Natural Resources Committee on May 14th, 2019

[The Chair, Liberal, James Maloney]

Good afternoon, everybody. Thank you for joining us.

We are going back in time today. Back in 2016, when we first convened this committee, the first thing we did was to study the oil and gas sector, and produced a report entitled “The Future of Canada's Oil and Gas Sector: Innovation, Sustainable Solutions and Economic Opportunities”. The government provided a report in response, and today we're here to discuss an update on those issues and to get a briefing from our friends at NRCan to tell us where things stand as of 2019.

We're grateful to you for taking the time to be here. After your remarks, we will open the floor to questions from members around the table.

Welcome, and thank you.

[Frank Des Rosiers, Assistant Deputy Minister, Innovation and Energy Technology Sector, Department of Natural Resources]

Thank you, Mr. Chair. It's a pleasure to be here and to report on our progress.

I'm accompanied by two colleagues: Dr. Cecile Siewe, director general of the CanmetENERGY laboratory in Devon, Alberta; and Chris Evans, senior director in the petroleum resources branch at Natural Resources Canada.

We shared a copy of a short overview presentation, but I thought perhaps I could touch on it quickly to give you a bit of sense of what has happened since our last encounter on this topic.

With regard to the broad context and sheer importance of the oil and gas sector in the country, it is a major industry, a major driver of jobs, GDP, and exports. You have seen some of those data in the report itself, but it's worth reminding ourselves that it's 276,000 jobs around the country, so it affects a lot of people and their families. It accounts for some $100 billion in exports and 5.6% of GDP. Canada is a very large player in the global scene in the production and export of both oil and natural gas.

As we all know, the industry has faced some pretty challenging times in recent years, in particular thanks to the decline in commodity prices affecting world markets. Our industry and our people working in this industry surely felt it most directly.

Despite the short-term turmoil, the long-term future of the oil and gas industry remains quite strong, as shown in NEB reports, as well as assessments conducted by the International Energy Agency. Despite those challenging times, we've had our share of good news lately with some major project announcements, including the largest project in Canada's history, the LNG Canada project, a $40 billion project in British Columbia. This project will make Canada a prominent player in the LNG space, which as we know is a very important trend globally in energy markets, with our being the cleanest energy producer in the world. This will assist us in servicing our Asian clients, who are trying to move away from coal.

Another key project worth noting is in the offshore of Newfoundland and Labrador, the Hebron project, a $14 billion initiative. There are also major petrochemical projects in Alberta, which were announced in recent months. These are certainly encouraging signs.

We're coming back to the elements of the government's response to the report you produced. They are grouped around four main themes.

The first one was around intergovernmental collaboration and co-operation, the second focused on building public trust and transparency, the third was directed at engagement with indigenous people and resource development, and the fourth was on innovation in oil and gas.

I hope to cover some of this in my interim remarks, but because of time considerations, we may have to cover this during the Qs and As.

I'd like to note some of the major initiatives currently in play. There is Bill C-69, which is currently in front of the Senate for deliberation. There is the work around the consultation for the Trans Mountain Pipeline, which is also ongoing. I should also note the sizable investment made by the government in clean technology innovation—some $3 billion has been invested to date, with some key investments in the oil and gas sector, which I will touch on.

Looking at the engagement with citizens was also a key element of our focus this past fall. Our department's Generation Energy Council is engaged with some 380,000 Canadians on what the future of energy should look like. In those discussions, four pathways have emerged. One of these was being a clean oil and gas producer, which remains central to our game plan.

To cut to the chase, the key takeaway from that consultation, which lasted several months, was the desire of our citizens to see us as competitive, to make sure that our oil and gas industry can thrive, and to sustain those jobs and wealth creation. However, it also looked at ways to improve our environmental performance in terms of both GHGs and also our impacts on water and land.

Those two themes were very present throughout our conversation, along with the theme of the innovation required to get to that desired objective.

The industry has gone through a rather challenging environment lately, and this past December the government announced a support package to help the workers and communities affected by the downturn in the price of oil and gas. The total package was worth $1.6 billion.

I want to perhaps touch on some of those key components, the first one being $1 billion in commercial financial support coming from Export Development Canada to support the working capital needs of companies as well as their export potential in new markets.

The second envelope was $500 million from the Business Development Bank to help commercial financing to diversify those markets.

The third component was around R and D, with a $50 million investment from the clean growth program at NRCan being set aside. The total value of those projects is $890 million.

The next component was from the strategic innovation fund from ISED, the innovation department. That's a $100 million envelope.

Lastly, there is access to the national trade corridors fund, with a total value of $750 million. A significant amount of commitments have been made in that regard.

To close, in terms of tax measures, in the fiscal updates in the past fall, as colleagues will know, Mr. Chair, there was a significant announcement with regard to accelerated capital cost allowance measures to boost the competitiveness of all industry sectors in the country. The total value of those measures was in the order of $5 billion in terms of foregone tax revenues. Obviously, the oil and gas sector, being such a major player in terms of domestic industry, was one of those that obviously benefited from it, especially in terms of expensing clean energy equipment investments.

That brings me to the innovation team, which I touched on earlier. Obviously I will not be comprehensive here, but again, through our conversations that will follow, we may be able to touch a bit more on that. The government has been working very closely with industry and provincial governments to look at ways to really help drive the industry forward in terms of the future, as the title of your study invites.

While the industry does a terrific job in looking at those incremental improvements, there's a collective sense that we need to look at leapfrogging in terms of environmental performance and cost reductions. This is where renewed efforts with extraction technologies, tailing ponds management, air emissions as well as carbon use have been widely seen as being critical.

I won't go into those in detail, but to give you a bit of a hint, in terms of extraction technologies, there are some promising leads there that we and the industry are pursuing with vigour, to look at both reducing the cost of production but also reducing emissions by the order of 40% to 50%. We have a number of projects in this area, which are very exciting indeed, that we are driving quite actively right now.

It's the same thing in the area of tailings. We hear a lot of concern among our citizens in terms of how we can cope with those and reduce the production of those tailing ponds. There's effort there. It's also looking at using some of those tailing ponds and making sure that we're able to extract the valuable hydrocarbon and heavy metals such as titanium to be able to make better use of it. It's very much in the spirit of a cyclical economy, being able to recycle some of those products.

We have a large-scale project currently under way, which was announced by the Province of Alberta with Titanium Corporation, to do precisely that.

These are, for us, very encouraging signs of what Canada is able to do. Of all sectors, the oil and gas sector in Canada has been known for decades to be extremely innovative and entrepreneurial. I have a lot of confidence that we'll be able to advance those projects successfully.

The the penultimate slide speaks a bit to how we went about doing it. As you know, the pan-Canadian framework was anchored around this notion of working collaboratively with provincial and territorial governments. We felt it was the right thing to do to pay special attention to how we went about doing business.

There I could point out perhaps three elements that were, in our eyes, quite meaningful. The first is the establishment of a clean growth hub, which is essentially a one-stop shop for people to interact with the federal family. Sometimes it's a bit difficult if you're a university researcher, a small firm out there, to figure out whom to talk to. Their wish was to have have a one-stop shop where they could interact with us. We heard that feedback, and we took it to heart and established this hub. It is is a grouping of 16 department and agencies physically co-located in an office here in downtown Ottawa. They are able to interact with clients and direct them, whether they need financing, access to market, regulatory changes or issues around procurement—whatever topic they may have.

In our one short year of operation, we've had more than 1,000 clients come our way to look for guidance and support, and it's a very popular feature of our ecosystem nowadays.

The second thing I would note is around the trusted partnership model. We have finite resources both federally and provincially to invest taxpayers' dollars, so we have to try to find ways to use those limited resources smartly. We reach out to provinces and say “How about we try to identify together what the most promising technologies are and look at having an integrated review process?”.

Instead of having researchers in universities go through separate processes both federally and provincially, we essentially recognize each other's process, saving an enormous amount of time for the researchers and innovators to access the federal or provincial funding, and also it speeds up the process considerably. We have eight or nine of those trusted partnership models across the country, which have proven to be quite successful.

The third and last thing I would note is that the government announced, in budget 2019, $100 million in funding for the Clean Resource Innovation Network, or CRIN for short. It brings together innovators in the oil and gas sector, mostly in western Canada, and the grouping has been active now for about a year. The federal government was happy to provide some support for that. They were actually in town just this past week, and it looks to be quite exciting in development.

To conclude, I'll talk about the national energy labs.

We have a network of four national labs located in several parts of the country, in Montreal, Ottawa, Hamilton, Ontario, and Alberta. They bring together more than 600 researchers, engineers and technicians in this field.

They cover a wide range of technologies: renewable energy, PV, geothermal, bioenergy, marine, energy efficiency, advanced materials. They look at artificial intelligence application in energy as well as fossil energy.

We have the privilege of having Dr. Cecile Siewe here, who is the lab DG from our CanmetENERGY-Devon facility, which is focusing precisely on oil and gas research. As we'll hear during the audience, there's a lot of work there around water research, extraction technologies, partial upgrading, oil spill recovery and a lot of those domains of expertise. Dr. Siewe is a highly renowned scientist in her own right but also the lead of that lab. I thought it could be of interest to the committee members to interact directly with her.

I'll pause here and turn the floor over to you.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Whalen, you're going to start us off.

[Nick Whalen, Liberal, St. John's East, NL]

It's great to hear from you guys on what the government is doing on the innovation side.

I was hoping to maybe get some of your general overall views or just some facts to put on the record about the current opportunities for Canadian petroleum-based energy in the market. Could you guys provide some statistics or some information on what the global market looks like for oil and gas between now and the end of the century, when we hope not to use it anymore, and how much of that oil consumption at that time could or should come from Canada?

[Chris Evans, Senior Director, Pipelines, Gas and LNG, Energy Sector, Petroleum Resources Branch, Department of Natural Resources]

Thank you for the question. It's a good one.

I think we'll have to qualify our answer a little bit in the Canadian context, but certainly at a high level we can say that the International Energy Agency has indicated and highlighted that there is an expectation that, even as the world tries to control its carbon footprint, there is going to be growth in oil. The National Energy Board last year did an energy futures report, which suggested more in the Canadian context a growth of at least 1.7 million barrels of oil out of Canada, out to 2030.

There's a dynamic there where the expectation is that there will be more oil that needs to be consumed by the world and that Canada's production will increase.

[Nick Whalen, Liberal, St. John's East, NL]

Do you see potential benefits in the market from the way carbon is being priced around the world that would see lower output pollution costs resulting in benefits for different types of oil that might be produced here, say, at offshore Newfoundland to the detriment of Alberta oil? And how much is that starting to play a role in the marketplace and in global consumers' decisions on where they're sourcing their hydrocarbons from?

[Chris Evans]

I think I'll need to be a little bit cautious about talking too much about carbon pricing, as it sits under a different minister's remit. I think I can say that the government is looking to implement carbon pricing in a way that remains focused on competitiveness. There are several avenues or elements of the carbon approach, including mitigation, adaptation and innovation, which is a very important element. The carbon price does sit within the overall plan.

The current approach has forecasted measurable reductions in carbon pollution out to 2022, just on the plan as it currently exists, but there is still a lot of work being done on the shape of some of the implementation, and I think I wouldn't be able to opine on some of the points you raised.

[Nick Whalen, Liberal, St. John's East, NL]

That's fair enough.

[Frank Des Rosiers]

If I may supplement this.

It's true in the case of oil. It's also very true in the case of LNG.

In our discussions with super majors and domestic producers as well, we hear a lot about the preoccupation with the carbon footprint, as the member is referencing, and looking at those suppliers who are seen to be clean or the cleanest in the space. It is quite an opportunity for Canada, which is seen as a politically stable jurisdiction, but also potentially as one that is differentiated in the commodity markets in being seen as a clean energy supplier. It is certainly true in the case of our LNG Canada project on the west coast. I think both the domestic constituents care about it and our clients as well, and so do investors.

We're very mindful of that, and it may not be intuitive to many. The fact that we have such an abundant clean electricity supply is one of our advantages, because in order to power those very large pieces of equipment, you need a large amount of power. We're fortunate to have large hydro power and renewable energy, which are able to sharply reduce the carbon footprint of those operations. Whether it's on the west coast or the east coast, we have a chance to differentiate ourselves in a big way.

[Nick Whalen, Liberal, St. John's East, NL]

When my constituents write to me—and it's more of a political question—they want to know how Canada can continue to participate in the market while living up to its environmental commitments.

I want to get a sense of where we see our markets in the future. Do you see a decline in North Sea production as an opportunity for Newfoundland to pick up some market share? How are we on the greenhouse gas emissions side; how do we compare with the North Sea, the Middle East and with South America, Venezuela in particular?

[Frank Des Rosiers]

It is a good point.

Again, when we look at Canada's production compared not only with that of other oil or gas producers, but also in terms of energy switching, if you're looking at opportunities in the big picture for major emissions reductions, a lot of it is around moving coal to cleaner fuels, either fossil fuel or renewable energy. It's true in the United States, where we've literally seen dozens of coal plants being shut down and moving to either natural gas or clean electricity when possible.

The same is true also in eastern Europe and Asia, where very large domestic production of coal is still used for power production. This is where natural gas can be part of that energy switch from coal to cleaner fuels or cleaner energy.

Fuel switching in the United States has been the largest contributor by far to their improvements in GHG.

[Nick Whalen, Liberal, St. John's East, NL]

That's good to hear.

It's difficult for Canadians to wrap their head around the sheer volume of oil production in Alberta and what that means and how important it is. When we talk about pipelines and getting the volume of this commodity to market, it's difficult for Canadians to picture how much benefit TMX will have in the mix of the distribution of this oil to markets versus Keystone XL, and difficult for people to understand why energy east is no longer on the table.

If Keystone XL and TMX come online, will that solve the problem Alberta has in getting its current production levels to market? Is there a potential future role for energy east to help Alberta expand its production and get even more resource to market?

[Chris Evans]

Canada is a market-driven economy for its energy projects. We rely, of course, on private sector players, by and large, to decide on projects.

In the case of the energy east pipeline, that decision was taken by the company when it looked at all of the factors that were coming to bear.

Strictly in terms of TMX, KXL, and the Line 3 replacement project, if you consider the incremental pipeline capacity that these three projects would contribute to the market, it roughly speaking matches the NEB's forecast of growth in oil production in Canada.

[The Chair, Liberal, James Maloney]

Ms. Stubbs.

[Shannon Stubbs, Conservative, Lakeland, AB]

With the energy east pipeline, one of the factors that was brought to bear in the proponents' decision was the political intervention in what should have been an unbiased, science-based, evidence-based review, fair to all pipeline considerations.

In fact, because of the stalling and the reappointment of a panel by the Liberals.... Then, for the first time ever, there was the application of downstream emissions criteria as a factor in the assessment of the energy east pipeline, unlike Trans Mountain, which was only assessed on upstream emissions. The energy east pipeline was held to upstream and downstream emissions. That, ultimately, was exactly what the company mentioned one month before, when it asked to stall the process to be able to continue with their application. A month later, it announced it was leaving. This of course is why regulatory certainty is so critical and important.

I have a quick question. I remember that about this time last year—and I don't know what the answer to this is—the government launched a $280,000 study on oil and gas competitiveness. It was led by NRCan, and a firm was commissioned to do it. I think it was completed in June 2018—I don't know. Has that report been made public? Is there a report that has come out of that study?

[Chris Evans]

I really regret that I'll have to look into that. I don't have information about that on hand.

[Shannon Stubbs, Conservative, Lakeland, AB]

If you could find out about it and then table it with the committee, that would be great. I remember its being announced, but didn't really ever see the conclusion. Given the dollar amount we knew it would cost taxpayers, it would be great if Canadians would be able to get to see that report.

Speaking about the regulatory review for crucial energy infrastructure in Canada, Bill C-69, as you referenced, will make some major changes. The provinces and three territories have now come out with deep concerns about the impacts of Bill C-69 on future development of oil and gas, given the draft project list that was released last week, all of the kinds of interventions in provincial jurisdiction, as well as the the impact on the ability to build anything in Canada. It's not your job to answer for that; it's the politicians' job.

Because there was a budget allotment relating to the transition between the NEB to whatever ends up coming out of Bill C-69, is your department involved in the plans for that transition? Are you able to shed any light on what the timeline would look like? Can I get some details on that?

[Frank Des Rosiers]

As the committee chair will I'm surely appreciate—given the lively discussions that are currently taking place in the Senate—it would be premature for us to pronounce on how the transition will take shape. Officials are reflecting on all of those considerations, but we need to see how the legislative piece lands before we can firm up all of those plans. We're getting ready for that implementation, should Parliament decide to approve it.

[Shannon Stubbs, Conservative, Lakeland, AB]

In our committee study and recommendations, page 5 of the report noted the importance of how society perceives energy development and public confidence. I would argue that the Liberals have campaigned against Canada's world-renowned track record of regulatory reviews of energy projects.

You'll remember that the Liberals campaigned on a loss of confidence in the National Energy Board, even though they never provided a shred of evidence about that. I am confident that you all know that Canada, for decades, when benchmarked substantively against other energy-producing countries in the world, has literally been second to none on all the measures of concern.

Given the comments by the Liberal Minister of Democratic Institutions, who said, “It's time to landlock Alberta's tar sands”, and the Prime Minister's rejection of the Enbridge pipeline, thereby removing the potential for standalone exports to Asia-Pacific, do you have any comments, first of all, on what rhetoric like that by elected representatives does to Canada's reputation as a responsible energy producer? Since you're experts, could you inform everybody, and that Liberal minister in particular, once and for all, if there is actually any tar in the oil sands?

[Frank Des Rosiers]

It's probably not appropriate for me to comment on an exchange from a minister's and MP's perspective, but with regard to making sure that the facts of the full carbon cycle from wells to wheels in terms of our production methods are communicated, I can certainly reassure committee members that the impact we're having and the progress we're making in environmental outcomes are communicated clearly.

That's something we strive to do, not just domestically, but also for investors and key partner countries that, as you can appreciate, we're interacting with daily and who are seeking information and evidence with regard to our work. I would also add that a key element of our plan is making sure that they are included in scientific evidence and facts. We're privileged to have, in our universities and in our national labs, highly respected experts who are able to bring those facts, figures and evidence to the interests of those investors and players so they can make informed decisions.

[Shannon Stubbs, Conservative, Lakeland, AB]

It would certainly be difficult.

[Frank Des Rosiers]

The same is true for the IEA, for instance, where we're a very active member, to make sure that Canada can present the facts as they are.

[Shannon Stubbs, Conservative, Lakeland, AB]

And there is no tar in the oil sands.

Quickly on the Liberal fuel standard, I just wonder if you have you been consulted as a department in the development of the Liberal fuel standard. While the environment department admits they have no modelling for emissions reductions or the cost consequences of the fuel standard, I just wonder if your department has been engaged in the development of it—or maybe you are now, now that they're consulting in the back end, even though they announced it in December—particularly with regard to cost consequences for refiners in Canada.

[Chris Evans]

Certainly our department is working with ECCC in supporting them with analysis and working with our stakeholders as well to take on board their views, conducting analysis and feeding it into the ECCC-led process, yes.

[The Chair, Liberal, James Maloney]

Mr. Cannings.