Natural Resources Committee on May 30th, 2016

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Actually, the largest refinery in Canada is in Saint John, New Brunswick, and it produces 300,000 barrels a day of refined product. There's a refinery in Newfoundland that produces 155,000 barrels a day.

[Gil McGowan]

There are myriad problems, however. We would like to get oil to those refineries in places like New Brunswick, but there's a bunch of problems. The biggest one is that the Irving refinery in New Brunswick, like a lot of refineries in other parts of the world that the industry says it would like to access, doesn't currently have the capacity to take raw or diluted bitumen as a feedstock to turn it into higher-value products. They are what we call “cracking” refineries. In order to take bitumen as a feedstock, a refinery needs to have coking capacity. The New Brunswick refinery doesn't, and as far as I know, they don't have any plans to add coking capacity.

If we're going to build a pipeline to eastern refineries, we support that, and we're on record as supporting that, but if we're going to be sending feedstock to them, we should be sending them a feedstock they can actually use, which would be synthetic crude. They wouldn't have to retool to use synthetic crude. That would mean it would have to be upgraded here first, to synthetic crude, and put in a pipeline.

By the way, you wouldn't have to use so much pipeline capacity to get it all the way to New Brunswick if you sent it as synthetic crude. With bitumen you have to dilute it by 30% with diluent, which is expensive in and of itself, and you would also need bigger pipelines. But if—

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

Right, but when we talk about the transportation of raw product, it's actually substantially safer to transport it in a much less diluted environment than it is. The more you refine the product, the more environmentally sensitive it is to transport.

[Gil McGowan]

I think the people of Kalamazoo would disagree with you. If a pipeline carrying diluted bitumen ruptures, as we know, bitumen sinks to the bottom of a waterway and you can't get it out, but if you're transporting synthetic crude, it can be skimmed off the surface.

I actually think that one of the things stopping jurisdictions from approving pipelines is that they are concerned about the record on bitumen spills. If we were to say that instead of filling the pipelines with raw bitumen we're filling them with synthetic crude, there is an argument to be made that this would actually make it more likely for other jurisdictions to support that.

[TJ Harvey, Liberal, Tobique—Mactaquac, NB]

We're running out of time and I appreciate your time, but just to close, yes or no, do you support the idea of utilizing existing refining capacity within Canada to help drive innovation within the existing oil sands development and the proposed projects that could come along in the future?

[Gil McGowan]

Yes, if the Alberta oil actually goes through those pipelines as opposed to going past them to export markets.

[The Chair, Liberal, James Maloney]

Ms. Bergen, over to you.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Ms. Nelson, I'm wondering if I can ask you a couple of questions. In relation to the discussion we just heard, I'm quite pleasantly surprised to hear support from the Alberta Federation of Labour for pipelines as well as refineries.

With the uncertainty in government regulations and with the window of opportunity for investment being difficult when it comes to pipelines because of the current investment climate in Canada, how difficult will it be? How likely is it that investors will look at Canada as a potential country to be building new refineries or expanding existing ones? Could you talk about that for just a moment? Then I want to go into a couple of other things.

[Patricia Nelson, Vice-Chair, In Situ Oil Sands Alliance]

We heard earlier from the National Energy Board about the work they are doing on decision processes. Some of the difficulty is the absence of clarity on the go-forward plan at this stage. That is important for anyone making an investment into a longer-term development. On pipelines, access to market is critical if you're going to have further development, which, Mr. McGowan is right, creates more jobs all the way across this country. That is important.

The positive here is to look at Canada as being a key player in the world market, and that means to attract capital and to attract enough investors to put product from one coast to the other and carry it forward. We certainly have the resources to do that. It provides jobs and long-term stability for the whole country, so I think it's a good go-forward plan.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

I want to go back a little bit to Mr. Sendall's presentation. I know you're presenting together, so an answer from either one of you is fine with me.

With regard to your presentation on innovation in sustainable oil production, correct me if I'm wrong, but it would seem to me that Canada really has led the way in the reclamation of land that's used during the process of extracting oil. We have done extensive work on tailings ponds and that kind of thing, and we're doing very good work now in extracting it. There still is work to be done, but where are we overall in terms of our North American partners, for example, who are also our competitive partners? Are we behind? Do we have technologies that we can export? Where are we in terms of our competitors?

[Richard Sendall]

Yes, I believe that Canada has world-class, stringent, environmental regulations that address every stage of the operation from initial entry onto the land right through to final reclamation of the site when the resources are extracted. I think it is world class, and we lead the world in those considerations as well as in implementing those schemes.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

When we would hear a group like the Center for American Progress, for example, which campaigned extensively against Keystone XL, and called Canadian oil sands the “tar sands” and labelled them as the dirtiest, and really discredited them, is that based on facts and evidence and science, or what would that be based on?

[Richard Sendall]

I believe there is a public perception of this industry that we need to counteract through science, through evidenced-based facts. The product that we produce and the innovations that we're introducing into the scheme are producing a lower carbon footprint on the production side that is now akin to conventional oils, and we are closing that gap. The labelling of our product as dirty oil simply demonizes it, whereas there are products and fields in the U.S. market, in California, for instance, that are more energy intensive to extract than the oil sands.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Is there something that we could do as legislators, as representatives either in the House of Commons or when we're travelling and talking, whether it's to our constituents or stakeholders? Is there something that we could do to help fight that wrong perception? Do you think that the Center for American Progress is acting in good faith. or do you think they have their own agenda? How do we as legislators counter that? What can we do to help our Canadian natural resources to be able to promote how clean and responsible we are?

[Richard Sendall]

First of all, I can't comment on the Center for American Progress, but we can move forward through the regulatory processes we have now and use those to communicate the fact that we are heavily regulated and that our industry is moving forward progressively to lower the carbon footprint of our production.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

That's something we could be saying as legislators.

[Richard Sendall]

As legislators, show confidence in the regulatory process and in the public engagement, the indigenous and aboriginal engagement, in the process as we move forward to approve these projects, and demonstrate and continue to reinforce that these projects are in the public interest and that Canada prospers from the development of our resource.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Well, I have 20 seconds left. I can say on the Conservative side that we do commit to spreading that message whether we're travelling in Washington or across the country. We do commit to spreading that message and supporting Canadian natural resources and the responsible way that we extract our oil.

[The Chair, Liberal, James Maloney]

You have seven minutes, Mr. Cannings.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

I'd like to start by thanking Mr. McGowan for bringing up the Policy Horizons Canada report that the CBC mentioned this morning, in particular for tweeting about it this morning, because that's how I found out about it. It's a very interesting and I think valuable report for this committee.

The report really is talking about how renewables are becoming cheaper, and more quickly than we think, and that they will become the standard energy source in the world. Considering that report and how it talks about the changing dynamics of world energy markets and needs, what are you and your organization doing or planning or considering around the renewable energy industry in Alberta?

[Gil McGowan]

First of all, before I talk about renewables, I want to talk about the implications of that report for the traditional energy sector. The conclusion that report reaches, and the conclusion that has been reached by many other experts around the world, is that we are moving rapidly to the point where we're we will be relying on renewables more for fuel sources. That means there will be less demand for what we produce here in Alberta, which is oil, most of which we sell right now for transportation fuels.

For us in the labour movement in Alberta, who represent a lot of people working in the traditional energy sector, we say that's all the more reason for us to move up the value ladder and to start focusing on developing products that are not fuel products, such as petroleum-based plastics and agricultural products. If the world is moving away from petroleum as a fuel source, that doesn't mean there will no longer be markets for what we have here in Alberta, which is natural gas, oil, and oil sands. Those resources can be turned into other products, and sticking our head in the sand is not going to change the reality that as a globe we're moving away from fossil fuels. We should turn our attention to products that we can develop from what we've got, which are these fossil fuel resources. Let's move up, and that's all the more reason to do it.

On the sustainable side, with a number of our unions, including Unifor and the International Brotherhood of Electrical Workers, we've been pushing to take advantage of the changing environment in Alberta. We have a provincial government in place that has a goal of generating 30% of our electrical power from renewables. We are working closely with that government to create jobs in those sectors and to make sure that the work that comes from moving in that direction stays here in the province.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

Moving to Mr. Sendall and Ms. Nelson, you talked about the importance of getting product to tidewater to get the best price. I'm wondering if you could give me an idea of the price. Considering that oil is about $50 a barrel right now, what price would you be getting if today if we had a pipeline delivering those quantities to tidewater—considering that, as this is heavy oil, there would also be some discounts of grades?

[Richard Sendall]

When you mention that oil is currently trading at $50 a barrel, of course that's light sweet at WTI, West Texas Intermediate, market price, which is a North American based price. The market price for world crude stated at the Brent price is typically $2 to $3 a barrel higher, so we can move up that value chain by accessing that world price through access to tidewater.

Not only will that be for the barrels shipped out to tidewater, but just the fact that we have access to tidewater would force our primary customer, the U.S., to compete with that pricing. That could see an elevation in even the North American price, the WTI price, in order to ensure that they continued to attract our feedstock to their refining bases in the Midwest and the U.S. Gulf coast.

[Richard Cannings, NDP, South Okanagan—West Kootenay, BC]

We've heard quite a bit of testimony in this committee about innovations in oil sands, which I think probably refers to things that are going on in the in situ industry. Getting back to the economics of this, what oil price is necessary for new in situ projects to move ahead?

[Richard Sendall]

You'll see a gradient as price increases, with more in situ projects coming on when the price is right for the particular circumstance of the quality of the resource and the cost structure to develop that resource.

What we're talking about as far as infrastructure to access tidewater is concerned, is positioning the country to take advantage of those prices sooner and to be able to develop resources sooner by attracting even a higher price to the base. Rather than waiting for WTI to reach a certain number, we're positioning the industry to grow once we reach tidewater and a higher value market.