Natural Resources Committee on May 2nd, 2013

[Peter Julian, NDP, Burnaby—New Westminster, BC]

Coming back to federal government policies, you have the North West upgrader because of the specific policy initiative of the provincial government in Alberta.

What are the policies that the federal government should be looking at to encourage value added and to change the economics?

[Jeff Rubin]

With all due respect, I think the role of government here is limited. What we need to get is access to world oil prices. The problem is you have to build a pipeline. You have to pay folks for that. You have to pay them, and you have to pay the Province of B.C., because nobody wants that pipeline. Without that pipeline, I think there is an argument that we could move 600,000 barrels a day to a refinery in Quebec and a refinery in New Brunswick so we wouldn't have to import oil from Venezuela. I think that's a doable deal, but we're going to need to do a lot more than that if tar sand production is going from 1.7 million to four million a day. For that matter, we'd need two or three Keystone XLs to hit those kinds of production numbers.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Rubin. Thank you, Mr. Julian.

Mr. Garneau, you have eight minutes.

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

Thank you very much.

Thank you all for coming today and providing testimony.

I see a kind of bleak picture with respect to getting to tidewater on the Pacific for the reasons you both have given, Chief John and Mr. Rubin. Basically we've been following Northern Gateway and more recently Kinder Morgan.

Let me ask a very basic question. Is there a solution, if the right tone is adopted, if other options are chosen? I'm not talking about rail yet, but the pipeline option to west coast tidewater. In your opinion, is there potentially some solution that can be found if everybody comes together and tries to find a solution that is acceptable to environmentalists, to first nations whose territory the pipeline crosses and into whose marine waters the ships navigate? Is there a solution that can be found, or is this a lost cause?

[Grand Chief Edward John]

I want to tell you up front that the Kinder Morgan expansion together with the proposal by Enbridge do not have support from first nations, or I should say a significant portion of first nations communities, as well as non-first nations communities, and a lot of the public in British Columbia for the very reason that Mr. Rubin talked about: what's in it for B.C. except cleanup costs? The risks are seen to be tremendously high. The impacts are large from what we see, and judging from our own history, as I've said, we've been made all sorts of promises and those promises have not been kept, and we end up living with the aftermath of somebody else's development. Some of that is still real, and those should be addressed as well.

An example would be the energy related to the development of Alcan's Kenney Dam, the destruction of the waterways below the dam, the destruction of the waterways above the dam, and what it's done over the last 50 or 60 years to the communities and to the wild salmon stocks in the area, as well as to the white sturgeon in the Nechako River. That has to be rectified.

People continually say they have all these good things for us, and a lot of that never materializes. So, until we see a process in place where first nations say they can work with that within this framework, and we can find a resolution, but right now, I don't see much of that. Perhaps where I see some opportunity is with some of the communities that are engaged with LNG on the west coast in particular.

They still have to talk about the pipeline routes, and there are seven or nine proposed routes now. They are all going through first nations territories. How are first nations in those areas going to be engaged in the management of that corridor, supposing there will be three, four, or maybe up to nine pipeline routes, which I don't expect will happen?

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

Mr. Rubin.

[Jeff Rubin]

Let's be clear. We shouldn't singularly point to Grand Chief Edward John as the scapegoat for holding up the Kinder Morgan Trans Mountain pipeline because I know a whole lot of folks who live in the Lower Mainland who aren't first nations who are dead set against it, and it is not too hard to figure out why. People don't want to see supertankers go under the Lions Gate Bridge every day. People don't want to see Vancouver become a major export oil terminal, and if you're going to change that perception.... I'm an economist. Prices are my religion. Big cheques are going to have to be written, but there is a lot more opposition to that than just Chief Edward John here.

I get back to the problem that, sure, there is maybe $30 a barrel to be picked up in Fort McMurray, but unless that can be distributed in places like British Columbia or ports of entry going up to Churchill, there's going to be a problem here. What we are seeing is that problem, and it's not just first nations. The people in the Lower Mainland are dead set against it. Look what provincial politicians are saying in British Columbia about that.

We have to recognize the reality for what it is.

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

Okay, let me turn to the rail option. You mentioned it. You said that it appears to be flying under the radar at the moment.

[Jeff Rubin]

I'll tell you why I say that. I just did a whole national tour with David Suzuki, and he didn't mention it once. I know why he didn't mention it once. It's because they're so fixated on pipelines.

If you go to the Bakken, the Bakken has exactly the same kind of pipeline problem as the tar sands have. In fact, Keystone XL would take about 100,000 barrels from the Bakken. The way they're doing it in the Bakken is loading it on rail.

It's not cheap. What does the locomotive run on? It's $16 a barrel to get there, but you get a wide enough spread between WTI and Brent, and you incent that kind of activity.

I'm sure there are folks in Alberta right now who have figured that out. I don't follow this, but I would venture to guess that if I were to look at the volume of oil being shipped by rail outside of Alberta, it's growing in the same direction as in North Dakota. One of these days guys like David Suzuki are going to find that out, and we're going to see environmental opposition to rail.

It's true that we haven't seen huge rail spills, because a very small percentage of oil is moved by rail in North America, not for environmental reasons, for economic reasons.

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

Mr. Brown, my question to you is on shipping. Obviously I sense that from the shipping industry's point of view, you'd welcome the opportunity to ship out whatever came to the west coast, in terms of dilbit, diluted bitumen, or LNG.

You did make the claim, which I thought was rather courageous of you, that oil spills in the marine environment are not inevitable. Could you expand a little bit on that, please?

[Stephen Brown]

Thank you, Mr. Garneau.

The reason I make those comments is that you have to look at the numbers and understand what is actually going on here in British Columbia at the moment. I'll answer your question directly, but I'll just give it some context.

The Enbridge project has been struggling. For the Kinder Morgan project thus far, no application has been filed, so it still has some way to go.

It has been interesting in the last week or so to hear the commentary from one of the parties that's contesting the election here in British Columbia. They suddenly came out against the Kinder Morgan project and actually found themselves in a lot of heat for doing so. So the claim that most people in the Lower Mainland are adamantly opposed to the project is not accurate.

Three per cent of traffic is tanker traffic into Vancouver today. If the Kinder Morgan project were to go ahead, that traffic percentage would increase to 15%. In regard to any contention that this is going to become a major oil port, it's still a very minor oil port by any standard.

There are about 12,500 tankers all over the world today going about their business fulfilling the world's needs, and they're doing so very safely.

This discussion we're having around the safety of tanker traffic is a unique discussion to Canada, in fact to western Canada. There's no other part of the globe where we're having this discussion, whereby the ability of the marine industry, and in particular the tanker industry, to go about its business safely is being questioned. That is simply not the case.

Mr. Garneau, with respect, we are being singled out somewhat because it is well recognized by those who would not wish to see the growth of the oil sands that demonizing the marine industry, and the tanker industry in particular, is a way to prevent the growth of the oil sands. We fully understand what type of discussion we're in.

You only have to look at the tanker industry. You only have to look at the record since the Exxon Valdez incident in 1989, and the improvement in safety and the reduction in spills. The number of spills worldwide in the last decade has been absolutely negligible from any interface with oil tankers. It's a record that we're now very proud of.

A lot of hard work has gone into achieving the record we now enjoy, including enhanced construction of vessels and the practices we employ to bring those vessels in and out of port. It's also worth remembering that the tankers that are envisaged and currently operating in Vancouver today are not supertankers; they're mid-sized tankers, less than half the size of what we would call a supertanker. They're relatively small tankers on the world stage, and they're very manageable.

Tankers have been going in and out of the port of Vancouver, Mr. Garneau, for the last 60 years, without incident. That's why we are absolutely confident with the enhancement of safety practices that we have put in practice and continue to put in practice, and why we're so supportive of the panel that the federal government has recently appointed to review best practices in tanker management and oil spill preparedness and response. That is why, even if we can squeeze 1% of improvement over what we have today, we're fully supportive of that.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Brown, and thank you, Mr. Garneau.

We go now to Mr. Allen, followed by Ms. Crockatt and then Mr. Nicholls, on the five-minute round.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much, Mr. Chair.

Thank you to our witnesses for being here. It's been very helpful.

Mr. Brown, I'd like to start with you. I'm a New Brunswick member of Parliament, and there's a tremendous amount of interest in a west-east pipeline to the Irving refinery. As a result, once we get the oil to tidewater we'd be looking at more ships coming in to the east side as well.

You made a couple of comments, and I'd like to understand your thoughts on our initiatives on the tanker inspections and other types of things, and how that's working out for your industry.

What are the metrics? Do you have any metrics to suggest what each vessel generates for the economy in the local area? It would seem to me that the additional inspections we're asking for on tankers, as well as the pilotage and other types of things, would mean a significant benefit to the local economy.

Could you comment on that?

[Stephen Brown]

First, on the issue of the tanker panel, we think it's a very positive move that the federal government has announced. As I said a moment ago, even if you can squeeze 1% improvement out of the safety record of our industry, let's go for it and use the tanker panel as a way to get that. We're very supportive of that.

In terms of the contribution to the economy, that's a very tough one for us to gauge. If we go from 300,000 barrels a day to 890,000 barrels a day, in the case of the Kinder Morgan project, what that translates to in terms of economic gain for the local area, it's a difficult number.... I don't have that number.

However, the east-west discussion that you raised is a very interesting one. The difficulty, when you look at the economics of moving the oil west, of course, is that you still need a customer. You need a customer if you move the oil to the east. The problem you would have is that going forward, by any economic forecast, the main growth area for oil consumption is not in the western hemisphere; it's in the eastern hemisphere. You have to move that oil east. You have to move it to Asia. The problem is that you would potentially meet tidewater in eastern Canada through those pipelines. Then you would actually be the furthest distance from those markets, of any supply market in the world.

When you look at West Africa, Venezuela, and the Middle East, all are supply areas. Eastern Canada would be a very long way from ultimate destination, and with oil consumption declining in Europe and North America, it would have to be a very careful judgment as to whether that eastern connection ultimately would achieve the objectives that Canada is seeking to generate.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

The other comment you made in your testimony was about Australia and some of the things you need to get out in front of.

What kind of suggestions do you have in terms of the experience in Australia? What kinds of things do we in Canada need to get out in front of?

[Stephen Brown]

The context of my remarks was LNG, and more than half of the world's LNG projects today, development projects, are currently in Australia. Australia is forecast to be the world's largest supplier of LNG by 2020, in other words, by the end of this decade. It will overtake the state of Qatar by 2020 in terms of LNG supply.

The problem that Australia is facing is the huge development cost of getting to that point. They have about a dozen different LNG developments, and the cost of those, because of labour prices and material prices, is going through the roof. What Australia is finding, and this is a concern which I think we should have for the northern British Columbia projects, is that ultimately, if the costs of those developments are not sustainable in terms of the price you can sell the LNG at long term, then we may have to come up with another option. One of the projects that was cancelled last week and semi-reinstated this week is one where instead of having a shore-based development, it's actually a liquefaction plant.

One of the large projects in Australia is based on construction of what will eventually be the world's largest floating object. It's a liquefaction plant for liquid natural gas. It's called the Prelude project, in Western Australia. Shell will actually pump the gas to a floating liquefaction plant rather than build an on-shore installation because the economics are driving that. The development costs are about half of what they would be in the event you tried to create the same logistics on the shore as opposed to a floating platform.

Going forward we have to be very careful as a country not to cook the goose before it's even in the oven, because there are some really difficult economic decisions being taken.

As a final comment, let's remind ourselves that no final investment decisions have been taken on any LNG project in British Columbia yet because there are some difficult decisions ahead.

[Mike Allen, Conservative, Tobique—Mactaquac, NB]

Thank you very much.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Brown. Thank you, Mr. Allen.

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

[Joan Crockatt, Conservative, Calgary Centre, AB]

Thank you very much.

I want to follow up, if you don't mind, Mr. Brown, on this tanker traffic on the west coast, because I think there are many Canadians, many British Columbians, who do not know that there is any tanker traffic on the west coast.

We heard testimony earlier that there are 500 oil tankers going in and out of New Brunswick every year without incident. How many tankers are going in and out of the port of Vancouver every year right now without incident? Can you tell us that?

[Stephen Brown]

It varies from year to year, but it's between 60 and 70 tankers a year.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Is that 60 or 16?

[Stephen Brown]

Sixty, between 60 and 70.

[Joan Crockatt, Conservative, Calgary Centre, AB]

Okay. You've said that we've had a decade with virtually zero incidents. Was that your testimony from a little earlier?

[Stephen Brown]

Both worldwide and regionally, that's correct, yes.

[Joan Crockatt, Conservative, Calgary Centre, AB]

I understand that it extends back perhaps 25 years that we have had no incidents in Canada involving tankers spilling in our waters. Is that correct to your knowledge?