Natural Resources Committee on March 9th, 2016

[Frank Des Rosiers]

As it relates to broad energy R and D, we put significant efforts around renewable, whether it's on the smart grid or whether it's on the integration of renewables within the grid, which is a key challenge for utilities around the country. There's also developing our biomass. We have a very large amount of biomass coming from out of agricultural production or forestry, which ought to be put to good use. All of those are important drivers from a broad energy R and D perspective.

As it relates directly to oil and gas, as I referenced before, one of the most promising avenues is to look at the use of those renewable resources to power the extractive industries. There have been lots of efforts to look into the use of wind power in particular, and solar and geothermal, which could be attractive options. We do a significant amount of research out of our own laboratories in the use of bioenergy and bioproducts, with FPInnovations and the industry directly. This is still nascent, to be clear, but it could have nice potential for both industries to generate value for the forest producers and also a chance to green the oil and gas activities.

We still are some years away from getting some of those bioproducts into the mix, but we think it's well worth investing our efforts into.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

You are working toward a more renewable energy future, then?

[Frank Des Rosiers]

Correct.

[Wayne Stetski, NDP, Kootenay—Columbia, BC]

Okay.

Oil sands and heavy oil projects face some significant disadvantages in the global marketplace—significantly higher costs of production, larger environmental footprints, and difficulty accessing wider markets, to name just a few.

What kinds of innovations are in the pipeline—excuse me for the pun—that will help us to offset those disadvantages? If there aren't any, are there limits to how much technological innovation can help to close that gap and put oil sands and heavy oil on a level competitive footing with other global oil sources?

[Frank Des Rosiers]

The committee member, Mr. Chair, is right to point out some of the shortcomings or challenges we face.

Before I answer the question, it's also worth remembering that Canada also has competitive advantages with regard to its oil production. We are a stable economy, we have plentiful supplies, and we're steady suppliers. We have a lot of strengths in our game that we shouldn't lose sight of. We only need to be reminded by looking at those other world producers out there. Whether it's in Iraq or in Venezuela, there are a lot of trouble spots where that oil is being produced. It's just something well worth keeping in mind.

On the dimension you touched on with regard to progress, cost reduction is at the top of the priority list for the industry. So is addressing environmental performance. I think there's an acknowledgement, now more so than ever, from industry leaders that we need to act on both fronts. There's also very strong support on the part of the provinces. We understand that we need to move the yardstick significantly in terms of environmental performance and cost to keep the industry running not just for the short-term environment we're in but also to make sure we're competitive in the long haul.

The kind of technologies I've described, the so-called transformative technologies on the extraction side, are in my view probably the most attractive. Right now the industry is more focused on looking at marginal or incremental improvements to costs of production, which are certainly well worth looking into, in terms of project management, marginal improvements to use of energy, and production processes.

To address the gist of your question, there's been more effort lately, during the past year or two, to look at more of those transformative technologies that would give us a step change in terms of both environmental performance and cost. The good news is that we have in our arsenal, if I may say, half a dozen or so technologies that could get us there and bring us to a significantly lower cost of production and lower emissions. Water should not be lost in terms of that equation; it's also a top priority for the industry.

That line of sight is there, but again, it will take us many years to bring those technologies to market. We are committed to do our part as government, and the industry appears to be also very much onside to pursue those efforts.

[The Chair, Liberal, James Maloney]

Thank you.

I've been pretty generous on the time so far. I'll have to start getting a little stricter here.

Mr. Serré, over to you.

[Marc Serré, Liberal, Nickel Belt, ON]

And you're going to get stricter.

[The Chair, Liberal, James Maloney]

I know it's a bad time to say that.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair.

I would like to thank the witnesses who joined us here today, of course.

You gave an excellent presentation. Your information is relevant. This gives us a good foundation to build on and move forward. As you mentioned, and as we know, the price of oil has really dropped in recent years and that is a challenge for the industry and for us as a government. I would also like to make the following clarification.

I want to comment on the earlier remarks about our Prime Minister. I'm very proud of the efforts that our Prime Minister and the government have made. We have been in government now for five months, 150 days or so, and we participated heavily in COP 21.

As you mentioned earlier, our Prime Minister is visiting with the U.S. President this week to dialogue, to grow our economy, to put forward the initiatives that we talked about in a positive way. It's the first time this has happened in 12 years. We have a lot of success stories in all of our natural resources sectors that are very positive.

We also had a first ministers' conference for the first time in seven years. Now you also mention the energy that we had for the Canada, U.S., and Mexico meeting. There's a lot of good collaboration happening. It's something that we could build upon, as you mentioned earlier with regard to the innovation sector.

I look at the reports that you have identified here, and I appreciate you condensing a lot of this. Earlier, you mentioned a clean technology fund of about $100 million. You also mentioned another fund that was for all natural resource sectors. You also mentioned tax measures. Are you able to summarize those three elements and what has been done in the last four or five years for the committee? Do you have all that information to provide to us?

[Frank Des Rosiers]

Sure. These were explicitly stated in the government's intention going forward. There have been no announcements yet on the specifics of how those monies will be deployed, but the intention is quite clearly to give that extra boost, which is significant in terms of dollars. The fact that it's multi-year funding should also give a degree of certainty to the actors, and as you mentioned, to our provincial partners, to advance this.

I would foresee that, coming out of the first ministers' discussion in Vancouver last week, this will be part and parcel of our dialogue with them. Over a six-month time period, we've committed to solicit and consult broadly among the public, industry, stakeholders, and the provinces to make sure that we use those monies wisely.

The government had the choice of going fast to try to get it out the door quickly, or to do it well, if I may say so, and as a result, to take a bit more time to consult and make sure that there was alignment. At the strategic level, there's a degree of alignment between the federal and provincial parties that has probably not been present for many years now on the issue of climate change, and the energy policy and innovation that go along with it. It's an opportunity for the country to be sure that we use those resources smartly. In short, there is no announcement yet, but there is a significant degree of engagement and consultation.

I'd like to point out that Minister Carr has already carried out a number of round tables around the country. It is his intention to pursue those engagements broadly, not only with provincial partners but also with industry leaders, indigenous leaders, and municipal partners to seek people's ideas and views.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

I agree with what was said earlier about our commitment. You mentioned CanmetENERGY as a vehicle for a lot of R and D. What amount of dollars have we invested in R and D?

I'll give you an example. Australia spends $2.7 billion for R and D in the mining industry. In Canada we used to spend about $800 million, and now we're spending about $500 million in the mining sector. Could you summarize what we have done and what we have committed to, moving forward, in the oil and gas industry? That's one question.

The three of you probably have decades of experience in the field. When we look at all these conferences that are happening within Canada and worldwide linking the economy and the environment, those discussions need to happen as one. From your experiences in the area of R and D, are you able to look to non-partisan recommendations about where and how R and D monies should be invested when we look at the elements we just talked about? Could you make some specific recommendations?

[Frank Des Rosiers]

The amount of money being devoted comes from different programs and agencies, but we thought the numbers I captured on slide 9 were probably the best summation of this: $365 million over the past 10 years is pretty significant, keeping in mind that those dollars are significantly leveraged from industry. It would be pretty difficult in the space to have leverage of at least 2:1, if not 3:1, for those monies. When we get further down to the deployment stage, that multiple could be even higher, 4:1 or 5:1 in the case of large-scale demos, for instance.

As for energy research priorities, yes, we do have in every one of our research activities a fairly well-established process whereby we solicit input from industry, provincial partners, university partners, and our expert scientists within the federal family to identify what those research priorities ought to be. Perhaps I could ask Nicole to describe that more fully. I guess what's new is that we have also now extended the discussion to some of our international partners. Especially during the past year and a half or so, we've had very close dealings back and forth with the U.S. Department of Energy. We have a very significant research establishment. Just to give you a ballpark sense of the dollars involved, we spend about $6.4 billion on energy annually in R and D. The United States shares many of the same challenges we do and is very keen to partner with Canada, which is seen as a leading nation in that space. We're quite enthusiastic about the prospect of doing more and more of those research projects together.

[The Chair, Liberal, James Maloney]

Perfect timing, you're right on the buzzer.

I'm sorry, Ms. McDonald, but maybe we can come back to you later on today.

Now we're into round two and five-minute segments. Ms. Stubbs is up next.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you, Mr. Chair.

Thanks, all of you, for being here and apologies again for the delay.

I know it's going to come as a total shock to my colleagues that I am going to try to focus on the importance of the oil and gas sector to Canada's economy overall, which I want to thank you for underscoring so substantially in your opening presentation. I also want to thank you for highlighting Canada's global leading role in developing innovation and technology that reduce greenhouse gas emissions, increase production efficiencies, lower costs, and make us a beacon for innovative and technological development of energy resources.

I want to thank you too for noting the critical role of the oil sands in Canada's overall energy picture that will enable us in the future to meet the world's growing energy demands as we continue to increase our responsible development of that resource as well as other crude oil resources.

I thought maybe we could try to get into a few more specifics about exports and imports. I'll just give you a couple of questions in a row and then we can figure out how we're doing for time. Maybe the chair can give me a heads-up as to where we're at.

In terms of exports, are you able to give us the breakdown between crude oil, synthetic crude oil, bitumen, natural gas, electricity, and refined petroleum products? Can you give us an estimate on what those accompanying export revenues are and the breakdown of which countries those exports are going to?

Can you also give a little more specifics on the countries Canada imports its energy products from and their related breakdowns? I would be especially interested in looking for facts relating to the oil and gas imported for use in eastern Canadian refineries. I agree with you that Canada has the world-leading skills and technology to continue to provide energy to the world. I wonder if you have any estimates or predictions of global energy demand, and also about the potential value of our exports to other countries, if we are able to achieve access to diverse markets beyond the U.S.

[Frank Des Rosiers]

My friend next door amazes me with all those numbers. I think, Mr. Chair, we could commit to reporting back to the committee with some numbers. Yes, we do have those statistics the committee member is talking about in terms of exports and imports by country. We could do a nice little summary table there and similarly in terms of global energy demand.

[Terence Hubbard]

Certainly, we'd be happy to get back to you on some of this, but—

[The Chair, Liberal, James Maloney]

I was going to say that maybe it's a good idea, because unless you can summarize your comments in less than two minutes, we're going to have no choice.

[Terence Hubbard]

I could respond to some of the key highlights there, though, in terms of some of the questions you asked.

In terms of crude oil exports, Canada exported over three million barrels per day of crude oil last year. Ninety-seven per cent of that went to the United States. In natural gas, we produce about 13.7 billion cubic feet per day. A little over 8 billion of that goes to the United States in terms of exports.

We import a little over 700,000 barrels of crude oil per day into refineries in eastern Canada. A little over 60% of that comes from the United States. Other countries that it comes from include the U.K., Norway, Saudi Arabia, and Iraq, a number of different countries. It all depends on global markets, market conditions, prices, and quality differences for those types of crude in terms of where refineries choose to purchase their crude oil.

Regarding global energy demand predictions, there were some numbers in the presentation, but generally, numbers from our colleagues at the International Energy Agency continue to see global energy demand continuing to increase going forward. That provides a real opportunity for us here in Canada, in the sense that there will be continued opportunity into the future for the development of our oil and gas resources in order to play a role in meeting that global demand.

[The Chair, Liberal, James Maloney]

Thank you. We have about 10 seconds left, so we'll move on.

Mr. McLeod, you're up. You have five minutes.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you, Mr. Chair.

Thank you to the presenters today. I appreciate the information you're bringing forward.

I'm from the Northwest Territories. The Northwest Territories, as you probably know, are still relatively pristine. There are diamond mines and there is oil and gas exploration that has happened there for a number of years. We've seen a lot of boom and bust cycles.

Of course, the people in the north have always expressed concern when it comes to projects in regard to making sure that the environmental aspects are scrutinized very closely. At the same time, job creation is also very important to us. We're quite fortunate to have diamond mines that are providing a lot of opportunity for us. Half of the population of the Northwest Territories is aboriginal, so including aboriginal people is also very important.

I think the key to moving forward on a lot of the projects is having a trustworthy regulatory process. In the Northwest Territories, I think we have a model that people in other jurisdictions can look at, a model that does all of that and captures all of the areas that we want to make sure are covered.

While we welcome the opportunity to see our resources developed, we are still challenged by a number of factors. They are factors that can be dealt with. We have a lot of resources in terms of diamonds, precious metals, emeralds, and oil and gas, all these things that have not really been explored to their fullest yet. We don't really know their potential. The reason for a lot of the exploration not happening is that our transportation infrastructure in the Northwest Territories is not yet developed.

There is an opportunity to develop a road down the Mackenzie Valley Highway. That would open up the whole valley to oil and gas opportunities to help lessen the costs of building pipelines and for tourism. A lot of economic opportunities would come as a result of it. There is an opportunity to build a road into the Tlicho area, which would allow for the community to be connected. Gold mines that are working in the area would be able to make their projects viable.

We've also been looking at a road to the current diamond mines, which would allow the mines to explore other pipes in the area that don't produce as well or wouldn't have the returns, but a road in the area would certainly make it more viable. This road could also connect with Nunavut, which is very much in a position where all of their resources are trapped unless they get a road. They have talked about building a road into Grace Lake, which would open up their part of the country to creating opportunity and jobs. That's something that's really important for us to see.

I wanted to ask you about how you see this government's role in moving this investment in transportation infrastructure in the Northwest Territories—I'm talking not only about the Northwest Territories, but about Nunavut—as a priority.

[Frank Des Rosiers]

Transportation is a little beyond my area of expertise.

Perhaps the others could solicit witness views on this. There is a significant infrastructure fund that has been set aside. Whether this will address those particular demands, I wouldn't want to mislead the committee members in any kind of way. It's not my area of activity.

One thing I'd like to point out as it relates to energy R and D and the kind of mining projects you've described, which I think would be of particular interest, is looking at both increasing the use of renewable energy to power some of those mines, which in most cases are upgrades, and using wind power as a key source of production. Another area that has been quite promising in our view is looking at the energy input for the production of those mines. After labour it's the second highest input cost for the activities of those mines. Industry has conveyed to us a keen interest to look at novel ways to reduce the energy demands, particularly in terms of ventilation where a lot of wasted heat is being produced, and using automotive vehicles and things like this for the underground mining activities.

On road transportation, I'm probably not the best one to answer that one.

[The Chair, Liberal, James Maloney]

On that note, we're right at the five-minute mark, so that's appropriate.

Thank you, Mr. McLeod.

Mr. Arnold, I understand you're next.

[Mel Arnold, Conservative, North Okanagan—Shuswap, BC]

Thank you, Mr. Chair.

I'm here substituting for Candice Bergen, the official opposition critic for natural resources.

We know that through royalties and taxation, the energy business and workers contribute significantly to public services as well as the overall standard of living in communities all across Canada.

Can you tell us how the oil and gas sector impacts other industries in Canada when times are good and when times are bad, or how other industries are affected by the trickle down effect?

[Frank Des Rosiers]

It's a very good point.

In economic-speak, this is what we call indirect impact. Sometimes people tend to overlook the significance of these impacts. Whether it's for manufacturing, engineering, legal services, financial services, all sorts of local industries, and whether it's trucking or whether it's employment services, those impacts are quite significant. You feel it on the upside, as we've witnessed over the past years, not just in Alberta, but in Saskatchewan and in Newfoundland and Labrador. We've benefited from the significant upswing in oil and gas activity, but have also felt it when the price suddenly falls.

They felt it most directly during the recent reductions in terms of the volume of business, but also in terms of margins. We've seen many of those suppliers being squeezed to reduce the overall costs of the activities of those oil and gas operations.

[Mel Arnold, Conservative, North Okanagan—Shuswap, BC]

Seeing the recent downturn in oil prices and the potential for LNG exports out of British Columbia, can you see a correlation? Is there an opportunity there that the industry is working on and moving some of those resources in support of the possibility of getting the LNG to market, such as in terms of the infrastructure needed to do that?