Natural Resources Committee on Nov. 4th, 2010

[The Chair, Conservative, Leon Benoit]

I call the meeting to order.

Good morning, everyone. We're here today to continue our study on energy security. We're looking at the federal role in unconventional oil and gas development, such as deepwater offshore drilling--

[A voice]

Hi, this is St. John's. We're just wondering if we're ready to begin or if you began and we're not hearing you.

[The Chair, Conservative, Leon Benoit]

Okay, that is good to know. We will try to correct it. Good morning. Hello, can you hear me?

[A voice]

There you are. The committee should hear you now.

[Robert Cadigan, President and Chief Executive Officer, Newfoundland and Labrador Oil and Gas Industries Association]

Good morning.

[The Chair, Conservative, Leon Benoit]

Now you can hear us. That's great. Okay.

We had started. I really appreciate your pointing out that you couldn't hear us.

Mr. Cullen has a point of order. Start with that, Mr. Cullen. Go ahead.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

I'll be very brief, just before we get into this. The first point is on logistics. I don't know, but I've never seen a committee move around quite so much in terms of meeting rooms. I don't know if we'll eventually secure one or if the state of affairs for the committeewill be that we don't necessarily have a room. That's the first point.

Second, through you to the researchers, we're going to be getting into shale gas and some of these other technologies that I would suspect most committee members don't know a great deal about. I know you folks are busy, but it might be helpful if we had some more depth in terms of the preparatory notes about some of the industries we're about to go into. I think it's going to help committee members a lot as we get the witnesses in front of us.

We had this when we were doing the offshore part, but the notes that we received for today speculated some questions. Could there be something a bit more substantive about some of the technical aspects of industry and the state of development right now, shale gas being a good example? Some of the things these hearings are going into will be quite technical in nature, and we're going to have technical witnesses. Sometimes committee members fly blind if they don't have some backup information.

David, I don't know if I'm missing something that was given out to committee members earlier.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

To try to spare the analysts some work, I'll check with Natural Resources to see what they have that's available. I would think there would be some material on these different things. We'll do that, and then if there is material, we'll try to get it to the committee.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Chair, the nature of our study is unconventional oil and gas. While committee members may have had some experience with conventional oil and gas industries, this by its nature is going into some uncharted waters. Whatever we can get, whether it's from Natural Resources or our researchers, will help us direct our questions a lot better to the witnesses who come forward.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cullen.

The analysts do have information on all of the areas we're going to be looking at, so they will circulate some of that. It's difficult for them to know exactly what to circulate at what time. Certainly you could approach them, but we'll chat about that a little bit later and try to make sure the information is there in a timely fashion, and Mr. Anderson has generously offered some other information.

By the way, I appreciate that the witnesses who have agreed to come today did so on short notice. In terms of booking witnesses, five witnesses were approached. There were two requested by the NDP, one by the Liberals, and two by the Conservatives, who just couldn't or wouldn't come on such short notice, and that's understandable. From now on there will be more notice. It's really important for the committee to remember, as we're booking these things, to make decisions that allow booking further in advance. It's difficult to do sometimes. I understand that.

[Nathan Cullen, NDP, Skeena—Bulkley Valley, BC]

Chair, what we have for the next two months is some pretty good forewarning.

[The Chair, Conservative, Leon Benoit]

We pretty much do. Yes, we do.

We will get now to the witnesses. Again, just to repeat, I thank both of you for agreeing to come on short notice. It's very much appreciated indeed. I will have you make your presentations, which can be up to seven minutes—I think there are only two of you—in the order that you appear on the agenda.

We will start with Mr. Robert Cadigan, president and chief executive officer of the Newfoundland and Labrador Oil and Gas Industries Association, who is appearing by video conference from St. John's, Newfoundland and Labrador.

Go ahead, please, for up to seven minutes.

[Robert Cadigan]

Good morning.

I'd like to thank you for the opportunity to speak about energy security and to speak to your committee. Certainly this is of primary importance to the membership of the Newfoundland and Labrador Oil and Gas Industries Association, the association I'm representing here today.

We have about 500 members in Canada and around the world, and NOIA is Canada's largest offshore petroleum association. As a little bit of background, our mission is to promote the development of east coast Canada's offshore hydrocarbon resources and to facilitate our membership's participation in the oil and gas industries.

While I'm addressing you as a representative of NOIA, the issues I outline do have an impact on Canada's energy security overall. For the most part I'll be speaking about the oil and gas industry in Newfoundland and Labrador because that's the area I work in and that I'm most familiar with.

We do believe, first and foremost, that we must develop our offshore resources safely, and certainly stewardship of our natural resources and protection of the environment remains an unwavering commitment from all of us who work and live on Canada's east coast.

I'd like to give a brief background on the surprisingly long history of oil and gas in Newfoundland and Labrador.

It started with an 1812 discovery of an oil seep in Parson's Pond, which is on the northern peninsula on the west coast of Newfoundland. We had sporadic production in that area in the late 1800s and into the early 1900s from shallow wells. As you probably know, the first offshore well in Canada was drilled by Mobil on an artificial island off Prince Edward Island in the early 1940s. In 1979 we had the Hibernia discovery in Newfoundland and Labrador, with the first oil in 1997. It was the first project undertaken in ice-infested waters, and when you think of this, we have only been accessing our offshore oil and gas resources for about 10 years, but we do have reserve potential, and at the current time we're not seeing enough activity in terms of exploration.

Newfoundland and Labrador is the largest offshore energy producer in Canada. In Atlantic Canada our industry employs over 4,500 people directly and well in excess of 10,000 when you factor in indirect and induced jobs. Certainly in a world where global demand for energy is expected to more than double by 2050, as the economies in both the developed and emerging worlds continue to grow and as the standard of living improves for the developing world, the Atlantic Canada oil and gas industry has the potential to impact and enhance Canada's security in numerous ways, certainly on the supply side and also economically in terms of the benefits that accrue to our region. As the world moves to develop a culture of conservatism by maximizing renewable energy potential and developing energy alternatives to carbon-based fuels, the potential of our offshore industry helps position Canada for an orderly transition toward a renewable future.

I'll give you some background on oil production. The production from Newfoundland and Labrador is responsible for about 40% of Canada's light conventional crude. The production comes from three fields: Hibernia, Terra Nova, and White Rose. While we have just short of three billion barrels of oil discovered in Newfoundland and Labrador, there remains the potential of about six billion barrels of oil to be discovered, and in Nova Scotia waters potentially about 2.6 billion barrels of oil remain, according to the Canada-Nova Scotia Offshore Petroleum Board. To date, over $16 billion has been invested in development, with Hebron, the Newfoundland and Labrador offshore project, set to contribute an additional $4 billion to $6 billion during its construction phase. We have another development called Hibernia South, and that will contribute, again, about another $2 billion in investment in our offshore industry. Operating expenditures contribute over $1.5 billion in spending, with the majority of that spending occurring in Atlantic Canada.

In terms of our natural gas resources, I'm dealing with the offshore resources. I've heard you folks talk about shale, but I'll be focusing on the offshore aspect.

In addition to Newfoundland and Labrador's proven natural gas reserves of about 10 Tcf--that's trillion cubic feet--another 60 Tcf are estimated to be available to be discovered. Nova Scotia's offshore has an estimate of about 29 Tcf of potential in terms of natural gas.

Our natural gas resources on the east coast, particularly Newfoundland, await favourable market conditions. Certainly the price of natural gas is at a historic low. From an environmental perspective, our natural gas produces about six times less carbon emissions than coal. This resource can certainly help replace coal-fired electricity generation, reducing Canada's and North America's carbon footprint overall if it's fully exploited.

I'd like to bring your attention to a slide called “Production Profile - March 2010” in your package. If you look at that slide, you can see that Newfoundland and Labrador offshore production actually peaked in 2007-2008. You can see the original Hibernia fields in navy blue, and the Hebron fields, which will begin production in about 2017, in the darker green. While we've had great success in terms of production, and great benefits from the industry, we do need exploration to keep this production profile flat and to have these benefits continue to accrue far into the future.

Despite the unprecedented high prices and rapidly increasing long-term demand that drives intense exploration in other basins around the world, exploration activity in offshore Atlantic Canada hasn't seen that same significant increase. In order to unlock this Canadian energy potential, NOIA believes the Government of Canada can help stimulate activity.

We only have to look at a comparison of the Newfoundland and Labrador offshore area and the North Sea to get a sense of the light levels of exploration we've seen. Our offshore area in Newfoundland and Labrador is about four times the size of the North Sea, yet to date we've only seen about 140 exploration wells; in the North Sea, they've seen over 4,000 exploration wells since inception.

Why is that? Certainly this is partially due to our environment. The east coast of Canada is a harsh environment. We have high sea states, fog, sea ice, and icebergs, and drilling wells off the east coast is extremely costly. International oil companies require certainty, and they try to minimize financial risk. We see that in the attraction of capital to the oil sands, which is largely based on a known quantifiable resource. The variables of the costs of development and production are relatively easily factored in, the price of oil a little less so.

To explore offshore is extremely expensive. In the area of the Grand Banks, where there is generally less than 100 metres of water, a well will cost anywhere from $30 million to $50 million to drill. When we move to the deeper frontier basins, the price tag for an offshore well can be in excess of $200 million. When you consider find rates are typically 10% or less, placing this sort of a bet to make a discovery is a risky business.

[The Chair, Conservative, Leon Benoit]

Excuse me, Mr. Cadigan; you've gone over the time allocated for the presentation. Could you wrap it up very quickly, please?

[Robert Cadigan]

Sure.

A quick look at the exploration chart that I've provided shows that in Atlantic Canada, and in Newfoundland in particular, the number of exploration wells was significantly high in the 1970s and into the 1980s, with a drop-off in the early 1990s and relatively sporadic activity since then. In the last 20 years, we've averaged probably about two wells a year or less.

What can the Government of Canada do to help improve on this exploration record? Certainly one thing is funding of the GSC to improve resource assessment and create basin atlases is a very important step. You can question me on that if you wish.

There are other regulatory impediments under the Coasting Trade Act and the Transport Canada regulations that create difficulty in bring seismic vessels into early exploration work. That's another important area.

We also have issues around land tenure policy. Basically, in Canada a significant discovery is held in perpetuity, so in terms of incentive to develop, it's really up to the oil companies to decide when to develop a particular resource discovery.

The other issue is in terms of our access to infrastructure, which is important. Small finds will remain undeveloped unless there is a regime to give other companies access to infrastructure to produce from small fields.

To sum up, exploration is a rate-determining step for the oil and gas industry. Without exploration there'll be no new discoveries, no new developments, and no contribution of major capital projects in the region. No new production can come on stream to replace depleting reserves, and in order to provide a sustained opportunity and to maximize the return to the Government of Canada and to the Province of Newfoundland and Labrador in terms of royalties and revenues, we need more exploration. Certainly that's one area the Government of Canada can really assist with, and this will have an impact on our energy security in the long term.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cadigan, for your presentation. It was much appreciated.

We now have with us in the room William Amos, director of the University of Ottawa-Ecojustice Environmental Law Clinic. He is with Ecojustice Canada.

Please go ahead with your presentation. You have up to seven minutes.

[William Amos, Director, University of Ottawa-Ecojustice Environmental Law Clinic, Ecojustice Canada]

Thank you, Chair.

Thanks to the members for having us. It's a real privilege to be speaking on behalf of Ecojustice. Certainly the topic you have embarked upon is one of primary importance to Canadians, as it is this committee, despite the fact that there is a steep learning curve right now.

I'll say just a couple of words to introduce you to Ecojustice. Ecojustice is Canada's premier public-interest environmental law organization. In shorthand, we're the environmental movement's lawyers. We do pro bono work. We don't accept funds from the Canadian government or any other government. We have a very tight corporate funding screen. Effectively we are a charitable organization that chooses cases and law reform projects on the basis of the strategic importance to the protection of Canadians' environment. We get a lot of requests for representation and for assistance and engagement on federal and provincial-territorial law reform projects. We're very picky. This is a file that's of primary importance to us; offshore oil has been identified as something that's very relevant to the environmental movement, and we will be investing in that regard.

To achieve that objective, we will be representing environmental groups in the context of the National Energy Board's Arctic offshore hearing. Our presence will be felt there, but we think the discussion of energy security extends beyond the Arctic offshore. As the previous witness indicated, this issue of energy security extends to the Atlantic, goes into the Gulf of St. Lawrence, and, despite the de facto moratorium, is still a major issue on the west coast. This is an issue that is really multi-faceted, and it's difficult to present all the most important facets in seven minutes.

I will start off with the big-picture comment, though. From Ecojustice's perspective--and I think it's safe to say from the environmental movement's perspective--any notion that energy security is to be defined in terms of ensuring an adequate supply alone, without ensuring that conservation goals are set or that cultural, social, and environmental security risks are addressed, would be inadequate.

I don't use those words lightly. Cultural security is of primary importance in the context of the National Energy Board's Arctic offshore review. If there is a BP-like spill in the Arctic, there will be cultural loss, and that is a fact. As well, if there is a catastrophic spill off the east coast--or in the gulf, for that matter--there will be cultural loss. Communities that have been based for many years on tourism and fisheries industries could be decimated.

So the context of energy security is a broad one, and I urge this committee to take on that mantle and to look at these issues as broadly as possible.

First off, I'd like to say that the federal government's primary response in the post-BP era to the issue of energy security has been the National Energy Board's Arctic offshore review. When questions are raised in the House of Commons, the response is typically that the National Energy Board is looking into these issues.

There is certainly merit in having the National Energy Board examine issues related to Arctic offshore safety and environmental requirements. There is nothing wrong with that. However, as has been articulated on many occasions by civil society groups and by first nations groups, there is a need to look more broadly at this issue, and I'm thinking particularly of the offshore issue. I'm focusing primarily on the offshore aspect, not on other unconventional sources, although those are also important to Ecojustice. We are certainly doing lots of work in the area of tar sands, or oil sands, as the individual chooses to define it.

I'd like to raise a few cautionary flags. First, I think it's fair to say that many Canadians are becoming more and more familiar with this issue of offshore energy and more and more concerned about the levels of transparency regarding the federal government's policy responses post-BP. It's only now becoming clear that there are discussions between the Government of Quebec, the Government of New Brunswick, the Government of P.E.I., and the federal government over shared jurisdiction. As these are matters of fundamental national importance, they ought to be debated publicly, but we don't feel that this debate is happening right now.

While the response seems to have been that there's a National Energy Board hearing, there certainly are issues that have been raised about the appropriateness of the current regulatory regime that have not been addressed publicly. The National Energy Board hearing is not mandated to look into the entire regulatory structure for the offshore. What they are mandated to look at is far more restricted. What we need right now is a full-blown examination of the offshore regulatory regime in this country--and not just for the Arctic, but for the east coast as well. The jurisdictional issues complicate this situation, but there are many good reasons for looking at it more broadly than the National Energy Board hearing is doing.

Much has certainly been done in the U.S. as regards a gap analysis, identifying the potential regulatory weaknesses that exist and comparing those weaknesses and strengths with those of other countries. I'm not certain that's being done here in Canada, and that's a matter of major concern.

To conclude, I want to highlight two key issues that I think go to how—

[The Chair, Conservative, Leon Benoit]

Mr. Amos, you're over the time allocated. Could you do it in 30 seconds?

[William Amos]

I can do that.

[The Chair, Conservative, Leon Benoit]

Just provide highlights and count on members' questions to get the other information out.

[William Amos]

Sure, I can do that.

To conclude, there's a lot of action happening in the United States, a lot of response to BP, and that's understandable. Why isn't there the same level of response here in Canada? The U.S. Secretary of the Interior, Ken Salazar, proposed yesterday the establishment of an ocean energy safety institute to facilitate research and development, training, and implementation of safety and environmental standards. Where is the proposal for that kind of initiative here in Canada?

Finally, the Canadian Polar Commission has no board of directors appointed right now. One of its mandates is to engage in research related to the Arctic, including scientific research. We need this done, but our institutions either don't exist or are not capable.

We have some serious issues that need addressing.

I appreciate your time.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation.

We go now to questions, starting with Monsieur Coderre. You have up to seven minutes.

Go ahead, Monsieur Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

I'm going to split my time with my colleague, Scott Andrews, who has a few questions.

As a start, Mr. Cadigan, every time we talk about offshore drilling, we're of course thinking about BP. Yes, we can talk about energy security and energy demands and all that, but what's your perception of the actual status regarding emergency response? You can have a lot of collateral damage, especially with deep drilling; how do you work with other stakeholders to make sure you cover those questions at the same time?

Also, tell me what you think about the regulatory system. Are you satisfied with it?

[Robert Cadigan]

Certainly, Monsieur Coderre, the purpose today, as I understood it, was energy security. The environmental protection side of things is not my area of expertise. Having said that, our regulator of the offshore area of Newfoundland and Labrador and the board in Nova Scotia have strong reputations. Internationally and in other areas, they're known to other regulators for being competent in what they do.

In terms of the regulatory regime, the bulk of production and activity in Canada's offshore has been off Newfoundland and Labrador. In my view, therefore, Canadian experience in managing these issues is certainly strong, and the experience is there with the Canada-Newfoundland and Labrador Offshore Petroleum Board.