Thank you, Mr. Chair and committee members, for inviting me to appear before you in order to discuss the diversification of the Canadian energy market.
First of all, I would like to congratulate you for embarking on this comprehensive study, which is essential for our economy.
Canadian Manufacturers and Exporters is Canada's largest trade association. We represent about 10,000 companies across the country.
The manufacturing industry is quite concerned, in general, about energy supply and demand, and we strongly believe that the government has an important role to play in making sure that increased supply will meet the needs of our industry.
As large consumers of energy, we are concerned with the price and the diversity of energy available on the market. As manufacturers, we're also concerned with the transport infrastructure needed to make the energy more available and affordable for manufacturers. Finally, as exporters, we believe it is in our interest to make sure we don't limit our production capacity with inefficient infrastructure.
I'll say just a couple of words on the consumption of energy by the Canadian manufacturing sector. As you can imagine, energy is an important element of the cost structure of any manufacturer. Manufacturing accounts for about 68% of energy consumed by all industries in Canada—that excludes commercial and institutional consumption. In Ontario only, about 60 large industrial customers account for one-fifth of all electricity consumption in the province.
Let me talk about the sources of energy consumed by Canadian manufacturers. The dominant energy sources in manufacturing are largely electricity, at 29%, and natural gas, at 27.8%. They both account for 57% of all energy consumption in Canada's industrial sector. If you add all variants of heavy fuel oil, you have about 91% of all energy consumed by the Canadian industrial sector.
Let me say a couple of words on the cost of energy used by industry. That's, of course, a major concern in Ontario. I think we used to have a competitive advantage over the U.S. with respect to industrial electricity rates. However, in recent years the U.S. has quickly found cheaper sources of unconventional natural gas sourcing, using new, innovative methods—we've heard about fracking and other new, innovative ways of exploiting natural gas—which have made this source of energy more affordable to U.S. manufacturers.
Some observers are talking about a resurgence of manufacturing as a result of new forms of cheaper energy. The U.S. production of natural gas has increased by over 350% between 2007 and 2011, and it will continue to grow at least until 2040, given the size of export markets available.
Our competitive advantage is decreasing, especially in Ontario, as I said. While the province had cheaper rates than the average U.S. rates before 2008, we estimate that Ontario industrial rates will increase by 34% by 2017. As a result, the gap between the U.S. and Ontario industrial rate is expected to more than triple over the next five years.
In summary, we believe it is important for Canada to consider the cost of energy and its role in the economic development of the country. We believe that government policy should try to provide reliable and diversified sources of energy at competitive prices. That can be done through regulations, but also and more importantly, through the development of our own reserves of unconventional natural gas, as well as investments in the infrastructure required for transportation.
Let me talk about infrastructure and export diversification. We often refer to Canada as an energy superpower. I both agree and don't agree.
I agree because our oil reserves of over 25 billion barrels of crude oil, our 150 million barrels of economically recoverable bitumen, and our 40 trillion cubic feet of natural gas are amongst the largest in the world.
In one sense I disagree because if we don't have the capacity to extract, transform, and transport these resources, they will remain just a great asset on paper and we might never see the full benefits of them. In order to become a real energy superpower, we believe that Canada needs to increase its production and transport capacity.
In recent years, global investment in Canada has led to an unprecedented development of our oil and gas sector, to a point where our capacity to produce is coming close to surpassing our capacity to transport and export the resource in the same vein. At the same time, we need to diversify our markets. No longer can the United States be Canada's only market. While this may sound like common sense to many of us, increased production and export diversification mean that we need to significantly improve the transport infrastructure for these resources.
As the same time, new forms of extraction are allowing new competitors to rise, as well, in the U.S. In the not-so-distant future, Canadian producers and exporters in the oil and gas sector will face competition from new shale gas and oil producers in the U.S., who can produce at a significantly lower price.
Crude oil and natural gas liquid production in the U.S. is expected to increase by 74% by 2020. New crude oil production from North Dakota, Texas, Colorado, Wyoming, and Utica shale will add 1.5 million barrels a day to the U.S. production. These producers will compete with Canadian producers for access to the same refineries on the gulf coast, among others. Some reports suggest that the U.S. will become significantly less dependent on foreign sources of oil in the next five years, making an even stronger case for Canada to start looking at increasing exports to Asia.
In the natural gas sector, British Columbia is front and centre of the liquefied natural gas export story in Canada. The province has recently produced a liquefied natural gas strategy to guide the development of this new industry. There are now five proposed export facilities along the B.C. coast that would facilitate the export of liquefied natural gas to markets in Asia. Global demand for liquefied natural gas is expected to double by 2020, about the time when some of the proposed projects could be in operation.
In conclusion, I'd like to again congratulate the committee for undertaking this complex study. It is in our interests that any national energy policy that might come out of this study, or even further down the road, looks at the benefits of stable, diversified, and secure sources of energy for all industry sectors and, in particular, the manufacturing sector.
Thank you very much.