Natural Resources Committee on May 7th, 2013

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

Thank you very much, Mr. Chair, and my thanks to our witnesses for being here.

My first question is for Mr. Egan and Mr. Stringham.

I think you tried to address this a few minutes ago, but I don't think we got a definite answer because you probably ran out of time.

One of the statements you made, Mr. Stringham, was that 60% of our production is exported exclusively to the U.S. You said that with the surge in shale gas production in the U.S., the Canadian supply is being backed out of the traditional markets, and in fact, more U.S. gas is now being imported to eastern Canadian markets.

A couple of things on that strike me. Losing an export market, getting squeezed out, is one, but the other side of it is that if we don't move in our own area, we might end up losing our own internal markets. Is there a timeline for losing this opportunity? That could apply to natural gas and oil sands as well.

[Greg Stringham]

There definitely is. In North America we operate in a very integrated market. You've seen on the pipeline maps that it is very integrated. We take the market forces for that. Travelling all the way across the country, versus moving from New York up into Quebec and other markets, makes it hard to compete on the transportation side. That window is very short. That's starting to happen, and we see it happening right now. We're willing to see that happen. You've seen the reaction across North America. The drilling rigs are down. People aren't looking for as much anymore because there's an ample supply.

This drives us to looking for the LNG markets where we have a strategic advantage and we can compete. The same thing happens on the oil side. On the oil side of things, clearly we want to move into markets that are open and looking for that. The markets on the U.S. gulf coast right now are losing their supplies from Venezuela and Mexico in heavy oil. They're looking for that market right now, but they won't look forever. They'd like to see the growing supply come from Canada to connect that. So we have a little longer window of opportunity there than we do on the gas side, but both of them are windows.

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

Mr. Egan.

[Timothy Egan]

The integrated natural gas market is a great strength of North America, and the prospect of natural gas coming into eastern markets from the United States is a competitive advantage for industrial, residential, and commercial consumers in those eastern markets, because the transmission costs are lower.

My colleague mentioned a number of as much as eight billion cubic feet per day of potential exports from likely projects. These are export projects on the west coast, announced projects. This eight billion cubic feet a day is under three trillion cubic feet a year, which is more or less the volume of natural gas we currently export to the United States. In other words, what you could see is a direct offset, eastern markets taking U.S. gas, which is closer and more affordable for domestic supply, and western suppliers exporting Canadian western gas to Asian markets.

It isn't a threat to the domestic price regime in the domestic marketplace. It's buy low, sell high, and doing both at the same time, which is an opportunity for Canada if we can seize it.

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

You talked about this hub-and-spoke system. I'm thinking about markets in Canada.

I was in my riding on the weekend and it was kind of interesting. In New Brunswick, where I'm from, the heating market is dominated by oil and electricity. We get penalized because we don't have fuel choices.

McCain Foods is converting two of their french fry plants in my riding to natural gas, but because they don't have a pipeline system, they're doing it through compressed natural gas and taking it there. They get a $1-million project to do this conversion, but they're going to save 30% in their energy costs.

I was intrigued by your idea of the hub-and-spoke system. Do some of those hubs and spokes work on a pipeline basis to a major customer like that, or does it work on trucking to a major customer and then a distribution system in those smaller communities?

[Timothy Egan]

It can work on both. The trucking example you cite is one that's currently being used in Nova Scotia, where you have an existing franchise, a small franchise, like New Brunswick's, a relatively young natural gas distribution industry. That franchise has some small communities that are quite far removed from the main pipeline. That pipeline can't be extended affordably, so the substitution strategy is to move natural gas as compressed natural gas from one point to another and into a distribution system.

So it is possible to do that, and there are precedents for it in the Maritimes.

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

I'm wondering if there are volumes where the trucking and the pipeline...because pipeline is obviously the most effective way to move it. Is there a tweaking point where pipeline and trucks...?

[Timothy Egan]

Pipelines are by far the most effective and safest way to move it. It all depends on whether you can position that pipeline.

In the case of the Nova Scotia example, the technical and cost challenges of extending the pipeline are such that it's more cost-effective to use the CNG model. There's an economic model, which is pretty straightforward, to determine which works in which case. In the earlier example of northern Canada, a pipeline is not the appropriate strategy; to truck CNG or LNG is the appropriate strategy in that instance.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Allen.

The bells are indicating that we have to leave for the votes.

Thank you to all of the witnesses: as an individual, Ms. Drohan from The Economist; from the Canadian Gas Association, Mr. Egan; from the Canadian Association of Petroleum Producers, Mr. Stringham; from Cameco Corporation, Mr. Hryhoriw; and from the Pembina Institute, Mr. Lemphers and Mr. Weis. Thank you all very much. You have added to our study.

The meeting is adjourned.