Natural Resources Committee on Nov. 21st, 2006

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

Mr. Carter's presentation was interesting.

In order to better grasp the importance of the industry and of its impact, I will turn my question upside down. If we were to curb present and future production levels in the tar sands, what would that result in in Canada with regard to both the security of our energy supply and the price of gas and the health of the Canadian economy for consumers, in Quebec and in Ontario, for example?

This question is a broad one, but it is a matter of opinion. I would like to hear what you have to say in this regard.

[Jim Carter]

Thank you.

What would it mean for Canada if we were to cease production of oil from the oil sands? Let me frame it that way, and I think that's where you're coming from with your question. This year, for the first time—I guess for the second year now—oil production from the oil sands will exceed conventional crude oil production in Canada. We'll be at about 1.2 million barrels a day this year, versus about 985,000 from the conventional crude oil fields in the country. What is happening is that the western Canada sedimentary basin is declining in its production and the oil sands production is stepping in to take its place. The same thing is happening in the United States, and therefore we have this opportunity for export of crude oil.

If we hadn't had the foresight.... And by the way, I should say that this is a Canadian success story of the highest order. We're talking here about research and development that's been done right here in Canada. This is homegrown stuff, the mining and the extraction of the bitumen from the sand and the turning of it into a viable product that we can put into the marketplace. If we hadn't done that thirty years ago, we would be in dire straits today in terms of our crude oil supplies.

Our company alone, Syncrude, now produces about 15% of Canada's crude oil requirements, and our friends down the street, Suncor, which Mark represents, are at about 13% to 14%. Shell is coming along as well. We're doing this just at the right time, really, for our energy consumption.

We had John Snow, the Secretary of the Treasury from the United States, visit the oil sands a year ago this past June. We flew him around the facility you have had a chance to see. He got off the helicopter and turned to me and said, “Jim, this is a fantastic thing that you are doing in Canada, that you Canadians have accomplished here. You've continued; you've persevered. You've figured out how to get oil out of this sand and turn it into a marketable resource, and we haven't done anything near that in the United States. We had our oil shales in Colorado and were looking at them in the early 1980s, and we abandoned them; we walked away from them. You guys have done it and you've shown us how it can be done”.

So I think we're very fortunate; we're the pioneers. I can tell you from my own personal experience.... I've spent 28 years with Syncrude Canada, every day of it living in Fort McMurray, and the first 15 years that we worked in this business, we were toiling in obscurity. People didn't believe it could be done. They didn't believe we could actually make this into a viable business; they treated it as an R and D curiosity. Through that effort and energy, the development has occurred, and we've continued to invest in R and D. We continue to develop new ways of doing things: more energy efficient ways of doing things, better ways to reclaim the land, better ways to store tailings, better ways to capture the water out of the tailings while it's still warm, so that we can get the energy back out of it.

I think Canada would be in a far less enviable position today if the oil sands had not been developed—and that's all of Canada. A lot of our product goes to the Edmonton area refineries, but it also comes to Sarnia, and it goes over the mountains to the west coast as well. This product goes across the country, and it is really helping to secure our energy security in the country.

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

Thank you.

[The Chair, Conservative, Lee Richardson]

Thank you. That's it for time—I'm sorry—because I know how anxious we are to hear from Mr. Cullen.

[Roy Cullen, Liberal, Etobicoke North, ON]

You say that with such insincerity too.

Thank you, Mr. Carter, Mr. Seeley, Mr. Shaw, and Mr. Clarke.

Mr. Carter, thank you for your hospitality yesterday at Syncrude during the look-around.

Thank you to Suncor and Shell Albian as well.

I'm glad I went. We were able to literally kick the tires, and because our chairman was so insistent, we received a photograph of the big wheels.

[Tony Clarke]

That's the trucks.

[Roy Cullen, Liberal, Etobicoke North, ON]

Yes, the big trucks too.

I think what you've done there is quite amazing, and I'm glad I went to see it. You should be proud of the technical and the managerial way it's been put together.

My concern personally is not so much what's going on today but in looking forward. We were told there are something like 18 projects in the pipeline that have some agreement to proceed, and there are another 27 beyond that in the feasibility or advanced feasibility stage.

You've heard about the tragedy of the commons, the story many centuries ago in England of the sheep farmers who all had a bit of private land and there was a common pasture. Well, what happened was the sheep were all put in the common pasture and the common pasture was obliterated. It doesn't take a rocket scientist to figure out why it happened.

You have a certain interest, it seems to me, in what are public goods. You're responsible corporate citizens, but there are clearly limits that you will go to. You have returns to shareholders, and you have an enterprise that you have to maintain and operate. We as parliamentarians have a responsibility for the public good as well, and I'm concerned.

When I talk about public good, I'm talking about CO₂ production. I'm talking about climate change and greenhouse gases. I'm talking about water. I think everybody you talk to knows there are water problems looming in the oil sands.

I'm also worried about the infrastructure in Fort McMurray and the rate of growth there. I know you are concerned about it as well.

You talked about capturing carbon and sequestering carbon, and we heard about the technologies for water recycling. We know water is being recycled, but a lot of it is going into tailings ponds. There's certainly a lag time or a lead time, and some of the water in the tailings will never make it back into the river systems. I think it's an issue.

If you could all agree among yourselves that these were going to be the objectives, there'd be no new projects unless the water recycling achieved the rate of 70% or 80%. I don't know what the number is. The CO₂ would only be permitted up to a certain point and would have to be essentially captured and sequestered.

Oil is a commodity product internationally. If you're all on a level playing field or on the same footing, as long as you can make a return to your shareholders, is it the level playing field you're looking for, or do the economics go beyond that?

[Jim Carter]

Well, part of the problem for our industry is that we're not price setters; we're price takers. We take whatever the price is in the world market.

It's probably easy today to say the oil industry is doing well at $56 a barrel, or whatever it happened to trade at today. It's not that long ago, 1998, when it went down to $11 a barrel. It was tough going in the oil sands business at $11 a barrel. You were barely able to make the cashflow. These projects can't easily be shut down. We're subject to the vagaries of the commodity markets.

Our real competition is in the Middle East, in Saudi Arabia. They're putting a barrel of oil on the market for $5 U.S. a barrel. We don't get to set the price. When that happens, we obviously have to be very diligent about what we're doing.

It's a lot more complex than it appears to be today, with what's happening as we speak and with crude oil pricing being where it is. In order for the business to be viable, we have to really take all of those things into consideration, because we're going to have those swings and those ups and downs.

If you took crude oil prices in 1995 and you took them back a hundred years, which was about the length of time crude was being produced, and you brought it into 1995 dollars, crude oil averaged about $20 a barrel in 1995 dollars over that whole time period. It went up and down depending on whether there was a world war or a major invasion going on in certain parts of the world.

We're probably at a different plateau today. I think most people would say we're not back at $20 oil, but I don't believe we're at $60 oil either. We're again going to be faced with those challenges as we go forward.

[Roy Cullen, Liberal, Etobicoke North, ON]

At today's pricing, the economics probably work, and work well, but moving forward you never know what the price of oil will be.

You're the more established players in the oil sands right now--Shell Albian, Suncor, Syncrude. On the projects in the pipeline, the 18 plus the 27, do you have an interest in them? Are you the prime project leader for some of those? Are you going to be beneficiaries in terms of some of the bitumen coming through to your processing facilities? What is your interest in the new projects moving forward?

[Jim Carter]

Speaking from Syncrude's point of view, we don't have an interest in those. We're a joint venture company. Some of our owners actually do have projects that they're proposing to develop in the oil sands, but we don't have a direct interest in those. In fact, if anything, I could argue that it will make the competition even tougher for human resources, which is the big issue we're faced with right now.

[Roy Cullen, Liberal, Etobicoke North, ON]

What about Suncor and Shell Albian?

[Rob Seeley]

Maybe I will just a comment on your earlier question, and that is your concern around the pace of development and the environmental capacity of the region and social issues. In that whole envelope of questions, one important piece to consider is with respect to economics and the demand for this synthetic crude oil. I think it's very important to keep in mind that, again, it's a global commodity; it's a global market out there. Most of our crude oil goes both to Canadian refineries and to certain refining pads in the U.S. We call them Chicago PADD II and PADD V. These areas have a limited capacity, so I think I'm getting to my point, which is to let the market decide. Yes, there are 18 projects on the books, and 27, but how many of these will really go will be dependent on the market and the real demand. We don't believe all of these will go. There will be some discounting, of course.

[Roy Cullen, Liberal, Etobicoke North, ON]

The market will decide some things, but it won't decide if there are public goods that are being jeopardized. To just go on the chance that the market is going to sort some of these out, I don't think that's good enough for me, because I have a public good that I have a responsibility to protect on behalf of all Canadians.

[Rob Seeley]

If it's a public good with respect to environmental capacity, for example, in the oil sands you'll hear probably in the next week or two from the CEMA group, which is the Cumulative Environmental Management Association. It's a multi-stakeholder group made up of NGO groups, aboriginal groups, government, and industry, all working on those strategic questions around environmental capacity for the region, water issues, air issues, etc. I think it's a model for Canada. There has been a lot of work put into this. Industry is putting a lot of funding behind this to see that it succeeds and all the right people are at the table to make the decisions around future regulation for this industry.

[Roy Cullen, Liberal, Etobicoke North, ON]

On the point about being price takers, I know...I worked in the forest products industry--pulp, paper, lumber. You're price takers, and it's a commodity market, but what we looked at was this. We can't set the price. We have to focus on whether we're a low-cost producer. What's our threshold in terms of return on investment, return on assets? And frankly, for the rest, who cares? You can't control the price, so you have to make sure that your bottom line, your cashflow, is sufficient.

Let me come back to another question. If there was a way to accelerate the development and deployment of these technologies that will recycle water better, that will help us capture and sequester carbon, what could the federal government do to help you accelerate that, and are the technologies close enough to get into the...? I've been around long enough to know that you can have an idea, but to get it actually working technically and feasibly in the field is another thing, and sometimes there's a huge lead time.

What is the lead time we're looking at? What are the economics for you, if it was a level playing field? And how could the federal government help?

[Jim Carter]

Maybe I'll have a go at answering that.

The federal government already is helping in some ways. One example would be through the National Research Council. We do a lot of work with them. We do work with the universities. We do work with our own research institutions. We do work with the Alberta Research Council on things like proper land reclamation techniques.

As an industry, we have a lot of effort under way to try to turn the wet landscapes into dry landscapes earlier than was possible in years gone by. We've made a lot of headway with that now by consolidating the fines in the water itself so that they sink to the bottom and we can reuse the water faster. Just to give you an example of that, at Syncrude we now consume two barrels of water—not five or six or seven or eight—to make a barrel of oil. That's down about 60% over the last five years.

We're obviously also recycling water. You probably heard that story yesterday, if Don Thompson talked to you. About 80% of our water is recycled. We recycle it about eighteen times in the process. So we're only really withdrawing make-up water for our processes, and that make-up water ends up reporting.... It's used for water cooling in our processes. In that process, it goes to atmosphere, or, if it ends up in the tailings, it gets evaporated—not all of it, but to a big extent—so it gets returned to the hydrological cycle.

Those efforts are really there to enable us to minimize the impact we have on the environment in that regard, and we're continuing to look for ways in which we can further enhance that. But I think the industry, through those associations that we already have, like those with the National Research Council and others, is able to handle that one.

We talked about CO₂ sequestration earlier on. I think the industry would probably say that in order for that one to happen, there needs to be a kick-starting of help from probably both levels of government to make it work. The federal government could participate in it and take a leadership role in making it happen.

[The Chair, Conservative, Lee Richardson]

That does your time by three minutes, but perhaps Mr. Clarke wants to add something.

[Tony Clarke]

I just want to reaffirm the line of questioning you started out with.

A lot has certainly happened with these three companies, Syncrude and Suncor, in particular, if you take it from the early stages right through to the present time. They've done a lot of pioneering work. They've made a lot of technological breakthroughs, etc. But what's missing now is a framework in which to put this, a policy framework that is going to be able to deal with the issues both at the present time and in the future. That's why we feel very strongly that there needs to be that moratorium on new things happening, in order to take a look at what has happened up to this time, to take a look at what can be done with carbon sequestering, what can be done with regard to the reclamation process, and what can be done with regard to the water issues.

I have different figures from what we've heard from Mr. Carter on Syncrude. I don't dispute the fact that he has those figures, but the independent studies that have been done show a different picture. But that's another matter.

The point I'm trying to make is that we do need to put a policy framework over this, because we're dealing with the future of a big part of the country that has implications for the entire continent and for parts of the planet. It's extremely important that we not make the wrong mistakes on this. It is incumbent on the national government in this country, through this committee, to actually take that leadership and to put out a call, if you can, for a moratorium on future...and looking at what kinds of benchmarks need to be put in place, what kinds of measurements need to be put in place, and what kinds of evaluations are needed for where we go in the future on this.

Secondly, I have to say that it's all tied up with the question of an energy policy for the country. We can talk about the fact that, yes, we have all of this energy we're producing, all this oil and gas we're producing. We can talk about the fact that we're exporting it to the United States. But we have to also acknowledge the fact that we're importing a huge amount of oil. Up to 50% of our oil in the country is from elsewhere, particularly dealing with Quebec and the Maritimes. So there are some really profound questions of insecurity as well as security. Those questions affect us here in terms of our future energy, and we need to get a handle on them. I would argue that we need to strike at this moment, to take the time to do this and to invoke a moratorium that will allow us to come to grips with this, in order to put in place the kind of policy and strategy framework that's going to be necessary for future development.

[The Chair, Conservative, Lee Richardson]

Mr. Ouellet.

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

Mr. Chairman, I am in agreement with Mr. Cullen, but I will be a little bit more precise. I am here addressing myself more particularly to the representatives from Syncrude and Suncor Energy Inc., since Mr. Seeley dealt somewhat with this issue a little earlier.

I would like, if possible, that the discussion not stray from the matter of my question, which relates solely to greenhouse gases. I am not talking about pollution, nor about the environment. I am talking solely about the greenhouse gases resulting from activities involving the oil sands. These gases, which amount to one tonne for every eight barrels of oil, will not stop increasing. This is what we were told yesterday. Contrary to what you stated earlier, the line on the graph does not shift: the more oil you produce, the more you produce CO2, carbon dioxide. Therefore, if you are today producing a tonne for every eight barrels, you will continue to produce a tonne for every eight barrels, because there is not much opportunity for change.

Therefore, what are the political signals that would be necessary to slow down and, eventually, reverse this trend towards an increase in the production of greenhouse gases?

To be even more precise, I would say to you that we would not want to impose upon you an economic deterrent, as Mr. Harris so rightly stated earlier, but as a government, as parliamentarians, we must find a way of limiting your GHG emissions, without at the same time reducing your production.

What measures could you suggest to us to bring about a change? These are measures that we will impose upon you, but you can tell us now what they should be. What should parliamentarians do in order for you to reduce your emissions? What measures would you agree to taking?

[Jim Carter]

Let me respond. I think I said earlier on--maybe I wasn't very clear--that we had reduced our energy consumption per barrel since 1990 by about 17%. Going forward, we would expect that in the foreseeable future we're going to see that virtually double, and we'll come down by another 17%. I believe there are probably other things we can do as we go forward. One of the things that has really been critical to the success of the oil sands industry is the whole issue of research and development and continuous improvement in everything we do. If you went back to the very early days, it cost over $30 a barrel to make a barrel of oil from the oil sands. We sure weren't going to grow this business if we hadn't had continuous improvement and figured out how to get those costs down. Part of getting the cost down was also getting the energy consumed in our business down as well. That's why we've been able to drive it down by this 17% that I'm talking about.

We've done it through a whole host of things. We've done it, as I mentioned earlier, by implementing new technology, mixing the oil sand with water, reducing the temperatures of those processes. We're not conveying the oil sand anymore; we're putting it through a pipeline. It's more energy efficient to transport it that way. We've gone from 170-tonne heavy-haul trucks to 400-tonne trucks. The fuel burned per tonne kilometre on those trucks is less than two-thirds what it used to be for the 170-tonne trucks.

So we have less fuel consumed in mining, we have less NOx emissions made, and we will continue to do that as we go into the future. So on a per-unit-of-production basis, we will continue to reduce energy consumed.

If you're talking about an absolute reduction, that means you don't grow the business. Absolute reduction would mean that we do not grow the business.

[Mark Shaw]

Consistent with Mr. Carter, I challenge your view that we can't improve how much energy we use and how much greenhouse gas we create for each barrel of production. We firmly believe we can. We have done that and will continue to do that.

We strongly encourage the federal government to help. You already help with incenting technology, so please continue to do that. If you find ways to do that more, we certainly agree. We're very much driven to improve technology. We believe that will also make a difference.

Suncor also invests in alternative energies--I mentioned wind and biofuels. We believe that greenhouse gas is a world problem, and we look to market mechanisms. Canada can't solve this problem for the world. To do so would have a huge economic and social impact on Canada. We look for ways that Canada can contribute to solving this world issue in ways that are best for us and others.

There are market mechanisms that have been suggested in many of the greenhouse gas forums, like perhaps investing in technology in another country. What about investing in reforestation in other countries? We hugely respect the responsibility you have on behalf of Canadians, and we think it's important that as the federal government and parliamentarians you remind yourselves that greenhouse gas is a problem that cannot be solved solely in Canada.

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

Yesterday, Mr. Thompson told us that greenhouse gases, carbon dioxide, CO2, were constant at 0.12 tonnes per barrel, and would remain at that level no matter what you do. It has been the same thing for years, and it is horizontal. It is not by doing research that we will change the situation.

Earlier, Mr. Seeley invited us to consider something that to my mind might serve as a springboard for you. If you had been forced to buy—I am giving somewhat of an interpretation here—the equivalent in tonnes of carbon, you would have had an economic lever. You either buy this carbon at $40 a tonne, which amounts to $5 a barrel, or you take the 100 million dollars needed to build the pipelines, etc., and you use them to send these gases into the ground. You need us to give you a little push in order to do this.

Mr. Cullen helped us understand this earlier, and rightly so. It is not just a matter of economics. You make enough of a profit to do that.

What must the government do to incite you to do that?

[Jim Carter]

I think we may have answered this question earlier, unless I'm mistaking what you are saying.

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

You must be, because I didn't get an answer yet.