Natural Resources Committee on Nov. 4th, 2010

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

So from your members' perspective, there hadn't been a discussion of a pause.

I want to turn to Mr. Amos for a second. You'll be interested to hear that we had the head of the NEB in front of us the other day, and I think he confirmed what you said this morning about the review going on in the Arctic not being what the House of Commons passed unanimously as a motion to review unconventional sources, despite what the government says in question period and other places.

Why would it matter to Canada's overall economic, environmental, and cultural health if the government did initiate such a broad and full review of these unconventional sources--and within “unconventional”, I also include Arctic drilling--which has not necessarily been done yet in Canada's experience? How would that aid us, and why must it be done now? Do other countries do it? Are we unique in this? Is it something we stand out on?

[William Amos]

There is certainly a major difference between what was suggested with that unanimous motion in terms of a review of unconventional oil sources and the current National Energy Board's review, which is much less comprehensive. If you're asking me to answer the question of what would be the ideal review for Canada, which I think is where you're heading with that question, I don't think the NEB review is ideal. I think it has scope issues. It's not dealing with the east coast, it's not dealing with the gulf, and it's not dealing with issues of leasing, which are within the purview of Indian and Northern Affairs.

It's not for me to say whether it would be appropriate to have a broad increase in scope that would include all sources of unconventional energy, because then you're getting into a lot of different energy forms, including shale and tar sands, or oil sands. That kind of review would be very broad in scope.

I think that what ought to be considered--and I take a cue here from Professor Ratushny of the University of Ottawa, who's an expert in commissions of inquiry--is a commission of inquiry that deals with offshore oil exploration and licensing across the country, whether in the Atlantic, the gulf, the Arctic, or the west coast.

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

The leasing component is interesting, because north of 60 it is INAC issuing the leases and south of 60 it's Natural Resources Canada. In the Arctic in particular, we're trying to compare the leasing regimes between the U.S. and Canada and how vastly different they are. The government claims to have the toughest regime in the world, but even our immediate neighbours in the Arctic go through a very different process before any licences or leases are issued at all. If Canada issues the leases, do they not bind the company to drill as part of the contract? Is there not some sort of obligatory “we will drill” commitment prior to any of the environmental assessments?

I point out in particular that the Prime Minister announced a beluga refuge some time ago in the Arctic, not pointing out the fact that it's actually surrounded by oil and gas leases and that there are actually leases inside the refuge as well. It seems to the public.... How are you going to have a whale refuge in the midst of a bunch of oil platforms and wells with the potential to leak without having a recovery plan in place?

The leasing regime seems to be upside down in Canada. We commit to drill before we've actually done a comprehensive environmental assessment. Is that a component of a review that must be taken into account?

You said that the NEB is not reviewing the leasing in question right now in the Arctic. Is it correct that it's not within their scope of reference?

[The Chair, Conservative, Leon Benoit]

You're going to have to give a 20-second answer. Mr. Cullen is well over his time.

Go ahead.

[William Amos]

Certainly.

In 20 seconds or less, the issue of leasing is critical to the issue of energy security in this country, and it's critical to the issue of offshore regulation. It's unfortunate that the National Energy Board hearing cannot and will not go into that issue, and it's unfortunate that there is no examination of offshore licensing in the gulf--or in the Atlantic, for that matter. What we have right now is a vacuum of public and governmental engagement on this issue. We need a broader review, and I think there is reason to believe that a joint commission of inquiry with provinces, offshore regulators, and the federal government involved would be a better approach.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Amos.

We'll go now to Mr. Allen for about five minutes, and then to Ms. Gallant for the last two minutes.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you, Chair.

Thank you to our witnesses for being here.

I have three questions. For the first one I want to pick up on the last comment.

Mr. Cadigan, Mr. Amos talked about a vacuum in the legislation and the oversight. Do you see the same thing?

[Robert Cadigan]

In terms of Newfoundland-Labrador, as an example, there was a strategic environmental review held in terms of the last licensing round for the offshore area of Labrador. That comprehensive review included community consultations, consultations with the Nunatsiavut government in northern Labrador, and consultations with many of the people in many communities in Labrador.

I think Mr. Amos probably needs to have a complete inventory of exactly what the procedures are with each of the regulators, and to have some of the history, but certainly in the case of that licensing round in Labrador, a comprehensive strategic environmental review was done in advance of any of the work. There was some seismic exploration work done this summer, and there will possibly be some more next summer. Whether there will drilling can't be determined at this point.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

You talked about the coastal trading act and a little bit about the seismic vessels. I want to pick up where Mr. Andrews left off. You were talking about how, given the existing act, there were opportunities for frivolous complaints that might lead to delays in testing.

Could you briefly talk about any delays that have been experienced? As well, from your perspective, what specific suggestions would you make to change the act to regain balance?

[Robert Cadigan]

With regard to the coastal trading act--it's on the website as well--all of the approvals are given with rationale. The complainants are identified, and so on.

There was an example I used from this past summer. I'll give part two. Part one was that the primary operator in terms of the exploration program, which happened to be off the coast of Labrador, had received approval from the CTA. A second smaller and more junior company, which had an adjacent parcel of land and an adjacent licence, wanted to add onto that program, because this vessel would basically transit this other licence area. This particular company wanted to have this vessel do some seismic work on their adjacent parcel. Even though the original approval was given and rationales were given, there was a protest on that second parcel as well.

In general, most of the protests are made by one Canadian company, and generally they lose. Pretty well every time there's a seismic application offshore, they protest.

The solution, I believe, is a simple one, as we proposed earlier in the consultation round; it's to exempt seismic vessels from the act. Essentially that means that any foreign-flagged seismic vessel could come into Canadian waters to do work, and the issues would be around the business case and not around some of these, in our view, frivolous complaints.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you.

Just before I turn it over to Ms. Gallant, you talked about 4,500 people directly employed, and that's based on what's happening today. You talked about 60 trillion cubic feet of available resources. What do you believe that has contributed to the economic, social, and cultural well-being of the rural communities where these people live?

[Robert Cadigan]

In terms of Newfoundland and Labrador, about 30% of provincial revenue is derived from oil and gas royalties. We have a province that's really geographically dispersed; there are over 10,000 square kilometres in the island of Newfoundland alone. Supporting that population with health care and with infrastructure, such as roads and so on, is a very expensive proposition. That 30% of revenue is absolutely critical to the Newfoundland and Labrador business community, and I think to the population as a whole.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you.

I'll now turn over the rest of the time to Cheryl.

[The Chair, Conservative, Leon Benoit]

Go ahead, Ms. Gallant.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you, Mr. Chairman.

Through you to Mr. Cadigan, it was mentioned that approximately 700 ships assisted in the BP oil spill cleanup. The issue of the CTA refusing to allow seismic vessels into Canadian waters was raised here today. If a spill were to occur in Canadian waters, could foreign ships sent to assist in the containment be denied entry under existing laws as well?

[Robert Cadigan]

I'm not an expert on marine law, but certainly if any foreign-flagged vessel has to pass through an approval process, then I don't see what would be different in an event such as the one you've spoken about. Obviously there would be ways to expedite that, but certainly the regulatory regime is in place, and it does require a review.

[Cheryl Gallant, Conservative, Renfrew—Nipissing—Pembroke, ON]

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Allen and Ms. Gallant.

Thank you again to both of the witnesses for being here today. Your input is very much appreciated and very helpful.

I will suspend the meeting while we change witnesses. If the witnesses present in the room could back away from the table as quickly as possible so that the other witnesses could move up, that would give more time for questions after the comments in the next section.

Thanks again. The meeting is suspended.

[The Chair, Conservative, Leon Benoit]

We'll resume the meeting now with our second group of witnesses.

In our second pane we have, from the Department of Natural Resources, Mark Corey, assistant deputy minister, energy sector; Chantal Maheu, director general, energy policy branch; Eric Landry, director of the frontier lands management division, petroleum resources branch; and Jeff Labonté, director general, petroleum resources branch. Thank you all for being here.

We also have Earle McCurdy, president of the Fish, Food and Allied Workers. Welcome here.

Each group will have about seven minutes for a presentation. We'll start with Natural Resources Canada.

Go ahead, please, for up to seven minutes.

[Mark Corey, Assistant Deputy Minister, Energy Sector, Department of Natural Resources]

Thank you, Mr. Chair.

This is actually our second appearance before the committee. We were here last spring as well, talking about the offshore. We also appeared before the Senate committee.

It's obviously an area of considerable interest to members of Parliament. It's an area that's changing a lot right now, and it's a very important area for Canada's energy future.

We will make a very brief presentation during our 7 minutes. Our purpose is to give you an overview of the Canadian energy system, to review projections of oil and gas supply, to discuss federal responsibilities and to provide the current status of offshore oil and gas production in Canada. There are three different regions with different states of development.

Page 3 shows that Canada has abundant and varied energy sources, such as oil and gas, hydroelectricity, nuclear energy, natural gas and renewables. As a matter of fact, Canada is fifth in the world in total energy production, third in gas production, and seventh in oil production.

Canada's situation is unique in the world since we are the only OECD country with a growing oil production. We are also a net exporter of energy, as well as a major consumer.

The next couple of slides are projections of where energy production is going to be going.

The first one is from the International Energy Agency. It indicates that oil and gas will continue at the world level as a dominant energy resource for many years to come, so one of our basic planning assumptions is that it will remain a principal source of energy.

A number of recent findings in the International Energy Agency's global outlook from 2009 are worth noting. First, they project that global energy will increase at about 1.5% per year until 2030, which would be an overall increase of about 40%. Oil, gas, and coal are projected to remain the dominant source of primary energy worldwide, and unconventional oil will play a growing role in the world oil supply through to about 2035. Those are projections from the International Energy Agency.

Page 5 shows projections in Canada from the National Energy Board. They did the 2009 reference case. Their projection is that unconventional oil and gas are to become more important in our economy. Energy demand growth is expected to slow by 2020. Conventional production of oil is projected to continue its historic decline, but in their view this decline will be more than compensated for by an increase in non-conventional production, which is this committee's main interest in this particular review you're doing.

In eastern Canada the three major producing fields in offshore Newfoundland and Labrador are currently declining, but this decline will be moderated shortly by the addition of several satellite fields and by the addition of the larger Hebron field in 2017.

Slide 6 indicates the offshore industry is governed by a few key acts, notably two. The Canada Petroleum Resources Act provides federal authority to issue interests in crown frontier lands. It governs the leasing of federally owned oil and gas rights and allows for the protection of the environment. Subsurface rights in unexplored areas are issued in calls for bids, and the act governs the payment of royalties.

On the regulatory side, the Canada Oil and Gas Operations Act governs exploration for oil and gas and provides for safety, protection of the environment, conservation of oil and gas resources, joint production arrangements, and economically efficient infrastructure.

The content of slide 7 you know well, because you had the heads of the three boards before you earlier in the week. In Atlantic Canada we have taken an approach of shared management to the resource. Under the Canada-Newfoundland Atlantic Accord Implementation Act of 1987 and the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act of 1988, we have a system of co-management with the provinces in those areas. The offshore boards are independent, arm's-length groups that are responsible for land tenure management functions, environmental protection, safety, and inspections. Natural Resources Canada is responsible for collecting, managing, and administering the royalties.

The National Energy Board is an independent federal regulatory agency, as you know, that administers the COGOA and regulates oil and gas activity in non-accord areas, including, for example, Canada's Arctic offshore.

Finally, Natural Resources Canada and INAC are responsible for collecting, managing, and administering royalties and land tenure management functions in Canada.

I won't spend a lot of time on slide 8. When we last appeared we were here with the Coast Guard and Environment Canada. I remember we had Indian and Northern Affairs Canada as well. We talked a lot about the various federal responsibilities. This slide is just a summary of what the various departments are responsible for.

On slide 9 we start to talk about the three specific areas in Canada.

In British Columbia there is a moratorium on offshore oil and gas exploration. This moratorium has been in effect for some decades now, and remains in effect.

In the north there are currently no authorizations for oil and gas drilling in the Beaufort Sea or elsewhere in Canada's Arctic waters. As you know, the NEB is undertaking a comprehensive review of Arctic safety and environmental offshore drilling requirements. On June 10 it undertook a preliminary scoping exercise and on September 20 released details on the offshore drilling review, which will address safety while protecting the environment, responding when things go wrong, what they've learned, and what their filing requirements will be. The review will be conducted in three phases, and we expect it will probably be completed sometime next year.

The last area is Atlantic Canada. There has been offshore activity since the early 1980s. As you can see, it has brought important economic benefits to the region. For example, in 2009-2010, transfer payments alone to Newfoundland and Labrador were $1.2 billion, while $109 million went to Nova Scotia. This creates a lot of jobs, and there are a lot of other economic spinoffs and benefits to both the region and to Canada as well.

Several regulatory actions were taken recently, as you know, which included measures additional to the regulatory oversight requirements already in place for Chevron's drilling project in the Orphan Basin, which was safely completed in August of 2010.

As you know, an independent assessment of offshore oil spill prevention and response for offshore Newfoundland and Labrador is currently being conducted. The moratorium on oil and gas activities in Georges Bank was extended to December 31, 2015. That happened recently, and recently there's been interest in oil and gas potential in the Gulf of St. Lawrence, both from Quebec and from Newfoundland and Labrador.

In summary, to lay out the basics of the offshore situation, Canada's oil needs are met by a diverse energy mix. Specifically oil and gas will continue to dominate energy supply, and unconventional oil and gas will increase in importance over the next few decades. Canada's offshore oil and gas activity is governed by federal legislation and regulations, which are co-managed with the provinces in accord areas. Currently, there's no offshore drilling in B.C., the north, or in the Gulf of St. Lawrence, and there has been offshore activity in both Newfoundland and Labrador and Nova Scotia since the 1980s.

[The Chair, Conservative, Leon Benoit]

Thank you very much for a very concise overview, Mr. Corey, and you were on time, which I appreciate. Thank you.

We go now to Mr. Earle McCurdy, president of the Fish, Food and Allied Workers union.

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

[Earle McCurdy, President, Fish, Food and Allied Workers]

Thank you. I'm pleased to have the opportunity to be here.

It's great to be from a “have” province where some of us are still trying to figure out what exactly it is that we have. In the metropolitan area of St. John's, I think that's probably fairly obvious. The economy there is doing well, and obviously the oil and gas activity is the driving force behind that.

When you get into the rural areas of the province, where most of our members are located, it's not so obvious that we're doing well. In fact, the economy is in tough shape.

Nobody really told me, so I was trying to figure out what I would have to offer this particular committee. I assumed it would relate to the impacts on the fishing industry, so that's the area I've chosen to focus on.

Oil and gas means a lot of things to a lot of people. To people in the real estate business, or suppliers, or a whole host of people, it means major economic opportunity and growth. For people in the fishery, it primarily means risk. They're the ones in the line of fire.

If you look at the Exxon Valdez disaster in Alaska, the Prestige disaster in Spain, and most recently the Gulf of Mexico catastrophe, people who make their living from the fishery were the ones in the line of fire and who felt the most immediate impact.

As the mayor of a small town in southern Louisiana put it to us a few days ago, “April 20 changed our lives”. It's very serious to people.

In Norway there's been a conscious policy that some of the proceeds of oil and gas development, which is a non-renewable resource, would be used to strengthen and stabilize traditional renewable industries. If there is such a policy in Canada, I'm not aware of it. I think there should be.

We recognize the impact of oil and gas on our economy, and we have done our best to work with the oil and gas sector in terms of trying to coexist, to the point that we formed a liaison organization with them called One Ocean, which meets periodically. It has a board of directors consisting of equal representation of oil industry and fishing industry representatives, including me.

Two weeks ago we had a delegation from One Ocean, including me, go to the gulf states for a week to meet people who could speak with some knowledge and experience on the impacts of the disaster there. I can give you a quick sketch of what transpired.

There were three people from our union, two from the oil industry, and a staff person from One Ocean. We met with fishermen, fish processors, marketing organizations, mayors, parish council members, the Governor's director of coastal management, the response contractor who was brought in to coordinate vessels of opportunity, and oil and gas industry associations. We had a half day at the end at the BP command centre to hear their views of what transpired and how they responded.

We had a pretty hectic schedule while we were there, but there are a few main take-aways we got from that, if I could touch on them.

People in the communities and people involved in the fishery thought there was something in place to deal with these kinds of eventualities. They were just as surprised and horrified as our members were that there didn't seem to be a capability to handle the problem that arose.

Dispersant use was a very contentious issue--and contagious, too, I think. Market tainting--i.e., the perception of a problem--became a problem in itself. Probably the most tested seafood in the world is down in the gulf. I ate the stuff without any hesitation, but tell it to the judge. I think a University of Minnesota survey showed that 44% of the American population wouldn't eat gulf seafood because they were fearful of the consequences. That's a major consideration.

The other thing that came back to us over and over again was the importance of having a plan in advance. We talked to a man who lives in Seattle. He works for a Finnish firm, and he had experience as the coordinator of the vessels of opportunity response to the Exxon Valdez in Alaska. He was brought into the Gulf of Mexico to do the same job.

He said he started with a blank sheet of paper. He didn't know who the fishermen were, he didn't know who owned vessels that could be used, he didn't know the characteristics, and he didn't have a plan. He had to start from absolute scratch. He said it would be so much better to have this done ahead, in what he called “peacetime”, when there was less stress and more ability to have a plan for these things. A lack of such a plan, in his view, made his job much tougher.

Bland assurances really don't do a whole lot for us. I think they had those kinds of bland assurances down there. When you stop to think about it, once this blowout occurred, what they had to do to fix it was to accurately hit an eight and a half inch hole three and a half miles down in the ocean. When I was a kid, at the regatta—that's our kind of garden party—they had an annual fair where there was a game with a bucket of water and a little cup in the bucket, and if you flicked your quarter and made it land in the cup, you got a dollar back. I tried it only enough times to realize it was a sucker's game and that you weren't going to get your money back, so I used my quarter on cotton candy or something else. So that was a challenging job they had to get at that hole.

One thing that was very clear to us down there, which we got from the people we visited, was that since the Exxon Valdez disaster, which I believe was in 1978, they've had virtually no R and D done on boom technology, skimming technology, and so on. All of the R and D went into drilling and development, and not into that kind of remedial action. I think that's clearly an area that needs attention.

As a final note, though I'm not very knowledgeable about energy security, I would certainly hope that our environmental security would not be sacrificed on the altar of energy security. We have renewable industries that depend on that ocean, and I think there's a responsibility on the part of legislators and regulators to do everything that's reasonably possible to protect those industries in the first place and to have a contingency plan in place in the event that something goes awry.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. McCurdy.

We'll now go directly to questions, starting with Mr. Tonks, and if there's time left, we'll go to Mr. Andrews.

Go ahead, please, Mr. Tonks, for up to seven minutes.

[Alan Tonks, Liberal, York South—Weston, ON]

Thank you, Mr. Chairman.

Thank you to all of our witnesses.

I would like to continue the questioning with respect to what we heard from the last witness deputations on the state of the National Energy Board's review with respect to legislation and emergency response. I'm particularly compelled to do that, as Mr. McCurdy has referred to that culture of complacency and has talked about the integration of the environment as everyone's concern. He also said that there should be a plan in advance.

My question is related to the testimony that we heard from the National Energy Board. Mr. Caron said this:

A critical requirement for offshore drilling, which is set out in section 6 of the Canada oil and gas drilling and production regulations, is the need for companies to provide an emergency response plan, which is reviewed in detail by the NEB before any drilling authorization may be issued. If there are gaps

—and I stress this—

in the plan, the company would have to address these gaps before the board would consider permitting the drilling to occur.

Then he went on to say:

The new U.S. regulations also call for industry to develop an integrated safety and environmental management system. Canada's regulations already require operators to have safety and environmental management systems. In other words, the United States is moving towards where Canada has been.

We heard testimony from the last witness, Mr. Amos from Ecojustice, that they were doing a gap analysis in the United States. According to the testimony of the NEB, they're quite satisfied that they have already done the gap analysis in terms of response.

My question is perhaps to you, Mr. Corey. Are you satisfied with the position taken by the National Energy Board? Are officials from Natural Resources monitoring the review that's taking place in terms of where those gaps are, as indicated by witness testimony, and is the legislation being adjusted accordingly? Are we monitoring those hearings and are we going to have follow-up in terms of this committee's role, or any committee's role, in closing the accountability loop?

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Corey.