Natural Resources Committee on March 25th, 2014

[Joan Crockatt, Conservative, Calgary Centre, AB]

Mr. Norton, on the ground, you're the mayor of Saint John. You want to see economic development. What's changed on the streets of Saint John since oil and gas started being developed?

[Mel Norton]

The first thing that has changed is optimism from the perspective of local business, and optimism then feeds into decision-making to invest in our community. The investments are very real. I think of, for example, one manufacturer in our city who manufactures custom metal fabrication components. They can deliver those components faster to Alberta than the Alberta companies can deliver them because of the backlog of these suppliers in Alberta. We have a real-life example of a Saint John company employing New Brunswickers who don't have to leave New Brunswick for the oil sands, who are working here supplying that same industry. Those decisions result in very real-life impacts, decisions to stay in Atlantic Canada, to buy a home, to invest, and to expand a business where there might not have been an expansion before.

The best example is from when we visited Calgary back last May. There was a gentleman on Prince William Street, one of our downtown streets, and he was putting up scaffolding. His words to me, and I won't ever forget them, were, “Go get 'em. Go out there and talk about what we can do to make, for example, the west-east pipeline happen.” It's so very real in our region, the need for significant growth and development, and this is a sector that has a complete buy-in from our community.

I guess I would be remiss if I didn't just take a moment to acknowledge our MP Rodney Weston, who's been a significant supporter of both Saint John and these energy-related projects and how we can play a role. It keeps people there. It employs people. It's actually changing the fabric of Saint John.

We really do want to play a role, as Mr. Teed said. We look to other provinces and we see what it's done for them. We recognize that we are still a have-not province. That is unacceptable to Saint John and to New Brunswickers. This is providing real opportunity. We look at Saskatchewan and how the economy has completely evolved there over really the last 10 years. It's a complete 360. We look at the numbers. More than 20% of Saskatchewan's revenues come from natural resources, oil and gas. In New Brunswick, it's 1%. It's a very real-life impact that we can have for people in Saint John, in New Brunswick, and for the Atlantic Canadian economy generally.

[The Chair, Conservative, Leon Benoit]

Thank you.

Thank you, Ms. Crockatt.

We go now to the official opposition, to Ms. Duncan for up to seven minutes.

Go ahead, please.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

Thanks.

Thank you to all of you. It's always nice to have a Pike back, being my other family name.

Ms. Bak, I would like to go to you. I would like to thank you additionally for the background materials that you provided and additional ones my staff looked up. I commend your association.

I noticed in your materials that you outline that the clean tech sector is almost 100% small and medium industry, and that they create over 60% of private sector jobs. In keeping with what Mr. Teed said, it's obviously the preference of any worker in Canada with a family to have a well-paying job and stay in their community.

Your documents outline some of the challenges facing your sector, and you also outline some of the potential. I'm going to give you an opportunity to expand a bit more on what the potential for economic diversification is—as opposed to just market diversification—from your sector, and what some of the challenges you face are where the federal government could assist in building the clean tech sector.

[The Chair, Conservative, Leon Benoit]

Go ahead, Ms. Bak.

[Céline Bak]

Thank you very much for that question.

I think one of the challenges that all of us as Canadians face is to have better information about the impact of SMEs on the economy, and particularly on exports. If one does an analysis of exports by size of firm, in the non-resource sector—because the way exports are counted, those firms, even though they serve the energy sector, will likely be counted in the non-resource sector—the percentage of overall exports of manufactured goods and services by SMEs is surprising. I should say that such information is not generally counted, and it would be good for Canada's economy if our economists overall gave us better information.

The other thing I would say the federal government could do, in addition to providing information on exports by size of firm, would be to provide information on R and D investments by size of firm. This information is produced only very occasionally. I think the last time it was made available was in 2009 and in that report 45% of R and D investments were made by firms with fewer than 500 employees.

So just as infrastructure for making better decisions, those two things would be helpful.

In terms of economic potential for this sector, I have to say that a number of larger companies play an important role in this industry—so I'm not saying it's all SMEs—but three-quarters of the R and D investments are being made by SMEs. I think what we're learning is that what we would consider to be tiny companies—the $10-million to $25-million companies with annual sales and employee bases of fewer than 100 people—if they're investing in R and D, as we heard earlier today from Mr. Patterson at Virtual Marine Technology, expect to be engaged with very large firms directly. This is new research that could be conducted in other sectors, including ICT and life sciences as examples. It's a new world, I think, that we may want to have more research done on, and firms like Mr. Patterson's would obviously be very good examples to include in that.

I think I'll leave it at that so that your question time is available for others as well.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

That's okay. I'm going to concentrate on you because I'm very interested in your sector, and of course your sector is very closely linked to the fossil fuel sector, particularly in clean technologies to produce cleaner products from fossil fuels, whether electricity or gasoline or so forth.

I've had some experience with dialogues in the province I'm from—Alberta—pursuing cleaner emissions and so forth. We've found, and in fact I'm told by the clean energy sector in Alberta, that they're not looking for handouts, particularly for energy efficiency. They're looking for regulatory triggers such as a price on carbon. I wonder if you could speak to that. What do you see as the main missing triggers to actually shift investment by the oil and gas sector towards actually deploying cleaner technology?

[Céline Bak]

This is a very interesting question. I have to say first that, as you all probably know, Alberta has a price on carbon. It's $15 a tonne, and the way it works is that in the oil and gas industry large emitters can either invest in renewable energy projects, or they can improve their energy efficiency, or they can pay $15 a tonne into the CCEMC, which currently has $400 million to invest.

I think the challenges have to do with risk and with how capital is deployed by asset managers, as shown on the first page of the presentation I made earlier. The hurdle rates required for investment in the oil and gas industry are set by those shareholders, and they're very high, obviously. In order for capital to be deployed to energy efficiency projects, there has to be something else to make that happen. That something else could be a higher price on carbon. It could be bringing different types of capital to the situation. For example, pension funds may want—well, they all want—to be invested in projects that have recurring revenues or recurring payments, and energy efficiency projects have those characteristics.

So there's innovation that could occur on the financial side. You've heard me speak in the past about the notion of risk insurance. I used the idea of a CMHC for technical risk. I know it's not exactly the same thing, but we do have the issue that in order to get capital deployed we have to meet different hurdle rates. At the moment the price on carbon at $15 will get us a little bit of that, but if we want more of it, we will need different tools.

[The Chair, Conservative, Leon Benoit]

You have time for an extremely short question followed by a short answer.

[Linda Duncan, NDP, Edmonton Strathcona, AB]

I probably will just let it go and come back in the second round.

[The Chair, Conservative, Leon Benoit]

Thank you very much, Ms. Duncan.

We go now to Mr. Regan, please, for up to seven minutes.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you very much, Mr. Chairman.

I want to note at the outset that while we've had some very good witnesses prior to today, I'd say that this is the best group of witnesses we've had so far, clearly, and that isn't just because I'm the member for Halifax West. Until the mayor started saying all those nice things about my friend Rodney, I thought we were doing really well here today.

[Voices]

Oh, oh!

[Geoff Regan, Liberal, Halifax West, NS]

I want to ask the witnesses to comment on a report that came out last week. I think Mr. Teed was answering it in some of his comments. The report was released by a group of four organizations: the Council of Canadians, the Ecology Action Centre, Environmental Defence, and Equiterre. It is suggesting that the energy pipeline wouldn't be the “boon” to Atlantic Canada that eastern Canadian refineries and supporters claim, because a substantial portion would be shipped offshore.

Now, clearly, for the companies that Ms. Bak referred to as the “asset managers”, the producers in western Canada, getting to tidewater is important. It's important in terms of getting world prices for Canadian energy. I'd like your comments.

It was interesting that these groups, instead of choosing at this point to go on the environmental issues, tried to go on attacking the economic aspects of the energy east pipeline. Would you like to comment on this question about whether or not the benefits will materialize because of the question of how much goes to export markets? How important is this project to refineries, if you can tell us, not just in New Brunswick but also in Quebec?

I think you talked somewhat about the investments in terms of upgrades and upgrading at the refinery in Saint John. What about storage facilities? I guess you talked about bulk storage, but there are the shipping facilities and so forth.

[William Teed]

I did briefly see that article you're referring to. There's no doubt about it. Part of the oil that's coming from western Canada to eastern Canada will be shipped offshore. However, we do have Canada's largest oil refinery, and we can be darn sure that the owners of that refinery are not just interested in seeing a pipeline land at their shore and at their facility, of which they are a member of the joint venture to operate, just for the purposes of shipping it offshore.

The opportunity to have a supply—which is non-threatening—from western Canada is obviously a great opportunity for eastern Canada, but also, those in the industry clearly tell us that the possibility of other petroleum-based industries being developed as a result of this source of crude oil coming to the Saint John area is immense. This supply is going to definitely create direct jobs, indirect jobs, and induced jobs—huge numbers. However, the opportunity to diversify in the petroleum industry is also immense. This is the beginning.

There will always be markets offshore to send our oil to, but let me tell you, the refinery in Saint John is not known for just receiving oil and shipping it elsewhere. They take it, they refine it, and they add value to it, and that industry in itself creates direct and indirect jobs. Then they ship the finished product to other parts of North America.

The position that all we're doing is receiving oil and shipping it elsewhere without taking it, using it, and adding value to it to me is overstated. The opportunity is there now to do it and there's greater potential for the future.

[Geoff Regan, Liberal, Halifax West, NS]

Did you say at the beginning that this oil would be non-threatening—you used that word—or something like that?

[William Teed]

Well, in the sense of the supply.

[Geoff Regan, Liberal, Halifax West, NS]

Yes, the comparison in terms of oil from places like Venezuela or....

[William Teed]

Exactly.

[Geoff Regan, Liberal, Halifax West, NS]

There's a question of security of supply.

[William Teed]

Yes. I think it's the fact that the source is a very stable source. It's Alberta, Canada. It's not the other foreign countries where we've seen a lot of political turmoil happen over the years. Stability obviously has to be a key factor in determining investment for the future.

[Geoff Regan, Liberal, Halifax West, NS]

Thank you.

Ms. Pike, I turn to you. You talked quite a bit about the economic benefits that Newfoundland and Labrador, and Nova Scotia, have seen from offshore oil and gas development. Could you talk more about that, as well as the potential for onshore production? I presume that when you speak of onshore production you primarily or maybe solely are referring to shale gas development. Is that correct?

[Barbara Pike]

The benefit is obviously for onshore, and hopefully continued offshore, because we have Newfoundland Statoil, which announced one of the largest offshore finds in 2013 off Newfoundland. We also have $2 billion going to be spent in exploration off Nova Scotia by BP and Shell, and they are both looking for oil. Hopefully they're going to find it, and we're going to move forward with that. Those projects are 10 or 12 years out.

For onshore, yes, onshore natural gas and oil, because Contact Exploration is producing oil here in New Brunswick. Currently in Nova Scotia things are on hold until we have that expert panel review, which we expect will be coming out in June or July and provide us with some very clear rules as to how to move forward. We have East Coast Energy that has a coal-bed methane well that they drilled earlier this year.

We will hopefully continue to see onshore development in Nova Scotia and in New Brunswick, and yes, some of that is going to include shale. New Brunswick's potential for shale, as was mentioned by the mayor and Mr. Teed, is huge. It can be turned around and production can begin very quickly. We need that natural gas here locally in the Maritimes because we're running out of Sable natural gas. Deep Panuke is an extremely small project. It's only going to be producing for 10 or 12 years. As was mentioned earlier, we are no longer producing enough natural gas of our own to meet our demand in peak periods. Without access to natural gas moving forward our companies are not competitive on the North American market anymore, if you start looking at the manufacturing positions, because they're competing against companies that have converted to natural gas and are experiencing much lower prices than what we've seen in eastern Canada the past couple of months.

Does that answer the question?

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Regan.

We now start the five-minute round with Mr. Trost, followed by Mr. Calkins, and then Ms. Moore.

Go ahead, please, Mr. Trost, for up to five minutes.

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

Thank you, Mr. Chair.

Ms. Bak, one of the things that struck me, glancing through the package you provided, was that people often don't associate clean tech and the oil industry; that's not normal. The second thing was why this was necessarily here, again because of that connection.

Then as Mr. Patterson was talking about how his business had developed into being more than one sector, I began to think that's probably fairly common. Could you talk to me a little more about how your member companies work, both in the oil industry and other industries; how that feeds back and forth inside companies; and give us a little insight to understand how clean energy technology companies don't just concentrate on oil but do other things back and forth. Are my presuppositions there correct, and if so...?