Natural Resources Committee on April 23rd, 2013

[Philip Cross]

I think there's one thing, and I haven't heard it discussed much in today's committee meeting, and it's the opportunity for arbitrage in natural gas. We touched on it at the beginning that historically, prices have always been much higher in Europe and Asia, especially in Asia these days with Japan closing its nuclear plants. They have a desperate need for natural gas. It would seem to be quite an opportunity there with prices relatively low in North America. If we could get that to liquefied natural gas facilities on the west coast and get it over to Asian markets, that would seem to be a much more promising and much longer-standing price differential. It has persisted for decades, as opposed to the very temporary differential we've seen in oil. That would be one idea.

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

We have had other witnesses on other days....

My final question is to the Montreal Economic Institute. Quebec—and other regions of the country for that matter, but Quebec is where we think of first—exports a considerable amount of hydroelectricity. If we do diversification, if products through free market and other regulatory changes start to come into Quebec, other energy products like oil and so forth, does Quebec have the potential to increase its hydro exports through displacement? Does it have the potential to diversity its exports? How would an enhanced oil industry affect other natural resource energy industries in Quebec? For that matter, it could include other provinces, but I ask about Quebec because of your expertise.

[Germain Belzile]

In Quebec we use a lot of hydroelectricity. In fact, we heat our homes with it and it's not very efficient. What would be much better would be to heat our homes with natural gas and to export electricity to other places where they produce electricity with coal or whatever. I believe that if we had better access to natural gas we could use our resources better and maybe export more electricity. It's quite a possibility, but it's not something for the short run.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Trost.

Ms. Liu, go ahead.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair.

This has been a very interesting discussion. We briefly talked about public consultation and the National Energy Board's process. Ms. Crockatt mentioned this in her questions. We know that the Conservative government has sabotaged the process. I am a Quebec MP from the north shore, in the Montreal region, and my constituents are telling me that we need a strong and real consultation process, instead of just information sessions provided by oil companies. That's what I hear when I go door-to-door in my riding.

My first question is for Mr. Stanford.

Recently in the House of Commons, we spent a lot of time discussing the purchase of Nexen by CNOOC. This is a fairly important issue. The government and a number of stakeholders claimed that the government needed those foreign investments to realize its energy potential. However, you are rejecting that claim outright. Could you explain your talking point to us?

[Jim Stanford]

Thank you.

In answering the question, Mr. Chair, I'd like to just clarify something for the record in regard to Mr. Trost's first question in the last round, where he asked Mr. Cross about the issue of building more refineries or not, and whether we should build more refineries.

I want to clarify for the record that neither Mr. Wilson nor I have suggested that we should build more refineries. Our proposals were about ensuring that Canadian petroleum production was used in existing Canadian refineries.

I think a different implication was left by the question, and I just wanted to clarify that for the record.

[Fred Wilson]

More upgraders.

[Jim Stanford]

Upgraders are required in part to transport the production to the Canadian refineries.

On the issue of whether foreign capital is needed to develop our petroleum resources, I don't think it is. Foreign capital can be thought of in a real sense or in a financial sense.

In a real sense, it would be involving the foreign company bringing actual equipment or proprietary technology of some sort to the operation that would enhance our capacity as a country to produce the product in question. In our case, in fact, Canada has the technological advantage. One of the reasons CNOOC wanted to purchase Nexen was indeed for its proprietary technology.

In the sense of acquiring actual money, if you like, purchasing power or credit, in order to finance the undertaking, we've heard over and over again that Canada's financial system, our banking system, is very strong, and would indeed be capable of supplying the overall industry, to the extent that we wanted to expand its production, with the capital that was required.

Relying on foreign investment to develop staples, export-oriented projects, includes a number of downsides, if you like, including obviously the foreign control over the direct decisions that are being made and the extraction of dividends and profits on that capital and being repatriated to foreign owners. In fact the net outflow of interest and dividends is one of the reasons Canada has a very serious current account deficit today.

Once we decide how much of that resource we want to develop, and how fast, I don't.... I haven't seen a case where we are dependent on foreign companies in order to do it.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you.

I would also like to follow up on a point you raised in your presentation. You said that manufacturing input has declined despite the increased development of oil sands. Could you give us more information about that? If you have any statistics or additional information, we would like you to send them to the committee.

[Jim Stanford]

Thank you.

Well, the claim is often made that manufacturers in other parts of Canada have benefited from the oil sands development because of the inputs they sell to those projects. Now, certainly there are manufacturers who sell to those projects; that's without doubt. But the amount purchased by Alberta of manufactures made elsewhere in Canada has in fact declined to the extent that we have data.

It's unfortunate that our interprovincial data on trade—Mr. Cross could comment on this as well—are actually out of date. We receive annual data on interprovincial trade through our input-output program, as compared with the monthly data on international trade that we receive on our transactions with other countries.

Up to 2009—this is the most recent data we have—exports of manufactured goods from Ontario, Quebec, and other manufacturing regions outside of Alberta to Alberta were declining in absolute terms, and declining very sharply as a share of Alberta's purchases of manufactured goods.

There has not been a boom to the rest of Canada's manufacturing sector from the expansion of oil sands investment. In fact, in part because of the exchange rate, manufacturers everywhere in Canada, including Alberta, have seen a decline in their market. That's why manufacturing output and employment in Alberta also declined, despite the boom being right there.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Liu.

We go now to Mr. Leef, for up to five minutes.

[Ryan Leef, Conservative, Yukon, YT]

Thank you, Mr. Chair.

Thank you to all our witnesses.

Mr. Cross, I want to ask you a question.

I think your point that maximizing the price for resources should be the end goal, and not necessarily diversification, resonates with everyone here.

We had a presentation last week from Natural Resources Canada that talked about the supply and pipeline capacity issue. They're forecasting that at our rates of growth the supply for pipeline capacity would be exceeded by 2015. The graph we have shows that if you don't add a Keystone-type pipeline by 2015-16 through to 2020, then we'd have the product but there would be no way to ship it. If we added the Keystone pipeline, then by 2018, with the rate of growth, we would move outside of its capacity and move well into the depth of the Gateway pipeline, if that were to be developed.

The interesting characterization made in that testimony was that there are only going to be one or two projects to supply oil to market and that if we don't get in on that game, we will lose out. That is how it was characterized.

I appreciate your point that jobs shouldn't be the only measure of importance. But I would like you to comment on what impact we would face in terms of jobs and opportunity for the Canadian economy and the Canadian people, the spin-off or peripheral benefits of these sorts of things, and the social and environmental benefits from our investment when we have that kind of growth, if we were to lose out on any one of our pipeline options. What if they all went to the United States, or completely different options were explored, because we missed that opportunity?

[Philip Cross]

I don't think it's just a matter of accessing the U.S. market. A lot of it is the geography within the U.S. market. If we were accessing the northeastern U.S. or the gulf coast or the U.S. west coast, that would be a different situation. The problem is that all that oil is being stranded in one place, in the midwestern U.S., which is what's depressing the price.

I find it interesting that this differential has just opened up over the last couple of years. It's a completely new phenomenon, and yet it's spurred.... I've heard ideas about putting in a pipeline through the west coast; running one up through Alaska and accessing the west coast; that if B.C. is going to be difficult, there's the idea of running something up the Churchill. We're now talking about converting one of the gas pipelines to eastern Canada, and of course increasing our flow to the south.

We're basically looking in every direction because there's a lot of money on the table. This morning I calculated that if our export price had increased at the same rate as our import price of oil, we would have picked up $8.5 billion in 2012. That's the best estimate I can come up with on how much money has been left on the table because of this.

If you throw $8.5 billion on the table, you're going to get a lot of ideas, but I suspect that because there's so much money involved, you just need one or two of these projects to go through and that will eliminate this unusual differential.

[Ryan Leef, Conservative, Yukon, YT]

Depending on which of the one or two of the projects are feasible and get to the table first, the others will be left out.

The other explanation we heard is that energy contracts, as an example, tend to be very long term because of the infrastructure cost. Therefore, the seller and the purchaser are going to make long-term agreements, which doesn't necessarily lend itself to inviting alternative energy sources or creative energy solutions.

How would you characterize that? We're seeing a bit of an energy race in that market right now, to try to be the first viable option on the table.

[Philip Cross]

Very much so. I couldn't agree more.

At most, one or two of these six or seven big ideas are going to go forward. There is not enough to fill all of these pipelines.

[The Chair, Conservative, Leon Benoit]

Thank you.

Now to Mr. Thibeault, for up to five minutes.

[Glenn Thibeault, NDP, Sudbury, ON]

Thank you, Mr. Chair, and thank you to the witnesses for being here today.

I'll start with Mr. Stanford. I'm an avid reader of The Progressive Economics Forum. I'm very intrigued by one of your papers that came out less than a year ago, called “Energy McCarthyism”. Some of your paper is very interesting. It reads:

Opposing a bitumen-exporting pipeline in Canada these days makes you a foreign-financed subversive. And it seems that questioning the economic effects of the bitumen export strategy makes you equally seditious. I call this “energy McCarthyism,” and it should be rejected forcefully not just by those concerned with Canada’s deindustrialization and staples dependency, but by those worried about the quality of our democracy.

I think that's very important, and it leads to a very important graph that we should get your feedback on. The graph shows that in the last decade, Canadian petroleum exports grew by close to two percentage points of GDP, which is fairly impressive. But Canada's exports of everything else—manufacturing, services, tourism, the things that we're talking about, value-added—declined by several times as much. As you outline here, the two offsetting trends are not unrelated. You say:

No wonder Canada is mired in a large, chronic international payments deficit, even as we scrape the stuff out of the ground faster than ever.

Can you elaborate a little more on the decline by several times as much by the manufacturing, services, and tourism sectors, and would you be able to provide this graph and more information on that to this committee?

[Jim Stanford]

Certainly, sir, I could provide the graph and the sources for the data, which came from Industry Canada and from Statistics Canada. It is in a way interesting and ironic that Canada's exports have declined so dramatically as a share of our GDP over the last decade, which is precisely the timetable during which our exports of unprocessed or barely processed petroleum products expanded so dramatically. We are exporting more petroleum. Petroleum exports as a share of our GDP have increased by about two percentage points, as I mentioned.

But the decline in exports of virtually everything else that we produce, other forms of merchandise.... Tradable services, as I mentioned, have declined as a share of GDP. Our tourism has declined dramatically as a share of our GDP. Those outweigh the increase in our exports of petroleum by a ratio of about 6:1. The overall net impact on our trade performance has been very negative. We are one of the few countries in the world that export less as a share of our GDP than we did 10 years ago. This seems to go counter to the idea that we're living in a more globalized economy.

The impact is that we have shifted a larger proportion of our work and capital inputs from tradable sectors to non-tradable sectors, in particular private services, but to some extent public services, which have been less affected by the impact of the resource boom on the currency. We have more production and employment in sectors where Canadians are producing for other Canadians, which isn't all bad, but there are implications of that for our productivity performance and for our trade balance. Our exports have declined; our imports have not declined proportionately, and in the course of exporting all of these non-renewable resources, we've actually seen our trade balance and our current account balance deteriorate dramatically. Canada's current account deficit today is about 4% of GDP. That's a very large and worrisome trade current account imbalance. It contributes to growing international indebtedness by Canada and is something that reflects the deindustrialization that is an unintended side effect of the resource boom.

[Glenn Thibeault, NDP, Sudbury, ON]

I've heard that we need to be adding more value both upstream and downstream. In relation to that, in your opinion, is adding value building a pipeline or is it expanding our manufacturing base, looking at the green economy, enhancing our services?

[Jim Stanford]

I think there is value to be added in resource sectors. In that regard the services, the green economy, and so on are also important priorities for our economic strategy, but given that we are going to continue to produce resources, my point is that we should add as much value upstream and downstream as possible. Let me give you as an example the machinery and equipment used in the petroleum sector. They use these enormous trucks and all kinds of capital equipment and so on. Very little of it is made in Canada. You have a company like Caterpillar that sells billions of dollars' worth of equipment to these mining projects in northern Alberta, but recently shut its only Canadian manufacturing facility.

We actually are capable of producing that type of equipment in Canada, but it's going to take active policy to connect the dots and make sure we're doing it. If we just leave it to the short-term private decisions of the companies making the investments, they will go foreign, and that's why we have a $7 billion trade deficit in mining and construction equipment.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Stanford.

Thank you, Mr. Thibeault.

We'll go now to Mr. Calkins, followed by Mr. Anderson to close the meeting off.

Go ahead, Mr. Calkins.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Chair.

I'm going to ask all my questions right up front of the various witnesses.

My first question is for Mr. Belzile. You talked about Quebeckers. I fly back and forth to Edmonton; I'm an Alberta member of Parliament. Often the flight that I fly home on originates in Montreal, lands in Ottawa, and then goes on to Edmonton. I can say that on virtually every flight I'm on there are a number of francophones, quite clearly, all wearing a Suncor or Syncrude or other type of jacket. They're going out there; they're going to work. They have their lunch pails with them and their workboots on. I just want to say on behalf of my province, I'm just so glad to see so many economic benefits, because I know that money's coming back and it's on the table for the families of those workers who come out and help us.

That's been happening right across the country. We've had folks coming from all four corners of this great nation of ours to help the Alberta economy grow. We used to have folks coming from Saskatchewan, but they've all gone back now that they have a conservative-minded government back there. So we're going to need even more Canadians coming to help us with that.

You talked about the lack of information, and I'm just wondering what you think the government's responsibility is for providing information to all Canadians about the values and benefits. What do you think industry's responsibility is? Have you any comments? You talked about a lack of information, and I actually see it as purposeful misinformation campaigns that have been at work in various parts of the country.

Mr. Cross, you talked about market diversification. I have a question for you. I'm wondering if you have anything more to offer the committee on whether or not we should be pursuing more active market diversification for our energy resources or product diversification, or is there some kind of sweet spot on both that would be valuable?

Ms. Bak, I have two questions for you on your slides. On the slide on page 4 you said that for the SMEs in non-resources we've seen a dip in 2007 to 2009. You said it was a liquidity issue, yet we saw a spike for resources. They all borrow money from the same bank, so the liquidity issue would have been the same. Can you explain to me what the difference there is?

On slide 13 you have a forecast of the diversification of up to 70% of our products. It looks like almost one-third, one-third, one-third, and it looks as if we're unhinging from a dependency on the United States from that perspective. Can you tell us what assumptions and economic factors are at play for that forecast?

[The Chair, Conservative, Leon Benoit]

You have about 40 seconds each.

Let's start with Ms. Bak.

[Céline Bak]

Yes, there are banks that service all, but the size of transactions and the capital available to smaller companies is not the same as the capital available to bigger companies.

With regard to the slide on page 14, these are not economic assumptions; they are the forecasts by the companies. This is business saying these SMEs expect their markets to be the following.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Chassin.