Natural Resources Committee on April 25th, 2013

[Michael Burt]

That's right.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Okay, thank you.

Mr. Green, do you have any thoughts on that?

[Dr. Kenneth Green]

As I mentioned in my comments, currently oil and gas producers are contributing between $17 billion and $20 billion to provincial and territorial governments in lease payments and royalties and licences. If we increase the output, as we discussed, or as is expected, doubling oil sands and so forth, you have to assume that this is going to increase sharply. In our paper, we quoted the possibility that just the oil sands growth could contribute $50 billion per year in royalties by 2033, compared with the $4.5 billion they contributed in 2011. So an extra $45 billion over the next 20 years in revenues from the oil sands specifically is a real possibility. Again, that would be influenced, as the previous speaker said, by whether or not we're selling the oil at a discount. Clearly, if we were getting the full world market price for the oil, those benefits would be even higher in terms of what Canada would realize in private profits and revenues to the government.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Do you have any advice for the committee in accessing the world market from the east coast or the west coast? I would like to think it's an option, a scenario, coming forward, but if we had an either/or scenario, which would be better for the Canadian economy?

[The Chair, Conservative, Leon Benoit]

Go ahead, Mr. Green.

[Dr. Kenneth Green]

If we had to pick one, if we had an either/or situation, it strikes me that the growth in the future over the next several decades is expected to be overwhelmingly in Asia, and therefore a Pacific export pathway would be preferable to an eastern one. As you said, with the amount of oil in Alberta and western Canada, the idea that eastern Canada is importing oil rather than having a pipeline being run to it strikes me as a bit absurd. I think a “both directions” approach would be better for Canada as a whole.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Burt.

[Michael Burt]

I would have to agree. The western approach is shorter and cheaper if your purpose is just to get to foreign markets, but given the amount of oil we're importing and the price differential between domestic prices and foreign prices—because we are importing oil at foreign prices—there would be significant benefits to having the refineries in eastern Canada using domestic oil rather than foreign oil. We could do both, as I said in my presentation.

Again, you're talking about an increase of roughly three million barrels a day in production coming out of the oil sands over the next 20 years or so. The eastern and central Canadian importing needs right now are only about 700,000 barrels a day, so we could easily meet domestic demand and still have lots left over for exports.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

We'd have lots left over for exports.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Calkins.

Ms. Crockatt, go ahead for up to five minutes, please.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much.

Thanks to you all for being here.

I want to just make a bit of a comment at the outset. You might want to be aware, Mr. Heaps, that there's a really significant technological advancement on the cusp in the next few days. The Kearl oil sands plant is going to open in Fort McMurray. It will have the same greenhouse gas emission level per barrel of oil as does a conventional refinery in the U.S. In fact, it will have a lower GHG emission level than that for heavy crude from California. That might be something to add to your thinking.

I want to turn to Dr. Green. You struck fear into some people's hearts when you said that the U.S. is going to overtake Saudi Arabia as the world's largest oil producer by 2020. Those of us from western Canada remember only too clearly the 20-some years that the Mackenzie Valley Pipeline was going to be the great saviour of the north and Alberta, and then suddenly we missed the market.

I wonder if you think we are in danger of missing the market, and with this resource that could bring $45 billion into the Canadian economy, into Canadians' pockets, we might miss that market right now because of tight oil in the U.S., etc.

[Dr. Kenneth Green]

It is a risk. I didn't mean to strike fear into people's hearts, but it is a risk because of the historically unprecedented transition we've seen in U.S. energy production. Normally speaking, you think of energy systems as evolving remarkably slowly. They take decades to unfold. Your planning horizons are very long. It was only seven years ago that the United States was trying to get approvals for importing liquid natural gas, because they believed they were going to be running out. Now, of course, they're trying to figure out how to get export approvals for natural gas, because there's a glut that has natural gas at unsustainably low prices.

If Canada stays tied to the United States by the aptly described umbilical to the southwest, there is a danger that certainly we'll miss the U.S. market; that is, we'll be caught unexpectedly by the declining U.S. consumption needs and not have time...or we'd have to ramp up very quickly our access to other markets. If somehow the access to other markets is stifled and progress continues in the United States the way it has on oil and gas production, then I think there is a serious threat of Canada missing the boat and not realizing the profit potential of western Canadian energy resources.

[Joan Crockatt, Conservative, Calgary Centre, AB]

In that vein, I'd just like to talk about social benefits. You said that you think Canadians are going to be smart enough to realize the value of the energy resources and what those mean to their lives. I'm wondering if they will realize that in time to be able to save that market. What are they? What do you know that you can tell consumers that you think will actually have them realize that we're on a precipice here and that we need to take action?

[Dr. Kenneth Green]

That's a challenging question.

I could go on at length, and I have—I give student seminars in which I do go on at length explaining to people the unbelievable myriad ways that access to affordable and abundant energy benefits them, whether it's their cellphone and their ability to call the paramedics when their grandmother is feeling ill, or the refrigeration that keeps their insulin ready for them to use, or the energy that allows them to clean their clothes and keep the burden of disease down in their houses, that allows us the medical treatments we need, which are highly energy intensive.

Unfortunately, the narrative in Canada is still several years behind the times in some ways, particularly the one about green energy. Actually, if you look at the world leaders who have tried green energy in Europe, they're now backpedalling furiously, having found that they bought themselves into unbelievably expensive, unsustainable forms of wind and solar power generation that generate power when it's not needed, that are unreliable, and that have to have backup power, which is 100% duplicative.

We just did a study at the Fraser Institute of the GEA in Ontario, showing the same thing. Under the GEA, power prices in Ontario have shot up tremendously. They're expected to go up another 40%, 50%, or 60% in the next couple of years. That's going to slam manufacturing and mining very hard, in terms of attracting investment, because they'll be less and less competitive with other jurisdictions.

So there is a need to update the narratives here in Canada on green energy, and on greenhouse gas emissions as well, and on the centrality of energy to our lives. Will people get it in time? That really depends on whether enough voices can counter the narratives that are misleading them into thinking that we can replace our hydrocarbons with wind and solar power. Really, hydrocarbons are mostly used for moving things—they're transport fuels—whereas wind, solar, and hydro generate electricity.

I think there's a long way to go before the public is going to understand this, but when they get the bills in Ontario, they'll start to understand.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Crockatt. Your time is up.

We go now to Mr. Atamanenko for up to five minutes.

[Alex Atamanenko, NDP, British Columbia Southern Interior, BC]

Thank you very much, Mr. Chair.

Thanks to all of you for being here.

I'm new to the committee, so I'm going to touch on a question that I've thought about a lot. I know in some of the questions we have here we ask to what extent can market diversification within Canada make up energy market diversification, because we always assume that diversification has to be with other countries. I know, for example, that east of Ottawa we import 90% of our oil for eastern Canada. That's a huge amount. I also know that as one of three countries that have signed on to NAFTA, we don't have any kind of coherent energy policy, whereas Mexico does and the Americans do, and we see what's happening.

Can we become self-sufficient? Can we create more jobs? Can we build more refineries, become a self-sufficient energy power, and not depend on regions that have the potential to be volatile, and to cover our own needs, meet the demands of the increased production as we move into greener sources of energy, and provide jobs and look within?

This is a question. I'm just wondering if you have any comments on this. We don't have much time, so maybe if we can get a brief comment, starting with Mr. Heaps and going all the way down the line, I would appreciate it. Thank you.

[Toby Heaps]

Sure.

From a hydrocarbon perspective, we do export quite a bit. Most of the 25% of our exports that are energy are hydrocarbon. We do import almost as much, about half of what we export in terms of dollar value.

A lot of people have said it doesn't make economic sense to build refineries in Canada because they're already built in other places, and there are a lot of capital costs to build them, a lot of permitting time, and no one wants a refinery in their backyard.

But I don't know if that assumption is rock solid, given the differential we have in oil prices between what we get for it here in Canada and the WTI price. Right now there's a $40 differential. I think the economics look a lot better if you do two things—what Mr. Garneau was talking about before on the capital cost. If you look at the difference between what we get for oil here and in the U.S. right now, it's $40. If you put that in the model, refineries here start to look a little more sensible. The biggest problems with refineries are capital costs and borrowing the money. If you're a private sector actor, you're going to have to pay a higher interest rate. But if you could get the loan back-stopped by the government, provincial or federal, that would lower your capital cost. It's a substantial amount. In the case of Newfoundland, they're saving $1 billion on $6.2 billion.

[The Chair, Conservative, Leon Benoit]

Mr. Smillie, go ahead.

[Christopher Smillie]

If we see the Energy East pipeline built, which hopefully we do, probably most of the foreign oil stops coming in and we refine more and more from Alberta. I think that addresses a lot of the job issues. The people in New Brunswick will be happy because it means the refining industry there will expand. The Irvings will be happy. The people on the west coast will be happy, as will Alberta, because on the production side there will be increased demand.

You asked about a national policy. I think we've seen the component parts of a national policy rolled out. I don't think it has been called a national policy, but I think we're starting to see the component parts rolled out, that being a pipeline policy, a streamlined environmental policy, and an investment policy.

Can we become more self-sufficient in terms of power? I would say yes, but again we have to get the people thing right. I think we're net exporters of electricity right now, so we are self-sufficient in that sense.

The north is a huge issue. It will be the game changer. When we start having to build refineries or extraction facilities in the north, the way industry works will change completely. We're going to have to move labour forces to those places to work. We're going to have to come up with some sort of near north strategy, I would call it.

[The Chair, Conservative, Leon Benoit]

Mr. Burt.

[Michael Burt]

I would say yes, we can be self-sufficient. As we've already mentioned, if you build that west to east infrastructure, we can be self-sufficient in oil. There's no question of that. It's just having adequate infrastructure.

When you talk about things like refining, this is all wrapped up in the idea of getting more value from our natural resources, and of course we're all for that. However, when we focus on refining, it's a limited picture.

We did a supply chain piece, looking at the effect on the supply chain of the oil sands industry. It's important to keep in mind that there are a lot of inputs that go into this industry as well, everything from engineering to financial services, to different types of machinery. There are huge supply chain effects. We can also get more value from our natural resources through the supply chains.

One of the biggest success stories in Canadian manufacturing in the last decade has been manufacturing of mining and oil and gas machinery. It is one of the few manufacturing industries that has seen big increases in exports in the last decade.

How can we take the expertise for developing as a result of our oil sands and other energy assets and turn that into new export opportunities?

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Atamanenko.

We go now to Mr. Trost for up to five minutes.

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

Thank you, Mr. Chair.

I have a bit of a broad question, so hopefully someone will be able to answer it in its entirety, but each of you, I think, may be able to take a little part of it. It's about timeliness.

We've heard from other witnesses going forward, and to varying degrees here today, about how things like our liquid natural gas, the potential for exports, may depend on who gets to market first, because there are a large number of projects out there. It's the same with oil. How soon we can get more into the United States depends on the political situation, and as they develop tight shale, etc., that could change things. I see basically three main categories to put these products together: capital, regulatory/political issues, and labour.

If we want to get projects done, be they for LNG, oil, or transmission and electrical lines, where do each of you see the greatest potential to slow down our projects to block our timelines? In your particular area of expertise, what would be the problems in each of those areas?

I'll start with Mr. Smillie, since I think you would deal most with the labour issue, and then go to the various other gentlemen, potentially, on regulatory and capital issues. But feel free to comment on all three of those.

[Christopher Smillie]

Thanks.

Ask anyone in Calgary their number one business risk. It's not capital; it's not regulation. It's getting the right people to the right job at the right time. How do we fix it? We need colleges in all of the provinces to start working together to get the training picture right. If you're a mobile worker from New Brunswick, working in Alberta, you shouldn't have to quit your job to go home to New Brunswick to take your classroom portion. You should be able to take your classroom portion where you work, and I think we talked about this with Mr. Allen last time—it's all coming back to me. That should be the easiest thing in the world to work out.

We should have a system of labour mobility in this country, where if there is regional unemployment in various areas.... Let's incent those people to get on the plane and get to where the work is. The impact on the consolidated revenue fund, getting people off employment insurance and onto the employment rolls, would be immense. How do you do that? If the employer's not paying for them to get on the plane, you give them a tax break to get on the plane or a tax credit based on their travel expenses. If it's someone in Ontario who's unemployed in Windsor, give him a per diem expense to drive to the Bruce nuclear plant, where they're scrambling for skilled trades.

It's colleges and universities, it's labour mobility, and it's the promotion of quality careers in the skilled trades. The other panellists can talk, but if the most common age in my membership is 52, we're in trouble in 10 years. What about the projects that are set to go in 16 years? How old are those 52-year-olds then?

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

Mr. Green, would you care to comment on capital or regulatory or labour?