Thank you very much, Mr. Chairman.
Good afternoon, ladies and gentlemen. Thank you for the opportunity to speak about the Fraser Institute's research pertaining to energy security and how it relates to the committee's study.
I understand that the study includes reviewing the roles of the federal government and the National Energy Board with respect to the development and export of unconventional oil and gas resources, and this will be part of my focus.
I assume that, in the context of the study, energy security refers to an assured supply of energy for Canadians under normal market conditions. From this perspective, the greater the Canadian oil and gas production is and the more opportunities there are to freely export and import these resources, the less Canadians should be concerned about oil and gas supply difficulties.
Concern that North America's energy resources are not being developed as quickly and extensively as they could be in order to allow the citizens of Canada, the United States, and Mexico to reap the maximum employment income and social benefits led us to initiate a continental energy strategy project two years ago.
As explained in a 2008 Fraser Institute paper by former premiers Klein and Tobin, the envisaged strategy would require North American energy policies at the national, provincial, and state levels to be aligned in support of efficient and as rapid development of the continent's energy resources as possible in light of free market conditions, science-based environmental concerns, competition from oil and gas imports, and petroleum investment opportunities abroad.
Clearly, increased development and production of the continent's energy resources would bolster the security of oil and gas supplies as well as provide economic and social benefits. Because market forces will determine the most efficient allocation of North America's energy resources, development of a continental energy strategy does not encompass identifying energy investment, production, and trade targets. Rather, the focus is on ensuring that government policies and regulations pertaining to energy resource investment, development, and trade are stable, fair, and appropriate.
Governments must avoid intervening in energy investment decisions, as these are best left to those who are motivated by market forces, have an in-depth knowledge of the technologies involved, and are prepared to take risks based on their understanding of how energy requirements are likely to change.
In the continental energy strategy program, at the institute we recently released two papers, which are available on the institute's site, free of charge. One is Towards North American Energy Security: Removing Barriers to Oil Industry Development, and the second is North American Natural Gas: Reducing Investment Barriers.
These studies review the oil and gas supply potential and requirements in Canada, the U.S., and Mexico and prospects for national and continental supply-demand balances for both oil and gas.
One of the conclusions from this research is that, with continued technological improvements, there is potential to significantly increase the volume of oil liquids that is produced in North America relative to domestic demand. Along with continued development of the oil sands, increased offshore production, commercialization of gas to liquids, and coal gasification technologies will contribute to improvement in the continental oil liquids balance.
Eventually, when we get there, the technology that allows us to commercialize oil that's found in shale—the oil in the U.S. that's been indicated to exist in large quantities locked in the kerogen in oil shale—will also contribute.
With regard to natural gas, technological improvements have made the production of gas from shale formations viable. That has transformed the long-term outlook for continental gas supply and demand from one of increasing dependency on LNG imports to near self-sufficiency.
An indication of this is the plan to export gas to overseas destinations from Kitimat instead of importing gas at that location, as originally planned. Because of what's been termed the shale gas revolution, the security of gas supply should not be a matter of concern for Canada in the foreseeable future.
With regard to the impact that shale gas is having on the outlook for U.S. gas supply, the upward revisions contained in the U.S. Energy Information Administration's 2011 long-term forecast are telling.
This is gas production from shale formations reaching almost 8 trillion cubic feet in 2020, compared with 4.5 trillion cubic feet in the administration's previous forecast just 13 months ago. That compares with actual 2009 production of 3.3 trillion cubic feet. More remarkably, the projected volume of U.S. shale gas production in 2035, when total gas production is forecast to reach 26 trillion cubic feet, has been doubled from 6 trillion cubic feet to 12 trillion cubic feet. As a consequence, U.S. gas production from other sources—not all other sources, but some, including coalbed methane—and imports of gas from Canada and abroad are projected to shrink.
The Fraser Institute studies that I referred to and the U.S. Energy Information Administration's most recent long-term outlook underscore the fact that the continent has a strong oil and gas resource position; however, non-market barriers stand in the way of achieving the goals and objectives of a continental oil and natural gas strategy. Because these obstacles prevent oil and gas production from increasing as rapidly as they could, they also impinge upon oil and gas security. There are a number of barriers that Canada is in a position to address because of its jurisdiction over oil and gas exploration in the north and in the Atlantic and west coast offshore regions, and also on account of responsibilities that Canada has with regard to environmental protection.
First, the government needs to ensure that royalties or production taxes on conventional oil and gas in the areas for which it has jurisdiction are competitive, not only with those in the provinces but with those in competing jurisdictions around the globe.
Second, it needs to ensure that royalties in relation to higher costs of production because of deep offshore or remote far north locations or other factors, as with some of the unconventional sources, reflect those higher costs. If royalties don't do this, investment will be allocated to regions promising more attractive returns.
Third, the government needs to remove the cloud of uncertainty overhanging the oil and gas industry in relation to the timing and specifics of environmental policy changes that could significantly impact the capital costs of oil and natural gas projects and energy pipeline construction. Necessary changes to environmental regulations need to be defined and implemented as quickly as possible. If potential investors don't know what changes will be made and can't estimate the cost of compliance with accuracy, major projects will be lost to other regions.
Fourth is the issue of moratoria on offshore exploration, which are standing in the way of development of petroleum resources—offshore British Columbia, for example. Moratoria on exploration and production in offshore areas should be lifted once the authorities are satisfied, having examined the cause of the disastrous oil leak in the U.S. Gulf of Mexico last year, that the environmental risk can be mitigated. This will open new areas for development and in turn contribute to Canada's energy security.
Fifth, regulatory process and procedures that threaten to delay the approval of oil and gas pipeline construction that will be required to transport new supplies of bitumen, shale gas, and other petroleum resources to market hubs need to be made more efficient. The National Energy Board has self-imposed standards regarding time schedules with regard to the release of decisions following the completion of public hearings. But these are arbitrary and serve only as guidelines, not hard and fast rules that must be achieved. Moreover, there are no such standards with respect to the time required from when an application is received until a public hearing commences or with the maximum time to be allowed for public hearings. To ensure a more rapid response to pipeline construction applications, more may be required than simply tightening the NEB's self-imposed service standards. In fact, the National Energy Board Act may need to be revamped to limit the board's involvement in the construction permitting process to non-commercial aspects such as safety, environmental impacts, and other matters of public importance.
Finally, there is the land claims issue. Means for settling aboriginal and other claims expeditiously and in a fair and appropriate manner need to be found to prevent unnecessary delays in the construction of pipelines required to transport oil and gas to markets. A matter that should be of concern to the federal government is that investors regard the Northwest Territories as relatively unattractive for investment in oil and gas exploration and development.
According to the Fraser Institute's global petroleum survey, in 2010 the NWT ranked 74th of 133 jurisdictions worldwide. This was worse than any of the other Canadian jurisdictions that were ranked, other than Quebec. In fact, the NWT appears to be less attractive for investment than almost all of the U.S. states and offshore regions, all of the Australian states and territories, New Zealand, Chile, the United Kingdom, Norway, the Netherlands, and many other jurisdictions around the globe.
Now, according to survey respondents, the Northwest Territories' poor performance in the global ratings is due to a number of factors, but most important is the land claims dispute issue. On this factor, the NWT was deemed to be the least attractive for petroleum investment of all 133 jurisdictions around the globe that we were able to rank. The Northwest Territories also scored poorly in relation to the availability of infrastructure, regulatory duplication, and uncertainties in relation to protected areas. If the federal and NWT governments wish to attract petroleum investment to the north and thereby advance energy security, these matters need to be addressed.
As I've mentioned, Canadians are fortunate in not having to worry much about the security of oil and gas supplies given our fortunate position as a net exporter of both commodities. However, those parts of the country that are mainly dependent on imported crude oil and refined petroleum products would be disadvantaged by any lengthy interruption in the usual marine supply channels. The government may therefore wish to investigate the extent of the risk exposure of that sort and how it might be lessened.
The Canadian government has a role to play in ensuring that the laws and regulations that define the conditions within which the petroleum industry operates are conducive to free market competition, and also in working to lower non-market barriers to petroleum investment such as those that I've identified, so that development of Canada's oil and gas resources, including oil sands, bitumen, and shale gas, can proceed quickly where production is viable in light of the rigours of competition, free trade, and the costs of compliance with necessary environmental protection policies.
Thank you, Mr. Chairman.