Natural Resources Committee on Jan. 31st, 2012

[Mark Corey]

Mr. Chair, I would think we would probably want to get back to you with the details. That would be a very long and detailed answer because there are a large number of projects. Specifically, as you note, there have been some major Chinese investments in recent years in the oil sands. We'll have to get back to you. As I said, it would be a very long and detailed answer.

[The Chair, Conservative, Leon Benoit]

Thank you. We will look for that.

Go ahead.

[Claude Gravelle, NDP, Nickel Belt, ON]

Mr. Boag, can you help us understand who gets what from a barrel of oil sands?

Let's say a barrel of oil costs $100. Who gets what, and how much? Please consider the federal government, provincial governments, municipal governments, upgrading companies, pipeline companies, and refining companies. Can you break down a barrel of oil at $100?

[Peter Boag]

No, I am not able to do that. Certainly, my interest and my knowledge base are specifically in the refining sector. If you want that kind of detailed information starting at the oil sands, royalty rates, and all of those kinds of issues, I'm not the person to be asking. I suggest that perhaps Mr. Corey, in the long run, could do that, or someone from our upstream counterpart association, the Canadian Association of Petroleum Producers, might be able to do that.

[The Chair, Conservative, Leon Benoit]

Mr. Corey, are you or is someone with you able to provide some information on that now?

[Mark Corey]

We are indeed. We do actually publish something, which is a regular publication called Fuel Focus. It actually tracks the price of gasoline and the various component parts. For example, the average price tracked in 2011, according to the numbers I have, was $1.24 per litre, of which 63.8¢ was crude oil, 23.5¢ was refining and marketing costs, 15.7¢ was federal tax—excise and GST—and 21¢ was provincial taxes. That's about it. We can provide the committee with a much more detailed background on the cost of fuel and parts.

[The Chair, Conservative, Leon Benoit]

The question was on the actual barrel of oil, but that's helpful, I'm sure.

[Claude Gravelle, NDP, Nickel Belt, ON]

Can he forward that to the committee?

[The Chair, Conservative, Leon Benoit]

Could you get that information looking at it from the breakdown of a barrel of oil?

[Mark Corey]

That becomes more complex because you will have a number of products coming out of a barrel of oil, but we will see what we can do on that as well, Mr. Chair.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Gravel.

We now go to Mr. McGuinty for up to seven minutes. Go ahead, please.

[David McGuinty, Liberal, Ottawa South, ON]

Thank you, Mr. Chairman.

Gentlemen, I want to go to something that Premier Redford in Alberta has been calling for, for about 90 days or slightly longer now. That is her call for a national energy strategy in this country. I think she has been raising some really important questions around where we're going as a nation with respect to energy.

I'd like to get your responses to that, because this study is all about the current and future state of oil and gas pipelines and refining capacity in Canada. I don't know how you cannot address the question of a more coherent national approach to energy.

I'm not going to get into questions like nuclear or questions like renewables. The government is making choices all the time.

Mr. Corey, you fall back repeatedly on the notion of “free market”, as if the free market for energy in Canada were not fettered. All you have to do is read the Income Tax Act to know that the free market for energy is fettered like every other free market activity in the country.

Governments make choices. For example, the national government is promising loan guarantees for the exploitation of hydro power in eastern Canada. The federal government has declined to meet Ontario halfway with respect to renewables. Those are choices a government makes. That fetters a market.

Can I get your first high-level responses, Mr. Corey and Mr. Boag? Do we need to work coherently, as one country, to look at where we are with energy and where we're going with energy, working with the provinces? Because it's not just Premier Redford who is calling for this. We now have quite a large number of CEOs of fossil fuel companies who are saying, “We just need more certainty and clarity.”

Mr. Boag, perhaps we can start with you.

[Peter Boag]

Thank you for the question.

My unequivocal answer is yes. I mean, certainly a broad-strokes direction or a framework of where Canada is going in energy—and not just on the energy production side but on the energy use and consumption side—is I think something that would be very useful for Canada, going ahead. Energy is an incredibly important part of our country and of our economy. We are among the highest per capita users of energy, and certainly we are a major energy producer. That's for all forms of energy. I'm not just talking about fossil fuels.

So I think some common vision, some common view of where we are going as a nation with respect to energy, recognizing that we have jurisdictional issues in Canada in terms of our federation, and that there is a federal role and there are provincial roles.... It's not about specifying and intruding on the individual prerogatives of provinces or the federal government by one jurisdiction or the other. But clearly, a common understanding, a common vision, and speaking about energy in a common language going forward I think would be something that's very valuable. It's something that certainly my colleagues and I in the oil and gas value chain have been promoting and working on for some time.

A number of years ago, we began an initiative called the energy framework initiative, which was fundamentally about highlighting the need for what we didn't call a “strategy” but a clearer “framework” for energy in Canada. I don't want to get mixed up in the semantics of “strategy” and “framework”, but clearly, some greater degree of clarity and common vision of what is in the national interest of Canada for energy I think would be very useful. It would be very useful to ultimately guide policy, but also to ultimately guide investment decisions so that we have some certainty and some common view of the role that energy will play in our economy and how we can maximize the value of that for all Canadians on a national interest basis.

[The Chair, Conservative, Leon Benoit]

Mr. Corey.

[Mark Corey]

Mr. Chair, it's a very good question.

Our view is that all levels of government have a key role to play in setting energy policies for the country. In fact, last summer, in July, at Kananaskis, federal, provincial, and territorial ministers agreed to collaborate on a number of these issues. The framing was that they said we need a pan-Canadian approach to energy that respects provincial jurisdiction, as resources are within the jurisdiction of the provinces, but it basically acknowledges that all levels, as you say, do have an important role to play.

They set out a number of priorities that we're working on right now among the three levels of government: regulatory reform; energy efficiency; energy information and awareness; markets; international trade; smart grid technology; and electricity reliability.

The thing that I think is a bit different and encouraging is that oftentimes when you look at energy policy, it's all supply side, and this says that there are actually two sides we need to look at. We need to look at both supply and demand. So this looks at the whole energy demand, the energy infrastructure, and as a result, we're getting into things like working collaboratively with the provinces and territories on things like building codes, building standards, and efficiency in transportation systems, a number of things on the demand side that are critical to using energy better, as well as things on the supply side. So it's a balanced approach.

We'll be coming back to this at the next federal-provincial-territorial meeting in Charlottetown in September. There will be an update at that point. That's where ministers will look at it and say, “What's the next step?”

[David McGuinty, Liberal, Ottawa South, ON]

Mr. Corey, I'm glad you raised the Kananaskis meeting. I followed it closely and was very encouraged by the fact that we actually had a federal-provincial meeting on any front, particularly on energy, but what disappointed me—and it leads to my next question—is this: is it possible to have in Canada a national energy policy or strategy or framework, some sort of coherent approach, without addressing greenhouse gases?

In all the presentations we heard this morning, not a single intervenor used the words “greenhouse gases”. When the Alberta Minister of Energy was interviewed after the Kananaskis meeting, the minister said it was not a place to talk about greenhouse gases. For most Canadians, who understand that 86% of greenhouse gases in Canada come from digging up, transforming, and consuming fossil fuels, that is a hard thing to understand.

If we are working and aspiring toward a national energy strategy, would you agree, Mr. Corey and Mr. Boag, that in the list of items you mentioned, Mr. Corey, wherein federal-provincial cooperation is occurring, one of the top three items might be how we are going to deal with the government's face-value commitment to reducing emissions by 17% from 2006 levels in the next eight years, by 2020?

Mr. Boag, can we start with you?

[The Chair, Conservative, Leon Benoit]

I will ask you for very short answers. Mr. McGuinty's time is up.

[Peter Boag]

Again, an answer would be, “Absolutely”. When we talk about an energy strategy, the environmental impacts of energy consumption and production need to be part of that strategy.

Certainly, when I go back to the early days of the work that I and my oil and gas value chain colleagues did on the energy framework initiative, it was founded on a base of sustainable development in the classic, true sense of the Brundtland Commission in terms of economic sustainability, social sustainability, and environmental sustainability. You can't have an energy strategy, in my view, that doesn't deal with the environmental aspects of energy consumption and production.

[The Chair, Conservative, Leon Benoit]

Would you comment, Mr. Corey?

[Mark Corey]

Mr. Chair, as was mentioned, the government does have a target. It is to reduce to 17% below 2005 levels by 2020. Environment Canada is, of course, the lead on the specific strategy itself.

A number of things have happened. The principal consideration is to harmonize with the U.S., because we have such a strong trading relationship. In synchronization with the U.S., light-duty and heavy-duty vehicle emissions have been looked at. They are in the process of looking at coal-fired electricity.

In Canada we have a very clean electricity system, with 75% of our electricity coming from non-GHG-emitting sources, principally hydro and nuclear. In the U.S. it is much more largely coal-based, so working with the U.S. to reduce that will have a bigger impact on GHGs than most other things.

The demand side is really where we can have an effect on GHG reduction. We just recently renewed our suite of energy efficiency programs. When we evaluated the old ones, we were looking at the tonnes of GHGs that the various initiatives were reducing; we're looking at the same for the new suite of programs. It's an important consideration, particularly when we look at the programs on the demand side.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. McGuinty, and thank you, gentlemen, for your answers.

Mr. Anderson, go ahead for up to seven minutes, please.

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

Mr. Chair, maybe I should make an observation that is more personal. I hope it reflects the policy of the government.

The government obviously has a role in energy and in federal-provincial relationships, but the market seems to have been operating fairly well in Canada since the 1980s. It serves most provinces, most areas, and most sectors well. The last time the government got involved excessively in the energy sector, it almost destroyed the entire industry and our country, so we need to be aware of that.

You talked about semantics this morning, but it's obvious that when people talk, they are working around the words “national energy policy” or “national energy program”, as Mr. McGuinty mentioned, for a reason. Those of us from western Canada are still sensitive to that, and we need to remember we are a long way from there right now.

I'd like to talk a little bit about the refining capacity in Canada. You talked about these super refineries being set up in other parts of the world. I'd like to ask you about what happens when one of our refineries is shut down. We only have nine now. There seems to be consolidation, and last summer in western Canada we had some issues with diesel supply and petroleum supply. I'd like to talk a little bit about that. We only have 15 or 18 refineries left, so are we consolidated too much already in Canada? We have issues as soon as we have a problem with one of those refineries.

[Peter Boag]

I would say no. I think consolidation, and continuing to seek efficiency gains, has been a huge part of maintaining a viable and competitive refining sector in Canada.

Yes, we have had some issues over the last year or so with diesel shortages from time to time. The diesel market in western Canada is very tight right now; however, that situation is going to ease over the next several years, with new capacity coming on line in a number of upgraders that are scheduled to be built in Canada, and one of the products and outputs from those refineries is going to be distillate or diesel. I think the capacity expansion in western Canada around those new upgraders that are being built is in the order of 200,000 to 300,000 barrels of diesel a day that will become available on stream in Alberta.

I think we're seeing a temporary situation right now, and that's again reflected in that when you build a refinery, it's built around a certain demand profile of percentage of diesel, percentage of gasoline. Our refineries have traditionally been built to emphasize gasoline over diesel. As markets evolve, there is some work you can do in terms of changing that percentage of gasoline to diesel, but the amount you can change that is not unlimited.

So we're seeing market changes, obviously because of industrial development, principally in the oil and gas sector in Alberta. There are higher demands from diesel than we've ever seen before, and that is causing some local tightness in the market, but that tightness is going to ease over time as new capacity comes on line in these new upgraders, which will be producing diesel in addition to synthetic crude.

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

You mentioned earlier and you mention now that we're going to be increasing and upgrading in western Canada. I'm just wondering, in terms of projections, what percentage of bitumen do we expect will be upgraded in western Canada? What percentage will be processed into final product? Pick whatever time period you want, but in 10 years or 20 years, do you know—

[Peter Boag]

Again, I don't have those exact figures at hand, and I certainly have to confer with my upstream colleagues to get a better handle on the specifics of bitumen production rates over the coming years and the actual capacity of some of those upgraders.

I think Mr. Corey mentioned that the goal of Alberta is that they would be upgrading two-thirds of their bitumen in Alberta.

I forget, Mark, what time period you said that was in.