Evidence of meeting #43 for Natural Resources in the 41st Parliament, 2nd Session. (The original version is on Parliament’s site, as are the minutes.) The winning word was winter.
A recording is available from Parliament.
NDP
Dennis Bevington NDP Northwest Territories, NT
Well, the federal government has a role with manufactured products; is that not correct? The federal government has a larger role with manufactured products than with primary products. Is that not the division of authority within Canada?
Director General, Petroleum Resources Branch, Energy Sector, Department of Natural Resources
At least from the perspective of Natural Resources Canada, whether we go through an industrial process such as refining or through these gas fractionation plants in which propane would be produced, the federal role is the same as it would be in the upstream production drilling of propane.
NDP
Dennis Bevington NDP Northwest Territories, NT
Okay.
You talked last week about issuing 55-plus permits for export last year. Was that correct?
Chief Economist, National Energy Board
I think I said 64 to 72 or 76—something like that—averaged over each of the last five years, so it's around 70 to 80.
NDP
Dennis Bevington NDP Northwest Territories, NT
When were they issued? Were they issued over the course of the winter? You say they were for one year, but what were the issue dates of these permits? Were they spread out through the year, or were they focused in one area? Were there some that were issued in January of 2014? That's my question.
Chief Economist, National Energy Board
I think they're spread out through the year as the applications come in, and people can decide when they want to submit an application.
NDP
Dennis Bevington NDP Northwest Territories, NT
So you would have had an opportunity to influence export permits after you knew there was a problem with the supply of propane in Canada. You would have been still issuing export permits.
Chief Economist, National Energy Board
That's right.
Any restriction on exports would have to go through Governor in Council, and it has to be subject to the free trade agreement.
NDP
Dennis Bevington NDP Northwest Territories, NT
I've looked at the law governing you, and yes, it doesn't give you much latitude to refuse a permit. Perhaps the environmental effects of the proposed exportation and any social effects that might come from that, but that's a pretty limited field when it comes to supply of this product. To claim an environmental impact, I suppose, would be interesting.
In the north, with this propane price jumping up and down, I guess one of the reasons that it's so critical—it's only 1% of consumers who use propane—is that propane is very expensive. It has an equivalency, a BTU cost that's much higher than natural gas, for instance, and in many cases it comes up to the level of fuel oil, which in northern Canada is a destructive force in our cost of living.
So you can understand that people who are on propane as a residential heating product have great concerns when the price goes up. Wouldn't you say that? Because they're not dealing with the difference between $4 a gig and $5 a gig for natural gas, they're dealing with a cost that might run up to $1,000 a month to heat their home.
Chief Economist, National Energy Board
Well, there are a couple of points. On a per BTU basis or equivalent, propane is sort of half...lately, and it changes over time, depending on what has happened. But in recent times propane is somewhere between oil prices and natural gas. It's about halfway between that, but it adjusts.
To go back for a minute to your point on export authorization, we get very little information in those applications and we process them within 48 hours. So we're not looking at environmental and all kinds of other factors when we process those forms.
NDP
Dennis Bevington NDP Northwest Territories, NT
Fair enough. You can look at it within the provisions of the act that governs you.
Where was the gas plentiful when we had the shortages in other areas? Where was the oversupply of gas in Canada when, in January, we had these shortfalls in certain areas?
Chief Economist, National Energy Board
Well, it's an integrated North American market for that. Where the supply was plentiful was down in the gulf coast region, so product eventually was moved into the Midwest and into the Ontario market in response to prices.
NDP
Dennis Bevington NDP Northwest Territories, NT
Was it the same kind of 48-hour response by the U.S. to export permits to Canada? If it was plentiful in the U.S., then obviously some of it must have been moving northward into the areas where it wasn't so plentiful. Is there an equivalency in the U.S. to the way that we handle export permits for propane to the U.S.? Is it the same way coming back into Canada, where they'd be doing it in 48 hours, no problem, nobody holds up export permits?
Chief Economist, National Energy Board
Propane moves across the border very easily and it moved at that time. What the specifics are of those orders, I'm not aware of.
Director, Energy Markets Team and Acting Director, Energy Trade Team, National Energy Board
Yes, and we did see it took a little time for the market to move the propane to where it was needed. But the movement of propane out of the caverns in the gulf coast up into the Midwest, which then connects up into the problem areas that we were experiencing in central Canada, or Ontario and Quebec, was a big part of what actually provided the relief that was a little slow in coming, but did ultimately come to the places where the propane was really needed.
Conservative
The Chair Conservative Leon Benoit
Thank you.
Thank you, Mr. Bevington.
Thank you to all our witnesses for coming again today.
We will suspend the meeting for a couple of minutes as we have the other witnesses come to the table.
I want to thank all of the witnesses from the department, from the Competition Bureau, and from the National Energy Board, for coming again. We appreciate it very much, and I think the questioning has brought out some good information that's helpful to our study,
So I will suspend the meeting, and I will ask people if they want to chat with the witnesses to just move outside so we can have the new witnesses come to the table.
Conservative
The Chair Conservative Leon Benoit
We resume the meeting for an hour with our new witnesses.
First of all, we have from the Canadian Propane Association, Andrea Labelle, general manager; and we have Guy Marchand, chair of the board of directors, and president and chief executive officer of Budget Propane 1998 Incorporated. Welcome to you.
From the Association québécoise du propane is Michel Deslauriers, director general. Welcome to you, sir.
We will go ahead with presentations of up to seven minutes, starting with the Canadian Propane Association. You can split your time as you choose.
Go ahead, please, Monsieur Marchand.
Guy Marchand President and Chief Executive Officer, Budget Propane 1998 Inc., and Chair of the Board of Directors, Canadian Propane Association
Good morning. Thank you, Mr. Chair and members of the committee, for the opportunity to appear today to discuss the propane market in Canada. My name is Guy Marchand, and I'm here with Andrea Labelle, who's the general manager.
We look forward to making a short presentation on the propane industry in Canada and answering your questions afterwards.
In order to be respectful of the time we have today, I'll be briefly covering what the Canadian Propane Association is, the propane industry in Canada, and propane's benefits and uses, which will allow for more time to cover the 2013-14 winter, the winter ahead, and then finally, questions and answers at the end.
The Canadian Propane Association offices are headquartered here in Ottawa, and we have a presence in each region of the country. We have over 400 members representing producers to retailers, and everything in between. Notably, in 2014 alone, the CPA has trained and will have trained, through our Propane Training Institute, nearly 35,000 students on the safe handling of propane. We also have a wholly owned subsidiary, which is also operating as a non-profit, that handles emergency response activities for LPGs by rail and road, as well as for newly formed flammable liquids by rail. In addition the CPA is an industry advocacy organization working with government regulators nationwide.
Canada produces approximately 11 billion litres of propane per year. Our economic contribution is approximately $16 billion, $1 billion of which goes to taxes and royalties, and we employ more than 20,000 Canadians. The propane industry is regulated by a number of federal, provincial, and municipal codes: the Transportation of Dangerous Goods Act, better known as TDG; environmental emergency regulations; CSA codes adopted into provincial regulations; and finally, municipal zoning bylaws.
Propane is primarily transported by rail, pipeline, and trucks. Prices are influenced by many factors, primarily supply and demand, and crude and natural gas prices. As with other commodities, prices are not set by individual companies. Mont Belvieu, Texas, is where the price reference point is in North America. Propane is then purchased on the wholesale market by distributors and retailers. We are part of an integrated North American market that determines the price, and are part of a well-developed infrastructure across Canada and the U.S.
As far as exports go, the U.S. is Canada's only export market, and in turn the U.S. exports overseas. Over the last few years Canadian exports accounted for 40% to 50% of demand, and they are shipped primarily by rail.
Propane is a safe, clean, abundant, cost-effective, and portable energy source. It's a Canadian story. Some current uses of propane include industrial use in mining; use in construction, including as temporary heat source and for forklifts; residential use for heating, cooking, outdoor living, and lawn care; transportation for government and private fleets, as well as school buses; agricultural use for barn heating and crop drying; and use as a petrochemical feedstock.
Andrea Labelle General Manager, Canadian Propane Association
I'll take over from here.
Now for the reason we're here today to discuss what happened this past winter. It was not only the access to supply, but the price increases. Our industry did dub last year “the perfect storm”. It felt as if every day we were waking up to a new issue obstructing our access, but these issues were not isolated to the propane industry in Canada. Other industries felt the same: natural gas, hydro. Everyone really felt the pinch last year.
Factors included the longest and coldest winter in recent history, maintenance related to pipelines, rail, and truck terminals, issues related to road transportation due to the weather, record demand for crop drying, and even fractionation plants being offline due to prolonged power outages, particularly in Newfoundland and Labrador. There were even two train derailments in New Brunswick, which could have affected supply and price.
It is important to note, specifically to your question earlier, we don't want this to happen again. It's not in anybody's best interest. This is our industry's business and we're not in the business to not have one, so I want to ensure that's clear.
What happened? It's important to note that before the winter began, the National Energy Board predicted below average propane demand for the winter, and Environment Canada predicted a milder winter. The NEB also reported that in October 2013 inventories were slightly below the five-year average, adequate to cover the heating season. Then the crop drying demand late in the fall depleted supply, and on top of that we had an earlier winter. The result was lower-than-average inventories entering the high-demand heating season, with distributors having ordered supplies based on the forecast of a milder winter.
During the winter of 2013-14, there was record sustained cold, logistical transportation issues, facility and pipeline maintenance, power outages, and train derailments. It's also worth noting that the federal government imposed a prioritization of grain order over other commodities on CN and CP toward the end of the winter. This did not impact us last year, but it remains a concern for us because that is still in effect. We can talk more about that later.
The result of this was that there were delivery delays, for example, railcars covered in snow, inaccessible roads due to snow in some regions; and extremely high demand resulting in rapid and continual depletion of supplies with little opportunity to build inventories back up. The diminished supplies across North America caused prices to climb.
What did the Canadian propane industry do? We issued four press releases to update the public on this situation. We were transparent, open, and cooperative during the NEB and Competition Bureau market propane review, which found no evidence of anti-competitive activities and that the long-term outlook for supply is predicted to be stable. We provided information in interviews to all media, including print, radio, and TV. We met with government at all levels to help keep them informed, and we developed consumer-pricing resources for our members to distribute to their customers to help them better understand how pricing works.
How will this winter be different? Wholesale prices have fallen dramatically, just like oil. We match that. Storage levels are the highest in 11 years, and there are record highs in the U.S. Industry has implemented an increased use of technology in delivery routing systems and remote storage monitoring. Industry has invested heavily in additional primary on-site storage, and new rail terminals will be online in the first quarter of 2015.
What can the federal government do? We have three asks that we think would help: collect and report more detailed propane industry statistics; consider the impact of rail volume requirements, and that's a big one for us; and finally, include the propane industry in the development of energy policy.
Conservative
The Chair Conservative Leon Benoit
Thank you very much for your presentation.
Just before we get to the next presenter, is there any association between your two associations?
Conservative
The Chair Conservative Leon Benoit
You share some members, okay, very good.
We go now to the Association québécoise du propane. Michel Deslauriers, go ahead, please, with your presentation.
Michel Deslauriers Director General, Association québécoise du propane
Thank you, Mr. Chair.
As you may have guessed, I will be giving my presentation in French, which is my mother tongue. If you have any questions, I will be able to provide you with more details.
Our presentation is somewhat similar to that of the Canadian Propane Association. We have experienced the same problems. We live in the north and heating is extremely important for the Association québécoise du propane.
I will start by telling you about the propane industry in Quebec and explaining why propane is the proper solution. I will quickly go over winter 2013-2014 in retrospect and tell you how the Association québécoise du propane responded to the mini crisis. I will then provide you with our forecast for winter 2014-2015. Finally, I will quickly conclude with a few recommendations on use.
The Association québécoise du propane includes producers, wholesalers, 60 gas retailers, transporters, manufacturers of appliances, cylinders and truck tanks, equipment distributors and a few associates.
Our association's mission is to promote the development of propane while assisting its members in improving legislation, regulations, codes and standards. We also work closely with the Régie du bâtiment du Québec.
We have three main committees that help us operate in this industry.
Our mutual aid committee's goal is to train counsellors in emergency response and to support the emergency response plan. Transport Canada requires that we have an emergency response plan, and the mutual aid plan helps us in that sense. Our technical and training committee revises, updates and circulates information about codes, standards and regulations. Our team of trainers manages the training in propane handling for more than 2,000 students a year.
Propane use in Quebec is approximately 600 million litres a year. Propane generates $650 million for the Quebec economy and over $50 million in tax rebate. Some 2,000 jobs are directly related to our industry.
As the Canadian Propane Association mentioned, the propane industry is safe and regulated. We use the Canadian Standard Association (CSA) codes. The Régie du bâtiment du Québec and municipal regulations govern our industry.
In Quebec, 90% of propane comes from natural gas extraction. As mentioned a number of times, propane is transported by trains and tanker trucks. The remaining 10% comes from Suncor and Valero Energy refineries. It is delivered to most wholesalers by train and distributed to residential consumers by tanker trucks.
We are a North American integrated market, as the folks from the Canadian Propane Association said.
The factors that influence propane prices are: supply and demand, which are very elastic, as they say in marketing; the prices in Sarnia and Mont Belvieu, Texas, affect quotes; the wholesalers internal market versus retailers, transporters and the carbon tax in Quebec.
Propane is the preferred solution because it is safe, abundant, clean and flexible. In addition to being profitable, its quality-price ratio is outstanding.
Propane is used in households for heating, in agriculture, in the mining industry, in construction, in transportation, for vehicle fleets, and in petrochemical plants that make plastic materials.
Quebec will be using more and more propane as alternative fuel because it meets the objectives of the Quebec government in terms of new policies and energy challenges. Propane is less polluting and makes vehicle motors run silently. It generates 20% less greenhouse gas emissions. There are filling stations available everywhere in Quebec. Vehicle conversion techniques have been proven, and propane is economical fuel.
I will now explain what caused the mini crisis in Quebec last winter.
As was mentioned a number of times, the mini crisis was caused by very cold temperatures and the logistics of the railway cars. As Andrea mentioned earlier, in western Canada, the cars were stuck in the snow. There were technical problems with the refineries and the pipeline. There was a strong demand in autumn for grain drying. Another major factor was that a cold winter started while the grain drying season was hardly over, creating an overdemand.
As the Canadian Propane Association mentioned, the industry was misled by inaccurate weather and stock forecasts.
The industry relied on statistics. The prices were set, but there were some miscalculations.
The National Energy Board said that the stocks were to be sufficient for the year. At the end of the day, there were miscalculations because of the higher demand.
Let's look at the results, because there is always a cause and effect relationship. The heating season suddenly created a stronger demand, which reduced available stocks. Distributors order according to forecasts and statistics, as I just said. Restricted supply ensued.
Some distributors worried about the difficult situation and reacted without delay towards their clients. In other words, they started informing their clients that there might be some problems.
Temperatures remained very cold in much of North America. In fact, 26 American states were affected. President Obama declared a state of emergency in some states. Problems remained and added up: train derailment, pipeline maintenance, refinery reduced production due to technical problems.
Furthermore, railways deliver grains first. Priority was given to grain delivery by rail last winter.
Let's go back to the beginning of 2014 and look at the causes and results. There were delivery delays, a very strong demand, which lowered the stocks that could not be restocked. Provisions were low while the prices stabilized. Consumers in Quebec started worrying and news reports were very negative.
What was our response to the crisis? We met at three extraordinary meetings. We sent two releases to our members. We properly informed the media. We organized a press conference on December 27, 2013. We sent a press release to TV media. We met with print media. We answered to journalists from every conceivable media outlet. We also did several radio interviews for Radio-Canada and CTV.
Our plan for 2014-2015 is to: manage stocks better, improve equipment—as Ms. Labelle indicated earlier—invest in stocks, put in place crisis units, define everyone's roles in the event of such situations, improve communication with consumers and increase communication with our government officials.
The joint report by the National Energy Board and the Competition Bureau indicated that no evidence was found to suggest anti-competitive conduct. There was a unique confluence of events, known as the “cocktail”: unusual cold, very high demand from the U.S. and Canadian agricultural sectors, lower than normal stocks, and overseas U.S. exports rapidly growing. The conclusions drawn by the Competition Bureau were the same as the ones observed by the Association québécoise du propane.
We recommend that the government maintain minimum permanent propane stocks and that priority be given to rail transportation for propane supplies.
Thank you.
Conservative
The Chair Conservative Leon Benoit
Thank you, Mr. Deslauriers.
We go now directly to questions and comments.
We'll start with Mr. Trost followed by Mr. Rafferty and then Mr. Regan.
Go ahead, please, Mr. Trost. You have up to seven minutes.
Conservative
Bradley Trost Conservative Saskatoon—Humboldt, SK
I have a question, and maybe it's because I'm in a western Canadian grain farming riding, Ms. Labelle.
You mentioned that the prioritization of grain is a concern. At the same time you said it wasn't an issue last year. If it wasn't an issue last year why is that a concern now? Everything from what we've been hearing from the other witnesses has been that there were some pretty extraordinary events put together last year to cause a bit of a spike, which pressured some consumers. If it wasn't a concern last year when things were going wrong everywhere, why would it be this year?