this. We need the means, hopefully, to stay in the game in terms of attracting the calibre of people who are necessary to deal with these very complex issues.

As you saw in that first slide, it's everything from engineering to economics to the environment. As a truly integrated decision-maker on behalf of all Canadians, we really cover the broad spectrum of skills that are required to be able to do that.

[Dick Harris, Conservative, Cariboo—Prince George, BC]

So just briefly, who do you make your appeals to?

[Jim Donihee]

As I indicated at the start of my presentation, we report to Parliament through the Minister of Natural Resources. So we have dealt with the Minister of Natural Resources, in that way, and worked with the staff of the public service. We're an independent employer, as I mentioned, so we have some latitude. But by and large, we're housed within the larger public service, and we work through Treasury Board, as would any other entity, in order to try to deal with the challenges we face.