Natural Resources Committee on Nov. 4th, 2010

[Denis Coderre, Liberal, Bourassa, QC]

Do you feel you have had to adjust since the BP spill?

[Robert Cadigan]

Certainly. The reaction of the offshore petroleum board, the regulator in Newfoundland and Labrador, was to put in some additional oversight procedures. We did have a deepwater well being drilled shortly after the Macondo incident, and those oversight procedures included having staff on board stop work as they approached a hydrocarbon-bearing zone and do a cycle of testing of equipment and procedures before they actually entered the hydrocarbon-bearing zone.

In our view, they took a fairly conservative and very careful approach to ensure that we didn't have similar events here.

[Denis Coderre, Liberal, Bourassa, QC]

Mr. Amos, I believe, like you, that it's not an à la carte menu. You need a balanced approach. You have to cover the needs of Canadian people regarding their energy safety and security, but safety is also an issue, and you don't want to have collateral damage.

On a technical basis, how do you reconcile the fact that the NEB has a regulatory power with the need to be respectful of the jurisdiction because it is owned by the provinces and the territory, except at the Arctic level? How can you believe that the NEB can be efficient as a watchdog in the case of what I mentioned earlier regarding emergencies and all that?

[William Amos]

If your question is directed to spill response in particular, I think it's a challenging question. I think the NEB recognizes it's a challenging question, and that's why it's front and centre in the Arctic offshore hearing.

Specifically, the NEB has indicated that in the scope of its review it will be examining the issue of responding effectively when things go wrong, such as the effectiveness and availability of spill containment and cleanup options under Arctic conditions, financing spill cleanup, restoration and compensation for loss or damage, and the state of knowledge about long-term impacts of a spill on the environment.

When I read between the lines of that scope of inquiry, my understanding is there are a lot of uncertainties with regard to what happens if there's a spill in the Arctic? Is there capacity? I think the short answer can be seen when you look at the length of time it took to bring the Macondo well under control and the number of vessels that were brought in. Over 700 vessels were brought in. There's no way 700 vessels are going to get to the Arctic.

Every spill is a different situation. There are small spills and large spills, and obviously the BP incident was a large one. It points to the fact that the NEB wants civil society, industry, first nations, and citizens' input into these what-if questions. It has jurisdiction to deal with the regulatory regime for drilling in the north. However, it's fair to say there are others, such as the coast guard, who would be engaged. There are a whole suite of other players who would be engaged, including territorial governments. First nations governments would be involved as well, because the Inuvialuit have a land claim settlement up north. It would be complicated.

The challenge in Canada is that this is just the Arctic. Then you have to look at what happens out east, because there's a whole different set of arrangements. We have the two different offshore petroleum boards that have different lines of accountability for spill response.

I don't think Canadians are comfortable with the idea that they don't understand how things work. The reality is that highly intelligent people--and I presume the vast majority of us around this table consider ourselves highly intelligent people--don't fully grasp how it would work and what would happen if there was a spill. I don't think that's acceptable.

[Denis Coderre, Liberal, Bourassa, QC]

I'm going to let my colleague ask the last question.

[The Chair, Conservative, Leon Benoit]

You have 30 seconds.

[Scott Andrews, Liberal, Avalon, NL]

I'll throw the question out quite quickly to Mr. Cadigan. Near the end of your presentation you talked about seismic vessels and some of the impediments to doing exploration. We see your graph here, and there was a lot of exploration through the 1980s and into the 1990s. By 2000 exploration has dropped off.

Obviously seismic testing is one of the first things you do. You mentioned there were some impediments to vessels in doing seismic work. Could you elaborate on that?

[Robert Cadigan]

Sure. In terms of vessels entering Canada, most of the international seismic contractors are foreign. What happens basically is that an oil company will look at a seismic program in an area. They have to go out and find the most competent contractor to do the work. They define the technical requirements of the vessels and the technology to be used.

Regulations under the Coasting Trade Act were designed to regulate the transportation of goods on Canadian vessels in particular and to provide business security for Canadian shipowners and shipbuilders. What has happened is that inadvertently these regulations impact seismic vessels as well.

The basic problem is that after an oil company decides on a piece of work, finds the best contractor internationally, and goes to the Canadian Transportation Agency to get an exemption to bring that vessel into Canada and do the work, under the CTA regulations any Canadian shipowner can protest. That basically causes somewhat of a delay. We've seen examples of protests that could only be described as frivolous causing significant delays in the approval of programs.

We had a recent example this past summer with a seismic program that was to take place in Labrador and off the southwest coast of Newfoundland. A Canadian company has a vessel laid up in Louisiana, “laid up” being a term used by classification societies to indicate that the vessel needs remedial work before it can take to sea. The Canadian company doesn't have a sea-ready vessel and is unable to meet the technology requirements of the particular oil company in this case, but yet can frustrate the process by virtue of this ability to protest under the CTA.

In 2009 the Canadian Transportation Agency had a consultation. NOIA and a number of other organizations did ask for an exemption or for other ways to reduce this problem. The review was completed, and there was no solution found. Our concern--

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Cadigan. I have to cut in there. We have three more questioners and we have very little time.

We have Madame Brunelle. You have up to seven minutes. Go ahead, please.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Good morning, Mr. Cadigan. It is a pleasure to have you with us.

You represent the oil and gas industry. In your presentation, you said that we have to develop our resources in a safe manner, environmentally speaking. The oil spill in the Gulf of Mexico has really shaken people all over the world.

What specific changes are you going to bring to your drilling techniques? What lessons has your industry learned from this event?

[Robert Cadigan]

We at NOIA represent the supply and service sector, the contractors who do most of the work for the oil companies in terms of exploration and production.

Basically any industrial activity has risks. We've seen that issue recently in the collapse of a dam in Hungary, for example. There will always be risk associated with any kind of industrial activity.

I think the important part is that we do things carefully. We do have a sound regulatory regime, in our view, in the two jurisdictions in Atlantic Canada. In terms of the response of the Canada-Newfoundland Offshore Petroleum Board after the Macondo spill, we've seen additional steps and additional care being taken.

I think that at the end of the day lessons are going to be learned from Macondo. When all of the reports are released, I think what we need to do then is compare what's happened--the failures, in that case--with our own regulatory regime and adjust accordingly, but we have full confidence in our regulator.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

You say that you intend to take additional steps but what are they? I would like you to give me a more specific answer. Is the problem that you do not know the answers and do not have the final reports about what happened in the US?

[Robert Cadigan]

As I said at the start, our area of expertise is the supply and service sector. Certainly we're not experts in terms of oil spill response or in the environmental issues. That's more the purview of the oil companies and the Government of Canada and other parties, but we have a regulator that has 20-odd years of experience. We've had the largest amount of activity in Canada in terms of exploration and production, and we have experience in terms of our regulator and their people. We can only look at the history and look at how things have worked over time.

I can't offer you any concrete new steps, but I think the additional oversight the Canada-Newfoundland Offshore Petroleum Board put in place, which includes a testing of equipment before entering hydrocarbon-bearing zones, is extremely prudent. It'll be interesting to see how the U.S. regulatory process in the gulf worked and how effective that oversight was.

[Paule Brunelle, Bloc, Trois-Rivières, QC]

Thank you.

Good morning, Mr. Amos.

You stated that offshore drilling is a major environmental issue and I readily agree with you. Let us talk about "Old Harry". You probably know that Quebec has imposed a moratorium until 2012 on any exploration work in the Gulf of St. Lawrence, to allow for strategic environmental studies to be done. Those are very fragile ecosystems, as you certainly know. The fishing industry is worried.

What do you think about this moratorium? Should the government of Newfoundland and Labrador do the same?

[William Amos]

This is a highly political question, obviously. It is made more complex by the fact that, so far, the jurisdiction over the Gulf of St. Lawrence is not quite clear. We are all waiting for information from the federal and Quebec governments about negotiations and requirements relating to the potential development of those resources. Our organization does not have any official position on the steps taken so far, but a moratorium in the Gulf of St. Lawrence does seem absolutely necessary. It is clear that we do not have enough scientific information about the potential impacts of drilling and spills, large or small. The affected communities have not all been consulted as they should have been. We should proceed slowly and democratically, and we should make sure that the regulation regime is well established and well understood by Canadians and Quebecers.

I would like to answer in part the question you put earlier to Mr. Cadigan. Whether as a Canadian or as an environmental legal advisor, his answer did not allay my concerns. As a Canadian, I need to know that concrete steps will be taken. The fact is that no serious concrete steps have yet been taken. Politicians and regulators keep telling us to wait for the reports, either from the National Energy Board or from the Canada-Newfoundland Offshore Petroleum Board. They say that we should wait for those reports to be received and analyzed, and to wait for the results of the National Energy Board review. They also say that we should wait for the results of the US presidential commission, and that it is only after having received all that that we should start discussing what should be done.

This does not indicate any great sense of caution. We are led to believe that everything is fine, that we should trust everyone, that things are moving forward and that the small problems will be resolved later. I do not think that is acceptable for Canadians and Quebecers. As a Quebec resident, I do not find that acceptable.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Amos.

Merci, Madame Brunelle.

We'll go now to Mr. Cullen for up to seven minutes. Go ahead, please.

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

Thank you, Mr. Chair, and thank you to the witnesses.

We've talked about energy security very much around the safety component, but this study is also meant to talk about this as an economic component. We're looking at the energy security strategy for Canada right now. We know other energy-exporting countries develop an energy security strategy of some kind at a national level, preferably favouring the domestic economy in terms of investment and jobs created and whatnot.

Mr. Cadigan, do you know of any energy security strategy for Canada right now?

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Cadigan.

[Robert Cadigan]

That's not my area of expertise, but I think Canada's energy security is certainly enhanced when we have a clear picture of our reserves and our energy potential. How the Government of Canada matches that up with security is really up to the elected officials.

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

If we had a strategy in place that said we want to determine the reserves that exist on the east coast or wherever, would that add a level of certainty to the oil and gas industry?

[Robert Cadigan]

Yes, it would add certainty in terms of the duration of the industry, in terms of the economic benefits and how long those are going to accrue, and in terms of the volume of production.

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

I know you folks do a lot of the supply to the oil and gas sector. Are any of the companies in your association also involved in blowout prevention components, the safety pieces that seal the well in the moment of a blowout?

[Robert Cadigan]

Yes. In Atlantic Canada most of the contractors and suppliers of that kind of equipment are members of NOIA.

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

The reason I ask is that I was curious. We had the Newfoundland board in front of us a couple of days ago. In the weeks that followed the incident in the gulf and up until today, there has not yet been a report as to what specifically went wrong. We know there was probably some human error or some mechanical error, but the Newfoundland board was confident to continue the Chevron well, which was much deeper and under different pressures, without knowing if there was a part that was used there that was also being used here and that may be faulty at depth or have some other problems.

Canada is a very small player to this point in the offshore oil and gas industry, as you pointed out. Since we don't know why the gulf happened the way it did, was there not at least some discussion among some of your industry members that for safety reasons on the rigs and for environmental reasons, a pause might be in order for that particular well until the U.S. could figure that out?

[Robert Cadigan]

From an overall perspective, in the Gulf of Mexico over 4,000 wells have been drilled in deep water. In the case of Newfoundland and Labrador, we did have a well planned and ready to proceed around the time of the Macondo incident. Some of the steps that our offshore petroleum board--our regulator--took in terms of the testing of equipment and the testing of procedures immediately before entering the hydrocarbon bearing zone, I think, were very effective ways to ensure that the equipment was working properly before the time of greatest risk.