Natural Resources Committee on Feb. 3rd, 2011

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

There's obviously public intervention.

[Timothy Egan]

I would make the point that there's public intervention with almost every energy source, and there has been over the course of Canadian history. Hydro-Québec assets were not developed without public intervention. Hydro assets across the country were not developed without public intervention. Renewables now are not being developed without public intervention.

As many of you will know, we have a proposal before the Government of Canada requesting a certain kind of public intervention to help natural gas vehicles get over a hurdle we perceive in the transportation market. We think those interventions have to be carefully constructed. They should be time limited and well designed.

So I'm not saying that it doesn't happen.

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

I think we're in agreement.

I have a question about confirmation of supply and access to ports.

You're familiar with the so-called Head Harbour controversy. There was an LNG plant proposed in the U.S. The Canadian government had our ambassador intervene, or the federal government intervene. Are you at all familiar with that LNG project?

[Timothy Egan]

I'm afraid I'm not, no. I'd be happy to follow up.

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

I wouldn't mind, because there's an uncertainty of market conditions, if you're talking about the role of government. The government on the east coast rejected an American project for an LNG plant because it was unsafe. That's according to the ministers involved. But then on the other coast, they said it's fine.

We're trying to understand, from the natural gas point of view, where LNG is going to be applied and if it's going to be applied consistently. That's the point.

[Timothy Egan]

Could I just make two points in response to that?

First, I'll take that to my upstream colleagues, who would be able to address it.

Second is that of course there are regulatory issues involved in this at the provincial level as well as at the federal level. There are various conditions affecting it.

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

Mr. Bonin, I'm going to try to address you in French. I apologize in advance for my mistakes.

The Minister, Mr. Paradis, has said that if we imposed a moratorium too quickly, it would be difficult to go back later. He is against a moratorium and thinks the idea of imposing a moratorium is dangerous.

You have asked for a moratorium to be ordered. I don't know the general feeling in Quebec at this time on that issue.

Should the Government of Canada play a role in protecting air and water or preventing the production of greenhouse gases, or is this something that is under the exclusive jurisdiction of the Government of Quebec and Mr. Charest?

[Patrick Bonin]

I would like to point out that AQLPA and Nature Québec are calling for a moratorium, and there is a consensus on this subject in Quebec. The Fédération québécoise des municipalités is calling for a moratorium, as is the Union of Quebec Municipalities and the cities primarily affected. So it is not just the environmental groups doing this. The trade unions are calling for it as well.

The call for a moratorium is widespread, and it is not necessarily because people are against drilling, it is because they don't have the information or the answers to the questions being asked.

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

You are talking about risks to water and air.

[Patrick Bonin]

Certainly, the federal government has a certain role to play, if only in terms of tax policy. As you said, the market does not necessarily regulate everything on its own. Subsidies for oil and gas companies, in fact every kind of subsidy or tax relief can have an impact.

The federal government can also take action on air quality standards. A Canada-wide initiative to harmonize standards for air quality has been adopted by the Canadian Council of Ministers of the Environment. The first thing the Canadian Council of Ministers of the Environment will do will be to strengthen standards for fine particles and ozone precursors. By 2015, we want to adopt new Canada-wide standards in order to harmonize and to facilitate monitoring, to better target problem spots and to make sure that the provinces have action plans and are offering mutual assistance to achieve that objective.

At present, ozone exceedences have already been observed. We already have air quality problems, days when the air quality is poor or marginal. We now want to strengthen the standards and make them more stringent. If we keep the same level, we would have more poor air quality days.

As well, and this is clearly established in the Haynesville study you cited in the brief, researchers have done modelling on Haynesville based on a similar development in Quebec. In that study, we clearly see a significant increase in ozone, 16 parts per billion, when the Canadian standard is 65 parts per billion. If we add 16 parts per billion in some places, we will have more poor air quality days. It is inevitable, because we are adding pollution.

In Quebec alone, the health costs associated with poor air quality are estimated at $2 billion. In fact, studies vary, because some talk about $2 to $9 billion. So this is a significant impact. Obviously, in terms of greenhouse gas emissions, it is the federal government that represents us at the international level. It is the official voice.

That being said, in the Cancún Agreement, Canada, like other countries, set targets to limit global warming to 2^oC, to avert catastrophic climate change. Based on current targets of the developed countries, the increase in global warming would be 3.5^oC. That clearly means that all of the developed countries will have to revise their targets and adopt more ambitious ones to avert catastrophic climate change. I'm not the one talking about catastrophic climate change, it's the IPCC. So it is very serious.

We can see on the Environment Canada site that the current Canadian target has not been met. With what is on the table for Canada, we are a long way from meeting that target. Since we aren't going to meet that target, we have to go a lot further. To go further, we will have to start making a U-turn and investments will have to be made in this. In my opinion, the federal government has a major role to play in this regard.

[The Chair, Conservative, Leon Benoit]

Mr. Cullen, your time is up.

Mr. Egan does want to give a short intervention.

[Timothy Egan]

I just want to respond, Mr. Cullen, to your point on the relationship between gas renewables versus hydro and renewables.

Could I just give you a hypothetical about system efficiency? I don't have the graph with me, but there was a graph from the Independent Electricity System Operator of Ontario that showed 4 p.m. one day and 4 p.m. two days later. There was a 1,000 megawatt difference in the available power from wind because of its intermittency at the same time of day two days later. That's fine, wind is an intermittent power source, and there are ways to deal with that. But what you need to do, if you're using it as part of a reliable power system, is have firm backup readily available. So if it's hydro, which is the most logical partner—you're right, in my view—that means you have to set aside 1,000 megawatts of hydro as spinning reserve, ready to go immediately, to be available. That's 1,000 megawatts of hydro you're not using in the market.

It's better to be using hydro as electricity, sending it into the electricity system, and generating revenues in export markets or other provincial markets than holding it in reserve like that.

With natural gas it's a different scenario, because you tend to hold natural gas in power generation in facilities that are designed precisely for that sort of immediate backup opportunity. It's not as efficient to use natural gas for electricity in the long term for exports the way it is for hydro, so you want to be thinking about system efficiencies on these things at all times instead of having absolutes about what is all good and what is all bad.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Egan and Mr. Cullen.

Finally, for this panel, we'll go to Mr. Anderson for up to seven minutes.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you.

Mr. Egan, I was actually going to ask you about using natural gas as a foundation fuel. I don't know if you want to say anything more about that. I think you covered it fairly well.

I did want to give you an opportunity to talk a little bit more about new technologies. You talked a bit about the applied energy technology and innovation initiative that you find in some of the new technologies revolving around natural gas. I would like to hear a little bit more about that.

I may cut the witnesses off if the answers get too long, just because we have short time here.

[Timothy Egan]

Sure.

I'll talk about a couple. First of all, I'll talk about renewable natural gas, which is biomethane. That's the opportunity to recover natural gas from waste facilities, from biowaste. There are significant quantities of this available across the country.

Our industry, right now, is looking at setting uniform standards in order to be able to bring this into the system easily and cleanly. Part of this new initiative will actually look at renewable natural gas and the applications there.

We think this could account for a good percentage of the natural gas needs of Canadians right now. It's also available right across the country. So renewable natural gas is one area.

A second area is water heaters. If you look at the per capita use of natural gas, the demand curve is actually going down. Arguably, that's not in our interest as a gas industry. But we are, as I mentioned, energy service providers, and we want to meet the energy service needs of Canadians, and they want their energy needs to be more efficient all the time.

Water heaters are becoming more efficient all the time. We're looking at making sure that new technology for water heaters can be brought into the market in a straightforward and clear way and that there are the support mechanisms in place for that market, to meet the needs of Canadians. So water heaters is a second area.

A third area is vehicles. Our focus right now is on heavy- and medium-duty trucks. We're looking at opportunities to bring natural gas into the truck market.

If one in ten heavy- and medium-duty trucks in use in Canada right now were using natural gas, we would meet our 17% reduction target for the transportation sector for heavy- and medium-duty trucks. We think there's a significant delivery opportunity there. We want to make sure there's all the support necessary for that.

The fourth one is the one I mentioned before, which is combined heat and power. There are various industrial applications of combined heat and power across the country. Right now, micro combined heat and power is the real innovation. And the opportunity there, as I mentioned, is for a unit that could be as small as something for your household.

Right now, it's not affordable for most households. We're looking at what would need to be done to bring the price down. But imagine a unit about the size of the furnace in your home, which would bring 15% more natural gas into your home than you currently need but then supply all of your gas and all of your electricity needs. That's what micro CHP can do. It's a revolutionary technology. It's extraordinarily efficient at end use.

That's a significant opportunity but not necessarily one you would pursue everywhere in the country. You're going to look at the resource base that's available province by province. That resource base does differ province by province.

But again, I think we want to emphasize the point that you want to be maximizing the efficiency of the energy system. You want to be ensuring that all of the resources available to Canadians are being used in the most environmentally sound way, delivering the best economic return for Canadians for domestic needs as well as for export markets that want to use our products.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

A comment was made a little bit earlier that gas is driving down the cost of electricity. That may not be good for your industry, but that is good for consumers, isn't it?

[Timothy Egan]

I'm on the distribution end of the spectrum, so I'll speak with two voices.

As a distributor, if my customers are happy with low-priced gas, then I'm happy. For the gas industry, if the prices of gas are low, people scratch their heads and ask if we're going to develop more gas or not. However, gas is an open market. If the price is really low, people will stop developing gas.

That may well be what happens in the province of Quebec. Maybe some of those projects won't go forward because they don't prove to be economic. So people stop drilling for gas for a while, and they work on other aspects of the energy mix. Demand goes up; prices change, and--boom--it suddenly becomes economic to develop gas again. It's a supply-and-demand relationship, which is active in the gas market and beyond the gas market, in the energy market.

If I can just take a minute to talk about this, we're the gas distribution industry, but it's not as though we see electricity as our opponent in any way. The fact is integration in the energy industry in Canada is happening more and more because that helps deliver efficiency.

If you look, for instance, in the province of British Columbia, my member is a company called Terasen, which is about to take the name Fortis. Fortis is a well-known Newfoundland company. It owns Terasen in the province of British Columbia, and it will become one of the most integrated distribution companies--gas and electric--in the country.

I can go across the country and show you the working relationship between gas and electric industries, which is a good thing for Canadians because it's helping to deliver a better energy product--a more environmentally sound energy product--at the end of the day.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Okay.

Mr. Welt, you made a comment earlier that you'd like to see this left in the ground for future generations. I'm from Saskatchewan, and one of our failed politicians actually used that same expression about 60 or 70 years ago in our province. The provincial government at that time chose to leave one of our natural resources in the ground, and by the time we were done, we were 50 years behind our neighbour in terms of economic development. I'm just wondering if you're prepared to do that.

Mr. Cullen knows who I'm talking about.

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

Seventeen balanced budgets are too much for you, I guess, eh?

[Voices]

Oh, oh!

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Well, it's funny; Mr. Cullen actually can laugh about this because he comes from British Columbia. The reality is very real, and that is that Saskatchewan--

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

We wish for your Saskatchewan politics sometimes.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

--was left far behind Alberta because of the choices. The primary choice was made by a premier who chose to leave the resource in the ground while those folks around us were developing.

I think Mr. Hoback would back that up.

The other thing I noticed--

[Thomas Welt]

Would you like to have an answer?

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

In a minute.

The other thing I would just like to mention....