Natural Resources Committee on May 9th, 2013

[Daniel Cloutier]

It will indeed be cheaper. In the market, it's important to monitor all the indices for western Canadian crude as compared with those for light crude oil. There's a significant difference in price. Sometimes, the price even rises more than $35 a barrel. Economically, it is crystal clear. No oil shortage resulted from our inability to obtain it on the international market, but we have suffered repeatedly because of price increases. In the international market, all it takes is a storm or a war for prices to fluctuate pretty dramatically.

We don't think that, in the near future, we will no longer know where to get crude from because no one wants to sell it to us. But price will continue to be a problem. No one wants to be a doomsayer, but I am far from convinced that, were a very serious international crisis to occur, very many countries would send us their reserves to prevent a shortage here. There is no doubt that the Atlantic provinces and Quebec depend almost solely on foreign sources. And yes, that is troubling.

[Joan Crockatt, Conservative, Calgary Centre, AB]

You talked about refinery closures, and I think that we've been used to hearing about the jobs that could be created because of pipeline expansion and getting international market access. Do you think that it will save jobs? Do you expect that if you have a secure and cheaper source of oil through pipelines it will save jobs that could be at risk right now because of those very tight refinery margins that you're seeing?

[Daniel Cloutier]

Of course.

Since we are in negotiations with both Suncor and Valero, I can tell you that dealing with this situation is a constant challenge. To make profits—which we have managed to do—we have to be much better in a number of areas. Despite that, investors most often choose locations with much better productivity. Our company is constantly trying to come up with ways to improve and do more. It feels like we can never take a break—even for a few minutes—because the cost of crude oil is a very critical factor.

To give you an example, according to the Solomon index, Ultramar has been ranked in the first quartile for years. However, its ranking has been dropping, not because technology is not as good or maintenance is less effective, but because the cost of crude oil affects profitability, which in turn affects investments. So if things do not change, there is no guarantee that even Suncor will still be around in 10 years.

As for the new units, they will lead to job consolidation. In addition, staff will be needed to build and operate those units. In Canterm's case, that means storing additional quantities of crude oil to supply Ultramar. Once again, jobs will be created. Irving will also want to have access to crude oil, so tanks will be created, as will jobs.

[The Chair, Conservative, Leon Benoit]

A short question, Ms. Crockatt.

[Joan Crockatt, Conservative, Calgary Centre, AB]

That brings me to my next short question—I was also hoping to ask Dr. Kenny one.

So you support the pipeline to the east coast as well, to create jobs there?

[Daniel Cloutier]

Yes, as long as the crude oil remains in Canada and is processed by Canadians. That is our union's policy.

[Joan Crockatt, Conservative, Calgary Centre, AB]

May I ask Dr. Kenny a quick question?

[The Chair, Conservative, Leon Benoit]

Sure, go ahead.

[Joan Crockatt, Conservative, Calgary Centre, AB]

You mentioned that attitudes are changing, that you have to rebuild trust. Could you just tell us how Canadian attitudes are changing as you provide more information? You spend a lot more time talking about getting more information out.

Thank you.

[Dr. Brenda Kenny]

First of all, I think we're at that point where people are saying, “Gee, I never really thought about it before. I guess we have a lot of pipelines. What are these things?” Six years out of sight, out of mind. Accidents are extremely rare so people generally hadn't really thought about it much, but in fact if you drive a car it's thanks to a pipeline mostly in Canada—not in all places, but for the vast majority that is the case, and certainly in all cases for natural gas.

So we have to start with the questions, “What are your questions, what do you want to know?” and some of the basics that folks want to gain a better understanding of. But also, admittedly, there have been a couple of incidents lately that created a lot of news awareness—I think in part because there is so much discussion about energy and environment and various expansions.

It's very important for us that we become much more transparent and clearer, and invite people to ask us questions and gain a sense of confidence that there is no hidden agenda, that there is no untold story and there are no risks that are not well understood and well addressed.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Ms. Crockatt.

Mr. Allen, go ahead please.

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

Sorry, but on a point of order, Mr. Chair, could we just get from the clerk how long that round was?

[The Chair, Conservative, Leon Benoit]

It was six minutes and sixteen seconds.

Go ahead, Mr. Allen, for about six minutes.

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

Thank you, Mr. Chair. I appreciate that.

I appreciate our witnesses being here.

Mr. Facette, I'd like to start with you. Being an Atlantic Canadian and specifically from New Brunswick, I'd like to explore a couple of areas with you. Number one is the fracking, and the second one is talking about your solution for New Brunswick, with the New Brunswick government.

You talked about the Red Deer facility using the gel propane, and we heard that in one of our studies before. We've done quite a number of studies on natural resources, and I can't remember if it was the last one or the one before that. There were some folks in who were actually talking about starting to use propane as opposed to the tremendous amounts of water that has to be used for fracking.

You said there's full recovery of that. How is that going, and do you see that as a...? With the amount of fracking we're going to potentially do, how big a market do you see for your industry?

[Jim Facette]

Thank you very much for the question about propane fracking. At the risk of sounding like a commercial for GASFRAC, because it is the only company in Canada that is actually doing it, I'll do my best to answer your question. The potential market is worldwide, I guess, from GASFRAC's own report to investors this week. I believe they have seven offices around the world. They've done, to the best of my knowledge, about 1,500 fracks since they came into business in about 2008, I believe. The work they do in Canada tends to be concentrated in Alberta, up in northwestern Alberta. They do a lot of work, I believe, for a major client of theirs.

This is proprietary technology they developed themselves in which they're able to recoup about 100% of the propane they use. They're working on ways to reuse that propane actually themselves for more fracking going forward. They mix that with synthetic sand that they bring in from Japan, I believe. It's more consistent, it's purer, and it makes for a better frack.

In terms of potential use in Canada, when people talk about fracking, I'm not sure if they're talking about hydraulic fracking or fracking in general or they just don't want anything to happen at all. Is it science-based? I'm not 100% convinced that it is all the time. If you look at the science of what goes on in fracking, be it water-based or otherwise, the science would dictate itself whether one should proceed accordingly or not.

As it pertains to Atlantic Canada actually, GASFRAC did do an experimental frack in the Moncton area some time ago, and I understand it went exceptionally well. It does tend to use quite a bit of propane. You can use up to about 500 million litres of propane to do a full-on frack. The costs upfront I gather are a little bit more than traditional fracking methodology, so depending on the company, it may prefer traditional fracking versus propane. But I think even in the CEO's only M and A report to the markets this week, it said that part of the challenge was that it has to get its message out there, that acceptance in the industry itself is a challenge. It wants to look at it some more.

There a couple of companies, I believe, in the United States now that have begun to do it as well. It's getting a lot of attention in industry publications and those circles. I'm not so sure it's getting a lot of attention outside of that at all. So there's a real opportunity for market diversification. I know that company in particular has been over to Europe to talk to various jurisdictions that have banned fracking because of the water, and if that's the concern, then to suggest they have a look at propane and what it can do.

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

Thank you. That's very helpful.

Obviously you know our heating market in Atlantic Canada is dominated by electricity and fuel oil. What is your price point when you look at it versus natural gas versus fuel oil versus electricity?

[Jim Facette]

It depends where you are in Atlantic Canada, because the price we can charge for propane in New Brunswick is actually regulated, as it is in Prince Edward Island. So it's regulated to a maximum, although I don't know how many of our members actually go to the maximum. They compete pretty hard, so it's probably a whole lot less than maximum.

The price point is driven by the market. It is driven by the supply and access to the supply.

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

As you were saying, though, the mining companies and others are seeing a business case so obviously the investment—

[Jim Facette]

What the mining companies are seeing is diesel. The propane can come in at 40% less than diesel without any problem, given the price of propane right now.

If you're looking at a large number of uses for propane and you want to secure your supply long-term, I'm sure I have members who will sit down with you and talk about some long-term pricing, without any problem at all.

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

I know that a lot of the businesses, because of the distribution.... We don't have much of a pipeline infrastructure in New Brunswick. We have it in some of the centres where there's natural gas, as Michael would know. It's kind of a challenge to get this around, so a lot of it we have to truck.

[Jim Facette]

Or you could use rail.

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

Or we use rail.

[Jim Facette]

Actually we have members who are looking at leasing rail cars and bringing more by rail into Atlantic Canada and storing it.

The real challenge for propane in Atlantic Canada is storage. You have natural salt caverns in the Sarnia area that Mother Nature gave to that region of the country through the ice age, and all the rest of it. Now we're looking at storage capacity. That's really what the challenge becomes.

If we can look at the logistics of pipeline and supply for that area, there's no problem.

When it comes to propane, the beauty is that we can actually go forward with it and put together a propane grid for a community quite easily.

[The Chair, Conservative, Leon Benoit]

Thank you.

And thank you, Mr. Allen.

You have about six minutes, Ms. Liu.

[Laurin Liu, NDP, Rivière-des-Mille-Îles, QC]

Thank you, Mr. Chair.

I want to thank our witnesses for meeting with us today.

I would now like to talk about the Conservative government's budget 2013 and, more specifically, the decision to phase out the labour-sponsored funds tax credit.

Mr. Cloutier, I know that you may be able to talk about that.

I want to discuss this in the context of our study. We know that those funds have helped many small businesses develop new technologies, especially in green and renewable energies.

In addition, I should point out that, since 1990, over 500,000 jobs have been saved through those investments. I see the government's suggestion as an ideological attack on the Quebec model.

Has the FTQ taken a position regarding the changes proposed in the budget?