Natural Resources Committee on May 2nd, 2013

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

Mr. Calkins, go ahead, for up to five minutes, please.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

As the member of Parliament who represents the bands at Hobbema, in that treaty area, I know they've got a lot of expertise. They've done Samson Oil and Gas, and so on. Unfortunately, the resource base they once had has subsided, but I know there is some expertise there.

However, the unemployment rate is really alarming in spite of the fact that they have expertise in a first nations band in the heart of the Highway 2 corridor between Edmonton and Calgary where there is virtually zero unemployment in the surrounding communities. There are obviously some issues that need to be resolved.

I would like to go now to Mr. Brown and ask a question on the international side of things.

When it comes to governance and so on, not every ship or tanker in the world is registered in Canada. There are international protocols and international governance that prevails. Could you let this committee know, if we're looking to diversify our products, and if we're going to be shipping liquid natural gas and oil in tankers from our coast much more so than we already are currently, what confidence can this committee have in reporting to Parliament that the international standards and governance on everything surrounding shipping can be counted on while we try to diversify our market access?

[Stephen Brown]

Wow, we could be here the rest of the day on that one, but I'll do my best to sum it up for you.

Essentially, the International Maritime Organization, which has been around since the 1950s, is the government of shipping. Canada is a very active member. There are 170 marine states that are members of the International Maritime Organization, and that's where most of the legislation surrounding the safety aspects of shipping originate. It's from there that they are taken into international law.

The decisions of the International Maritime Organization, and as I said, Canada is a very active member of that organization, would eventually finish up in front of Parliament in Canada and, if they are accepted, they will go forward into the Canada Shipping Act. From that point they become law, so whether they are Canadian ships or whether they are foreign-registered ships trading in Canadian waters, the obligation to fulfill the standards that are determined at the international level become compulsory in Canadian waters.

Beyond that, the next level down is the classification societies. These are Lloyd's Register, Det Norske Veritas, and so on. There are about a dozen international classification societies. They will oversee the design and construction of a ship. Throughout the life of a ship, they regularly inspect it for full compliance. Failure to comply fully will draw off trading rights for that vessel.

You go down the slide a little bit, and each flag state is also similarly obligated. The standards for all ships under the flag of that state, and it doesn't matter what the flag is, are the same: they are the International Maritime Organization standards for compliance.

Then you go to port state control in Canada. Port state control inspectors target vessels coming into Canadian waters, depending on the type of vessel and how long it has been since it last had an inspection. If there are any deficiencies on that vessel, Transport Canada has the perfect right to detain the vessel. They absolutely do that.

In terms of the vessels themselves, that's the standard of the vessels. Since the Exxon Valdez incident, double hulls have become mandatory. There are about half a dozen tankers still remaining in the world that are not double hulled. They are not allowed to trade in North American waters. There are some countries that will still allow them, such as India, Pakistan and, I believe,Taiwan. They still allow single hulled tankers to trade in their waters, but nobody else does.

Everything has to be double hulled. All vessels coming into Canada will be pre-vetted before they are accepted to charter oil to a company in Canada. There's a world database of the history of every tanker. Anybody looking to charter a particular tanker has full access to the history of that vessel. If there's anything there that they are not happy with, then they'll pass it off and go to another vessel. It's a very transparent system of ability for anybody looking to charter a vessel to see the history of that vessel before they decide to take it into a time charter.

Last but not least, in terms of the management of those ships when they come into Canadian waters, there are very strict guidelines with respect to escort tug pilot practices. The entire coastal waters of British Columbia are compulsory pilotage and, in the case of tankers, there are two pilots.

[The Chair, Conservative, Leon Benoit]

Thank you.

[Stephen Brown]

I'm not sure if that's a good start. We could go on quite—

[Blaine Calkins, Conservative, Wetaskiwin, AB]

I encourage you to keep going, but I think the chair is going to cut me off.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Brown and Mr. Calkins.

For the last questioners we have Mr. Bevington, followed by Mr. Garneau, and then Mr. Anderson.

[Dennis Bevington, NDP, Western Arctic, NT]

Thanks, Mr. Chair. I am pleased to be here filling in a little bit. I have a little bit of experience in this area, coming from north of the oil sands and having worked in this area before.

The question and the statement, Mr. Rubin, about the market being the determination of this whole issue with heavy oil, with bitumen, is interesting. In the 1990s most of the upgrading was done through hydrogen addition, cheap natural gas, and that was what drove the market. You would see in 2000 moving forward the big coking machines moving up the McMurray highway because the price of natural gas went through the roof.

Now we have a situation where natural gas is back down again. Coking is a process by which you destroy a certain percentage of the oil that you're dealing with. Basically bitumen has between 76% and 78% of the hydrogen required to make it into synthetic oil. It's actually getting worse because as we go deeper into the deposits of heavy oil—and this was revealed by a university professor from Calgary about three months ago in a presentation here—the oil gets heavier, with less hydrogen content.

On the issue about strategic investment in a product that is declining in value and becoming more difficult to deal with, you might show this up in the cost differentials between some of the other heavy oils that are available across the world where the hydrogen content is greater and less coking is required.

When we think of our bitumen supply and we think of where we have to take it when it's raw bitumen, we think that we need to take it to an upgrader. If we provide the upgrading, then synthetic oil can be taken anywhere in the world. It's a product that fits in to any refinery. It's good to go. So strategically for Canada not to be engaged in the upgrading industry means that our product which, declining in value, will always be an inferior product to other heavy oils, and certainly to all shale oil and all conventional oils, how are we going to maintain this oil in the markets? Is it always going to be a loss leader for us? Are we going to be continually downgraded in our ability to sell the oil and to produce it in a good fashion?

[Jeff Rubin]

I don't think so. I think that the product coming out of the tar sands is every bit as good as Mexican Maya, which trades at a $4 premium to WTI. The only difference is it doesn't get stuck in Cushing, Oklahoma. So if we can get world oil prices, I don't think we need to worry about the upgrading. Refinery margins, as I say, globally are pretty tight. It's only when you get a hugely discounted feedstock, which U.S. midwestern refineries get from Western Canadian Select....

I think our product is sellable. I think our product is very sellable. The problem though is, as I said before, when you overlay the cost structure of the tar sands with the price discount on Western Canadian Select, you have a problematic resource. Talk to any of the companies in the oil patch about the ability to get funding now. The capital market's attitude towards the tar patch is a whole lot different from what it was four or five years ago when I was the chief economist of CIBC World Markets. Back then it was, “This is the future of the world oil supply”. Now it's, “This is a problematic resource and people are having a hell of a time making money”. I think Suncor's walking away from the Voyageur upgrading plant was quite a statement about the challenging economics of that.

Excuse me, Mr. Chairman, but I must catch a plane.

Joan, it's been lovely meeting you.

[The Chair, Conservative, Leon Benoit]

I want to thank you very much, Mr. Rubin, for coming.

Mr. Bevington, you have about half a minute left.

[Dennis Bevington, NDP, Western Arctic, NT]

Okay. Having not been involved a lot in the discussion here, I'll turn that over to my colleagues, if they have anything they want to ask Grand Chief Edward John.

[The Chair, Conservative, Leon Benoit]

It would be a very short question with a short answer.

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

Yes, my question is for Grand Chief Edward John.

You talked about thinking about the generations to come. I think one thing that hasn't been done and hasn't been explored is looking at our ecosystem services and how much those are worth. I know that first nations put a large value on that in terms of thinking about the continuity of generations.

Should this be something that is also considered, all the benefits that we get from our waters, from our coastal ecosystems and ecologies? I think a price tag has been set at $17 trillion by some economists. They have said these services globally are worth $17 trillion.

Would you agree with that assessment?

[The Chair, Conservative, Leon Benoit]

Just a very short yes or no answer.

[Grand Chief Edward John]

I don't know the valuation process for that, but for sure the cultural underpinnings are extremely important to us. We see our relationship to the natural world in a unique way based on the cultures that we come from. I could go into a bit of detail but we don't have the time here.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Garneau, you have up to five minutes.

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

Mr. Chair, I had a couple of questions which were really for Mr. Rubin. He's gone, so I'll pass on my turn.

[The Chair, Conservative, Leon Benoit]

Okay, we go to Mr. Anderson.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you, Mr. Chair.

Mr. Brown, I'd like to ask you a question. We've had a program in place called the national aerial surveillance program. Can you talk a little bit about that? Is it an effective program? Is it useful for governments to keep track of what's going on offshore in terms of tankers and what they're doing and where they're going, that kind of thing?

[Stephen Brown]

Yes, I would say it's a very successful program, and in fact, I'm not sure if the committee is aware that it was actually called to help out during the Deepwater Horizon incident in 2011, because the capability of that program was actually something that the United States did not have.

So yes, it has been limited in flying hours but I was very pleased to see in the recent announcement of the review in oil spill response that part of the program going forward is the government is actually going to double the flying hours of that program as part of the enhancement of response preparedness and surveillance.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Thank you very much.

Grand Chief, I'd like to come back to you. I think Blaine touched on business development and Mr. Allen did as well. In terms of business development in your area, can you tell us what you're doing? How are you working with those who have gone before? How are you developing business leaders in your area of the world?

We've got, I think, $5 billion of aboriginal business contracts being done just with the oil sands alone. We've heard about tremendous opportunities across the north and in various areas. Where do you look to develop that core of people who are going to be your real entrepreneurs, and how are you going about that?

[Grand Chief Edward John]

I'll give you an example.

We work with both UBC and Simon Fraser, as well as the University of Victoria. I don't have the specific information about the other 27 post-secondary institutions in British Columbia, but, as I said, we work with them. Simon Fraser, for example, has a business development program that is directed to aboriginal students. I chair a program called Chinook at UBC, dealing with developing business entrepreneurship. It's for young aboriginal people. It's a good program and we need more like it. We need that training that is so critical to ensure that our people are able to take advantage of these opportunities.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

Do you have a favourite business model? My background is that my parents were in a machinery cooperative with somebody when I was growing up on the farm. Are you looking to cooperatives? Are you looking to corporations, community-owned structures?

[Grand Chief Edward John]

There is a variety. On cooperatives, I grew up in a family that was reliant on the trapping industry. My dad and my communities were heavily reliant on it. There was no business model as such. We were out there on the land every day, selling to the Hudson's Bay manager at prices that were extraordinarily low.

[David Anderson, Conservative, Cypress Hills—Grasslands, SK]

I'm a farmer.