Natural Resources Committee on Feb. 17th, 2011

[The Chair, Conservative, Leon Benoit]

I call the meeting to order.

Good afternoon, everyone. We're here today to continue our study on energy security in Canada and we're continuing on the topic of regional economic impacts.

We have two panels with us today. At the first panel, we welcome from Alberta Innovates - Energy and Environment Solutions, Dr. Eddy Isaacs, chief executive officer. From the Mackenzie Valley Aboriginal Pipeline LP, we welcome Robert Reid, president.

We will go to your presentations in the order you are listed on the agenda, for up to five minutes each, starting with Dr. Isaacs.

[Dr. Eddy Isaacs, Chief Executive Officer, Alberta Innovates - Energy and Environment Solutions]

Thank you for the opportunity to address your committee and also to answer your questions. I hope I can add some value to the work of the committee. I have submitted a short brief to the committee on what I wanted to address, so I'll keep my comments fairly brief.

I'll introduce my organization, mention the importance of diversifying our markets, and then speak to responsible action on the environment and climate change, the critical importance of innovation, and how all of this ties into energy security.

First, our organization, Alberta Innovates - Energy and Environment Solutions, is one of four new provincial corporations launched by the Alberta government in January 2010 under the Alberta Innovates banner. We serve as the technology arm of the Alberta government in energy and environment. We're a successor to two previous organizations stretching for over 36 years. We've had a big presence in the area of energy and environment for some time now.

Our mandate is to position Alberta for the future in energy and environment. We do that by identifying, evaluating and selecting technologies and partners, and that's important. We've built the domain expertise and the competitive intelligence tools to be able to do that. We invest in or fund research and technology with industry, the federal government, and international collaborators.

A recent supplement in The Globe and Mail provides an example of the work we've been advancing. I'm going to table that supplement; I know it needs to be translated.

As well, I'm tabling our annual report, more than anything else to provide you with some idea of the work we're doing and further details on the impact of our work.

I want to discuss broader energy markets. I'll use the example of the forestry industry in B.C., which for a decade has been trying to move away from just the North American market. It has recently achieved a big breakthrough in penetrating the Chinese market. The demand in China was always there, but one had to be persistent and overcome the cultural barriers of using wood for building houses.

In Canada we have growing oil resources. In fact, we are the only developed country that can dramatically increase its oil production, not only from oil sands, but also increasingly from tight conventional oils, the so-called shale oil that's found in Manitoba, Saskatchewan, and Alberta. Production has already started in Manitoba and Saskatchewan, and in Alberta to some degree.

Unfortunately our only market is the United States. That market is reaching a saturation point and is forecast to stagnate as we move forward. It is crucial for Canada that we focus our efforts on diversifying our markets, with special emphasis on Asia, China, Korea, and Japan. Not only is this important; it is also becoming very urgent.

The second point I want to make is about responsible action for the environment. Societal expectations are such that when we're considering economic development, we do that with what is best for the environment. It's no longer just companies wanting that: society expects us to do it. In the oil sands, Canada is most vulnerable on the environment, and there are many organizations working hard to balance environmental stewardship with economic reality. For example, the Alberta Chamber of Resources, which I believe is next on your agenda, has led a comprehensive land use initiative that allows forestry companies and energy companies to work together side by side to integrate their operations so as to minimize the footprint on the land.

If we are to be successful on the environmental front, technology will be a key. I believe our future successes will come from what our past successes have come from, and that is a strong government and industry partnership based on a clear business case and a well-articulated implementation strategy.

New technology creates risks for companies in financial markets. I've provided a graphic representation showing the length of time—20 to 30 years—that it takes to bring new technology to market in the resource sector, much longer than in any other sectors. The time lag does create a high risk profile, and the financial commitment required to overcome these long periods is quite substantial.

We believe that the role of government is to work with industry to reduce the risk of adapting new technology, especially next-generation technology.

The final point on technology is that there is a need for significant investments in sectors where Canada has a natural advantage. These investments need to be focused and sustained over long periods of time because of the length of time it takes to bring what I've called “game-changing technologies” to market. We cannot achieve our environmental targets without changing the game.

My final point is on energy security. My bias, if you like, is that energy security cannot be separated from our energy resources, which are vast; our economy, which is heavily dependent on the energy sector and the resource sector; and our environment, which gives us the social licence to operate.

In all of these—energy, economy, and environment—technology is the glue if we are to be competitive, maximize the value of our resources, and mitigate environmental issues. I believe the government's role is to set the boundary condition and to intervene to ensure the technology is available in an acceptable and affordable manner.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation, Dr. Isaacs.

The second member of the panel here today is Robert Reid, president of the Mackenzie Valley Aboriginal Pipeline LP.

Go ahead, Mr. Reid, with your presentation. You have up to seven minutes.

[Robert Reid, President, Mackenzie Valley Aboriginal Pipeline LP]

Thank you, Mr. Chairman, and honourable members.

We appreciate the opportunity to appear before you today to highlight the importance of the Mackenzie gas project, not only to our northern stakeholders but to Canada as a whole.

There are two points that I want to leave with you today: first, the Mackenzie gas project is a vital component of Canada's energy mix; second, the project will provide an economic base for the aboriginal people of the Mackenzie Valley, allowing them to take a big step forward toward economic independence and self-sufficiency.

After a thorough six-year regulatory review, the project now awaits the release of the final step in the regulatory process, and that's the order in council. This is now critical in allowing us to move forward with the detailed engineering and preparatory field work in order to start construction before the expiry of the recently issued NEB certificate in December of 2015.

The first two slides in the handout provide you with an overview of the project. I'll allow you to read those at your leisure.

I'll start on the third slide.

APG is a unique alignment of aboriginal groups in the Mackenzie Valley, not only to support construction of the Mackenzie Valley pipeline but to be a part of it. Our mandate is to maximize the long-term financial return to the aboriginal groups of the Northwest Territories through ownership in the pipeline.

Our shareholders are the Inuvialuit Regional Corporation, the Gwich'in Tribal Council, and the Sahtu Pipeline Trust. The Mackenzie Valley pipeline is owned by APG, the Aboriginal Pipeline Group—we have a one-third share in the project—and our partners at the table are Imperial Oil, ConocoPhillips Canada, Shell Canada, and ExxonMobil Canada. Together they hold the remaining two-thirds.

A question I get asked frequently is whether we need northern gas. The short answer is, “Yes, but not today”. We will need northern gas by the latter part of this decade.

On the supply side of the equation, conventional production in North America is mature, with decline rates approaching 20% per year. In Canada alone, over three billion cubic feet a day of new production must be attached each and every year just to maintain current production, and we haven't been doing that.

On the demand side of the equation, natural gas is the most environmentally preferred of the fossil fuels, with emission rates one-third less than oil and fully one-half less than coal.

The power generation market is the fastest-growing market segment for natural gas. Last year, former minister Prentice announced that there were 33 coal-fired generating plants in Canada that will reach the end of their economic life by the year 2020. If those plants are fueled by natural gas, that will create an incremental demand of 1.2 Bcf/d, exactly equal to the throughput of the Mackenzie Valley pipeline.

The next slide is a chart that shows that even with the addition of shale gas and other unconventional gas, our total production in Canada continues to decline, and will continue to decline through to the year 2020.

Shale gas is an important addition to the supply mix, but is it sustainable? We know there are very high decline rates in the early years, up to 65%; there's a significant amount of water consumption associated with the production of shale gas, typically about 100 times that for a conventional well; and there are some environmental concerns that are cropping up, such as groundwater contamination.

The conclusion reached by Ziff Energy, the company we engaged to undertake a supply-demand study for us, is that shale gas and both northern pipelines will be required to meet the forecast demand requirements by the latter part of this decade.

The next slide shows the overall project schedule for the Mackenzie gas project. We just concluded a rather lengthy regulatory process last December.

We expect to resume our discussions on a fiscal framework with the federal government in the first quarter of this year, following receipt of the actual NEB certificate. That will allow us to restart the project, restaff the engineering team, and proceed with the detailed engineering field programs and about 7,000 site-specific permits. We hope to reach an owner's decision to construct by the year 2013, and the first gas will flow in the year 2018.

This is truly a nation-building project determined to be in the public interest by the National Energy Board. Other nation-building projects have received federal support. Examples include the St. Lawrence Seaway, Hibernia, the original TransCanada Pipeline, and, of course, the Trans-Canada Highway.

The United States government is providing an $18 billion loan guarantee for the Alaska Highway pipeline. There is a possible role for the federal government to offset regulatory costs and infrastructure costs and to provide a guarantee to lower the cost of capital. The cost of capital is the largest single component of the shipping toll.

This project provides huge economic benefits for the Mackenzie Valley, and they're outlined in this particular slide. There will be over 7,000 jobs at the peak of construction. It generates economic independence and self-sufficiency, displacing the present dependence of aboriginal communities on government programs.

The final slide highlights the significant benefits of this project to Canada as a whole, including the creation of over 100,000 jobs right across Canada. This is truly an all-Canadian project that will deliver the clean energy we need in an environmentally responsible manner while creating jobs and economic opportunities for all of Canada.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Reid. Again, those were very helpful presentations for the committee.

We'll go directly to questioning now, starting with Mr. Coderre from the official opposition. You have up to seven minutes.

Go ahead, please.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you, Mr. Chair. Thank you, gentlemen.

These are, of course, very important issues. We're talking about diversity. We're talking about governance. Our role is to put up some recommendations for the future, and I think you are truly an asset to that future report.

Let me ask you first, Dr. Isaacs, a question. I want to talk about three issues. I'd like to talk about governance, I'd like to talk about perception, and I'd like to talk about partnership.

Regarding governance, it seems that there are some holes in the relationship between the federal government and the provincial government, whether it's a perception or not. Whatever the case, we have a role to play. There's a convention that has been signed between Alberta and the Government of Canada. How do you perceive our role? Do you feel that we should get more involved in the monitoring process, and is the environmental assessment sufficient? This is probably one of the key issues. Of course, I'm from Quebec, so by definition I'm respectful of jurisdictions.

I'd like to understand how we can be a counterbalance and be part of the solution for a better quality of life for our people.

[The Chair, Conservative, Leon Benoit]

Go ahead, Dr. Isaacs.

[Dr. Eddy Isaacs]

Thank you very much.

I think it's a very important question. The way I look at it is that the federal government does have a very important role to play. Monitoring is one. The federal scientists are world renowned, some of them, in this whole area, and they can certainly contribute to the overall game plan in terms of monitoring and making sure that we're doing the right things on the environment. We work very closely with the Devon lab of National Resources Canada, as an example. From a scientific basis and in terms of wanting to make the resources more environmentally sustainable, I think that the federal government has a very important role to play, because this is a strategic asset for all of Canada.

I think my perception of the people I work with in the federal government is a very positive one. They are certainly partners in the work we're doing on technology.

[Denis Coderre, Liberal, Bourassa, QC]

Our role would be to have more input into Canadian partnerships regarding R and D and innovation. Our role should be more in science, but on the governance level we switched from Environment Canada to NEB regarding environmental assessments.

If there's a perception problem, it's because some people feel there is a problem with the quality of the air and water, and there is the issue with the fish. We saw pictures. It might be just a perception, but science is important, so do you believe that's the kind of counterbalance role that the federal government should play?

[Dr. Eddy Isaacs]

The federal government needs to be there because of the science it provides and the credibility required to make sure the monitoring is done properly.

[Denis Coderre, Liberal, Bourassa, QC]

What about smart regulations?

[Dr. Eddy Isaacs]

Do you mean in terms of renewable energy or a smart grid?

[Denis Coderre, Liberal, Bourassa, QC]

Yes.

[Dr. Eddy Isaacs]

These things need to happen. My organization has been looking at the whole issue of renewable energy and how to make the connections happen. This is an important aspect for the whole country.

I was a co-chair of the working group for the ministers of energy. In that capacity we looked at smart technologies for renewable energy quite broadly. Everybody was of the opinion that this needs a lot of work, and it is actually one of the things that can be done jointly because it is important for all provinces.

[Denis Coderre, Liberal, Bourassa, QC]

In our partnership with industry, instead of putting in some tax breaks on capital, should we put more emphasis on R and D and green energy? Should that be our relationship with industry regarding technology?

[Dr. Eddy Isaacs]

You can have many relationships with industry, but I think it is important to be able to work with industry to make sure that the right technologies are taking place.

The type of work that needs to be done will require what I'll call next-generation technologies. That takes a long time to bring into the marketplace. Industry is very good at current technology and making it more efficient. They are not good at planning ahead for 20 or 30 years down the road for new generations of technology that are going to be required from an environmental standpoint. Government can play a role in helping us move away from just the incremental to the higher-level, more sustainable technologies.

[Denis Coderre, Liberal, Bourassa, QC]

Science is the key issue that will address the perception problem, but we need more accountability, of course. Do you believe that energy security has to be linked to climate security?

[Dr. Eddy Isaacs]

Yes. When I was speaking about environment, I really meant to include climate change. If I didn't, that's an oversight on my part.

[Denis Coderre, Liberal, Bourassa, QC]

Regarding monitoring, would cap and trade be in order?

[Dr. Eddy Isaacs]

That is beyond my level of understanding, but people have been saying that a carbon tax could be made to work. It's already working in Alberta.

[Denis Coderre, Liberal, Bourassa, QC]

Thank you.

Mr. Reid, inclusiveness is the name of the game, and I think that in a way you proved that. When you say that one-third is owned by the aboriginals, are we talking also about sharing governance? It's a bit philosophical, but one of the main problems we face regarding any energy issues and all that, specifically in your area, is the relationship with the aboriginals. I think first nations deserve to be full partners.

How do you address that issue?

[Robert Reid]

It is important to note that we're an alignment of three aboriginal groups in the Mackenzie Valley. The aboriginal groups actually approached our other partners--Imperial Oil, ConocoPhillips, Shell, and ExxonMobil--prior to an application even being filed for the pipeline project.

The genesis of APG goes back to the 1980s and the settlement of the land claims up there that allowed the aboriginal groups to put a priority on economic development. In January 2000, Chief Harry Deneron called a meeting in Fort Liard of the aboriginal leaders in the Northwest Territories. He declared that if there was another pipeline built in the Mackenzie Valley, the aboriginal people would want to have a part in it. That meeting and subsequent negotiations with our partners led to us having a full one-third partnership in the Mackenzie Valley pipeline.

[The Chair, Conservative, Leon Benoit]

Merci, monsieur Coderre.

Now we'll move to the Bloc Québécois.

Madame Brunelle, you have up to seven minutes.

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

Good afternoon, Mr. Isaacs, and thank you for being here. In your presentation, you said that technology development was costly because it was a 20- to 30-year process to take an idea from the lab to commercialization, and I can understand that. You also said that the government's role was to create the conditions necessary for investment.

What are those conditions? To me, that means you want money. Have you received federal or provincial funding in the past? If so, how much?

[Dr. Eddy Isaacs]

Thank you very much. It's a good question.

You're correct in assuming that we will need a large amount of investment to make sure that we can achieve the goals we set. We are a provincial organization, and all of our funding comes from the provincial government. We do not receive any federal support. We work jointly with the federal government in areas of importance to the federal organizations.

We also support some of the research that goes on in federal labs. We actually have an agreement that we've had for a long time with regard to the National Centre for Upgrading Technology in Devon, to support some of the work they carry out there. They're important for what I'll call the “next-generation” upgrading technologies, looking at conversion technologies that have a footprint that's much less than what it is today.

We also work closely with Natural Resources Canada in other areas, both in Bells Corners and Quebec.