Natural Resources Committee on May 7th, 2013

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you, Mr. Chair.

I thank our guests for being here today.

I want to talk about diversification, in particular in response to some comments that Mr. Lemphers just made.

Mr. Stringham, we've heard before from CAPP. As an Alberta member of Parliament, of course I'm deeply concerned about the differential in price. When we talk about diversification, we also need to talk about windows to market. There have been some comments made about Alberta's economy. I would suggest to you that Alberta doesn't have a revenue problem. Alberta has other problems beyond revenue. No province spends more per capita on social programs than the Province of Alberta. Notwithstanding the fact that the revenues are still there, the price of natural gas has come down so much that the royalties on natural gas have actually been the largest factor in Alberta's resource revenue, not oil. So that's a mischaracterization of the oil prices. There's been much more volatility in the price of natural gas than there has been in the volatility of the price of oil.

The concern I do have, notwithstanding that, is we have window-to-market opportunities for both liquefied natural gas off the coast of Canada and we also have window-to-market opportunities to diversify our economic bases for oil wherever it happens to be, Saskatchewan or Alberta, wherever it happens to come from. I'm just wondering if you can comment on how tight that window is, and what obstacles might be standing in the way of Canada achieving that.

[Greg Stringham]

Let me start with the idea of market diversification, because I think you hit some very key points there, in particular with natural gas. Natural gas right now is stranded within North America, but what that has done is it has led to a resurgence in the petrochemical industry in Alberta and other places as well where they have this lower cost feed stock that's going and creating other things that are out there because it's competing. That is really one key element, in addition to moving it elsewhere. We have the opportunity to actually build on it here because the industry can build on that, and there's still plenty in North America right now to start looking at moving the liquefied natural gas to other markets.

The west coast is really the closest and nearest. As I mentioned, there are several proposals there, but we can also actually achieve some of the environmental goals in addition to the diversification goals by moving there. If we can take the abundance of natural gas we have in North America, liquefy it and move it to places in Asia like China that are currently burning other heavier fossil fuels for their electricity, and displace that, we can actually achieve an environmental goal at the same time as getting the economic goals and the things that go on here in Canada. That's another way of looking at this in a bigger picture perspective that can benefit Canadians.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

What would be our market opportunity on that, given the fact that others that are also producers of natural gas are already appearing to be ahead of us and out of the gate on that? Can you advise the committee on some of the price differentials that other countries in the Asia-Pacific might be paying currently for their natural gas with North American prices?

[Greg Stringham]

Absolutely. As we look at the window of this, as you mentioned, and as I mentioned in my presentation, we are relative latecomers as Canadians to this market. Australia has been there for several years, and is actually moving ahead very quickly. We also see the discussions going on in the United States. Remember that they're part of this North American natural gas market, and if they open up their opportunities for export there for liquefied natural gas, it may be something that we lose out on. So that window is relatively tight. These plants take a few years to build, so we see them in the next three to five years. It's not something that's immediate, but the policy decisions that are needed to implement that need to be taken shortly.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

The last question I have is on the price differential of North American oil, depending on what indices you want to use. I'm not going to get into the list of indices that are being used. At the last meeting I was at we had an economist here who said that if Canadian oil were able to reach tidewater in significant enough capacity to command world price, we would actually see a blending of the world price and the North American price into a common global price. Would you agree with that assessment?

[Greg Stringham]

Yes. Typically, if you look back two years, the North American price was relatively equal to the international global price, transportation adjusted. Right now, what we see at least on the disconnect between the world price and what we call the landlocked oil price—so that's Canada and the U.S. and block in Saskatchewan and Alberta—of a minimum of $15. Putting that to Canadian production of about three million barrels a day, you're talking $45 million a day that's being lost because of that disconnect.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

Thank you.

Do I have some time left, Mr. Chair?

[The Chair, Conservative, Leon Benoit]

Yes, half a minute.

[Blaine Calkins, Conservative, Wetaskiwin, AB]

The last thing I'd like to talk about is how, if we were able to diversify our market access, that would also contribute to economic growth in terms of capacity. Right now, we're going to be limited in our ability to grow simply because we have nowhere to ship it.

Could you give us a comment on pipeline safety versus rail? I also represent farmers, and it's hard to send wheat down a pipeline, but it's easy to send it down the rail line. We have to make sure that we do this in an intelligent way to make sure everybody has an opportunity to get their products to market. If you could comment on pipeline safety and the preferred method of getting the products to the marketplace or to the coast, it would be very helpful.

[Greg Stringham]

Absolutely. I'll comment very quickly because I know you're short on time.

First, on pipeline safety, the newest pipelines that are being built right now are being built with high technology and a great deal of redundancy and safety in place. It constantly has to be improved and demonstrated that that's the case. Recent incidents unfortunately have been showing that the older pipelines that we've been working with have been a challenge, but they're putting in the mechanisms to do that.

With respect to rail, rail has come forward and said that they could actually fill a niche with the pipelines. Originally they came out and said they would compete with them and it's either rail or pipelines. Now they're saying, “We know that pipelines could eventually be built in this quarter. We can start and do it earlier or we can take it, for example, from Ontario off to New York and other places until the pipeline is put in place”. They're starting to find a way to move that niche, and the volumes being moved by rail are increasingly significant.

[The Chair, Conservative, Leon Benoit]

Thank you.

Mr. Choquette, you have up to five minutes, followed by Mr. Allen. Then I understand we're probably going to have bells. So, go ahead.

[François Choquette, NDP, Drummond, QC]

Thank you, Mr. Chair.

If I understand well, there is no consent to continue five minutes more so my colleague can ask a question.

[The Chair, Conservative, Leon Benoit]

We already will be going over time a little bit.

[François Choquette, NDP, Drummond, QC]

So will we have five minutes?

[The Chair, Conservative, Leon Benoit]

No, we'll end with—

[An hon. member]

We can share.

[The Chair, Conservative, Leon Benoit]

Yes, you can share time.

[François Choquette, NDP, Drummond, QC]

Yes, of course. I know.

Mr. Chair, I would like to thank the witnesses for coming today.

I will ask my questions in French, and they are addressed to the Pembina Institute representatives. I will be sharing my time with my colleague Dennis Bevington.

My first question has to do with the famous $1.3 billion in subsidies and the ecoENERGY program, which subsidizes research on tar sands and gas.

Would it be a good choice to withdraw theses subsidies and use them for research in diversification, in such areas as hydroelectricity, wind power and wave power, which we are beginning to hear about and which could be increasingly appealing in Canada?

Furthermore, not much can be done with tar sands, since we are being told we have to leave two-thirds in the ground to meet our objectives or our targets, which are quite weak in any case. Indeed, Conservative targets with respect to climate change are very weak. If we put a price on carbon, would we be able to do so at the federal level? For our part, we are proposing the creation of a carbon exchange, similar to what Quebec and California have just signed.

Could you please quickly answer those two questions? Unfortunately, my time is limited since we were unable to obtain the committee's consent to prolong the session and discuss this issue a little longer.

[Nathan Lemphers]

Sure, I could take a stab at it, and then maybe Tim could follow up.

I think it's critical, that two-thirds figure, and let's put it into context, that's if there's not wide scale use of things like carbon capture and storage technology, and that's certainly an option, and we stand behind it. We think it's potentially viable in places such as the oil sands, except the hard numbers of it is that it needs a price on carbon upwards of $90 a tonne for it to be economically viable without massive public subsidies.

Right now Shell's Quest CCS project requires over $850 million in taxpayer subsidies in order for them to go forward with it. It will be a case study and a pilot for the rest of the industry, but it's incredibly expensive, and given the price signals and the regulatory signals to the industry right now, it doesn't make economic sense to expand beyond that. That's why you have companies such as TransAlta dropping these projects at their electricity plants, because it just doesn't make economic sense.

If you shift the subsidies away from fossil fuel production and towards cleaner fuel production, you'll start to see the playing field tilt so that those sectors can start to compete. You can also see, through market mechanisms such as cap and trade or a carbon tax, that you can start to see the line of sight on the business case for even more reductions from the oil sands.

[François Choquette, NDP, Drummond, QC]

Thank you very much.

The remainder of my time will go to my colleague Dennis Bevington.

[Dennis Bevington, NDP, Western Arctic, NT]

Thank you.

I just want to make one comment about collaboration. What I've heard so far, Mr. Egan, is that you're interested in collaborating with the renewable energy sector because you see the advantages of that in terms of use of natural gas for electricity generation for heat. These are collaborative approaches that you're talking about.

Mr. Weis, what do we need to bring renewable natural gas, perhaps the utility companies together to come up with a plan so that we can move ahead with renewables? Is that the most likely scenario going forward?

[Dr. Tim Weis]

I think there is a natural synergy between renewable energy and natural gas, not only on what was discussed in terms of being the opportunity to balance renewables, but also in the longer term the opportunity is potentially to store renewables, whether it's this idea of power to gas, or even renewable fuels, or renewable natural gas.

I think the opportunity exists and I think we're seeing it more and more. But if we want to get there seriously then it comes back to we need to have that price on carbon. We also need to make a more aggressive move towards phasing out our coal plants so that people know this is where we need to be investing our dollars.

One of the big struggles the renewable energy companies are up against is trying to finance their projects in the long term. I think that potentially is an area in which the federal government could play a role in helping with some of that financing.

[Dennis Bevington, NDP, Western Arctic, NT]

Okay.

Mr. Egan, you talked about cogeneration and distributed cogeneration. How is that going with the utility companies in establishing that as a part of your market?

[Timothy Egan]

It's proceeding well. There are projects in jurisdictions across the country right now. The key driver is the affordability of the fuel. Most cogeneration projects, most projects involving biomass, and most projects involving other emerging fuels and technologies need an affordable fuel as a starting point, and natural gas is that starting point.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Bevington.

Mr. Allen.