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Evidence of meeting #23 for Natural Resources in the 41st Parliament, 1st Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was refineries.

A recording is available from Parliament.

On the agenda

MPs speaking

Also speaking

John Quinn  General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.
Michael Ervin  Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group
Keith Newman  Director of Research, Communications, Energy and Paperworkers Union of Canada
Joseph Gargiso  Administrative Vice-President, Quebec, Communications, Energy and Paperworkers Union of Canada

February 2nd, 2012 / 9:55 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Thank you.

Well, I am going to follow up with just one question on that. You would say, then, that Canada does have a secure supply of energy. Or would you say that?

9:55 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Yes, absolutely.

9:55 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Okay. Our other witnesses did not seem to be saying that.

I want to follow up on something Mr. Ervin said.

You talked about the super refineries being built in India. I think you said something to the effect that they can refine to gasoline standards and could possibly ship that around the world. Is that a fair statement?

9:55 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

Yes, indeed.

9:55 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

What I'm wondering then is why we can't export finished product. We've heard that we're operating at 83%. If we were to go to 100%, why couldn't we be shipping that finished product around the world as well? Is that an issue of price, or what comes into play there?

9:55 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

It really does come down to price. In the past I would have referred to gasoline and diesel as being regional in terms of market nature, but over the last decade it really has become a global market, much in the same way that crude has always been a global market.

You have to be able to compete on price. For instance, as has been the case for many years, Europe is long on gasoline; they have a surplus of gasoline production. They ship to the United States, and they typically have done that for decades during the high-demand summer periods because the European market would be soft for gasoline and there would already be a demand in North America for that product. So for Canada to export—

9:55 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Are we incapable of doing that or is the demand not there at the present time?

9:55 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

Certainly the capacity of refineries in North America was not sufficient to export until 2008. As some testimony here has illuminated, the U.S. has become an exporter of petroleum products as a result of that excess capacity.

The fact is that with low crack spreads that excess capacity is going to dry up. The low crack spreads will simply not sustain some of the smaller, less efficient refineries. That will shrink capacity over time down to a sustainable level, so the export opportunity with it will decline as well.

9:55 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

My question is why is it there for India and not for us? It seems that we—

9:55 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Let me try to take a slightly different approach to that. In India you can build a million-barrel-a-day refinery, which they're doing today. They have a local market that supports that refinery. There are profits from that local market—it's close by. So they build the profitability base in that plant off their local market. They'll scale that plant to their local market.

They can take an increment of a million-barrel-a-day plant, with the economies of scale that go along with that. In a region that has warm weather operations there is a lower cost of operation at that facility, and I'm sure there are lower wage rates in those plants and that it is generally an easier regulatory environment. Although they could tailor a product for Canada and North America, all the product they're making isn't necessarily to that standard.

Those things in combination allow them to carve out a portion of that refinery or take an incremental expansion that they can move a lot more cheaply to market. Frankly, they can take a little bit less profit on that piece but still some profit.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Even though we already have—

10 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

We don't have the local market.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Even though we already have the infrastructure in place?

10 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Well, we wouldn't have infrastructure in place for a million-barrel-a-day refinery, that's for sure.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

But we do now for a 15% capacity of.... Anyway, I'll move on to something else.

I was interested when you said there is a long-term prediction of reduction in gasoline demand. Have those predictions been accurate, the predictions that were made for five and ten years hence? Have you been able to predict the future accurately in the past? Leading from that I'm going to talk a little bit about the future, but were the predictions that were made a few years ago accurate?

10 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Well, I wish I could predict the future accurately because I probably wouldn't be sitting here today.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Exactly. But did you predict it accurately in the past?

10 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

I think the right answer is that it's tough. I mean, it moves around. We've been through a recession in the last few years, so the numbers move around.

We do see very much a flattening of gasoline demand. The thing that is really going to drive it to the next step is the coming fuel efficiency standards for automobiles in the United States. We know that's coming. That will be the trigger—

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

That was my next question. What is contributing to that? Is it other sources of energy coming online, or is it an actual decline in use or a decline in economic activity in North America?

10 a.m.

General Manager, Integration and Planning, Refining and Marketing, Suncor Energy Inc.

John Quinn

Of course, recently there has been a decline in economic activity and it has had a hit. We were starting to see some erosion in gasoline this year versus even a year ago, but fuel efficiency standards will really drive this as we go forward.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Does anyone else have—

10 a.m.

Vice-President, Director of Consulting Services, MJ Ervin and Associates, The Kent Group

Michael Ervin

Well, certainly the advent of the renewable fuel standards displacing about 10% of gasoline production in the United States and somewhere between 5% and 8% of gasoline production in Canada is one factor. That is kind of a one-time thing.

In terms of ongoing future trends, automotive technologies, as Mr. Quinn mentioned, certainly.... In addition to that, there are consumer preferences. The demographics are going to lead to changes in consumer patterns. People will be driving smaller, more fuel-efficient cars and will probably not need SUVs and minivans to such a great degree. Again, it's due to demographics. We're shifting towards an older population who are not taking five-year-olds to soccer games anymore, for example.

10 a.m.

Conservative

David Anderson Conservative Cypress Hills—Grasslands, SK

Thank you. I have one more—

10 a.m.

Conservative

The Chair Conservative Leon Benoit

Thank you, Mr. Anderson. Your time is up.

We go now to Monsieur Lapointe for up to five minutes. Anyone who doesn't understand French should set their earpiece to English.

Go ahead, Monsieur Lapointe.

10 a.m.

NDP

François Lapointe NDP Montmagny—L'Islet—Kamouraska—Rivière-du-Loup, QC

Thank you, Mr. Chair.

The current government talks a lot about security. Anyone who questions a pipeline's pathway is even accused of going against the country's economic security.

I have a bit of a problem this morning. I am learning that eastern Canada has no real energy security. I do not think it is any more important to worry about western Canada's economic security than it is to worry about the possibility of hundreds of thousands of Quebeckers or Maritimers one day having no heat in the winter.

I am also learning that there may be an energy security plan that would make it possible, for instance, for a tanker to go through the Panama Canal to help us out if Africa ever had a problem that was too big. Can we really call that an energy security plan for eastern Canada?

Mr. Newman, what do you think?