Thank you, Mr. Chairman.
I appreciate this opportunity to appear before the natural resources committee to contribute to your study of the cross-country benefits of the oil and gas sectors of the Canadian economy.
This industry has historically played a significant role in providing Canadians with a high standard of living and quality of life. Continued development of our resources is an important component in Canada's industrial plan; however, benefits arise from resource development, not resource exploitation. There's a huge difference between development and exploitation. I'd like to address this difference by focusing on the strategy pursued in the oil sands today.
Development means enhancement, value added, wealth generation, and societal improvement. Exploitation occurs when benefits from rapid resource extraction are captured by large and foreign interests, while much of the costs are borne by the Canadian public and the Canadian economy. The excessive need for diluted bitumen export pipelines and condensate import pipelines, along with the significant tanker traffic these pipelines trigger, is characteristic of resource exploitation.
Pursuing the rapid extraction and export of bitumen by relying on a growing import dependency of foreign condensate is a plan to hollow out our oil sector and inject increased volatility and uncertainty into the industry. Bitumen is not an export-ready crude oil product. Oil sands bitumen is like tar. It cannot flow through a pipeline when it comes out of the ground. It can either be upgraded to synthetic crude oil to enable it to flow and be utilized by most refineries, or mixed with a diluent like condensate to change its chemical composition so it flows through a pipeline to a limited number of refineries configured to handle its density and sulphur content.
This committee is interested in assessing benefits, so clearly it is interested in understanding net benefits and maximizing those benefits. It would be silly to evaluate the business success of a company by looking only at its gross revenues, because this would not tell you anything about the company's commercial viability. Similarly, the economic success of the oil sector cannot be evaluated simply by looking at the gross benefits presented to you by pipeline proponents. Exporting a barrel of bitumen achieves 35% of the value of bitumen. Upgrading bitumen in Alberta captures 70% of its value, while refining it into petroleum products captures 100% of the value. To export diluted bitumen you need twice the pipeline capacity than what is required for a barrel of upgraded bitumen or synthetic crude oil. To export diluted bitumen you need twice the pipeline capacity than what is required to ship refined petroleum products such as gasoline or jet fuel. When diluted bitumen is water-borne, you need 50% more oil tankers than if synthetic crude oil or refined products are transported.
Canada is already a net condensate importer. Import dependencies are difficult to break. Policy-makers are struggling with an eastern Canadian import dependency for light crude oil that will not be solved even if TransCanada's Energy East is approved, unless requirements are put in place to ensure eastern Canadian refineries upgrade their facilities to accept oil sands bitumen or bitumen is upgraded to synthetic crude oil in Alberta before it's shipped east.
It's important to understand that the requirement for companion condensate import pipelines was not always the plan. As recently as five years ago, oil producers announced a wide range of upgrading and refining conversion projects to process bitumen at home. Alberta's oil producers planned projects that would have seen upgrading capacity in Alberta grow from 1 million barrels per day to 3.5 million barrels per day by 2015. These plans were to ensure upgrading capacity grew with extraction capacity. These plans would have ensured that much of the value added from our non-renewable oil resources would be captured domestically.
Then the financial crisis hit. Quickly thereafter the planned pace of bitumen extraction returned, but most of the upgraders and all of the refineries were shelved in Canada. Instead, investments in upgrading refineries were made in the U.S. in order for those facilities to accept Alberta's heavy bitumen.
The majority of those investments are linked to companies that produce bitumen in Canada. Those investments were facilitated by legislated U.S. subsidies.
In 2008 Prime Minister Harper promised bitumen would not be exported to Asia before being upgraded to synthetic crude oil. He stated bitumen export restrictions were necessary because domestic upgrading meant economic wealth from value-added job creation and control over environmental standards. This government continued to support upgrading in Canada until Enbridge filed its application for Northern Gateway in 2010. Publicly this policy has not been withdrawn.
Exporting bitumen is not good for Alberta and Canada's value added, and it's not good for the environment, but Canada's energy strategy is being determined in the boardrooms of a handful of multinational corporations, and by the governments of foreign countries through their state-owned oil companies. Their energy plan is to rapidly extract oil sands crude, mix it with imported diluent to allow it to flow through pipelines, and export it as diluted bitumen to the U.S. Gulf Coast, California, and Asia. To do this they need more heavy oil export pipelines, more condensate import pipelines, and more risky oil tanker traffic. Canadians deserve better.
It is important the committee recognize Canada is the only major country in the world not looking after its energy security, investment in value added, and control over price stability and volatility. It's time to design a made-in-Canada energy policy for the benefit of Canadians.
Thank you.