Natural Resources Committee on March 7th, 2017

[John Barlow, Conservative, Foothills, AB]

In what you're saying, Lyle, a couple of things stuck out. It's cost-effective for you to try to find these efficiencies through innovation, but also you guys have some skin in the game in terms of the environment. You want to make sure your partners get the perception that you are doing everything you can to not only do things more efficiently but also use less water and be more environmentally friendly. Those are things you've been doing up until this point anyway.

[Lyle Thorsen]

Absolutely, yes. Speaking for MEG, we always want to go above and beyond, do the right thing, and continue to get better in all aspects, whether it's the energy intensities—and you pointed out some of the stuff—or water usage. We've been continuing to use less and less water and going to non-potable water sources so that we're not taking water out of the current ecosystem. We're using stuff that really isn't useful for other purposes to reduce our footprint. Lots of work is going on with our pad facilities there to continue to reduce even the size of our pads that we're drilling our wells on.

I think everybody is concerned in how we get better and how we utilize all our resources more efficiently. It's one of those things that we're proud of doing. Generally you want to do the right thing.

[John Barlow, Conservative, Foothills, AB]

I appreciate that you've been doing those things without government intervention.

I've had an opportunity to learn a bit about the HI-Q program, and I know maybe some of my colleagues haven't had a chance. I'd just like you, as briefly as you can, to give us an overview of the accomplishments that could be achieved. Will that be able to go to commercialization?

[Lyle Thorsen]

HI-Q is something that MEG has been developing. We've been playing around for probably almost 15 years. It is a partial upgrading technology. When we looked at things, we saw upgraders are expensive. You can see that now the economics of them just aren't making sense, and we haven't seen a new upgrader built in northern Alberta for numerous years.

One of the things that HI-Q does a little differently is we don't upgrade the barrel as far as conventionally has been done in the past. We're able to remove some of the capital costs for doing that. That helps. I guess it's the economics of it.

What we're doing is upgrading the barrel just enough to eliminate the need for diluent to be mixed with the bitumen to put it into the pipeline. That reduces our cost significantly. It's about access to that lighter oil. There's a risk that it may not be there as production continues to come up, and diluent is a big cost to our business. That's a very big thing for us. Eliminating the diluent that's mixed in with the bitumen to go into the export pipelines is very important. For the diluent that MEG Energy uses, we use a light condensate, and we add approximately half a barrel of that condensate for every barrel of bitumen that we're putting into the pipeline. Other companies are using synthetic oil to blend that in a one-to-one ratio. When you think of how much diluent is going down the export pipelines alone, if we can remove that, that frees up pipeline space. That's very important for us as well as we move forward, because it does free up pipe space.

The marketability of our crude is also increased when it's partially upgraded. It increases the number of refiners that can actually take our crude. It helps us get better value for the product. From that aspect, it helps increase taxes and royalties, and everything is staying in Alberta, in Canada. That's another big piece that helps us among differentiating markets—

[The Chair, Liberal, James Maloney]

I'm going to have to interrupt you, Mr. Thorsen. I'm sorry. Thank you.

Mr. Cannings, it's over to you.

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

Thank you.

Thank you all for being here today. I'll start with MEG.

Specifically regarding the nice graph that you have showing your GHG intensities versus the industry, I'm wondering how many other operators in the oil sands use a SAGD-type technology. How common is that technology, approximately?

[Lyle Thorsen]

It's become a more common technology. I don't know how many others there are. There are about a dozen or so.

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

Are you part of COSIA?

[Lyle Thorsen]

MEG Energy isn't part of COSIA.

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

We see that you are operating, as you say, about a third below the industry in general. How do you see this technology moving in to become the norm and everybody is doing it? Is that going to happen in the near term, or is it only going to be implemented in new projects? How does that work? How can we get the industry lying down?

[Mikaela McQuade]

The ability to use steam-assisted gravity drainage is very specific to geology. Some parts of the oil sands can only be mined, because the resource is too close to the surface. We can't build up the pressure and heat that we need to actually get the oil to flow to the surface.

With respect to MEG Energy's environmental performance and competitive advantage, there are quite a few SAGD users across industry. The in situ industry is kind of the industry of the future. The vast majority of the oil sands resource will be developed with steam-assisted gravity drainage. We've been able to drive that line below the industry average through our use of cogeneration. We've made upfront capital-intensive investments in cogeneration—in eMSAGP, enhanced modified steam and gas push, and in eMVAPEX, the enhanced modified vapour extraction.

We're seeing more and more of those downhole technologies come into play, be it through solvent or non-condensable gas usage. A lot of our industry peers are starting to use those. Those are proprietary, so they're not necessarily shared in groups like COSIA, but we are seeing each of us individually develop those technologies and try to maximize resource extraction so that we can get as much as possible from the resource with as little environmental impact as possible.

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

Perhaps I can quickly follow up on the carbon pricing questions.

With regard to the cap that Alberta is putting on GHG emissions from the oil sands and how different projects are affected by that, I assume that you'll fare very well under that scheme. How does that affect you?

[Mikaela McQuade]

It absolutely depends on implementation and design. For a company like MEG Energy, as we alluded to earlier, our ability to develop our resources—I believe in the regulatory approval process we have up to 500,000 barrels per day in process—in such a way that they are developed at 30% below industry average depends on our ability to attract investment to Alberta and to Canada.

When there is a hard emissions limit, however that's designed—we don't necessarily know as of yet, because the implementation details have yet to be released—we need to be able to see a clear pathway to compliance for our operations to be able to develop under that limit. For us, we have to convince international investors to come to Alberta and we have to convince them that our projects will be able to be developed under such a limit. Until such time as we have that policy clarity, I don't believe we could necessarily comment.

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

Okay.

Ms. Lawrence, you were starting to go somewhere I thought you were going to go—namely, what's the low-hanging fruit for clean technology in Canada? You talked about how Canada is ahead in research, but maybe not in patents. What particular parts of the clean tech industry is Canada really good at? Where should we be investing our time and money, from a Canadian perspective, to be world leaders?

[Leah Lawrence]

This is a really important question that we're trying to think about a lot at SDTC right now, just from the perspective of where our company is moving and starting to become larger.

I'll first say that this is what we think so far. We will continually refine this, because this is an area that we should understand better.

When we look at the research in patenting, it points to five or six areas where we seem to have a concentration of interest and human capital, if I could put it that way. One is fuel cells and hydrogen. The Vancouver region is a very important hub for that. In agriculture, it shouldn't be a surprise that there are some interesting things happening in many areas, including in Saskatchewan, Alberta, and the Guelph region. In recycling and waste there's strong talent there as well, and in water and waste management it's probably no surprise that industrial water handling is something that many of our industries in the natural resource sector do a lot of. It shouldn't be much of a surprise that we're good at it and have already been exporting. That's an area where we already have mid-sized firms all across the country. It's probably one of our leading sectors because of some of the good public and private work that's been done there. There are also energy efficiency and air quality-related areas. I think those would be key.

That's what we see so far, if I had to pick the areas that I think we're strongest at, and we'll continue to try to home in on them.

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

Okay.

[The Chair, Liberal, James Maloney]

You have 40 seconds.

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

You just mentioned government procurement. Do you see any concentration in Canada in that regard, let's say with buildings and energy efficiency?

[Leah Lawrence]

I think it's possible.

There's one thing that I have not seen, and perhaps the committee members might have seen it if I haven't. As you would know, federally, provincially, and municipally there have been many years of green procurement in the country. I have not seen any studies to show what works and what doesn't. If we could get some consultants to look at that or have a better understanding, that would be something that I think would be of benefit.

At SDTC, we're seeing lots of interest in LED lighting in buildings and in control systems for buildings and that kind of thing. We would see some companies there that could really benefit if that kind of procurement would happen.

One of our board members, Geoff Cape, who is in Toronto but who has been doing a lot in terms of trying to do community-based sustainable city innovation, is working on exactly this kind of thing. If there were some leadership at the municipal, provincial, and federal levels to think about green building procurement or to think about the building stock they have and the life cycle of elements that you put into renovating or managing a building, I think government could definitely make some headway there.

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

Okay. Thank you.

[The Chair, Liberal, James Maloney]

Thank you, Mr. Cannings.

Mr. Harvey is next.

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

Thank you, Mr. Chair.

First, for Mr. Thorsen and Ms. McQuade, with this type of SAGD process that you use—and I recognize that it's proprietary, so there are variations in the process from company to company—what percentage of the industry that uses in situ technology in Alberta would use this process or a process similar to this now, and what do you feel the overall development potential is for this type of process in Alberta as a percentage of the total industry?

[Lyle Thorsen]

When you break down the total bitumen resource in Alberta, I think about 20% is mineable and about 80% is too deep to mine and is going to be developed with different in situ techniques. I think the bigger prize, for sure, is using these in situ technologies.

I think the oil sands production in Alberta is 2.3 million barrels a day, give or take. I could be wrong on that, but it's in that range. A little over a million barrels of that is mining, and then the other two million or so would be in situ production. Of the in situ, probably close to a million barrels of that now is SAGD.

Then there are a couple of other projects that are using the cyclic steam technologies. They are in the range of 250,000 barrels a day. That's in a little different reservoir than what the SAGD producers are using. That's geared more to the Cold Lake area, with some different formations. The way you develop the McMurray sands, which is the bulk of the resource, is more of a SAGD way.

That will be the technology for the future for the bulk of the resources. We see that growing significantly as we move forward. A lot of the current approvals and new development schemes are focused more on the SAGD technology in the McMurray sands. There is definitely a lot of future in this one here.

Mikaela, you might be more familiar with what the proven number is for SAGD projects and some of the stuff pending. I'm not familiar with that, but it's—

[Mikaela McQuade]

On a macro sector sense, I'm not, unfortunately. I apologize.

Also, due more to the capital-intensive nature of mining operations than to the geography and the limitations of the geology, we'll see in situ projects. Because of their productivity, because of their environmental efficiency, those are the projects they are gravitating toward.

I'm only aware of one mining project that's in the approval process, and the rest, in terms of oil sands growth, are all in situ. In terms of adding processes like EM VAPEX and EM SAGD on top of those, why wouldn't you? In one shape or form, most SAGD operators or in situ sector players will be investing in technologies like ours.

[Lyle Thorsen]

You had a good point there.

SAGD projects are typically smaller in nature than mining projects. You see the mining projects with their 100,000 barrel-a-day-plus projects. You're in multiple billions of dollars for each project. With the SAGD, you can break it into smaller expansion phases more efficiently, so we're into hundreds of millions of dollars, and you can start expanding and growing that. In light of today's commodity price environment, it seems a little more appealing for companies to be investing in smaller, more scalable types of operations.