Natural Resources Committee on Dec. 2nd, 2010

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We're here today to continue our study on energy security in Canada.

We have as witnesses today, from the Government of Alberta, the Honourable Ronald Liepert, Minister of Energy, Department of Energy. Welcome. By video conference from Victoria we have Ben Parfitt, appearing as an individual. Welcome. And from the Montreal Economic Institute, we have Jasmin Guénette, vice-president, and Vincent Geloso, economist.

That's our first panel for the first hour. We will have presentations in the order that you see them on the agenda.

We'll start with the Honourable Ronald Liepert, Minister of Energy from the Government of Alberta. You have up to seven minutes, sir.

Welcome, and please go ahead with your presentation.

[Ronald Liepert, Minister of Energy, Department of Energy, Government of Alberta]

Thank you very much, Chairman Benoit.

And good morning, everyone.

I will try very hard to stay within the five- to seven-minute presentation time, but we're politicians. We'll do our best.

It is a welcome opportunity to appear before the committee today. The Government of Alberta has been undertaking an advocacy campaign for the past year relative to responsible energy development, especially as it relates to the oil sands in Alberta. I view this as another opportunity to ensure that Canadians better understand how important this resource is to the country.

The International Energy Agency expects the world's energy demand will increase by 40% over the next 20 years, and oil will remain the dominant fuel to meet that demand. There are 170 billion barrels of oil in the oil sands that are recoverable with today's technology. That accounts, however, for only one-tenth of the total reserves. And if we're even able to double those recoverable reserves—and I believe we will soon, through new technologies—Alberta would place well ahead of Saudi Arabia, the world leader today in total proven reserves.

One in every six Albertans owes his or her livelihood directly or indirectly to the energy sector. And it's not just Albertans who are benefiting. Tens of thousands of Canadian jobs across this great country are directly or indirectly tied to the success of our industry. There are some 28,000 workers who live in camps in northern Alberta, and more than half of them fly in and out every week or every two weeks from their homes east of the Manitoba-Ontario border. This industry requires billions of dollars in pumps, valves, motors, and other equipment that is manufactured in central Canada. So these jobs mean that Canadians are paying taxes to the federal and other provincial governments, not just to Alberta.

In 2009 Albertans paid an estimated $40 billion to the federal government in taxes and other payments, while getting back less than half that amount, $19 billion, in federal services. So that's a net contribution of $21 billion that is used to support federal programs outside of Alberta.

A healthy economy is also the means to drive high-tech environmental changes. It's only because we have a thriving economy that we can afford to fund research into renewable technologies. It's only because we have a thriving economy that we can fund a $2 billion carbon capture and sequestration initiative to meet more stringent emission controls. And we're the only government in North America that places a CO₂ cap on large emitters. Companies that exceed the cap must pay into a fund, which now has collected almost $200 million since it was created in 2007, and the proceeds are allocated to new environmental technologies.

Now over 3.5 million people choose to call Alberta home. They love their forests, rivers, and valleys and will not allow irresponsible resource development. Albertans care deeply about their environment, and they want their government to make that commitment as well. So ensuring responsible development of oil and gas is a provincial responsibility that we take very seriously. Albertans own the resources, they want them developed responsibly, and they will accept nothing less.

The Energy Resources Conservation Board is the province's regulator of oil and gas development, and it's recognized as a world leader. It is adaptable to changing circumstances to deal with new unconventional discoveries, such as oil sands, shale gas, and horizontal drilling.

While the National Energy Board has jurisdiction over such things as regulating cross-border transmission, the provincial agency ensures that our industry is in compliance. Environmental protection is a more shared responsibility, with provincial and federal regulators working closely together. A good example is in air quality, where the comprehensive air management system is developed by the Council of Ministers of the Environment and reflects shared responsibility for air quality in Canada.

Canadians can be assured that we have a clean, secure supply of energy. The federal minister and I, as co-chairs of next year's federal-provincial-territorial energy ministers' meeting, have committed to working toward a national clean energy strategy. This call has also come from other organizations, the most recent being the Canadian Council of Chief Executives.

So Alberta, in conjunction with Natural Resources Canada, will lead the coordination of this work toward a set of common goals and objectives that all governments in Canada can agree on, which will shape a clean energy strategy. This is another example of how we must all work together for a common goal. No one is served by political leaders not respecting each others' jurisdiction in our federation, and we can work together from a foundation of trust that only comes from respecting federal, provincial, and territorial authority. With this trust, we can build and enable the amazing diversity and strengths we have regarding energy right across our country.

In conclusion, I would like to invite your committee to visit Alberta and tour the oil sands. But I would say maybe wait until next spring.

[The Chair, Conservative, Leon Benoit]

Thank you, Minister, for your presentation and for the invitation. We actually were going to visit this fall, and the kibosh was put on it for the fall. But I certainly hope that we will carry through in the spring on that. It's well worth the time.

We go to the second presenter now. By video conference, from Victoria, British Columbia, we have Ben Parfitt, as an individual.

Go ahead for between five and seven minutes, please, with your presentation.

[Ben Parfitt, As an Individual]

Thank you for having me. Good morning.

My name is Ben Parfitt, and I am a writer and researcher based in Victoria, British Columbia.

Recently, I authored a report for the program on water issues at the Munk School of Global Affairs, called “Fracture Lines: Will Canada's Water be Protected in the Rush to Develop Shale Gas?” The report was released in mid-October at a conference that officials from Natural Resources Canada, the natural gas industry, and professional hydrologists and geologists attended and at which they spoke. I am currently researching a report for the B.C. office of the Canadian Centre for Policy Alternatives that will examine the increasing water demands and power needs in the province's expanding natural gas sector.

As all of you have heard, a significant increase in development of unconventional shale gas resources is under way in Canada and is at its forefront in British Columbia. The province offers a taste of what may be coming down the pipe, as it were, elsewhere in the country.

British Columbia, as you may know, has two major shale gas zones situated in the northeast of the province. The southern-most of those zones is known as the Montney basin. It is in proximity to the communities of Fort St. John and Dawson Creek. The Horn River basin is far to the north and is centred around the community of Fort Nelson.

Most people in the province live 1,000 or more kilometres away from these zones and have little understanding of the extent of industry activities, including industry water usage. I should add here that this is a very different situation from what may apply in the province of Quebec, as Utica shale in that province is developed.

Shale gas production is highly energy intensive, and much of its energy intensity is inextricably caught up in the use of water that is pumped underground in large volumes to fracture or create cracks in tightly bound shale formations. During my research, I obtained information from B.C.'s energy regulator, the B.C. Oil and Gas Commission, on water assignments to the natural gas industry. The information showed that as of April 2010, the OGC had issued energy companies approvals to divert water from 540 different points on creeks, rivers, lakes, and reservoirs in the northeast of the province. If the maximum volume of water assigned to energy companies under those permits were used in a single day, it would exceed by two times the daily water usage by all residents and businesses in Victoria combined. However, this only scratches the surface of what water is being used.

Companies such as Encana and Apache Canada now pump water from deep saline aquifers in the Horn River basin to complete their fracking operations. Others draw water from near-surface freshwater aquifers. Others obtain water from private landowners' wells or borrow pits, and still others are building massive borrow pits, some more than a half kilometre long by 200 metres wide by 13 metres deep, which are intended to infill naturally from near-surface waters in the surrounding muskeg.

Nowhere is information on all water assignments or water takings gathered into one place for the public, a situation common to other Canadian provinces. This is troubling, because these are early days yet for shale gas exploration and development. Yet we know that the industry is setting records for water usage. At just one well site, between January and April of this year, in the Two Island Lake area in the Horn River basin, roughly 900,000 cubic metres of fresh water was used to set a world record for fracking operations at a single multi-well pad. Requests for information that your committee has filed with Encana, will, moreover, I believe, show that the record has subsequently been broken in the Horn River basin.

As the committee may also know, the Peace River, its major tributaries, and many other waterways overlaying the Montney shale resource were in the midst of a drought zone this year. Yet evidence I have obtained from the Oil and Gas Commission shows that fracking companies received substantial increases in water-taking approvals from the energy regulator, despite record low water levels in the region.

It is important to note that the Peace River and its tributaries form part of a vast water system that crosses provincial and territorial boundaries and in which the federal government could and ought to be playing a role.

A great concern is that information made available to the general public by the Oil and Gas Commission has downplayed the industry's increasing needs for water, and on at least one occasion, the energy regulator has failed to disclose significant water withdrawals by fracking companies to a British Columbia first nation that formally requested information on water takings within its territory, which is covered by Treaty 8.

I would like to suggest that as shale gas exploration and development intensifies, there is a pressing need to ensure that both the federal and provincial governments act honourably with first nations, as is their legal duty. A key element to acting honourably is to disclose information, information that the provincial governments have or ought to have on water assignments and water withdrawals.

In interviews with professional geologists, hydrologists, and legal experts, I concluded that both the information gathered on water assignments and the powers to issue water approvals ought properly to rest with provincial environmental regulators, not energy industry regulators, if the primary objective is to ensure safe, renewable supplies of water and sustainable water use. But do governments have all the information they ought to be reasonably expected to be able to provide?

In my “Fracture Lines” report, it is noted that Natural Resources Canada, through the geological survey, is in the midst of analyzing and characterizing 30 key aquifers, mostly in southern Canada, some of which overlay shale formations, but this work is well behind, as respected scientific bodies such as the Council of Canadian Academies has noted. This is why, in the “Fracture Lines” report, the first recommendation made is for the federal and provincial governments, in collaboration with the fracking industry, to immediately fund studies of all aquifers prior to shale gas exploration or sustained hydraulic fracturing.

I would be happy to answer questions about the other recommendations in that report that address other aspects of water usage and waste water treatment and disposal in the fracking industry. Thank you very much for the opportunity to speak with you today.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Parfitt. We have one more group of witnesses before we go to questions. From the Montreal Economic Institute is Jasmin Guénette, vice-president, who I understand will be making the presentation, and Vincent Geloso, economist.

Go ahead with your presentation for five to seven minutes.

[Jasmin Guénette, Vice-President, Montreal Economic Institute]

Thank you very much for inviting us, Mr. Chairman.

I would also like to thank my colleague Vincent for preparing this presentation with me. We will be pleased to answer any questions you may have.

I want to recall that the Montreal Economic Institute is an independent, and thus non-partisan, government policy research centre and that we receive no government funding.

What is required to ensure Canada's energy security is the development of our natural resources, both natural gas and oil. If that development is based on the principles of the market economy, private property and entrepreneurship, it will be possible for Canada to achieve sustainable economic growth.

The development of the natural gas industry is an excellent job and wealth creation opportunity for Canada. Canada is ideally placed to benefit from its resources as it is home to the Utica formation in Quebec and the Horton Bluff formation in the Maritimes as well as the Horn River, Montney and Colorado deposits in western Canada.

In Quebec, nearly 600 wells were drilled and developed between the 1960s and 1990. This means that the industry has acquired significant expertise, particularly in horizontal drilling. This gigantic potential must be developed further. Since 2007, 28 wells have been drilled in Quebec, including oil wells, representing nearly $200 million in investments. Quebec's department of natural resources and wildlife estimates that 200 horizontal wells represent $1 billion in investment, not to mention thousands of jobs and good prospects for corporate profits.

Economic potential potential on this scale cannot be summarily dismissed when assessing the costs and benefits involved in developing this resource. Of course, an attempt must be made to minimize the environmental risks for this kind of project. However, it is important to say that there is no such thing as zero risk. This is as true for energy development as it is for most human activities. Of course, it's not easy to strike an acceptable balance between risk and economic benefits, but that has to guide decision-makers' actions. If we allow ourselves to be paralyzed by development risks, we will in fact prevent all progress. One need only think of the automobile, airplanes and hydroelectric dams. All these things are now an integral part of our lives and well-being, and they necessarily involve a significant share of risk when they are being developed.

It is also important to mention that natural gas development also has environmental benefits, since gas produces 31% less greenhouse gas emissions than residential fuel oil, for example, and nearly no atmospheric contaminants that are harmful to health. By developing gas, we will be able to reduce our emissions, and, if it is possible to develop these resources within our own borders, supply will only be more stable and secure.

Now, how should the resource be developed? In our view, development of our energy resources is clearly the best way to ensure greater energy security while promoting economic development.

There is a simple and legitimate way to ensure respect for individuals and businesses concerned in this development, and that is respect for private property. Respect for property presupposes that all orders of government refrain from adopting unwarranted barriers to free negotiation between the various players. There are two things: we must avoid granting excessive expropriation authority and, second, special regulations must not be used to block businesses wishing to negotiate with landowners, just as there must be no regulations preventing individuals from enjoying or using their property as they wish.

Whether it be the federal or provincial government or municipal governments, no one should intervene to compel or prohibit the development of shale gas. Authorities must simply allow free negotiations between businesses and landowners. Businesses wishing to develop this resource must have a right to negotiate for the purpose of compensating individuals for the use of their property, in whole or in part, whether it be to lease it or to purchase it. Individuals who are ready to negotiate with businesses must simply have a right to profit from their property in the manner they consider most profitable.

This kind of negotiation may be conducted on a one-to-one basis, obviously, among a number of parties or based on the bidding principle. Whatever the case may be, landowners and businesses must neither be compelled to work together nor prevented from doing so by legislation. Such negotiations based on the right to property, make it possible to assess the real costs of these undertakings more effectively, reduce the risk of conflict, permit healthy arbitration and help determine the best locations for this type of business and avoid the "not in my backyard" phenomenon.

I will conclude my presentation by saying that a property-rights-friendly approach can assist in the economic development of our resources, with the cooperation of all parties involved. Energy security inevitably depends on the development of our resources and on legislation that promotes economic exchange free of unwarranted obstacles.

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you, Monsieur Guénette.

We go now to questions. The first round goes to the official opposition, starting with Mr. Tonks. If there's time left, we'll go to Monsieur Coderre.

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

And then we can bump down to--

[The Chair, Conservative, Leon Benoit]

If there's time left, which there won't be, we'll go to Mr. Andrews.

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

Thank you very much, Mr. Chairman.

Thank you to our witnesses for being here. It's been very enlightening and we appreciate your presence.

Minister Liepert, I would like you to have an opportunity to explain, from your perspective, the success of what you described as, I guess, the cap on CO₂ in large emitters and how that's working in terms of the government being able to reinvest that in green technologies. That, in fact, would start to allay some of the fears that people have with respect to the accountable development of our resources.

As you are aware, there's a huge debate going on with respect to carbon taxing and cap and trade. The experience of the Province of Alberta would probably be very instructive in terms of where we're going with respect to that kind of a regime that we have in place.

[Ronald Liepert]

As I said in my remarks, we're the only province that has a carbon tax right now. It's $15 a tonne. The funds go into an arm's-length fund. We have what would be sort of considered as a private sector board of directors that administers the fund. It's outside of government.

The fund has now reached almost $200 million, and this entity seeks out proposals. There are terms of reference around what the proposals must look like, but they have to have an element of renewable and more environmentally friendly.... That committee then makes the decision on how to allocate those dollars.

The board is chaired by Eric Newell, the former CEO of Syncrude, who has a long history of working with the aboriginal community. I think it's going to work very well. As you can appreciate, it's in its infancy. I think the first allocations of dollars just took place this past spring. I do believe it's a model that other jurisdictions could look at.

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

Thank you very much.

I have just one very short question. On Tuesday, we had testimony, and I can't remember it came from, but I just wanted to raise it. It's on the implications with respect to the tailings ponds in the oil sands. The testimony indicated that not only was there a leaching issue--obviously into the aquifer would be of concern--but also the possibility of a Hungary-type surge from those tailings ponds that could be very devastating.

The question was raised whether there was an accountable regime in place that could anticipate and look at that nature of environmental tragedy, if you will. Would you like to make a comment on that?

[Ronald Liepert]

First of all, there are lots of implications. Implications don't necessarily always relate to fact.

A recent one was a national CBC report, which said there was leakage at the CNRL tailings pond. We strictly monitor that. Our regulator, whom I referred to, had been out monitoring two weeks prior. There was no indication that it was happening.

They went out after the report and checked it again. Our environment folks went out and checked it again. There was no breach. The federal environment ministry sent folks from Ottawa to the oil sands and they came back with the same conclusion.

There are lots of implications. I think it needs to be stated that when these projects are approved through the Energy Resources Conservation Board and the Department of the Environment, comprehensive plans are in place for disaster management, if you like.

Much of that is available through requests. As you can appreciate, it is not unlike your defence plan. There is certain proprietary information that needs to be kept....

I would say that overall we are very confident and very comfortable with the fact that many of these tailings ponds have now been in place for in excess of 30 years, in a couple of cases, and our track record is pretty darn good.

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

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Coderre.

[Denis Coderre, Liberal, Bourassa, QC]

Mr. Chair, we probably have one thing in common. I am from Quebec; you're from Alberta. So we are rebels with a cause, and we are clearly respectful of jurisdiction.

Saying that, we have a common role to play. There's a convention between the Government of Canada and the Government of Alberta. I am pleased to say, as you know, I visited Fort McMurray, Edmonton, and Calgary to meet most of the stakeholders.

There are issues regarding monitoring. I spoke with one of your favourite stakeholders, David Schindler. There is an issue regarding the necessity, or not, of independent monitoring. I believe, like others, that it is a strategic resource, and we need to have a balance.

How would you perceive the role of the federal government vis-à-vis monitoring? Do you think we have a role to play, or are we only there to provide some expertise because we already have an agreement? From your own governance perspective, how would you see our role?

[Ronald Liepert]

At the end of the day, there is only one taxpayer. So if we're going to have duplicate efforts, I don't think that serves the taxpayer well.

I'm not being critical, but in your question you referenced independent monitoring. Although the Energy Resources Conservation Board reports through the Department of Energy, I can tell you it is very independent. We have very strict monitoring by environment officials, who, quite frankly, don't make a lot of friends in government.

I would say we have a very good track record on monitoring, relative to Dr. Schindler. He did a study. The results of his study relative to water were different from what our monitoring was showing us. With Dr. Schindler's input, we appointed a panel to start to verify the data that was being used both by Dr. Schindler and our monitoring panel. Whatever that scientific review comes forward with, we'll abide by.

Beyond the individual regulatory bodies, there is the opportunity to appoint special panels, as we just did.

[Denis Coderre, Liberal, Bourassa, QC]

What do you expect from the federal panel?

[Ronald Liepert]

I'm not entirely certain. I think the mandates are somewhat different. I think the timeframes are quite a bit different.

I know our environment department officials are working very closely with federal officials. At the end of the day, we all want the same thing to happen. The reality is that Albertans live in Alberta and drink the water. Albertans don't want unsafe water.

Much is at stake. We've got a lot more at stake than those who don't live in Alberta.

[The Chair, Conservative, Leon Benoit]

Merci, Monsieur Coderre. Your time is more than up. You may get another short round.

Madame Brunelle, go ahead for up to seven minutes.

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

Thank you, Mr. Chairman.

Good morning, gentlemen.

Mr. Guénette, you mentioned economic impact, investment and jobs, and I think that's appropriate. However, certainly in Quebec, public opinion is generally very much opposed to shale gas development. We're told there are environmental risks. I believe the situation is different from that of the rest of Canada, in particular because these are densely populated places and agricultural areas. So that represents some difficulty.

The Government of Quebec has no legislative framework covering that. It's as though business initiatives had caught us off guard. You talk about applying the rules with regard to respect for private property, about not granting too broad an expropriation framework and about permitting free negotiation between businesses and individuals.

I would like you to tell me two things. First, how can there be free negotiation between individuals and businesses, in view of the fact that the underground does not belong to the people who own the land? Second, do you believe the Government of Quebec has to adopt a legislative framework, at the very least, to manage even only the environmental measures designed to protect the public?

[Jasmin Guénette]

You're right to say that the underground does not belong to owners, but there are surface rights. To drill a well, businesses have to reach the necessary agreements with the owners.

With regard to development, if we want to adopt a vision that respects the local villages and the communities affected, the most sensible option is to allow wealth creation, but also development consistent with the spirit of sustainable development. So we include the largest possible number of interested players in the discussions. In that way, we respect individual property, that is the landowners, regardless whether they own woodlots or farms. The underground does belong to the government, but the fact remains that the surface rights belong to the owners. Development isn't possible without the consent of the persons affected.

Would you like to add something, Vincent?

[Vincent Geloso, Economist, Montreal Economic Institute]

Yes.

There is the question of surface rights, but some of the negotiation mechanisms involved are very simple. They are largely based on what has been developed in economics, particularly in the works of Leonid Hurwicz, who earned the Nobel prize for economics in 2007. Here I'm talking about the bidding mechanism. The promoter of a development may, for example, indicate which lands are of interest, meet with the owners and make an initial bid. If no owners are interested, a second, more generous bid is made, and so on until there is a taker. This method makes it possible to create a system for interested parties.

In addition, we see that, in the United States, when the implementation of a project disturbs the occupants of a neighbouring property, these exchanges are conducted and money is offered to compensate individuals whose free use of their property is affected. So there are mechanisms of this kind that work.

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

My question was not about economic mechanisms. Yes, regulations can be implemented. You are in business, and you are used to doing it. Mr. Liepert told us that, with regard to the environment, there are rules and a legislative framework that had to be complied with. However, that seems to be lacking in Quebec.

Since you will clearly never be able to secure the Quebec public's consent to carry out your activities, don't you think we should adopt a stricter framework? That's the gist of my question.

[Jasmin Guénette]

Rules that are clear and known to everyone are desirable, precisely to permit more balanced, more equitable development, which includes the members of the community. Of course, if there is a little grey area and we aren't sure what we can do or not do, it's difficult to do business.

So, yes, it is desirable to adopt a legislative framework that is known to all players, whether they be businesses or individuals.