Natural Resources Committee on Nov. 25th, 2010

[David Collyer]

I think there are two aspects of that.

One is that we would certainly agree that clarity on consultation requirements would be helpful.

Second, accommodation is a more complex issue, as I'm sure you understand, that involves both the role of industry and the role of governments. I think the clarity we're seeking there is what is the role of industry vis-à-vis that of government.

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

Right. That's a fair point.

Mr. Wright, I was confused by your comment about there being no special tax allocations to oil and gas, particularly because in part of the budget submissions this year, there's further tax alleviation being sought by the industry. But the Canadian exploration expense, the Canadian development expense, the Canadian oil and gas property expense, the capital cost and accelerated capital cost allowance expense—these are all in place to alleviate the tax burden on energy companies, oil companies, as well as some other industries.

My question is this. There was a budget memo leaked in May of this year that, from the finance department side...they said if Canada has made this commitment at the G-20, which my colleague read out earlier, in terms of removing subsidies to the oil and gas sector because they're harmful to the economy and they're harmful to the environment. If they don't exist, why are internal memos in the finance department asking the government to consider removing them?

How can they remove something that doesn't exist, in your view?

[John D. Wright]

I think you're asking me a question about the inner workings of government, which would be far beyond me. But I can say this: deduction of operating expenses is a common deduction in any tax regime I've ever done business with in the world.

On the oil and gas front, what's called the Canadian exploration expense is typically either seismic drilling or exploratory drilling in wildcat areas or dry holes, dry and abandoned wells, which are typically written off as a total loss to the company at a 100% rate, again in almost every jurisdiction on earth that I'm aware of.

As well, in terms of the rate of deductibility of all other expenses, you talked about Canadian development expenses, which are deducted at a 30% declining balance rate, and capital cost allowance, which is typically a 25% declining balance rate. Those are very standard depreciation rates recognized across a number of tax regimes.

There are variations on how taxes are paid. As an example, if you drill a well in the North Sea in Norway, you'll actually receive a cash payment from the government equivalent to 80% of the cost that you incurred on that well as a return on your tax payment. That's something the Canadian government doesn't do.

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

Let's not worry ourselves as much with Norway in the sense that—

[The Chair, Conservative, Leon Benoit]

Mr. Cullen, I'm sorry, your time is up.

We'll go now to Ms. Gallant, for up to seven minutes.

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

Thank you, Mr. Chairman.

I'd like to start off by bringing this down to the human level. The average everyday Canadian mostly cares about what it costs to fill up the tanks in their vehicles. The increase in inflation last month over this month was mostly attributed to increased fuel costs.

Can you tell me how production in the oil sands impacts the cost of gasoline, and how it will in the future impact on the individual filling up their tank, if we do versus don't develop the oil sands, or if we go at a slower pace versus a faster pace?

[David Collyer]

I can take a crack at that one.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Collyer.

[David Collyer]

Thank you.

I think the first important point is that the price of oil is clearly not set in Canada. This is part of a global market, and the price of oil is determined by global factors.

I would submit the view that the more supply that is available to consumers, the more choices that are available, the more likely it is that prices will stay at a more affordable level. I think if you look at the natural gas market, just to take another example right now, we've moved from a period when natural gas was priced in excess of $10 per MCF. With the abundance of shale gas in the North American market, we're now looking at a price.... Don't hold me to a future price forecast, but people are now talking about $5, $6, $7 per MCF as a stable, long-term natural gas price.

I think you could take that same analogy to oil sands and say that the more robust and abundant the supply is, the more choices there are for consumers and the more likely that will keep prices in a more affordable range. But I'd also reinforce the point that the price of oil is established in global markets, not in the Canadian market.

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

Right.

I was rather surprised by something at a mining association meeting the other day. There was somebody from the oil sands, and we were talking about future costs of fuel. He said it wasn't in the best interests of the oil sands to see the price per barrel continue to increase exponentially, that there's a point of diminishing returns.

Could you explain in economic terms why there would be a point for the oil sands companies at which they wouldn't want the price per barrel to increase that steeply?

[David Collyer]

I can't comment on that specific point, because I don't know the context in which he was talking about it.

Like any product, I think it's important that there be a balance between what's attractive to the consumer and what's attractive to the producer. We have to try to find that price level that works for both in the market.

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

Energy security is very much the topic at our NATO parliamentarian association meetings. When we talk about energy and our abundance in the oil sands, our colleagues across the pond refer to the oil from oil sands as “dirty oil”. When I ask them what they mean by dirty oil, they say, well, it burns dirty--more dirty than the oil from the Middle East or anywhere else.

Is there an independent study we can refer to that would show a how clean the oil sands products burn compared to production in other parts of the world?

[The Chair, Conservative, Leon Benoit]

Mr. Lambert, then Mr. Collyer.

[Gordon Lambert]

First of all, I'd just highlight that the fuel burned in Canada in our gasoline use is as clean as any fuel in North America or in the world. We have sulphur removed from that fuel. That was through regulation. So the fuel quality exiting the refineries is equivalent to the best anywhere.

On life cycle greenhouse gas emissions, a lot of work is under way to benchmark Canada and Canadian oil sands versus those other crude sources. It appears the more data that comes available in that front is showing more close to equivalency that the oil sands are achieving relative to those other sources.

Quite simply put, we don't view the term “dirty oil” as appropriate at all.

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

So the emissions are the same or lower than production in other parts of the world.

[Gordon Lambert]

It's close to equivalent in terms of the life cycle view of that, yes.

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

Our colleagues aren't really sure why they hear this “dirty oil”. They just know they hear it over and over again. This is often the mantra of environmental groups.

These groups always demand independent studies, and guffaw at any studies that are funded, even in part, by the oil industry. But they don't reveal how they themselves are funded or how the studies they conduct are funded.

You know your competition best. Is it possible that competitors, or governments from other countries, are funding groups to depict our oil sands industry in a lesser light?

[The Chair, Conservative, Leon Benoit]

Mr. Collyer, go ahead.

[David Collyer]

I have two comments.

Referring to your earlier question, there is what I think is a very good study done by Cambridge Energy just recently that we'd be happy to provide to the committee. It was done independently by a very well-respected independent consulting firm. I think it gets at your questions around greenhouse gas emissions.

I would not know, and wouldn't comment on it specifically, whether governments are funding some of the opposition. I know that other governments are clearly injecting themselves into the dialogue in Canada with respect to how we should approach the oil sands and our energy system more broadly. I do know that much of the opposition to oil sands that we see in Canada is being funded by either environmental groups or foundations from outside this country, who I would argue do not have the best interests of Canadians at heart when they wake up in the morning.

So clearly there is a fair bit of opposition coming from interests outside Canada, some of it I think founded on their particular views around the appropriate balance of energy development and climate policy, and some of it, I would argue, very much representing their own interests with respect to some of these issues.

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

We read in the newspaper that water samples taken downriver from a bitumen extraction point have a higher bitumen content than water samples taken upriver. Aside from the obvious, which would appear to be tailings or some result of the bitumen mining process, could you offer any other explanation as to the higher content of bitumen downriver than upriver?

[The Chair, Conservative, Leon Benoit]

Mr. Lambert.

[Gordon Lambert]

This panel that the Alberta government has put in place is to try to reconcile these different views of this data. Dr. Schindler will be sitting down with other scientists to assess this.

It's important to note as well that the Athabasca River has hydrocarbon that outcrops on the bank of that river as part of its normal course. This means you have hydrocarbon bitumen entering the Athabasca River just through that outcropping of the oil sands resource itself. Separating out the background levels of substances that arise from those natural sources of oil, versus the oil sands, is one of the real challenges.

[The Chair, Conservative, Leon Benoit]

Ms. Gallant, we're out of time.

Thank you, Mr. Collyer, Mr. Wright, and Mr. Lambert, for being here.

Do you have a point of order, Mr. Allen?

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

No, the clerk looked at me anxiously when Mr. Collyer brought up the other study he's prepared to give the committee. I know that the clerk is going to jump on that one too.

[The Chair, Conservative, Leon Benoit]

Yes. We have noted that. Thank you very much, Mr. Allen.

Do you have a point of order, Mrs. Gallant?