Natural Resources Committee on April 18th, 2013

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

Thank you.

Again as part of my learning, on page 11 you have the pipelines and there's that little bit of pipeline from Portland to Montreal. I was wondering if you could explain to me what that is. Is that built or is it proposed and what does it do?

[Jeff Labonté]

That is an existing pipeline, the Portland-Montreal pipeline, that serves the Suncor refinery in Montreal. It is in use today and has been, I think, since the 1940s. I think at their last look, about 130,000 barrels a day arrives in Portland from foreign sources and is piped to Montreal and serves the Suncor refinery.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

In looking west to east, if we talk about that coming into being, is there any possibility that some of the refined product could end up going to ports in the United States in future projections or is it going to just be consumed in eastern Canada or will there be an export market going out?

[Jeff Labonté]

That's a good question. Actually, today Canada exports more from its refineries than it consumes, so we are already net exporters. A little over 400,000 barrels a day of exported product leaves Canada and goes to, predominantly, the United States in gasoline and diesel. Much of that comes from eastern Canadian refineries.

There are also some imports that come in, so there is an active trade, mostly in central Ontario and Quebec, between Canada and the United States, but in net terms, more leaves than comes into Canada.

[Marc Garneau, Liberal, Westmount—Ville-Marie, QC]

I have one last question on “MT per year”. “MT” is million tonnes? Is that what it is?

[Jeff Labonté]

It's megatonnes.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Garneau.

We go now to Mr. Trost to start the five-minute rounds, followed by Mr. Calkins and Mr. Nicholls.

Go ahead, please, Mr. Trost.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Thank you, Mr. Chair.

Looking at some of these projections going forward—and here again, commodity prices change frequently—one of the things that struck me was how important the timeliness of the infrastructure would be. I'm sure Calgary and Toronto are not the only places in the world where people are saying, “The price for natural gas in Asia is pretty high. How can I sell into that market with some LNG?” What is the importance of the timeliness of getting the ports, the pipelines, etc., in place? If we don't get the infrastructure in place in time, will someone else take the market before we do? Will Qatar, will the Russians, will the Australians, take your pick, get there first? Will someone else get there before we do?

So I have two questions: What's the importance of being timely on the infrastructure, and who are our competitors, if there are any, who may get to those markets before we do and get the advantage of being first in play?

[Jeff Labonté]

Those are good questions. You've rhymed off all of the competitors to Canada: Qatar, Australia, Russia. The United States is a competitor as well. All of those countries, with the exception of Canada and the United States, are already LNG-producing countries and sell into the Asian market and into markets in Europe. The projections for growth of LNG are fairly substantive going into 2020 and out to 2035. I think calling it a race probably trivializes it a bit, but there is certainly an important timeliness component to capturing the LNG markets.

Today, there are, as I mentioned, six projects in Canada. There are 18 in the United States. Australia has, I think, seven that are under way, and Qatar is looking at doubling its capacity. So there are a growing number of countries doing the work that needs to be done to create the opportunity to sell into the growing markets in Asia for liquefied natural gas.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So if we don't have our ducks in order here, will we end up missing out on the markets? If all of a sudden we don't get pipelines built in time, will gas producers start to say, well, I'm not going to do drilling in the prairies any more, I'm going to go somewhere else because that will be better?

Or is this just one of those things where we'll lose out in the one- or two-year delay and then we'll get in the market one or two years later?

[Jeff Labonté]

If I could rely on the IEA as an example, that might help answer the question.

The IEA's projection for North America, where we have about 24 projects on the plate, is that I think three or four will be built. If those three are in the United States—that fact I can come back to you on—then clearly there won't be any in Canada.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

So there is a strong timeliness, an urgency—

[Jeff Labonté]

There is a strong timeliness component. There are two components to this that I think are pretty obvious. One is that many of the relationships between producers of LNG and buyers are long term. Typically people are trying to sign 10- or 20-year contracts. So if you're locked into the contract that you have with a particular producer, you're less likely to be able to buy from anybody else.

Second, the capital investment needed for these projects is extremely high, and it's extensive. One doesn't invest $10 billion or $20 billion into a project without having strong foresight in terms of the future and having that contractual commitment.

In doing so, we need to have the resource, which we have. We need to have the system of regulation. We need to have the leasing. We need to have the pipelines. We need to have the companies that do the drilling. We need to have the approvals to move forward. We have to do the environmental permitting. Then you need to kind of build the facilities and ship.

[Bradley Trost, Conservative, Saskatoon—Humboldt, SK]

Okay.

I have about one minute left to go. Since I'm from Saskatchewan, I have to ask the uranium question.

In the 40-some seconds we have left, could you give a brief description of what the challenges and opportunities are for Canadian uranium exporting? You can refer to some of the agreements we have.

Just broadly, what do we need to do to open up markets for our uranium?

[Dave McCauley, Director, Uranium and Radioactive Waste Division, Electricity Resources Branch, Energy Sector, Department of Natural Resources]

Certainly.

We're quite diversified in terms of our uranium exports already. Cameco, which is the largest Canadian uranium producer in Canada, ships roughly a third of its uranium to the Americas, so to North America and South America, with another third to Asia and another third to Europe. We're quite diversified.

I'd say the limiting factor in terms of uranium exports relates to non-proliferation. It's very important that before anybody exports uranium to another country we have a nuclear cooperation agreement in place that ensures us that the facilities to which we export uranium or any nuclear material are safeguarded by the International Atomic Energy Agency.

So it's getting those agreements in place that is a limiting factor, but it's also important from a non-proliferation perspective as well. Recently the government established agreements with both China and India to get further access to those markets. In terms of China in particular, that will open up opportunities for enhanced exports of uranium to China.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Mr. Trost.

Mr. Calkins, you have up to five minutes. Go ahead, please.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Mr. Chair.

I'd like to move the line of questioning, Mr. Labonté, to your slide presentation. One of your last slides, slide 14, says, “Canada’s market-based energy framework permits companies to make business decisions on where new energy infrastructure is required”.

It's been suggested by some in the House of Commons that perhaps the government should be more involved in directing and moving away from a market-based energy framework by requiring or forcing value-added...or under the guise of value-added, but it would simply be government intervention in that market-based economy in deciding where that would happen, and would put in place policies that would force infrastructure to be created that might not necessarily be created by a free and market-based economy.

What would that do insofar as affecting the price of the end product? What would it do in terms of safety? I don't know anybody who ships gasoline through a pipeline. I don't know anybody who ships gasoline in a tanker. I don't know anybody who does that. Crude oil itself is pretty inert. Synthetic crude oil is pretty inert.

Can you elaborate on what the effects of meddling too much in a market-based economy would do for the consumer and for the safety of the workers who work in the energy sector?

[Jeff Labonté]

Okay, I'll try to take that one on.

I'm not sure about the House of Commons debates about.... But certainly, Canada's approach has been market-based. Typically, we have to respect the constitutional arrangements in Canada in which the provinces are the primary regulators of oil and gas development. So the ability of the federal government to intervene and impose particular activities has its limitations.

I think our experience with the energy sector has been that the market-based approach has served the country well. It responds to the nature of capital and to the nature of demand and supply and certainly has benefited greatly. My understanding and my relationship, since I have worked in the energy domain for some years, is that a number of the companies that operate here are global companies.

So the degree to which the government intervenes and dictates or suggests how things should or shouldn't happen tends to influence the investment decisions that are made. Since we are open and are certainly a country that accepts foreign investment, that investment competes globally. So whether it's Shell, Statoil, Exxon Mobil, Chevron, or whoever is active, the dollars they invest in Canada could be invested in the United States or India or Nigeria, or anywhere else around the world. So the degree to which those decisions are made or influenced, I think, is important, and having a market-based approach allows those decisions to occur.

With respect to the safety, I don't know if I can really comment as to whether it would be more or less. But there are pipelines that are built and that do ship gasoline, diesel, and finished products. We see that and we see tanker movements, rail movements, and truck movements, and certainly those exist today, though I can't comment to what degree. But crude oil is relatively inert when it's shipped, so that is an accurate statement.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Typically, it's shipped as crude to the point where it's processed, and it's processed closest to where it's used and consumed. That's the way the marketplace is set up. I understand that.

As an Alberta MP, of course, I'm greatly concerned about the price differential when it comes to energy products. I'm very concerned about being able to diversify the market access for those products. With regard to pipelines, I maintain that building pipelines from my province with capacity to the east is good, to the south is great, and to the west is best in terms of our getting the best price we can for the companies that work in my province and for the citizens that I represent and the royalty regime that would benefit not only Albertans but all Canadians.

So I'm a little concerned about being able to have that market diversification. We've had significant feigned complaints today—and I'm being political here—about Canada's current situation with trade deficits. We know that trade deficits are a bit of a misnomer, because it wasn't all that long ago that we were in a multibillion-dollar trade surplus situation—in 2012—so these things oscillate as economies go.

Canada's economy is incredibly strong. We see that stronger economies are in trade deficits, because we have more buying power than do the countries that typically buy our products. But that not withstanding, how would you juxtapose a situation in which you would block a pipeline or support a tanker ban on tankers off the west coast and yet complain about a trade deficit? It seems like a bit of an odd juxtaposition to me.

But would a pipeline to the west coast that would allow energy products off the west coast improve Canada's trade deficit situation?

[The Chair, Conservative, Leon Benoit]

Mr. Labonté, could we have a very short answer, please?

[Jeff Labonté]

Okay.

Well, reaching tidewater, whether on the west coast or in the St. Lawrence Seaway, would improve the ability of producers to get higher returns for the crude oil products. That would improve our trade numbers; and certainly the trade numbers change, depending on the nature of the economy, so whether that's next year or the year after, those are the facts.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Calkins.

We go now to Mr. Nicholls followed by Mr. Allen and Monsieur Gravelle.

Go ahead, please, Mr. Nicholls, for up to five minutes.

[Jamie Nicholls, NDP, Vaudreuil—Soulanges, QC]

Thank you, Mr. Chairman.

I want to start by clarifying a point brought up earlier about equalization payments. Equalization payments technically don't involve wealthy provinces making payments to poor provinces. Money is collected and distributed through the federal treasury, but, for instance, Mr. Allen, who lives in New Brunswick, which is a have-not province, pays more in equalization payments than does a temporary foreign worker working at Tim Hortons in Fort McMurray, Alberta, which is a “have” province. It's a complex formula, and you can't just say that it's one province paying it to another. Everyone pays into equalization if they're making a certain amount of income in this country, so let's not simplify that debate.

The same thing goes with gas prices. Gas prices are complex. I talked to the people at the Suncor refinery and asked the same question that Ms. Crockatt asked, which was if we bring product to the east, will people in my riding get cheaper gas? The answer was a flat-out no.

They said the price was set in New York. I have question marks about how gas prices are set. I'm still not clear on it, but I got the answer from Suncor, which is going to be the beneficiary of this project and the differential between WCS and Brent.

My question is on the integrated trade support fund. My colleague, Mr. Julian, was asking about that. Could you tell me what the value of that fund is?

[Jeff Labonté]

I can't, but my colleague from DFAIT could.

[Carolyn Knobel]

If I can take a step back to clarify it, that the fund is to go to posts, our embassies abroad. It's a competitive-based fund. They apply, describing the initiatives they want to support in their markets. It is then compared against sector strategies, which are prepared in the bureau, and they have to align with those. It's a competitive process.

The amounts depend on the sector. I'll have to get back to you, but the fund in its entirety, the ITSF, is in the range of $3 million annually, I believe.