Natural Resources Committee on April 8th, 2014

[The Chair, Conservative, Leon Benoit]

Good morning, everyone.

We are here, of course, to continue our study on the cross-country benefits of the oil and gas sector of the Canadian economy.

Before we get to the witnesses today, I would like to remind committee members that on Thursday we will have a business meeting in the last part of the meeting. I encourage you to come prepared to deal with issues regarding future business, including a report for this study and the summary for the rare earths study.

We had agreed to do a summary. We should have a discussion on that and where the committee will go after that. I know we have some other issues before the committee, like the minister appearing on the estimates, and we can discuss that as well.

We are here today to continue our study. We will go to the witnesses who are all with us by video conference today.

From the Northern Rockies Regional Municipality in Fort Nelson, British Columbia, we have Mayor Bill Streeper. Welcome to you, sir.

From the Yukon Chamber of Commerce in Whitehorse, Yukon, we have Mr. Peter Turner, president. Welcome to you, sir.

From the Energy Services BC, we have President Dave Turchanski. Welcome to you, sir.

We will have with us, soon I'm sure, by video conference, from the First Nations Summit in Vancouver, British Columbia, Grand Chief Edward John, political executive member. We will welcome him when he arrives on the set.

I want to acknowledge to all the witnesses that it's early there. We know that. That's just the kind of hard-working people we are. We start early in the morning, even though it is 8:45 a.m. here.

Anyway, thank you very much for joining us this early. I know that getting to the studio and everything is an inconvenience. We thank you very much for being here.

Let's go ahead with our presentations in the order listed on the agenda, in the order you've been introduced.

We will start with Mayor Bill Streeper from the Northern Rockies Regional Municipality. Go ahead, please sir, with your presentation. You have up to seven minutes.

[Bill Streeper, Mayor, Northern Rockies Regional Municipality]

Good morning. Thank you very much for allowing me to make this presentation to a group like this. In our minds, this is very important.

The industry of oil and gas exploration and development has been very important to our region. Our community is completely reliant on oil and gas as we have no other industry here since the closure of the forest industry. Oil and gas is an industry that creates a lot of large and small businesses.

I have been involved in oil and gas for over 45 years, from the northeastern part of British Columbia to the high Arctic. In the business of oil and gas a lot of the work is done by suppliers and service sector people. The service sector means the people who support and supply workforces, equipment, and services to the oil and gas industry. This is mostly created by small independent business people in various communities. This is one of the backbones of the oil and gas industry. The employment created by this type of industry is major employment and very reliable and a very strong part of northern communities.

I was in the service sector. I employed 84 people. I contributed $8.4 million a year in wages to a community of 5,000 people. All my employees were local. This is something that businesses that support the community also rely on: that these wages and incomes come into the communities. Training and development come right from when members of the workforce leave school or higher education and enters the field. This is the backbone of the income in communities. All communities involved in oil and gas exploration totally rely on this source of business. It creates the employment in the town; that's why people live here. It creates taxation for the town, and it is the most reliable source of services to the oil and gas industry, which are multinational corporations.

We are the people who know the community and support it. Without this type of service, the oil and gas industry would not have a major effect on employment and services in western Canada. Oil and gas is very alive, very well, and oil and gas have to be encouraged to be in communities, support communities, and support the workforce. We are the main taxpayer in this community and in many communities around me. The oil and gas industry is very alive and well respected here. If it wasn't for the activity of the oil and gas companies, many communities, especially in the north, would have very restricted income to support our citizens and our communities. We are very much in favour of the oil and gas industry, the things they do, the employment they create, and the jobs they supply to our communities.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you very much for your presentation, Mr. Streeper.

We go next to Whitehorse, Yukon. From the Yukon Chamber of Commerce, we have Mr. Peter Turner, president. Go ahead, please, Mr. Turner, for up to seven minutes.

[Peter Turner, President, Yukon Chamber of Commerce]

Good morning.

Thank you for the opportunity to address the House of Commons Standing Committee on Natural Resources.

My name is Peter Turner, and I am the president or executive director of the Yukon Chamber of Commerce. The chamber is an umbrella organization that represents the four Yukon community chambers of commerce and Yukon’s business sector.

I would like to provide a brief overview of the energy sector in the Yukon. I will focus on sections A and B outlined in the cross-Canada benefits summary, as our oil and gas industry is in its relative infancy.

Since its inception at the end of 19th century, resource extraction in the Yukon has been focused in the mining sector. Unlike Alaska and the Northwest Territories, the Yukon does not have a long history of activity in the oil and gas sector. Gas extraction has been limited to an approximately 25-year history of production from the Kotaneelee Field in the southeastern Yukon, very limited exploration in other basins, and recent exploration in the north central part of Yukon in the Eagle Plain Basin.

Natural gas extraction in the Kotaneelee using traditional non-hydraulic fracturing extraction methods has declined significantly over the past decade, and current output is nominal. Many Yukoners are not even aware that there is any active natural gas extraction taking place in the territory.

Recent exploration in north central Yukon at Eagle Plains, located adjacent to the Dempster Highway, which runs from Dawson City to Inuvik in the Northwest Territories, has included a limited two-year program of test drilling that has not involved any hydraulic fracturing.

I note the emphasis on the use of hydraulic fracturing practices in exploration and/or production as this is currently a hotly debated topic in Yukon, which is being examined by a special committee of the Yukon legislature. I will describe that further in this presentation.

Given our lack of developed natural gas and the major distances from any natural gas sources, Yukoners and our business sector rely on diesel fuel, electricity, propane, and wood-burning stoves for heating. Unlike citizens of Ontario, Alberta, or other provinces, we do not have a population or business sector that has a long tradition of using and relying on natural gas.

Diesel oil is also used by the Yukon Energy Corporation to supplement hydroelectric generation, especially during the winter peak energy-consumption periods. Recent work by the Yukon Energy Corporation served to link the northern and southern Yukon electrical grids and to expand a small hydroelectric project. Our current electricity system peaks at 144 megawatts total capacity.

We are challenged by this as a number of communities still rely on diesel-generated power for their energy or backup power systems, and the Yukon electrical grid is a stranded grid, which means it is not connected to the south or north. Discussion on potential interties has been only broadly explored and is yet to be properly studied.

We are also challenged by—

[The Chair, Conservative, Leon Benoit]

Excuse me, please, Mr. Turner. Apparently we're having an interpretation issue here.

On a point of order, Ms. Moore.

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

The interpreter just indicated that she isn't able to make out what's being said and has stopped interpreting. The translation is no longer available.

[Some hon. member]

What's the matter?

[Christine Moore, NDP, Abitibi—Témiscamingue, QC]

There's too much interference. She can't make out what's being said, so she can't translate.

[The Chair, Conservative, Leon Benoit]

Thank you, Ms. Moore.

I do apologize for the interruption, Mr. Turner, but we work in both official languages so we have to have interpretation. If you could continue, we'll see how it works. Go ahead, please, sir.

[Peter Turner]

Super. Thank you very much.

We are also challenged by the fact that in the last several years, electrical demand in the Yukon has reached our maximum combined hydroelectric and diesel generating capacity, which limits the ability of the territory to provide new power for incremental industrial development. Options for development of new hydro projects are limited to only major hydroelectric projects, which are likely to be uneconomical without an intertie to outside markets.

In addition, Yukon Energy Corporation’s diesel generators have reached the end of their operational life, so the corporation has plans to initially replace several of these diesel generators with LNG-fueled generators.

There is a project proposed to transport LNG from southern sources, and this is one of the most economical potential energy options on the table. Other energy options within reasonable distance of current infrastructure have been rejected by various groups, leaving the corporation with few alternatives to implementing the LNG option. Cost analysis and electrical generation demand modelling have also led to this decision. In addition, many of the anticipated mining projects slated for development in the Yukon in the foreseeable future have identified LNG as their preferred energy source.

A highly vocal minority of the Yukon population is opposing hydraulic fracturing and this could serve to influence Yukon's legislative committee reviewing the situation to apply a moratorium on fracking in the Yukon. Protests have already resulted in the Yukon placing a five-year moratorium on any oil and gas exploration in the Whitehorse Basin, and if an outright ban on hydraulic fracturing is implemented it could have operational impacts on potential future developments in all the Yukon's oil and gas basins and in particular the Kotaneelee and Eagle Plains areas.

Yukon first nations have also indicated their opposition to hydraulic fracturing. The community of Watson Lake in southern Yukon is currently converting their community diesel electric generator to a mix of fuel oil and natural gas unit and, as previously noted, every proposed mining development located at a distance from the existing grid as well as some of the operating lines are proposing to use LNG as their preferred energy source.

As the Yukon is a remote community located at the end of a 1,500 kilometre supply chain over which all our groceries and other consumables are transported up the Alaska Highway, we are disproportionately relying on diesel fuel trucks to provide us with the necessary goods and materials to live. Therefore, on a per capita basis, Yukon has an above average carbon footprint and any increase in oil prices has an early and significant impact on our business community and every Yukoner.

Beneficiaries of the energy industry in the Yukon are primarily first nations, who have received approximately $30 million in royalties from the Kotaneelee gas fields over the course of their operation, and, Yukon businesses supporting oil and gas exploration in areas like Eagle Plains with all manner of supplies from helicopter charters to groceries to logistical support.

However, Yukon businesses are constrained by both scale and lack of significant investment or private sector commitment that could result in a more robust oil and gas sector. The relative proximity of the mature Alberta oil and gas industry and related supply infrastructure in many regards is a disincentive for investment in Yukon exploration and development and also acts as a competitive disadvantage for Yukon businesses reliant on expensive energy.

By default, the Yukon Chamber of Commerce represents oil and gas businesses in the Yukon. There is no oil and gas industry association here in the Yukon and the Yukon Chamber of Mines is not prepared to also represent the oil and gas industry.

Currently, the decline of the oil and gas sector would have only a nominal effect on employment and the standard of living in the Yukon, at least in terms of direct employment, procurement, and service opportunities, as the energy sector is relatively inactive and immature.

As a business community, we would like to see a significant increase in the growth of oil and gas exploration in the Yukon. We would like to see the eventual lifting of the current ban on exploration in the Whitehorse Trough, and if investment attraction into the region to conduct oil and gas exploration was successful and resources were identified, its close proximity to Whitehorse and several potential mine projects could provide a new and economical source of energy.

With the Yukon oil and gas industry in its infancy, it has loads of impact on the economic development and employment in the first nations communities currently. However, in areas such as Eagle Plains where exploration is under way, the Chief Isaac Development Corporation of the Tr'ondëk Hwëch'in First Nation and other first nations corporations have benefited from the employment service and procurement opportunities. As mentioned before, Yukon first nations have also been the recipients of $30 million plus or minus of royalties generated by the Kotaneelee field over the last 25 years or so.

This concludes my presentation. I'd be happy to answer or try to answer any questions you may have.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Turner, for your presentation. It's very much appreciated.

We go now by video conference to Fort St. John, British Columbia, and we have from Energy Services BC, Dave Turchanski, president.

Go ahead please, Mr. Turchanski, with your presentation up to seven minutes.

[Dave Turchanski, President, Energy Services BC]

Good morning, and thank you for allowing Energy Services BC to be a part of the study of the cross-Canada benefits of developing the oil and gas industry of the energy sector.

My name is Dave Turchanski, president of Energy Services BC. Energy Services BC is fuelling the future of B.C.'s energy industry here in the north. For a little bit about Energy Services BC, we're the voice of the B.C. oil and gas service sector. We've got a 40-year history here. We're a member-based, non-profit association, and over 200 B.C. service companies are ESBC members here in the northern part of the province. We've got about 140 active members here as we speak today.

Our mission is to advocate for our members: we market the capacity of the B.C. service sector, we promote our members to explorers and producers, we're the service sector resource for E and Ps in British Columbia, and we facilitate capacity development and provide networking opportunities. Our structure must be incorporated in the province of British Columbia, we must maintain an office and/or operations centre here in B.C., and our vehicles must be registered and insured in the province of British Columbia. Our membership structure and operations in B.C. must have the corporation registered provincially to operate in British Columbia, must pay B.C. taxes, must maintain an office or operations centre in British Columbia, and must maintain a B.C. resident manager and personnel.

Energy Services BC is multi-region. We used to be the Northern Society of Oilfield Contractors years ago here. We rebranded ourselves and now we are representing the province of British Columbia. We have increased the participation of the B.C. service sector with Alberta-based explorers and producers, build relationships with E and Ps, and increased the benefits of the oil and gas industry for all British Columbians.

The challenges for the B.C. service sector are limited marketing resources, understanding explorers and producers procurement processes, relationship-building with the explorers and producers, not always the supplier of choice by Alberta-based explorers and producers. The challenges for E and Ps are limited information about the B.C. service sector, cost of the B.C. service sector, and gaps in service needs that are requirements in this part of the province.

Activities to date with Energy Services BC include Calgary-based explorer and producer visits. Energy Services BC is in constant contact with Alberta-based explorers and producers to address issues brought forward by the local service sector. The key issues identified were the quality and quantity of tendered bids, identifying potential suppliers, service sector companies' safety concerns, and increasing opportunities with aboriginals and first nations in this part of the province.

Activities to date have included communication to community and Energy Services BC members via our website, industry-related events announcements sent to all ESBC members, periodic newsflashes, a member database, and participation in energy expos. We have hosted energy expos in Fort Nelson, Dawson Creek, Fort St. John, and in the past we've also had expos in Calgary, Alberta.

Ongoing activities within Energy Services BC are identifying the B.C. service sector companies, promoting the B.C. service sector to the explorers and producers, identifying explorers and producers that operate in British Columbia, determining the explorers and producers' procurement processes, building relationships with explorers and producers, offering marketing resources for service sector companies through website advertising, and helping service sector companies with labour and training issues.

Our goals are to strengthen our role as the voice of the B.C. service sector and supply companies, to promote the growth and development of the service and supply companies, and to increase the utilization of B.C. service and supply companies.

For further information, you can contact Dave Turchanski, Energy Services BC.

I appreciate the opportunity to address the House of Commons here this morning.

Thank you.

[The Chair, Conservative, Leon Benoit]

Thank you, Mr. Turchanski.

We will go ahead now and start our first round of questioning. If Grand Chief John arrives in the studio, or when he arrives, we'll go to him after we finish with the individual who's questioning at that time.

We'll start the seven-minute round with Mr. Zimmer.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Yes, thanks for having me back.

Good morning, David and Bill. It's good to see you here in Ottawa. Too bad you couldn't make it all the way over, but I know you're busy.

Bill, I'll start with you. I just want to ask a simple question. Do you have the number of dollars in royalties that the LNG sector contributes to the B.C. tax base and to the people of B.C.?

[Bill Streeper]

The amount of royalties to date that have been paid average around $90 million, and that is just the royalty paid to the government. That does not include what we call secondary taxes paid in fuel, income taxes, or land use. That is strictly the royalty amount.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Do you have those quantified as well, Bill? All those others?

[Bill Streeper]

Yes, we do.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

What's the number there?

[Bill Streeper]

That has been quantified.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Do you have a number?

[Bill Streeper]

For the secondary amount? No, I don't have a number for the secondary amount, I'm sorry.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

I would guess that would be a lot larger than the $90-million figure.

[Bill Streeper]

It's a lot larger than the royalty rate. Correct.

[Bob Zimmer, Conservative, Prince George—Peace River, BC]

Thanks, Bill. I have one more question for you.

What are the tangible hard asset benefits or infrastructure benefits that Fort Nelson or Northern Rockies have seen as a result of natural gas in the riding? I've been up there lots. We know there are still lots of needs: infrastructure, roads, and that kind of thing, but you guys have done a good job. What has already been done as a result of LNG and oil in Northern Rockies?

[Bill Streeper]

We're in the final completion stages of a recreation centre. When done, the value of the recreation centre will be in excess of $80 million. This is the complete backbone of our community. Our rec centre does everything but give birth. Actually our rec centre is used for all community events, including funerals. We have yet to have a maternity ward put in there, but the rest of the life of a northerner, especially in this community, is entirely in our rec centre.

Our oil and gas industry has contributed extensively to a lot of our rural aspects such as road use, road development, and advancement of roads to the point of being paved. Most of it is to service the oil and gas industry.

Our water system in Fort Nelson is largely supported by the oil and gas industry, as they purchase water in large amounts for use in their camps. This is strictly potable water that is purchased from the community, and with the amount paid by the oil industry, the community was able to increase the service and quality of water supplied, and it isn't completely done by taxation. It's done through contributions by the oil companies as they pay for the water they use.

All industrial development in Fort Nelson basically relies on the oil and gas industry. We have created industrial subdivisions that are the backbone of our taxation. This taxation offsets the amount paid by private individuals, so the oil companies are contributing quite extensively to our tax base. It has allowed the community to advance quite extensively, especially in the communications aspect, where we now have cell service in the northeast corner of B.C. that extends to the Northwest Territories and the Alberta border. These stations were all installed because of the oil and gas industry, and many citizens rely on all these services that are put in because every service that the oil and gas industry establishes also has a component in there for private use.