Natural Resources Committee on Feb. 2nd, 2012

[John Quinn]

We already do some chemicals. We have chemical feedstock manufacturing at both Montreal and Sarnia—benzene, toluenes, and xylenes that are feedstocks into other chemical facilities. It's a tough business, chemicals.

We also invested, a few years back, at Montreal. We've got a half interest in ParaChem, which manufactures paraxylene, which again takes partly finished products from our refinery in Montreal and from other sources and moves it into its facility and takes it to yet another level of chemical, which then goes into the manufacture of plastics and things like that.

So, yes, there's always that opportunity, but it's a tough business. It's one we look at pretty cautiously—I think that would be the right word.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

Monsieur Gravelle, you have up to five minutes.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you, Mr. Chair.

Thank you to the witnesses for being here.

My question is for the members of CEP.

When the NEB is evaluating an export pipeline, I would like to know how much consideration is given to domestic jobs and local economic impacts. Should this be an important factor in deciding what we do with our resources?

[Joseph Gargiso]

Currently, there is none.

We've appeared consistently on virtually every project over the last number of years, and jobs are not considered. They are not a criterion. They are not even considered a public interest. It's as simple as that.

I mentioned earlier that the left hand doesn't know what the right hand is doing right now.

Last night I was talking to our representatives in the Chevron refinery in Burnaby, B.C. This refinery refines 60,000 barrels of oil a day. It's a small refinery, very small, but it's only one of two refineries left in B.C. There is a very small Husky refinery up around Prince George that refines about 11,000 barrels—it's small and services the local market. But in the lower mainland of B.C. it's the only refinery left. This March, the refinery will be curtailing production by 20,000 barrels. Why? Lack of feedstock. I thought we had the second largest proven reserves and were the Saudi Arabia of the new world.

Why couldn't they get the 20,000 barrels? Because the National Energy Board gave permission to—I believe the name is Kinder Morgan—the pipeline operator to actually auction off the oil. So they got out-bid by a better offer. I don't know if it was from China or maybe from India. I don't know. The consequence is that that refinery not only is curtailing, but, according to our information, all options are on the table. All options are on the table. In our jargon, that's what Shell said before they shut the refinery down in Montreal.

There you go. Lack of feedstock.

[Keith Newman]

Could I add to that?

You make your options as well. If we don't do lots of upgrading.... We need a lot of upgraders to feed a petrochemical industry. If we don't have the feedstock—and the petrochemical industry, by the way, has been complaining about lack of feedstock for natural gas for a long time because they can't get it; we're shipping it to the United States, again. So here we have potential. If we can do a lot of upgrading of our bitumen, rather than shipping it out diluted—true; if we upgrade it at home, we'll be able to have options of petrochemicals, chemicals.

Of course they're very competitive businesses, naturally. Many business are very competitive.

What does it mean when we say someone else should do it? We'll give them the raw material and they'll do it for us? Well, we don't accept that. We think we should be a mature, high-tech country, with highly skilled workers, and we should be capable of producing these various products that others are producing with our raw materials.

[Claude Gravelle, NDP, Nickel Belt, ON]

As a follow-up to what you've said, if this refinery production is curtailed, how many jobs will Burnaby—Douglas lose?

[Joseph Gargiso]

I don't have those actual figures, but we can forward numbers on direct jobs, indirect jobs, and economic spinoff. But you know, if you just take the proportion....

We did a specific study for Shell, and Shell meant 800 jobs. These were direct in the sense of Shell employees, plus contractors who actually reported to work every day. These were 800 full-time jobs, jobs that paid $80,000 minimum, with the overtime, and lots of people were earning over $100,000. That's in the refinery, not in the office or in management or the engineers.

There were 2,400 indirect jobs. As well, the economic spinoff for the Montreal region was $240 million a year.

So 60,000: take a third of that and I think you have a pretty good picture of what we're talking about, although probably—

[The Chair, Conservative, Leon Benoit]

Yes, Monsieur Gravelle.

[Claude Gravelle, NDP, Nickel Belt, ON]

Could we ask them to forward us the numbers?

[The Chair, Conservative, Leon Benoit]

Sure.

So we'll be looking for the numbers from you—one of the two.

[Claude Gravelle, NDP, Nickel Belt, ON]

Thank you.

[The Chair, Conservative, Leon Benoit]

Mr. Daniel, you have up to five minutes, please.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you very much, Chair.

Thank you to the witnesses.

My background is engineering and technology, so this is more to see what your industry has been doing in terms of changing and improving processes for your plants in terms of efficiency, in terms of process, so that you have improved. I mean, you can see what's happening in the computer industry, in the electronics industry. It's been doubling in performance almost every few years.

What has been happening in your industry with regard to refining?

[John Quinn]

As I think I said in my remarks, we invest hundreds of millions. You can read it in the public record. It's in our annual reports. In our four refineries, every year we invest roughly $600 million.

That's really just to keep the plants well maintained, reliable, and safe. It's also to ensure that we meet regulatory requirements, that we continue to move forward on some of our environmental commitments with regard to energy efficiency on the sites, and to maintain standards at those sites.

But the biggest investment we've made—we've made two of them in recent years, one at Edmonton and one at Sarnia, in the range of billions of dollars—is to adapt those plants to the changes in crude quality that exist here in Canada coming out of the oil sands. Those are massive investments in metallurgy, in hydrocracking and upgrading of those heavier, denser crudes into the same amounts of gasoline and diesel that we would have made out of lighter, sweeter crudes.

I'm not going to go into the oil sands side of the business. I think most of you may be aware of some of the advances we've made there in tailings technology, etc.

If I have another moment, I'll just mention the very other end of our business, our lubricants business, where we sell 350 specialized products. We do a lot of product development work in that area, with patents out on a variety of different products. We're selling our lubricants, the highest-quality lubricants in the world, in 70 countries now. There has been a lot of research and development work inside that arm of our business, to continue to allow it to be competitive and in fact grow, which it has done quite nicely in recent years.

[Joe Daniel, Conservative, Don Valley East, ON]

Thank you.

Anybody else?

[Michael Ervin]

I'm not sure I have a great deal to add other than the fact that over the course of the past several decades, a lot of the investment going into refineries has been in order to comply with increasingly stringent quality demands imposed on the industry. I would argue that the mandated investment has taken away from the ability of refiners to put more capital into growth investment as opposed to compliance investment.

I think that's the real take-away here. There's a need for continued examination of the impacts of the manufacture and consumption of petroleum products, but those initiatives do come at a cost.

[Joe Daniel, Conservative, Don Valley East, ON]

As a follow-up to that, you obviously see the use of these fossil fuels declining over the next little while as electric technology and some of these other technologies come along for vehicles, do you?

[Michael Ervin]

Yes. Particularly in the case of gasoline in North America, there's widespread belief that this will be the case. Globally, of course, demand for crude oil is forecast to grow, but it's very important to state and understand that refinery capacity has always been built, and for good reason, close to the point of demand as opposed to the point of raw material supply.

[John Quinn]

Actually, I want to pick up on that point. I think we touched on it earlier.

It is more difficult to transport refined products across long distances. The amount of handling, product specification, and care and feeding as you go down the supply chain is very critical. It is much easier to move crude oils to where they are needed as opposed to moving refined product. That is the reason why you typically do see refineries built where local demand is. You then have to adapt as you go forward, because demands change and refinery configurations change.

So I really do believe that where refining capacity is needed, it will get built. To try to build it here and move that capacity to where the product demand is would be a very tough challenge and we don't think a very profitable endeavour.

[The Chair, Conservative, Leon Benoit]

Thank you.

Okay, Mr. Gargiso, you can give a short answer.

[Joseph Gargiso]

I would just like to add one point to that discussion.

With Shell, there were refining facilities. I would point out, by the way, that they are not yet dismantled, but are supposed to be this spring. There was also a level of consumption. There was a balance there. Why was Shell allowed to close? Why was that refinery allowed to shut down, whereas Valero had a refinery in the Delaware Bay that was in the same situation? Valero wanted to shut it down, but the government very actively stepped in. It told the company that if it no longer wanted to be in business, someone else would take over the refinery's operations. So it was sold and is currently in operation.

I am saying that we should adopt a strategy on the basis of similar real-life examples. We have a refinery, but a decision was made to close it. Afterwards, we hear all this talk that it would cost $7 billion to build a new refinery, but we had one. And yet in this same environment that is the North American market, others have not shut down. In this case, the fall guy was us.

[Keith Newman]

I would add that—

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Daniel.

Madam Day, you have up to five minutes.

[Anne-Marie Day, NDP, Charlesbourg—Haute-Saint-Charles, QC]

Thank you, Mr. Chair.

I will continue along the same lines since it has to do with economic indicators.

When a company shuts down, GDP drops. In this case, we are talking about a $4-billion drop, not to mention the job losses. In fact, some 38,300 jobs are expected to be lost by 2035. That means an increase in unemployment. What's more, global demand is currently on the rise. Net profits and tax revenues are on the decline because workers no longer pay taxes. And companies no longer pay the royalties. When a business like the Shell refinery closes, the impact is devastating.

In terms of environmental performance, how do Canada's refineries stack up against those of countries such as the U.S., India and China?

[Michael Ervin]

The products that are produced by Canadian and indeed North American refineries have pretty much the highest-quality standards of any products in the world. They are certainly on a par with Europe. If you look at the products sold in other countries, they don't necessarily meet the same specifications in terms of some of those factors that I've already mentioned.

Yes, they are high-quality products, but I will add that many other refineries, being aware of the potential opportunities, are configured to make gasoline of quality that can be and sometimes is sold in North America as well.