Natural Resources Committee on May 7th, 2013

[The Chair, Conservative, Leon Benoit]

Good afternoon, everyone.

We're here to continue our study on diversification in the energy sector, but before we do that, we have a little bit of housekeeping to do. It shouldn't take more than a minute.

Mr. Garneau is replacing the former Liberal member on this committee and he will become a vice-chair of the committee as a result, and we just want to quickly have an election of Mr. Garneau as vice-chair of this committee.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Mr. Chair, I would be happy to do so, but I would just seek clarification. In order to be a vice-chair or chair of the committee, has Mr. Garneau officially become a member of this committee? Has that been tabled in the House?

[A voice]

Yes, it's been tabled.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Okay, then it would be my pleasure and honour to nominate Mr. Garneau as vice-chair of the committee.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Calkins.

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

I second that motion.

[The Chair, Conservative, Leon Benoit]

Okay, Mr. Nicholls seconds the motion.

The motion is carried, thank you very much.

(Motion agreed to)

Welcome, Mr. Garneau, as a vice-chair of this committee. You're never going to get another election like that, Mr. Garneau. I don't think so, so enjoy that.

[Some hon. members]

Oh, oh!

[The Chair, Conservative, Leon Benoit]

Okay, back to business. As I indicated, we're here to continue our study on diversification in the energy sector.

I'd like to make sure that members of this committee and all of the witnesses do stick to the topic at hand. Generally that has happened, but I want to make sure that we're dealing with the business of the committee and not straying too far. I encourage you to stick to diversification of the energy sector.

We've divided our study into three parts: export market diversification, product diversification, and diversification of energy supply sources. Today we're primarily on product diversification, but I encourage the witnesses to keep it to the diversification in the energy sector topic at the very least.

With that, we'll go ahead with witnesses as listed on the agenda for today.

First I'll introduce the witnesses. We have today, as an individual, Ms. Madelaine Drohan, Canada correspondent, The Economist. Welcome to you.

We have from Canadian Gas Association, Mr. Timothy M. Egan, president and chief executive officer. Welcome to you again.

We have from Canadian Association of Petroleum Producers, Greg Stringham, vice-president, markets and oil sands, and welcome to you as well.

From Cameco Corporation we have Jeff Hryhoriw. I'm sorry, I should be able to pronounce your name, being from the Vegreville area.

[Jeff Hryhoriw, Director, Government Relations, Cameco Corporation]

It's Jeff Hryhoriw. If you take off the first and last letters you might stand a chance.

[The Chair, Conservative, Leon Benoit]

Right. Thank you very much, and I do apologize for that.

Mr. Hryhoriw was going to be at our meeting last time and he couldn't make it, so he's here today. He is with government relations at Cameco Corporation.

People will remember who you are better now than if I hadn't screwed that up so badly.

From the Pembina Institute we have two witnesses today. With us is Mr. Nathan Lemphers, policy analyst, oil sands. Welcome. We have, by video conference from Calgary, Alberta, Mr. Tim Weis, director, renewable energy and efficiency policy.

It's a long string of witnesses, but all of you will have a lot to contribute, I know.

We will start with Ms. Drohan from The Economist with a presentation for up to seven minutes. Go ahead, please.

[Madelaine Drohan, Canada Correspondent, The Economist, As an Individual]

Thank you very much, and thank you for inviting me.

As you have heard, I am the Canada correspondent for The Economist, but I'm here today because of a report on natural resource policy that I researched and wrote last year for the Canadian International Council. It’s called “Nine Habits of Highly Effective Resource Economies: Lessons for Canada”. I'm speaking as the author of that report, not as a correspondent for The Economist.

The premise of the report was that Canada was good at extracting and harvesting natural resources, but could be even better. I looked at energy, mining, and forestry, and I talked to as many people as I could, which ended up being about 160 of them, both across Canada and in other developed countries that have important resource sectors, such as Australia, Norway, Sweden, and Finland.

I asked all of them what Canada could be doing better. The “Nine Habits” in the title of the report are the nine issues that were raised the most frequently, but this is not an exhaustive list.

If I had to sum up what they told me in one sentence, it’s that Canada has to take a longer, broader view of resource development and be more collaborative in its execution. These are very general principles, but they have real impact when it comes to things like expanding markets and diversifying products, which I understand is the work of this committee.

Market diversification is one place where thinking more broadly comes in. I saw that a previous witness told you that achieving market diversity is deceptively simple, that you just build the infrastructure required to get the product to market. I would politely disagree. There are so many obstacles that can trip you up that unless you deal with them first, you won't get the infrastructure built.

The debate over the Northern Gateway pipeline is a perfect illustration. No one could have been surprised by the opposition of some aboriginal groups and environmental groups. The environmental movement has been on the rise since the 1970s, and aboriginal groups have been more assertive about having their say about development on their territories since a series of court decisions starting in the late 1990s.

The lesson to draw from this is that energy policy can't be dealt with in isolation. At a minimum, aboriginal and environmental policies have to be included so obvious problems can be addressed, and you could argue as well that trade, investment, and labour policies should also be part of the discussion. I know you probably don't want to hear this since it simply complicates the work of the committee.

It sounds complicated, but other governments are doing it. Here in Canada, Plan Nord in Quebec is an example that's probably worth looking at. While it's not perfect, it is an attempt to bring together the range of policies in the interest of developing resources in Quebec, and it ties resource policy to aboriginal, infrastructure, tourism, investment, trade, and environmental policies.

If you look abroad, Australia has a very detailed policy on how to penetrate and maintain markets in Asia for its mineral and energy exports. Australia is the nearest comparator to Canada in that it's a federation and the states there have jurisdiction over natural resources.

Again, the Australian plan is not perfect, but it brings together everything from broad international trade policy right down to very detailed education policy, such as the fact that they are going to start teaching Mandarin in primary and secondary schools starting next year.

It’s this type of broader and longer-term thinking that's needed to achieve market diversification, and there's not enough of it being done in Canada. We get hung up on our differences and on the difficulties in getting the provinces and the federal government together, but meanwhile other countries, some of them our competitors, are forging ahead.

If you look at product diversification, which is sometimes mistakenly referred to as value added.... I say mistakenly because adding value to resources is not the only option. There's also extracting value and building value.

In my report I looked at the forest sector here, but I'll try it with bitumen. Refining would add value. If you created new byproducts from the bitumen itself or waste streams, that's extracting value, and if you built a new industry on top of it, that's building value.

I heard recently of a good example of some medical imaging technology in Alberta that's actually been adapted out of technology that's used in the oil industry to locate reservoirs underground. A non-energy example of building value is, of course, the financial and legal sector in Toronto that people don't think of very often, but it has its roots in the mining industry.

Canada has its successes, but overall we’re not doing a very good job of adding, extracting, or building value on our natural resources. I was quite dismayed when I travelled abroad to hear that we're often seen as a rip and ship resource producer.

There's a lot to say on diversification, but I'll focus on one key difference that I've found between Canada and some of the comparable resource producers that's pertinent to product diversification. Their companies are more collaborative when it comes to research. It’s out of research that the new products, processes, and services emerge. These new products can lead to new markets, so the two are connected.

I'm referring here to collaboration among companies for research solutions to common problems and to sharing the benefits of that research. We have several small efforts along these lines in Canada. COSIA in Alberta, which was only created in the last year or two, brings together the major oil sand producers to research environmental challenges. FPInnovations is looking for new products and processes in the forest industry. There are several groups in the mining sector. Most are relatively new, and some are struggling.

Yet again, when you look abroad, Australia has had its Australian Mineral Industries Research Association since 1959. It's so successful that several large Canadian mining firms are now members of it. Australia also has a research program, partly financed by the government, that encourages groups of companies to collaborate. There's also mass collaboration in Sweden and Finland.

The advantage of pooling resource dollars is that companies will get more bang for their research buck. This is actually something that the government could encourage, not by spending any more money on research grants or tax exemptions, but by giving priority to research projects that involve groups of companies instead of individual firms.

I tried to get to the bottom of why Canada is not very good at this, and I have to admit I didn't find any satisfactory answers, but certainly other countries are doing it, and it's to their advantage.

I'll sum up with the idea I started with. One of the big messages I got in talking to other people and other countries about resources is that in order to achieve better market and product diversification, you have to have a broader and more collaborative approach.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Drohan.

We go now to the Canadian Gas Association and Timothy Egan, president and chief executive officer.

Go ahead, please, with your presentation, sir.

[Timothy Egan, President and Chief Executive Officer, Canadian Gas Association]

Thank you, Mr. Chairman, for the opportunity to provide remarks related to your study on market diversification.

As you know, the Canadian Gas Association represents Canada's natural gas delivery industry. I put before you the map that you find on slide 2 in your package. This committee has seen it before, but let me present it again just to remind you of who our members are and how they fit into Canada's energy picture. We're the natural gas distribution and transmission companies that deliver energy solutions to more than 6.3 million homes, businesses, and institutions in communities right across Canada. CGA also represents about 50 equipment manufacturers and service providers.

Today I am going to focus my remarks on the role of natural gas in facilitating energy market diversification. I'm going to do this by answering four questions. First, what is energy used for? Second, how does natural gas meet those uses in Canada today? Third, how can product diversity in the use of natural gas be beneficial to Canadian consumers going forward? Fourth, how can governments facilitate product diversity in the energy sector, particularly in the use of natural gas?

I'm particularly pleased to have the opportunity to speak because often the energy discourse in Canada is focused on energy supply, or if the discussion is about energy use, the tendency is to focus on electricity. Natural gas use is a topic that rarely gets coverage despite the significant, and I would argue, growing economic value it represents to our country's well-being.

To understand why, let's start with the first question about what energy is used for. Let me focus your attention on the third slide in your package as it shows that energy is used for three core societal needs: heating and cooling, mobility, and electric power. You can also see that the bulk of energy use in Canada is actually for heat. This is followed by energy from mobility, and finally energy for generating electricity.

Now how does natural gas meet those needs? If you look at slide 4, we've laid out some specific examples for you, and just to remind you, natural gas currently meets over 32% of end use of energy in Canada. Again, this is predominantly for heat: the heating needs for industrial uses and for space and water heating in homes. A smaller amount is used to generate electricity, and thus far, a very small amount, less than 1%, although that's growing, is used as a transportation fuel. This is the current picture, but the affordability of natural gas is changing it fundamentally and society is looking at more and more ways to use this clean and abundant fuel.

How does the idea of more natural gas use support diversity? Let me remind you again of the value proposition of natural gas. According to Statistics Canada, the cost of using natural gas to heat homes has fallen by approximately 19% in just five years. By comparison, the cost of electricity during this same time has increased by over 12%, and the cost of fuel oil and other fuels has increased over 46%. So, as noted on slide 5, in reference to home space and water heating, natural gas continues to be an affordable energy choice, all the more important in difficult economic times. For all energy users, any reduction in energy costs, while enjoying the same level of comfort or maintaining the same level of client service or production output, means that savings are redirected to other uses or help maintain and strengthen competitiveness.

Affordable energy drives economic performance, enabling investors the freedom to do more with their capital to create more jobs and opportunity. The significance of this is being demonstrated in the U.S. in the natural gas sector as we speak as industrial facilities are relocating to take advantage of the natural gas opportunity.

The other advantage of natural gas is its versatility. It offers enormous opportunity for efficiency in its own applications, for instance, through ever better performing appliances. As well, it's a key supporter and partner for other technologies to improve their reliability and performance.

If natural gas already meets a fairly significant amount of the energy needs in Canada, how is using more of this fuel going to promote energy use diversity to the benefit of Canada going forward? I draw your attention to slide 6 to give you a few specific examples.

Using natural gas in combined heat and power applications is an efficient and affordable way to meet both heat and power needs, a well-tested technology application that abundant and affordable natural gas is making even more attractive. To date the focus has been on large CHP, combined heat and power, projects, but increasing opportunities for medium and even micro CHP applications, some potentially small enough for the home, are emerging. This represents more service choice for the consumer to meet end-use energy needs.

Natural gas is an ideal enabler for intermittent renewable energy sources such as wind and solar. The intermittency of these technologies obliges their promoters to have standby delivery systems using other fuels and technologies, and natural gas offers a particularly flexible option.

In addition, growing research on the idea of using the gas grid as an energy storage system promises even better utilization of renewable and other technologies.

Natural gas vehicle engine technology can offer an affordable and clean transportation fuel option when fleet operators currently have very limited choice in their fuels. Moreover, Canada is currently a leading driver of this technology through companies like Westport.

I have one final point on this topic. At CGA we have begun research exploring the idea that there is an opportunity to expand the natural gas delivery system to offer an affordable, innovative, and more efficient energy choice for customers, communities, and industry currently located off the existing distribution system in more remote areas in Canada's north using CNG, compressed natural gas, and LNG, liquid natural gas.

In sum, natural gas enables diversity by giving greater choice to the end user. Of course, the question that is often asked is whether we need to be concerned about supply not being able to meet demand. In the case of natural gas, I think it's fair to say that the short answer is no. Natural gas is in abundant supply thanks to significant conventional and unconventional resources that have been deemed economically recoverable in North America.

In addition, there is a significant supply of renewable natural gas and, as the most recent issue of The Atlantic magazine has highlighted, there's growing evidence of the opportunity for recovery of methane hydrates. Add to this the continuous innovation in technology and energy efficiency efforts over time—as you can see on slide 7 we document the per capita efficiency—that reduce per capita use, and we can use less fuel for more of our energy needs.

Let me conclude by answering the final question about the role of government in driving product diversity in the energy sector, particularly vis-à-vis natural gas. The distribution industry, through CGA and Energy Technology Innovation Canada, or ETIC, which is our technology demonstration and commercialization project, believes that government’s role here should be threefold.

First, government should drive innovation in partnership with industry. We continue as an association and as member companies to work with NRCan. We're pursuing relationships with Sustainable Development Technology Canada and with the National Research Council to identify opportunities to partner on the commercialization of market-ready technology that will provide more choice in the marketplace.

Second, government should drive efficiency in partnership with industry. The Government of Canada has a distinguished record as a promoter of energy efficiency. Most recently, with our industry, NRCan co-sponsored a significant project to test new highly efficient natural gas furnaces. Ninety-one units in homes across the country are part of the pilot and early results suggest efficiency gains in the order of 40% to 45%, a remarkable result that promises energy cost savings for the homeowner, and lower emissions. More such cooperative efforts can be pursued, and we welcome the opportunity to do so.

Third, government should ensure that policies, regulations, and programs don’t pick fuel favourites but again work to ensure that a range of fuel and technology options are available in the marketplace.

Mr. Chair, I'm going to stop there. I want to thank you again for the opportunity to present to the committee. I welcome any questions committee members might have.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Mr. Egan, for your presentation.

We welcome now, from the Canadian Association of Petroleum Producers, Mr. Greg Stringham, vice-president for markets and oil sands.

Go ahead, please, with your presentation, for up to seven minutes.

[Greg Stringham, Vice-President, Markets and Oil Sands, Canadian Association of Petroleum Producers]

Thank you very much.

Mr. Chairman, members of the committee, we appreciate the opportunity to join you today to share our views from the Canadian Association of Petroleum Producers in regard to your market diversification study.

In particular, as you know, we have a very important focus on this issue. Our focus right now, for today, will be on the oil and gas sector, but that spreads across, as you'll hear from the other witnesses, to other sectors as well.

Let me start by putting in your minds the context for the Canadian oil and gas industry as we discuss this market diversification.

First off, our industry in Canada plays an important role. We invested $61 billion in Canada this last year just in capital investments and paid $21 billion to governments in royalties and taxes. We employ about half a million people, and we account for about 20% of the exports in Canada.

In a nutshell, the oil and gas sector plays a very vital role in the Canadian economy. To play that role, for us market growth and diversification are critical: first, to assure that we have a market outlet for our growing crude oil supply and our natural gas production; second, to improve access to global prices for our products; third, to improve the security and reliability for all Canadians; and fourth, to continue to provide the economic benefits I talked about, and improve the quality of life for Canadians across the country.

In order to realize this, Canada needs to be competitive. We also need to have the social licence to develop and operate the infrastructure necessary to move these products to our markets.

Let me start with crude oil and give you an idea of that. Canada has been very much blessed with abundant crude oil resources. We have the third largest resources in the world. Canada's production right now of crude oil far exceeds our domestic and local refining capacity. The map I brought with me indicates that we have about two million barrels a day of refining capacity here in Canada right now.

Even with these world-class resources, though, it is not well known that the refineries in eastern and Atlantic Canada—from Quebec east—actually import over 60%, or 670,000 barrels a day, of their oil from offshore suppliers. About two-thirds of our Canadian crude oil production is actually exported, and almost all of those exports are to a single market in the United States.

Natural gas, likewise, has a vast and growing resource available to it due to new technology developments. It has really unlocked this large shale gas resource not only in Canada but also in the United States.

As is the case for oil, our natural gas production really does exceed our domestic requirements. Again, about 60% of our production here in Canada is exported, but exclusively to the United States. With the surge in shale gas production in the U.S. and Canada, supply is being backed out of its more traditional markets in the U.S. In fact the U.S. gas is now being imported into eastern Canadian markets. The market is working.

Any discussion on market diversification of the Canadian energy sector needs to take into account the recent changes that have changed so dramatically our market trends. First, the crude oil production from western Canada is about three million barrels a day. It's expected to reach about four and a half million barrels a day by 2020. Most of this growth will come from the oil sands production, which is heavy crude.

New application of technology, however, is unlocking large resources in this tight oil—or oil shale, as it's sometimes called, where there's light oil that is simply in tight resources, less porous reservoirs—and it's moving to offset the declines that we have seen in our industry over the last several years.

We'll be releasing our annual forecast in about a month, but I want to assure you today that we don't anticipate, in the data we've seen so far, any significant changes in that forecast.

The outlook for crude oil demand in the United States is relatively flat. Recent Canadian production has experienced discounts relative to world oil markets due to a significant increase in the supply in North America of both oil sands and this tight oil, and the lack of infrastructure to get those new supplies to markets.

Estimates are in place that this price disconnect between the price available to Canadian production in the North American market and that in the global markets is costing the Canadian economy, not just the industry, about $50 million per day. This is a key driver for us to expand and diversify our markets.

The potential that exists to grow and diversify our markets for Canadian oil includes, first off, eastern Canada, exports from Canada's west coast, and the U.S. gulf coast. Let me go through each of those three quickly.

In eastern Canada in 2012, as I mentioned, Quebec and the Atlantic provinces alone, not just all of eastern Canada, imported 700,000 barrels a day of their 800,000 barrels a day of production, from offshore sources. This region is currently purchasing crude oil at world market prices, which are currently higher than the domestic prices we're seeing in the rest of Canada. The timing for this new infrastructure is important, as Canada is not the only infrastructure that we're looking for.

That supply from western Canada is going to supply reliability and security in a very competitive financial way to eastern Canadian consumers. In addition to the pipeline, though, rail alternatives are also being proposed to increase this movement of oil into eastern Canada. While the market will ultimately make that decision, we think there's a strong case to grow the western Canadian supply into these markets.

I want to talk about the west coast options. With Asia being the fastest growing energy market in the world, it represents a great opportunity for Canadian heavy oil producers. As an example, in 2011 China imported 5.7 million barrels of oil a day to satisfy its needs.

In addition to Asia, there is also the refining capacity in the states of Washington and California, and it's almost 2.8 million barrels a day. Last year, these refineries imported only 146,000 barrels a day from Canada. A key source of supply for these regions is Alaskan crude, which has been declining over the last 10 years, and given the proximity to our west coast, this is an opportunity that we would like to fill. Both pipeline and rail options are under consideration to actually increase the export market access to these markets as well.

Last but clearly not least is the U.S. gulf coast. While market diversification is critical, it doesn't make sense for any producer to be tied solely to just one market. There is also no doubt that the U.S. will continue to be our major market for exports for crude oil into the future.

The U.S. gulf coast represents the most significant opportunity in North America for market growth for Canadian heavy oil producers. There is a market of nine million barrels a day in the U.S. gulf coast. A significant portion of that is heavy oil capacity that has already been built and is currently processing heavy oil from other suppliers.

Refineries in this market are importing oil from Mexico, Saudi Arabia, and Venezuela. Imports from Mexico and Venezuela have been declining in recent years. Canada has an opportunity to fill that gap, provide a reliable, secure supply, and satisfy the needs of these existing refineries if the pipeline capacity is put in place.

Again, a number of pipeline proposals, including Keystone XL and others, and rail proposals are looking to fill that gap. Many of the options that were put on the table are being evaluated; it is well advanced and Keystone is one of the most strongly supported in the market. In our view, there's a strong case for approval of this project on its merits, and we believe that the Department of State, with its supplemental environmental impact statement and its recent points, has made that point very clear.

Let me turn briefly to what Mr. Egan talked about in regard to natural gas.

For natural gas, there's a significant growth in unconventional gas supply, both in Canada and in the U.S. Shale gas has become a game changer, most notably due to the Marcellus and other plays in the southwest U.S., and what we call the Montney or the Horn River plays here in Canada.

A number of the traditional markets for our Canadian natural gas exports are in close proximity to this growing natural gas supply in the U.S. As a result, our Canadian gas producers are looking for other opportunities both to expand and to diversify their markets, not only to other geographical areas but into other uses in Canada as well. This has resulted in substantial changes in the North American market, both in pricing and in where that gas moves.

One of the most important things for us is seeking that demand beyond our North American borders, particularly in the growing markets in Asia via liquefied natural gas exports. It's fair to say that the future of our natural gas industry in western Canada is largely dependent on the timing and competitive development of liquefied natural gas export and its infrastructure on Canada's west coast.

Canada has a window of opportunity to develop this LNG off Canada's west coast, but it must be done relatively expediently in order to compete globally with well-established and emerging LNG-exportìng countries. This is a very competitive global market, in which Canada is somewhat of a latecomer. To date, three projects have received their licences to export LNG from Canada, and there are another four that are being proposed in order to take a look at that. This has the potential of about six billion cubic feet a day.

Equally, in addition to these growing export markets, there are opportunities to expand use of natural gas here in Canada. The key markets for natural gas include, of course, the oil sands, natural gas for power generation, natural gas for transportation—as Tim has mentioned, not just for long-haul vehicles but also for fleet vehicles—and natural gas for home heating and other domestic needs. All of these will require new infrastructure and expanded existing infrastructure, so there can be market diversity in that way as well.

We are clearly on the global stage as the Canadian oil and gas industry and have many strengths with which to compete on those global markets, but there are a few things that it would be helpful for the government to do to help us out as well. The industry has its role to play. We need to demonstrate responsible development and continuous improvement in our economic, environmental, and social performance. We need to be transparent. We need to do cooperative research and development like COSIA, which was mentioned by Ms. Drohan. We need to be transparent in communicating and in dialoguing effectively with the public.

Likewise with governments, there are a few things we'd like to put on the table that could be helpful in expanding and diversifying this market.

First would be ensuring policy that is right for Canada, recognizing our energy circumstances and our economic dependence on responsible resource development. Second would be ensuring that Canada has a world-class regulatory system, for example, as it relates to the management of transportation of oil that we've seen the federal government move forward with recently. Third would be advancing policy that continues to support timely and efficient regulatory decision making. Fourth would be ensuring that an integrated policy approach to market growth and diversification addresses all the elements: fiscal, environmental, trade, aboriginal, and regulatory. Last would be advancing policy that continues to reinforce our commitment to open borders and free trade.

With Canada's economy and the international opportunities at stake, we believe this is a very important opportunity for both industry and governments, and one that can help us as an industry realize those economic benefits that I talked about earlier.

Thank you very much, Mr. Chairman.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Stringham.

From Cameco Corporation, we go now to Jeff Hryhoriw, director of government relations.

Go ahead with your presentation please, for up to seven minutes.

[Jeff Hryhoriw]

Thank you, Mr. Chair, and my thanks to your committee for inviting Cameco here today to share our views on the importance of market diversification to Canada's energy sector.

I'd like to begin today by telling you a bit more about our company before talking about the evolving market for our products, and ending with a quick synopsis of what the federal government can do to help facilitate market access for Canadian players in this industry.

Headquartered in Saskatoon, Cameco is one of the world's largest producers of uranium for nuclear energy, accounting for about 16% of total global production. The majority of that production comes from our extensive mining and milling operations in northern Saskatchewan. I should add that we also have exploration projects on the go both in Saskatchewan and other provinces and territories across Canada.

Cameco’s Canadian footprint extends beyond mining into other aspects of the nuclear fuel cycle. We have uranium refining, conversion and fuel fabrication facilities in Blind River, Port Hope, and Cobourg, Ontario. We also own just under a one-third share of North America’s largest nuclear power generating station, the Bruce B reactors on the shores of Lake Huron.

In terms of sales, Cameco markets its uranium and fuel products around the globe. We play a major role in the energy equation of many countries, particularly here in North America, where Cameco uranium currently powers one in every 14 households in Canada, and one in every 18 households in the United States.

Through these activities Cameco employs more than 5,000 people in Canada between direct employment and long-term contractors. Importantly, close to 1,700 of these jobs are held by workers of first nations and Métis heritage, making Cameco the largest industrial employer of aboriginal people in Canada. It’s a record of which we are very proud, and we intend to build on it going forward as we grow our business.

Cameco is in the midst of an ambitious growth plan to increase our uranium production from the current rate of around 22 million pounds per year to 36 million pounds per year by 2018, with the vast majority of that increase again coming from expansion and development projects here in Canada.

We are undertaking this strategy in response to a growing market for nuclear energy that is currently manifesting on the world stage.

Despite the current global economic malaise, despite the short-term uncertainty that is affecting commodity markets, despite the lingering effect on the nuclear sector of the earthquake, tsunami and nuclear incident in Japan, I am pleased to report that the long-term fundamentals of the global nuclear energy sector remain strong.

There are presently 435 operable civil nuclear power reactors in the world. There are an additional 65 reactors under construction right now, and dozens more in the planning stages. By our estimation, this will take global nuclear generating capacity from the current level of around 392 gigawatts to 510 gigawatts by 2022. This represents a 30% increase.

Again, these are post-Fukushima numbers, representing growth this industry hasn’t seen in decades. Also interesting is where the majority of this expansion is happening, because it likewise signals a notable shift.

As with most commodities, the biggest growth market for uranium is China. China currently has 17 reactors in operation, another 28 under construction, and plans for dozens more thereafter.

Another rapidly expanding market is India, which operates 20 nuclear reactors, has another seven under construction, and is planning for several more units by 2020.

While these two economic giants lead the way, other nations are similarly expanding their existing reactor fleets, while still more countries that have not generated nuclear power to date are now turning to it as a form of clean, safe, reliable electricity production.

That’s not to say that growth is stagnant in our major long-standing markets, either. With 104 reactors, the United States is still the largest nuclear energy consumer in the world. Construction is now under way on three new reactors in the U.S., the country’s first new builds since the 1970s.

However, current expansion patterns clearly point to a global market for nuclear energy that is shifting.

While established players, like the U.S., will always remain important in the nuclear industry, the emerging growth markets are vital to our long-term success. The Government of Canada and indeed all parliamentarians play a major role in determining the ability of Canadian companies to participate in these markets.

The nuclear energy sector is among the most highly regulated in the world, and rightfully so. There are both international and bilateral non-proliferation safeguards in place to ensure that products and technologies sold for peaceful, civilian nuclear energy generation are used exclusively for that purpose and not diverted for military intentions. Among these safeguards are nuclear cooperation agreements, or NCAs. No trade of nuclear products or technologies can take place between two countries unless they have successfully negotiated and implemented a bilateral NCA governing the approved usage, tracking and reporting requirements for such materials.

Canada has had NCAs in place with countries like the U.S., Japan, South Korea for some time. However, a number of agreements with key growth markets have only recently been concluded under the current government, including those with China and India. These two NCAs, in particular, were welcomed as very significant and celebrated events by the Canadian nuclear sector. They open up the two fastest growing markets on the planet to Canadian uranium, fuel products, and reactor technology, enabling Canadian players in this industry to compete on an even footing with their counterparts around the world.

The net result of these agreements is that more of the financial benefits from the growth taking place in the global nuclear energy sector will accrue to Canada so that Canadian companies, workers, and communities reap the rewards of the jobs, investment, and economic activity that go along with this magnitude of growth. To provide a concrete example, Cameco currently has long-term sales contracts in place with two Chinese utilities, the value of which will be in the billions of dollars. Up until now we were compelled to fulfill these contracts using uranium sourced from other countries. With the NCA now in place, it's our intention to soon begin using Canadian uranium for this purpose. Again, the net result is that Canada will be bearing the fruits of this labour, not some other country.

Another activity that the federal government can undertake to help open energy markets is to engage in trade missions with key destinations. Governments play a major role in the electricity supply arrangements of many countries, especially when nuclear energy is involved, and in many of the countries where growth is happening, state-to-state relationships remain incredibly important to doing business, even for private companies.

Foreign leaders want to know they can trust the companies with which they are dealing, that they have the endorsement of the Government of Canada as a credible and reliable partner. That reassurance is delivered when senior federal representatives travel to these countries alongside their business leaders. In an industry where many of our competitors are state-owned enterprises, that support is particularly valuable. Cameco has made great strides in its commercial dealings by participating in such foreign trade missions, and we want to reinforce their importance with members of your committee.

Mr. Chair, I've covered a lot of ground in a short period of time, so with that, I will again extend my thanks on behalf of Cameco and look forward to any follow-up questions.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation from Cameco.

We have now, from the Pembina Institute, two presenters. First of all, I understand Mr. Nathan Lemphers, policy analyst, oil sands, will present. Then he will be followed by Dr. Tim Weis, director, renewable energy and efficiency policy.

Go ahead, please, Mr. Lemphers, with your presentation.

[Nathan Lemphers, Policy Analyst, Oilsands, Pembina Institute]

Thanks for the invitation to share the Pembina Institute’s perspective at this committee hearing.

Pembina's mission is to advance clean energy solutions through research, education, consulting, and advocacy.

When it comes to diversification of energy markets, it's not just where you ship your products, but what you are actually shipping. In the case of Canada it is oil, led by the oil sands, that has become a dominant energy export. Oil as a share of commodity production value has risen over the past 15 years from 18% to 46%, a near tripling. That's nearly as much as natural gas, metals mining, forestry, and agriculture combined. This is not what I would consider to be product diversification.

As Canada’s economy reorientates towards oil sands production, we will see that diversity be replaced by increasing reliance on oil sands revenues to fill public and private sector coffers.

This lack of product diversity is problematic for a number of reasons, both economic and environmental.

On the economic front, oil sands have relatively marginal economics compared to most other oil sources. In last year's World Energy Outlook, by the International Energy Agency, they did a cost comparison of a variety of different oil sources, and the capital and operating costs for the oil sands for new production was up to 15 times higher compared to new production coming out of places like the Middle East. These marginal economics make the industry susceptible to prolonged price spikes or price crashes. The fate of Suncor's Voyageur project, or half a dozen other upgrader projects that have been shelved in the last decade, are a testament to this. This volatility threatens not only private sector competitiveness, but is also the source of many headaches for governments like Alberta that use oil revenues to pay for essential services.

This lack of diversity of energy products is also problematic on environmental grounds. The real and perceived dominance of oil sands exports has caused all sorts of environmental concerns along pipeline and tanker routes. For downstream markets, hands down the number one concern has been unregulated carbon pollution from the oil sands, and that's seeing an interest from downstream markets through California's clean fuel standard, a similar standard in the European Union, or the Keystone XL pipeline proposal. It's widely known that oil sands expansion will be the reason that Canada fails to meet its climate commitments.

In the absence of a credible plan to address climate change and the challenging economics that oil sands are facing, downstream markets are starting to be increasingly concerned. When you take the climate perspective into account, the International Energy Agency noted last year that two-thirds of proven fossil fuel reserves need to stay in the ground if the world is to prevent catastrophic climate change. Economist Nicholas Stern has called these reserves, the two-thirds quotient, “stranded assets”. Even HSBC, which has called these assets “unburnable carbon”, found that not burning these assets would strip up to 60% of the value of some oil companies based on their devalued portfolio. Because the oil sands are particularly carbon intensive, this has even greater ramifications here in Canada.

If Canada bases its future economic competitiveness on a product with a questionable future, then this study should cause some soul searching on what sort of energy superpower we are setting ourselves up to become. Luckily, Canada has no shortage of options in energy products and technologies that can put it on track to compete in the rapidly growing $1-trillion global clean energy economy.

I'll pass the microphone over to my colleague, Tim, now.

[Dr. Tim Weis, Director, Renewable Energy and Efficiency Policy, Pembina Institute]

Thank you for having me.

I think it's important that we make sure we take heed in not overrelying on a single resource, but I think we all would agree that there is an important role for developing Canada's fossil fuel resources. One of the big questions we have to answer is, to what end? What are we using this one-time endowment for when it comes to diversifying our overall economy and our overall energy landscape?

A key opportunity for us, if we are going to be thinking strategically about our fossil fuel resources, is how we use them to invest in cleaner opportunities. Canada contributes about 2% of the global GDP, yet we capture only about 1% of the clean energy industry globally, which is about a $1-trillion industry, but also is rapidly growing. It's forecast to be about $3 trillion within the next seven years.

Renewable energy is a major subset of the overall clean tech industry. It has grown about tenfold in the past decade, reaching about $300 billion last year. Renewable electricity accounted for about half the new electricity supply installed globally in the past two years, while in Europe alone almost half the electricity supply last year came from solar photovoltaics on their own. Canada is a major player in this market, and we shouldn't underestimate that. Right now, Canada has the seventh largest electricity system on the planet, so we shouldn't think of ourselves as small players in this overall market. Not only are we a very large electricity consumer on our own, but we're also right next door and well connected to the second largest electricity system in the world, the United States. Canada is home to the fourth largest hydroelectric capacity and the ninth largest wind energy capacity in the world.

So when it comes to clean energy, there are some ways to think about it. Canada can either be considered the smallest of the major players, or the largest of the minor players. Either way, we have a big opportunity to grow our share in what is a growing market. I think there are three ways we can grow and diversify into renewable energy.

The first is to start at home. Currently, our electricity system accounts for about 10% of our overall greenhouse gas emissions, and there are major opportunities to clean that up using cleaner electricity sources, including renewables. A clean electricity system is not only important to decarbonizing the system itself, but an increased reliance on electricity is going to be important to decrease our overall energy footprint as we move things like building, heating, and transportation onto the electricity system.

Another key opportunity for diversification is to take advantage of the large electricity market south of the border. Currently, we export about $4 billion of electricity to the United States. The United States' heavy dependence on coal opens up an important opportunity for them to be reducing their emissions, but also for us to be supplying the United States with clean electricity.

Last, manufacturing is another really important area for market diversification for us. Renewable energy's growth has been exponential over the last couple of decades, but that growth is forecast to continue, not only to decarbonize existing electricity systems, but also to help provide electricity to the 1.3 billion people around the world who don't have power. Canada is already an established manufacturer, with products ranging from solar panels, to wind turbines, to inverters, to emerging areas of power storage. Renewable energy manufacturing is very synergistic with our existing automobile industry. Germany has proven the synergies between these two manufacturing sectors.

To take advantage of manufacturing, Canada not only has significant domestic market opportunities in the United States where renewable energy continues to grow, but also in Latin America, which has become one of the largest growing markets for renewable energy. Our geographic proximity gives us a competitive advantage.

To sum up, Canada is already a significant player in the clean energy market, and we shouldn't underestimate ourselves, but this is a globally growing market and we have lots of room to grow and to be a much more major player. But there is competition to get there, so if we want to be a serious player in the growing clean tech market, now is the time for us to take advantage of that.

The first and most important thing the federal government can be doing is to internalize the cost of carbon so we can send a strong market signal that this is an area that Canada wants to be serious about developing.

The second and the last thing I'll say is there's an opportunity for the federal government to try to get our provinces to work more closely together on this issue. An important vehicle for that is the Council of Energy Ministers, so we're not acting like 10 different energy markets, but taking advantage of our market as a country.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentations, Dr. Weis and Mr. Lemphers from the Pembina Institute.

Thank you all for your presentations.

We go now to questions and comments from members. For the seven-minute round we start with Mr. Trost and then we'll go to Mr. Nicholls and then Mr. Garneau.

Go ahead, Mr. Trost, for seven minutes.

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

Thank you, Mr. Chair.

Thank you again to all of our witnesses. Everyone had a good presentation today.

Because most of the next few rounds are going to be dominated by oil, and probably to a lesser degree natural gas, I'm going to start off talking a little about uranium, which I think gets forgotten, as have some of the other industries, technologies, and fuel sources in some of the other rounds.

My first question has to do with the nuclear cooperation agreements, NCAs. They don't seem to be absolutely crucial to your business. They also seem to be something which the federal government isn't actually involved in. I'm sure we won't be negotiating them with North Korea or Iran any time soon.

Could you tell me a little about why they're so crucial where we're looking to expand for further markets? I know you're quite happy with what the government has done with India and China, but I'm sure there are other places.

Could you elaborate a little more on why that's crucial, what the federal government can do, and where we're going with future markets?

[Jeff Hryhoriw]

Thank you, Mr. Trost.

Yes, there is quite a robust regulatory regime on the non-proliferation aspect of the nuclear energy sector, with some very stringent international safeguards as well as bilateral safeguards between the two nations in question. No trade in products or technologies of a nuclear—

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

I was asking about countries other than those two. That was sort of a reference. You don't have to worry about those two.