Natural Resources Committee on Feb. 3rd, 2011

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We're here today to continue our study on energy security in Canada, and we're continuing on the topic of shale gas.

We have two panels of an hour each. We have on the first panel, from the Canadian Gas Association, Timothy Egan, president and chief executive officer; from the Association Québécoise de lutte contre la pollution atmosphérique, Patrick Bonin, campaigner, climate-energy; and from Nature Québec, Thomas Welt, co-lead, energy committee.

Welcome to all of you here today.

We will take your presentations of up to seven minutes in the order listed on the agenda. We will start with Mr. Timothy Egan, president and chief executive officer of the Canadian Gas Association, for up to seven minutes.

Go ahead, please, with your presentation.

[Timothy Egan, President and Chief Executive Officer, Canadian Gas Association]

Thank you, Mr. Chairman, and thank you, honourable members.

It's a privilege to be here before you today. I appreciate the rescheduling. I was originally intended to appear before you in the fall.

A key focus of your deliberations is environmental issues surrounding shale gas extraction. As agreed with the clerk in advance, I'm not speaking to the substance of the environmental issues around shale gas extraction. There are many qualified experts to do that, and extraction of natural gas is not the primary focus of the member companies in my association. Our focus is on the delivery of natural gas and related energy services, which we thought would still be useful to you as you consider the big picture around natural gas. Committee staff assured us this would still be of interest, so that's how I intend to use my time today.

First, who are we? A presentation should have been handed out to you to give you a bit of an overview. One of the first pages in it is a map of Canada showing our member companies. We are a range of companies involved in the natural gas delivery system, such as manufacturers and transmitters, and at the heart of our membership are distribution companies delivering gas to approximately 6.2 million customers.

The map shows the companies and their franchise areas across the country. What it doesn't give a sense of is the fact that those 6.2 million customers translate to well over 20 million Canadians, people whose energy service needs we meet every day in homes, businesses, and industry. A meter isn't a person; a meter is the end point of delivery of the gas, but it represents people in a variety of walks of life. We believe it's an extraordinary reach and one that makes us think about the Canadian energy consumer every day in everything we do.

Note that I said “energy service needs”. The member companies of CGA are focused on this, with the emphasis on “service”. Canadians have come to expect a lot when it comes to their energy. They want it to be clean, reliably and safely delivered, affordable, and abundant. Canadian natural gas has met all of these demands for over a century. That's why we consider natural gas to be the foundation fuel of Canada's energy system. In fact, we meet approximately 30% of the end use needs of Canadians, and we think that justifies the title.

We also call natural gas “smart energy” because of all those attributes, and one other: its flexibility. Natural gas offers flexibility in a way few other energy sources can. When you want renewables like solar or wind, you also need an energy source to ensure their reliability, and natural gas can provide that. When you want to maximize efficiency at the end use of energy, natural gas comes right to your door and offers remarkable efficiency for heating and cooking needs. Our efficiency in its end use has only increased over time regularly year over year. When you need a source of energy that can work in tandem with a district heating or cooling system as part of a distributed generation system or for mainstream power generation, natural gas is available. When you want to think about adding a new fuel to the transportation energy mix for use by Canadians, natural gas is there and natural gas distribution companies are helping to drive the agenda.

The remarkable ever-expanding networks of natural gas infrastructure in Canada and the unique attributes of the fuel itself are key reasons for its flexibility, and we want to make sure that people appreciate it.

The second image you have before you speaks to some of the many uses of natural gas that justify this description. Canadians use energy in three ways: for mobility, for electricity, and for heating and cooling. It is roughly 30%, 20%, and 50% in terms of an overall split. Natural gas can play a role in all three.

Right now its overwhelming use is for heating. Increasingly, natural gas is used as a fuel for power generation to meet electric needs, and we're seeing the beginning of an interest in it as a transportation fuel, with growing interest in applications for heavy- and medium-duty trucks. I draw your attention to the recent NRCan report on natural gas use, the transportation road map, which speaks to these opportunities.

All these opportunities for new uses are significant, and we want to encourage them for the economic and environmental benefits they promise.

What does the future hold? For natural gas and the companies that are involved in its delivery, we believe the future holds opportunity, as long as we stay attuned to the needs of Canadians.

I described our member companies as energy service companies. By that I mean they are intent on ensuring that the Canadians who are their customers are getting the energy services they want and need.

Let me take my remaining time to highlight two initiatives we have that are intended to help meet those service needs going into the future. They speak to two major priorities for Canadians on energy issues. First is its efficient use, and second is a desire for new and more innovative applications.

The first of these is QUEST. There's a slide on QUEST in the package. QUEST stands for “Quality Urban Energy Systems of Tomorrow”, and I think most of the members of this committee are familiar with the project and have been briefed on it.

Let me just point out that the idea behind it--integrated community energy systems--offers a real means to make Canadians much more efficient in their energy use. That translates to less energy consumed, fewer environmental impacts from that energy consumed, and, ultimately, lower costs to the energy consumer.

Now, how is this good for the gas industry? Well, we believe that gas is the logical foundation fuel for integrated community energy systems. It ensures maximum flexibility and reliability, assuring Canadians the level of service and satisfaction they want and have come to expect from their energy providers.

The second initiative I want to highlight is a newly created one. We're in the process of coming up with a name, but right now we're calling it the applied energy technology and innovation initiative. This has been agreed to by my board of directors only in the last few months. It's a new project and is focused on the deployment and commercialization of new technologies aimed at the more efficient use of natural gas in a host of applications.

One example is micro-CHP, or combined heat and power. Some of you may be familiar with that as an industrial application. Micro-CHP would involve the application in small units in the home that could generate both heat and electricity. The technology is well advanced, with numerous applications around the world, including some interesting emerging work being done right here in Canada. In fact, there's a small company outside of Ottawa working on this.

It offers a means to ensure a much more efficient use of energy while lessening the pressure on our electricity grid, with the consumer having a significant say over their own energy. This is the kind of technology we would like to see more of. Through the association, my member companies are defining cooperative means to pool their financial resources to drive new opportunities like micro-CHP for Canadians to be leaders in innovation and productivity in energy use.

I mention that as one example. There are others: water heaters, renewable natural gas, more efficient technologies for transportation, etc.

To wrap up, this means keeping Canadians on the cutting edge of energy innovation and productivity and a continuous effort over time to transform our system into a more efficient and effective one. Natural gas is a remarkable natural resource and Canada happens to be blessed with an abundant supply. My member companies are dedicated to delivering that resource to Canadians in the most efficient and environmentally sound way possible. We look forward to many opportunities to work with those in elected office in this effort.

Thank you, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Egan.

For the next group, we actually have two presenters. Please make sure that your presentation is around seven minutes between the two of you.

We'll start with Mr. Bonin, coordinator, climate energy. Go ahead, please.

[Patrick Bonin, Campaigner climate-energy, Association Québécoise de lutte contre la pollution atmosphérique]

Thank you, Mr. Chair.

Good afternoon. I want to thank the members for having us here today. I am joined by Thomas Welt, from Nature Québec. I represent the Association québécoise de lutte contre la pollution atmosphérique (AQLPA). Nature Québec and the AQLPA are two of Quebec's oldest environmental groups. Both were founded in the early 1980s.

I would like to begin by giving you an overview of the shale gas situation in Quebec, a very real issue right now. It involves a natural gas development between Montreal and Quebec City, between the St. Lawrence and Highway 20, in an area that spans about 10,000 km² and that happens to make up the heart of Quebec, both from a population and an agricultural standpoint. The potential for gas production is quite significant, estimated at 40 quintillion cubic feet. Naturally, there are some doubts about the accuracy of that figure. Sometimes it is estimated at more than 15 quintillion cubic feet, which is equivalent to approximately 200 years of use, based on Quebec's current rate of consumption.

Twenty-nine wells have already been drilled in Quebec. There is talk of drilling a possible 10,000, 15,000 or 20,000 wells in order to make the industry in Quebec fully operational, with approximately 250 to 500 wells being drilled a year. That would mean 3 to 6 wells per square kilometre, putting a huge number of wells in a very populated area over a very short period of time. Right now, about 11% of Quebec's energy comes from natural gas. Quebec does not have any natural gas-based power generation. Clearly, one the reasons for that has to do with the large presence of hydroelectricity.

Now let's look at this from an international perspective. Shale gas use, production, exploration and development raise a number of environmental concerns, primarily with respect to greenhouse gases and air and water quality. Approximately 10% of Quebec's greenhouse gas emissions come from the use of gas. And Quebec's planned exploration and development activities will only increase those emissions. We are still lacking a multitude of data, figures and analyses on the possible emissions resulting from the gas exploration and development. Nevertheless, Quebec's greenhouse gas emissions are estimated to increase by approximately 5% to 10%, based on the anticipated rate of shale gas exploration and development. Keep in mind Quebec's target of a 20% reduction in greenhouse gas emissions below 1990 levels by 2020, and Canada's target of a 17% reduction below 2005 levels by 2020.

Even Quebec's environment minister does not have any studies on the entire gas life cycle related to shale gas exploration. So there is a clear lack of information. We do know, however, that the United States Environmental Protection Agency released a report in November stating that greenhouse gas emissions resulting from oil and gas production were going to double. In the U.S., most of the increase in emissions is due to gas production. The increase in greenhouse gas emissions entered in the U.S. inventory is equivalent to all of Quebec's emissions in one year. Just by changing the factors used to calculate these emissions, the U.S. added to its inventory an increase equivalent to all of Quebec's emissions, simply because it is now understood that there are more leaks, that they involve methane and that production generates even more emissions.

One of the AQLPA's biggest concerns is obviously air quality. Very few studies have been done on the topic. The Institut national de santé publique du Québec recently released a preliminary report identifying huge shortcomings with respect to the impact on air quality. From the little research that is available, including air quality modelling done by the U.S. in the Haynesville region, one thing is very clear: air quality is significantly affected, as it relates to ozone, which is made up of nitrogen oxides (NOx) and volatile organic compounds. Air quality is significantly affected, not only in the region under shale gas exploration and development, but also in surrounding regions, given the movement of particles, as you may have gathered.

Water quality is another major concern. Well fracturing alone requires millions of litres of water, which are mixed with tons of chemicals. Approximately 50% of the water remains underground and 50% is removed. There is a risk of aquifer contamination as a result of these mixtures and the flow of water between strata. We filed a brief on this topic with the Bureau d'audiences publiques sur l'environnement. The document was prepared by Mr. Durand, a retired UQAM professor and geologist, who is concerned about these risks.

There are other risks associated with transportation, spills and obviously wastewater treatment, given that 50% of the water used and removed from the ground must be treated after the fracturing process. Most of the plants that will be treating this water and these chemicals do not have the necessary facilities to do so.

It should also be noted that the list of chemicals is not necessarily known, that some of the effects of these chemicals combining and interacting in this toxic soup are not known.

On that note, I will hand the floor over to Mr. Welt, who will discuss the economic and social effects of shale gas exploration.

[The Chair, Conservative, Leon Benoit]

Go ahead, please, Mr. Welt.

[Thomas Welt, Co-lead Energy Committee, Nature Québec, Association Québécoise de lutte contre la pollution atmosphérique]

Good afternoon, Mr. Chair.

I will begin with the economic impact, which is always presented as being the most essential, when in fact, it is not.

In order for the industry to make money on this, the selling price must be $6 per 1,000 cubic feet. It is currently at $4 per cubic foot. So it is not at all profitable to develop shale gas. Nor is it beneficial as far as the people of Quebec are concerned, even at $6 per 1,000 cubic feet. And in terms of improving the trade balance, the impact is insignificant. It represents a small fraction of 1% of all Quebec imports. So, in our view, this endeavour is not economically beneficial for the industry or Quebec society, as we speak.

In terms of obtaining social acceptability, one of the most important considerations, the fact that the shale gas is located in agricultural and populated areas in Quebec is a major, if not insurmountable, obstacle.

There is already huge opposition to the 30 wells that exist today. Just imagine the reaction when there are 5,000 or 10,000 such wells in a very small area in the heart of Quebec. That is the area where Quebec took shape over four centuries of colonization. So gaining society's acceptance of these activities will be extremely difficult.

Ever-growing numbers of wells in a very limited area, together with the constant comings and goings of trucks and numerous gas pipelines—thousands of small gas pipelines will also be necessary to connect all the wells—will make the public concerned increasingly hostile to this type of development.

Now, I would like to share with you our findings on all this. There are no clear economic benefits for the industry, or more importantly, Quebec society as a whole. Social acceptance of this development is lacking, and that will probably always be the case. The risks to people's health and quality of life, the threat to drinking water and the other possible risks of damage are too great to allow drilling and fracturing activities to continue, even on a small scale.

There is no urgent need to proceed, none at all. Quebec has all the energy it needs right now. Nor is there an urgent need economically speaking, because the price of gas has to go up first, and that will take some time. It may hit $6 or even $10 in 20 or 30 years, but certainly not in the foreseeable future. So there is no urgent need to proceed.

Consequently, a moratorium is necessary. We should not rush into anything. We need to conduct a very careful analysis of the entire impact of this new energy industry, which seeks to establish itself in the St. Lawrence Valley, the cradle and jewel of Quebec. It is important to understand that this heavy industrial polluter wants to call the jewel and heart of Quebec home.

This region of Quebec, between Montreal and Quebec City, should be protected for the present and future generations. Authorities at every level, including the federal government, should support and promote this common-sense approach, a moratorium proposed on the basis of a rare consensus in Quebec society.

Thank you, Mr. Chair and honourable members.

[The Chair, Conservative, Leon Benoit]

Thank you all very much for your presentations.

We'll go directly to questioning, starting with Mr. Tonks for up to seven minutes.

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

Thank you, Mr. Chair.

I'll just echo the chair's appreciation to the witnesses for being here.

I'm rather caught in an unusual situation. We heard yesterday that the Province of New Brunswick is looking very seriously at establishing a regime that would benefit New Brunswick. They cited the added value in the development of shale gas. The minister also indicated that they were establishing an environmental assessment regime that would look into the issue of balancing the community's concerns against the economic advantages.

In your presentation, Mr. Bonin, you referred to Quebec's Sustainable Development Act. If there is a moratorium, what approach would an environmental assessment take? What kinds of concerns would you be looking at balancing out, given the premise that this committee is charged with energy security for Canada, and Quebec has a huge role to play in that? In the environmental assessment in Quebec's Sustainable Development Act, what would you be looking at assessing from a Quebec perspective? To extrapolate that a little more, how do you see the development of shale gas and Quebec's hydro contributing to the national higher interest, if you will?

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Bonin.

[Patrick Bonin]

First of all, it is important to keep in mind that Quebec's reality in terms of electricity production is not the same as New Brunswick's. There is a major difference. New Brunswick uses coal to produce electricity, whereas Quebec does not use fossil fuels, be they coal or natural gas, to generate electricity.

In terms of an environmental assessment, a number of questions about shale gas have yet to be answered. Something interesting is happening in Quebec right now. The Bureau d'audiences publiques sur l'environnement (BAPE) was given a mandate to study the issue of shale gas. But this commission of inquiry did not receive any environmental impact assessments prior to the project. That means that the BAPE is currently examining the matter when the developers were not required to submit any environmental impact assessments. It must start from scratch. The BAPE has just four months to examine the whole issue, in its entirety. Most of the analysts and former BAPE commissioners made it clear that the mandate was too limited and that the lack of prior environmental impact assessments was problematic. They also said that the mandate was much too short to deal with the shale gas issue in its entirety.

That being said, the Environmental Protection Agency in the U.S. is in the midst of a comprehensive study on the environmental impact of shale gas exploration and development. The results of that study will be released in March 2012. The U.S. has invested millions of dollars in this study. The province of Quebec does not necessarily have those kinds of resources, and I doubt that the other provinces, whether it be New Brunswick or someplace else, have the resources to undertake such an in-depth study of the matter, either.

Consequently, given the little bit of information we do have right now, we are concerned on a number of levels. I believe you mentioned Quebec's Sustainable Development Act. It sets out a number of principles, one of which being the precaution principle. Under that principle, when a threat exists and full scientific certainty does not, a project should not be allowed to proceed. And yet, the exact opposite is happening in the case of shale gas right now. There are indeed threats to water and air quality.

You also mentioned hydroelectric power generation in Quebec. We see what is happening around the world right now. Just last week, the International Energy Agency's chief economist gave a speech in England in which he said that countries would not be able to meet the commitments made at the climate change conference in Cancun—they had agreed to limit the increase in the world's temperature to 2^oC—citing two reasons. The first reason was that key emitting countries were not serious about reducing their emissions, and the second had to do with the emergence of shale gas around the world.

Why is the emergence of shale gas problematic? Given the quintillion cubic metres on the market today and the sharp decline in gas prices, shale gas is threatening renewable energy development worldwide, not just in Quebec and Canada. In the U.S., investment in renewable energy has dropped by 50% from last year. According to the International Energy Agency's chief economist, that is directly related to the discovery and development of shale gas.

Clearly, Quebec produces hydroelectricity and exports it to the U.S., and it could export even more if only it could save energy and develop its wind energy potential. Today, we cannot even pursue that kind of development because the cost of producing electricity has dropped tremendously with the emergence and marketing of billions of cubic metres of gas. And in that respect, Quebec is hurting itself in terms of developing its own renewable energies and energy known as biogas, or biological methane. Quebec has invested in capturing methane emissions at landfills, in order to use what is known as biogas. Biogas is currently competing with other types of gas. Biogas derived from landfills is a source of renewable energy. It is important to remember that.

Thank you.

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

That was a very comprehensive answer, and I'm sure the committee appreciates that.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Tonks.

Madame Brunelle, you have up to seven minutes.

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

Good morning, gentlemen. Thank you for being here.

To begin, I would like to congratulate the Association québécoise de lutte contre la pollution atmosphérique and Nature Québec for presenting this document, which seems to me to be particularly informative. In it you take the same position as my party, the Bloc Québécois, and you confirm what we understand about this situation in Quebec.

I would like to go back to the question Mr. Tonks asked. I heard the presentation by the New Brunswick Minister of Natural Resources on Tuesday, and I would like my colleagues to think back to that too. We have to realize that the situations are very different from one province to another, if only because of the places where these activities take place.

Mr. Welt, you talked about the places where this exploration is being done, near the St. Lawrence, in our beautiful and most densely populated agricultural areas. The problem is not the same as elsewhere, in western Canada, where material is extracted in places where there is no population and the risks and consequences are not the same.

Mr. Bonin, by making the connection between sustainable development and the precautionary principle, you get right to the heart of the matter. That is really what drives this committee: perhaps some day shale gas will be developed, but not at any price, not at the price of the environment, and not just any way.

We want to eliminate our dependancy on oil, but we have to pay attention to how we get there. To us in the Bloc Québécois, it should be done as part of a truly green economy and with other resources, as you talked about a little, Mr. Bonin.

On Tuesday, Anthony R. Ingraffea of Cornell University in the United States told us that the technology does not seem to be advanced enough to guarantee that drilling for this resource, shale gas, can be done in a way that respects the environment. So that is the heart of the problem and what is worrying us.

I'm going to ask you three questions. Do you agree with us that exploration and exploitation are under sole provincial jurisdiction? So this debate has to be happening and the decisions have to be made in Quebec. We think the role of the Canadian government must be clear. It must pass on the information it has in its possession, but it is not up to it to impose standards or make uniform standards across Canada. We believe the federal government has to collaborate by investing massively in new technologies to develop greener energies.

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Welt.

[Thomas Welt]

I would however like to stress something important that is not talked about enough in the industry.

At the moment, there is no economic reason to exploit shale gas, because we are going to be exploiting it at a loss. It will be exploited when there are enormous government subsidies; without that, it isn't possible. So that is a fundamental aspect.

There is a second aspect that is just as fundamental: intergenerational equity. In Quebec, in Canada and elsewhere there is this potential energy. If we exploit it immediately, if we exploit it at a loss, we take away future generations' ability to exploit it under much better conditions.

The price of gas is going to rise inexorably because the resource is going to be exhausted at one point or another, maybe in 20 years, maybe in 50 years, maybe in 100 years. That resource, if we exploit it not now, but later, will have far greater value and future generations will be able to use it much better than us, who still have conventional gas at a good price. And there is no economic reason. Forget for a moment all the environmental reasons. In economic terms, I don't see how we can exploit the gas at $4 per 1,000 cubic feet when, and the industry itself gave us these figures, it has to be at least $6 per 1,000 cubic feet to be profitable.

There is also another problem: knowing what has to be done. How should it be exploited, at what rate and at what time? All those studies would have to be done during the moratorium.

Your last argument is that the government has to promote renewable energies like wind power. In fact there was a federal windmill program, but it has been eliminated. It is absolutely desirable that the federal government subsidize renewable energies, emerging energies, like solar energy and especially windmills. Quebec is extremely rich in wind power. It has the largest potential in the world. Wind power is inexhaustible. If all the forms gas have been exhausted, in 100 or 200 or 300 years, wind power will be here for billions of years, as long as the Earth exists. So we have to put all our energy not into outdated energies, but into new energies. That is what our common objective should be.

[Patrick Bonin]

To add to that, I will perhaps say that...

[The Chair, Conservative, Leon Benoit]

You have about 30 seconds left. Go ahead.

[Patrick Bonin]

With respect to energy development, it is essentially under provincial jurisdiction. The federal government may have roles to play, however, when it comes to water, fish habitat and the Action Plan on Climate Change.

That was my 30 seconds.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Bonin.

Mr. Egan, you wanted to give a short response?

[Timothy Egan]

Yes. Perhaps I could just make one or two comments.

I apologize, Ms. Brunelle, but I will have to speak in English because my French is not very good.

Do we need to drill for shale gas in Quebec? That's a question for Quebeckers to decide. I know they have a fierce patriot in Mr. Bouchard, who has added his voice to the debate. I think that will help make it a more fulsome debate in the province of Quebec. Obviously there will be differences of opinion on that.

We also know that a report is expected imminently from the Quebec government, and that will also shed more light, I think, on the situation. Each province should determine where and whether and how it wants to proceed, and we trust that Quebeckers will take a balanced approach, addressing the need for responsible and environmental management and economic development.

Let me just raise one possible scenario. Yes, if it's not economic to develop, odds are that the market will not develop it. The opportunity will not be pursued if there isn't a perceived return on the market opportunity. That's a point that I think needs to be emphasized. Related to that, if I could just make a point about Quebec's energy mix, just think about this scenario. Quebec has extraordinary hydroelectric wealth: 40% of your energy generation is hydroelectric. You also have 10% of your energy needs met by natural gas. Envision a scenario where you export more hydro and you use natural gas for more domestic uses. You generate more revenue on the hydro you export. You generate tax revenue on the natural gas that you develop. That gives the province a bigger resource base with which to develop many of those renewables that we're all interested in seeing more of.

I think there's just a danger if we talk about an absolute shutdown of any one technology. Canada's energy wealth, the province of Quebec's energy wealth, is in its diversity. Yes, we need to be prudent in our development of those resources, but we should be pursuing the development of as many of them as possible.

[The Chair, Conservative, Leon Benoit]

We'll go to Mr. Cullen for up to seven minutes.

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

Let me just follow up on that. Mr. Egan, I think you're making the case that natural gas is a good backstop to renewable energy, to wind or solar energy that's put into the grid. Is that essentially what you're saying?

[Timothy Egan]

We prefer to call it not a backstop but a foundation fuel, because we think it's a logical partner for wind and solar and a host of others. So, yes.

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

This is no knock against natural gas, but I've not heard that other than from the natural gas associations. Hydro power, around the world, is considered the best backstop accompaniment to any source of what we can see as non-traditional or renewable sources of energy.

You also mentioned that if the market doesn't see a profit to be made, they simply won't exploit it. While generally true, is it not specifically the case that if a government is interested in having a resource exploited, then it can alter the market conditions? They can change the tax code. They can deregulate certain environmental restrictions.

Obviously there's a role government plays, whether one energy source is exposed or another. There is no pure market in the energy field. We all know that the so-called level playing field doesn't exist anywhere in Canada, if not in the world.

[Timothy Egan]

I would agree with you. My point wasn't that there would be no public intervention.