Natural Resources Committee on May 9th, 2017

[Ian MacGregor, President, Chief Executive Officer and Chairman, North West Refining]

Obviously I'm old and probably not as well versed in the clean tech area as everybody else.

I'd like to compliment you on your ability to listen to all this stuff. Thanks for doing it.

I'm currently building the largest industrial project in North America. It's a $25-billion refinery we're building 45 kilometres northeast of Edmonton. We are building phase one right now. We've spent about $8 billion. We're going to spend $8.5 billion or $9 billion by the time we're done. We have about 5,000 people working on it. We'll start up in the late fall or late this year.

Connected to that project is what is the world's largest system for managing CO2. We're building a pipeline system to take the CO2 from the refining operation to central Alberta where it will be used for enhanced oil recovery. The system has a design capacity of about 40,000 tonnes a day, and that's roughly equivalent to all the cars in Alberta. We think we're making significant environmental improvements in the embedded CO2 content of the diesel we make in the refinery. We are the only oil sands-derived diesel that will be able to exceed all low-carbon fuel standards, and we think that is a significant competitive advantage.

This is the first new refinery that's been built in Canada since 1984 and the first new one in the U.S. since 1977. We've had a lot of opportunities to reduce our environmental costs.

I'll tell you a little about myself and I'll tell you why I'm here. I started off as the first person in my family to go to university. I'm a mechanical engineer, and that's because my mom could fix cars and she thought that's what mechanical engineers did, so she made me take mechanical engineering. When I got out of university, I could make $900 a month as a welder, and I could make $600 as an engineer, so I rented a shop, bought a welding machine, and started welding. I've never worked for anybody else ever. I do my own thing and try to figure out how to create decent-sized businesses around being an engineer. I've been in every element of the energy industry from power generation to natural gas liquids to offshore drilling to refining now and CO2 management.

My life has been lived as an entrepreneur. It's been lived starting businesses, and what I think is that we have way too much focus in Canada on the idea and way too little focus on how we make somebody with a good idea into a successful business owner. We lack the infrastructure that helps somebody who is just starting off, so all the kids I see coming around.... In Calgary a lot of young people have been laid off because they were working in the energy industry. They are subject matter experts. They've been let go now. Really what they want to do is start their own businesses, and they know what they're doing. They're smart technically and they have a bunch of clean tech ideas, but they don't really know how to start a business.

What we need to do is spend our money on the infrastructure that helps people start effectively and helps them survive until they get it commercial. We spend all our time talking about great ideas and great technologies, and if you look back through all the money that's gone into that, you'll find it's very inefficient. We haven't gotten any big, skilled businesses in Canada, that I know about anyway, with all this money we spent, so I'm into creating things at scale.

I'm into building infrastructure that will allow young people to move forward. I'm on the investment committee at SDTC. They do great work, but there needs to be help for young people with good ideas. We need to have a place where they can congregate. We need to have mentors there. We need to support them and help buy down their overhead so they can get going. We need to make it easy, and we need to do that wherever there is enough population to be able to justify it.

I think we should locate them close to where the market is. In Calgary we have a $40-billion-a-year oil and gas capital market. This is a good place to do things related to energy because clean tech ideas can be easily introduced here, and there's an immediate market for them. I don't think we should be trying to do things where there is no market because I don't think they'll eventually be successful. We need the market pull to get new ideas out and functioning at scale.

I think that's about all I have to say.

Thank you.

[The Chair, Liberal, James Maloney]

Thank you.

Thank you for your brevity and your youthful exuberance.

Mr. Serré, you are first up.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair.

I will share my time with my colleague Mr. Fragiskatos.

I would first like to thank the witnesses for the knowledge they have shared with us and for the presentation they prepared for today.

Mr. Rand talked earlier about our government's investments in clean energy and sustainable development. Our investments in the energy sector have been fairly significant.

I will now move on to my first question.

I'll go over to Mr. St. Louis and Mr. Bowes.

We talk about investments that we made with our budget, but you also indicated your second priority, flow-through shares. We have that in the mining industry, with the 15% tax credit for mineral exploration. If we were to expand that, can you give us more examples of what was not covered in the mining exploration credit? You mentioned the flow-through shares. How can we expand that to help the industry—to help you—grow, with good-paying jobs?

[Gregory Bowes, Founding Member, Ontario Cleantech Materials Group]

The qualification for the flow-through tax credit is fairly narrow. It is essentially grassroots exploration, so it doesn't extend to predevelopment, development, or construction activities. The point Brian was making was that these specialty minerals are quite different from the run-of-the-mill base and precious metals. Often the metallurgy and the processing are complex. It's a research and development exercise to find the best way to extract these minerals and to develop commercial processes. Things like taking a large bulk sample, doing a pilot plant test of the technology, and then doing additional testing to scale it up and demonstrate that it is commercial—none of that is currently covered by the flow-through share program.

What we are basically suggesting is for the clean tech minerals. We can define what the minerals are and what specific activities relating to their upgrading and commercialization are included. We're not talking about hundreds of millions or billions of dollars here. In our case, it would probably be a couple of million in terms of bulk sampling and so on. We have a very promising purification technology, which relates to the manufacture of anode material for lithium-ion batteries, and also bipolar plates for fuel cells. We need to do a pilot plant test of that process. We are entirely dependent on the capital markets for that. It's not flow-through eligible. Right now, the capital markets are not great, so we're kind of stalled, which is unfortunate, obviously.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

My second question is for Mr. Rand.

You talked about the investments and the single-door approach that we are developing, and you mentioned EDC and BDC. Obviously, when you look at lenders and capital.... I want to know if you have some specific recommendations for the federal government to encourage, foster, and support EDC and BDC to invest more in the clean tech sector?

[Tom Rand]

They do have a mandate to put that capital into clean tech, and I think there is a fairly robust definition of “clean tech” coming down the pipe along with that capital. The challenge is, again, that they don't follow the market. They have to make the market, which means they have to be willing and able to lose some of that money. It doesn't mean they will, but if they put it into their risk spreadsheets and count on using it in a similar way to their existing capital base, they are not going to move the market because they're going to be acting just as a private bank would.

An example would be BDC. BDC wants to go late-stage, which is good—this is growth capital, scale capital—but they are questioning whether they are going to be able to lead deals, i.e., be the lead investor to define the terms. If they go late-stage and only follow, they are not doing anything. If I lead a deal that's late-stage, I have no problem finding other investors to come in with me. That's an example.

There are two things. First, you have to be willing to lose money, and second, you have to lead deals if you're going late. I have other, more specific recommendations, but those are the two big ones.

[Marc Serré, Liberal, Nickel Belt, ON]

I'm looking forward to your one-pager.

[The Chair, Liberal, James Maloney]

Mr. Fragiskatos, go ahead.

[Peter Fragiskatos, Liberal, London North Centre, ON]

Thanks very much.

It's always great to join this committee. I'm not on it, but anytime I get the opportunity, I jump in because it's so interesting.

Mr. Rand, I know you focused on definitional issues, but I wonder if you could comment on the state of venture capital when it comes to clean tech in Canada. I know that much is made of the venture capital firms that are focusing on clean tech in the United States and Europe, but what is the situation in Canada? Just set the scene for us.

[Tom Rand]

Very quickly, here's some background. Back in 2006 you could count the venture capital firms in North America that invested in clean tech. There were probably 300. I can count them in North America now, and there are probably about six that focus on clean tech. In Canada, there are two or three and many define clean tech in a way that avoids the big stuff. They do energy, IT, or sensors. It's another version of ICT applied to the energy space, and they call it clean tech or IOT, industrial Internet of things, so you're making machines smarter.

I agree that's clean tech in the sense that it's efficiency, but it's not the big box stuff where you're making and moving energy around. Probably only two or three funds look at that. We are raising a second fund of $150 million. We hope to have that closed soon, but there are not a lot of us out there. ArcTern Ventures has primarily looked to strategics, we call them, to be our investment partners because there are very few investors in clean tech: 3M, GE, Siemens, the Kuwaiti Investment Authority, Enbridge, Iberdrola. These are big corporates.

You can't push on a string. If the venture community doesn't want to go to clean tech, they won't, but you can build an ecosystem where the risks and the reasons why venture investors fell on their faces in the early 2000s, which they did in Silicon Valley.... There are lessons we've learned and we're smarter, but you can also build an ecosystem that takes out some of those risks like SDTC in Canada and large commercial support for large commercial projects as well.

The state of venture capital for clean tech is not healthy. I don't think that's a secret, but for us it's a buyer's market. It's not a bad thing for us, but for the industry it's not good.

[The Chair, Liberal, James Maloney]

Thank you very much.

We're going to have to stop there, Mr. Rand.

Mr. Barlow.

[John Barlow, Conservative, Foothills, AB]

Thank you very much, Mr. Chair.

Thank you to our witnesses. I know it's been a long day, and I appreciate your patience.

I have a really quick comment for my colleague Mr. Serré. I appreciate your advocating for flow-through shares. That's a very important program, but before the Liberal government expands it in mining, I would encourage them to reintroduce it into the oil and gas sector. You eliminated that flow-through share program for exploratory wells, and in Alberta that's been pretty significant.

Ian, good to see you again and thank you very much for making some time to be here with us today. You talked about what we're doing in carbon capture technology with the North West upgrader. We often hear about Alberta's dirty oil and that we're not doing anything in Alberta to try to change that perception of what's going on in Alberta. I think what you're doing is a prime example of the innovation and the technological advancements that have been going on in Alberta.

What have been some of the biggest hurdles you face in getting that carbon capture technology up and running? I know this has been a long process for you.

[Ian MacGregor]

We're trying to build basic infrastructure. We're trying to build a big distribution system for CO2, and some days I feel like a truck driver trying to build a number one highway. We're trying to build something that's going to last for 100 years. It's going to be the CO2 equivalent of a highway. It's going to take the CO2 from, not just our plant but all plants from the Edmonton area, capture that CO2, and take it to central Alberta.

We've been producing oil in Alberta since 1914 in quantity, and most of the places where oil came out is a place where you can put CO2 back in. When you put CO2 in most of those places, you get more oil out, so it pays for the costs of managing the CO2.

I'm sure you're all familiar with the Weyburn project. My partner and I used to own 11% of that. It's one of the largest projects in the world that uses man-made CO2 as a feedstock for a downstream industry. The quantities are truly amazing. In central Alberta we think that there are enough places to put CO2. You could put in about two billion tonnes, which is about 25 years of the total annual emissions of the oil sands industry in Alberta. We think we can take the equivalent of those CO2 emissions and use them as a profitable feedstock with the system that we're building. We think there are other places in Alberta where you could do it, but we're trying to start where we think it's relatively easy.

The challenges in doing this are that you have to own the reservoirs, you have to have the infrastructure, and you have to have the CO2 sources. We made the decision early on that we were just going to do it ourselves, and we're going to connect all of those things together. That's what we've done.

When we're finished, the diesel that comes out of our plant will be the lowest carbon diesel made in the world today. We think that's a real achievement, because when we start with oil sands diesel, we start about 20% worse than the light average oil sands. The oil sands materials, the embedded CO2 costs in the diesel you make, are about 20% worse than the average U.S. crude slate. When we finish up, we're about 7% better. We think those things can make Canada competitive, but there can also be clean tech projects where you're trying to do something that really does make a difference.

My own view is that you have to do these things on an enormous scale or it's not very interesting. We're thinking we're going to have a business that gets 100,000 barrels a day of light oil out of the ground using CO2. We think we're going to have something that's the equivalent of taking every car in Alberta off the road.

I'd like to put it in terms of windmill equivalence. We've been putting up windmills in Alberta for 30 years. Over that time we have put up about 900 windmills. What we're doing with the CO2 pipeline is about the equivalent of 3,200 windmills. Our little piece of pipe is about three times what we've done in Alberta in the wind energy business in the last 30 years. For me, for Canada to get on the map, we have to be doing things at that scale. We can't be dicking around doing little things. Sorry.

[John Barlow, Conservative, Foothills, AB]

That's okay. I appreciate your lack of political correctness sometimes. That's fine.

Thanks, Mr. MacGregor.

Really quickly—I don't have a lot of time—what do we need to do? Is this technology something that can be copied and done elsewhere? I know you've been sort of the test here, but Saskatchewan's been doing it as well. How do we promote this technology to show that this is what we're doing in Canada, and that we're not just sitting on our hands here?

[Ian MacGregor]

To work at scale, you can only make small, incremental improvements. You can only really do something that's a little ways, a step out there. That's what we're doing. This has all been done before.

The main innovation we're bringing to it is using man-made CO2. In the U.S. there's a big industry down there, but they use CO2 that comes out of the ground. We're making a small step to collect the man-made CO2, purify it, make it into a liquid, and then put it in a pipeline. That's a little technical step, but our project costs about a billion dollars. The capital markets won't finance you for a billion-dollar project unless it's just a small step.

I'm sorry, I don't know the other participant's name, but what he was saying around the same made sense to me. Somebody has to be first, so push it and get something that's industrial scale, the first one. That would help any of us, I think.

The thing that I think is really missing is that we don't have enough deep infrastructure to help a young guy starting off. Most of the ideas that are going to transform the world are going to be coming from a young guy. He wants to rent a desk, and he doesn't know how to start a business. If you take some of our resources.... We spend all of our resources picking ideas, and 99 out of 100 of those ideas are failures. We need to build an infrastructure that improves that success ratio from 1 out of 100 to 10 out of 100. We need to do that by supporting young people with new ideas in a way that is well-thought-out. I have thoughts on that, but this is not the right forum for them.

[John Barlow, Conservative, Foothills, AB]

Thank you.

Mr. Rand, I have a quick question for you, and you might have to answer it some other time. You talked about the lack of venture capitalists—and I appreciate my colleague bringing that up—but what is your link? Witnesses are asking taxpayers, the government, to go where venture capitalists, the private sector, won't go. For me, it's tough to tell my constituents, “We want you to pay for something the private sector won't do.” What's the link that we're missing there?

[Tom Rand]

The link is project finance. Large bits of infrastructure get built on debt. They don't get built on equity. Venture capital just does not have the scale. It's not the right asset class to build a $250-million biofuels plant. You need project finance for that. It's just not appropriate for a venture fund to be investing in developing the technology, and then building the first factory. They're different asset classes.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Cannings.

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

Thank you.

Thank you, all, for being here today.

I'm just going to start with Mr. St. Louis and Mr. Bowes. When talking about some of the rare clean tech minerals, you mentioned graphite, lithium, and cobalt. I'm not sure if they're rare, but it's not like lead or gold or silver. What is Canada's ability to produce these? I know there are some rare earth elements that China has cornered the market on. I know the Teck smelter in my riding produces indium, germanium, and cadmium, those sorts of things. If we did provide this impetus for Canada to increase this, what is our ability to produce these for the world?

[Brian St. Louis]

I think it's a pretty simple answer. We have a strong ability. Naturally, Canada is very endowed with resources. We have good projects across the country in various metals that we've mentioned, and some other ones you mentioned there, as well, actually—indium and germanium. I think without getting into too much detail, there's everything in Canada that could be needed, almost, by the high-tech and clean tech applications that are growing.

[Gregory Bowes]

I would just add that we have graphite projects, we have lithium projects, and we have cobalt projects. We are in competition with a lot of other projects all over the world to get built and supply these critical minerals. It really takes everybody to be on board, from the government to first nations to the financial markets, to get these things built. As I said, it's a competition. Then the second phase is the R and D that goes into the value-added processing of those minerals and the creation of new products.

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

Thanks.

Moving on to Mr. Wissing and Mr. Won, I'm just curious if you could provide a little more detail on the carbon-neutral natural gas, what the energy inputs are like, how that whole thing works, and where you're sourcing the carbon dioxide. Are you just taking it out of the air and putting it back in the air? Is that the cycle?

[Wayne Wissing]

You could. There are several ways of taking CO2 out of the air or separating it. The ideal way of doing it is basically doing it on the same site where you merge the two components together to make natural gas, but there are simpler ways when you have limited resources. To give an example, in the Netherlands, for instance, in a high-rise with solar panels on the roof, all year round, whenever the sun makes hydrogen, when the heating season starts you just bring in a bottle of CO2 and mix it together at the time they use it to heat up the apartment building. It is a very simple process, if you want to keep it very simple, but ideally you have sources where you take the CO2 out of the air.

There's a company in Calgary right now. There are investors involved in it, like Bill Gates and Google. It's called Carbon Engineering, and they are looking at the cheapest way to extract CO2 out of the air. It's right now at a stage where they can extract it, but it is a liquid. To get it out of the liquid more cheaply is the next step. If they do that, they are the champion in separating the CO2 out of the air. You can set these things up wherever you want in the world with solar or wind power to power it, and it's the equivalent of thousands of trees, basically.

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

Okay. Thank you.

I'll go to Mr. Rand to finish. You talked about biofuels several times as an example, and we heard earlier today about some of the risks around some types of biofuels and the life-cycle impacts of them, whether they were produced from agriculture, etc.

I'm just wondering if you could comment on biofuels and how we can trust that they are a solution and not part of the problem.

[Tom Rand]

That's a good question. I focus on what we call next-generation biofuels, which use cellulosic material, so that's agricultural waste, forestry waste, construction waste—non-food based sources—converted into ethanol. I've never looked at food-based biofuels for that reason.