Natural Resources Committee on April 13th, 2016

[Alex Ferguson]

Absolutely. Thank you.

COSIA is a globally unique and globally significant example of collaboration on the technology innovation space. You have to pause for a minute and realize that nowhere on this planet do we have that kind of breadth and depth of collaboration around managing and reducing our footprint on the planet, from this sector or any sector.

But I do want to point out that outside of the oil sands there is a lot of work that has been going on. There's collaboration with universities. Of course, it's not brought together the same way COSIA is. It's unique because it's an oil sands-focused area. I think there's a lot of work that our non-oil sands members are doing with SDTC federally around building some road maps for technology and innovation on oil sands, specifically around methane emissions, as we heard here as well.

I think that technology innovation story is quite broad. You're right, I don't think we have messaged it as well as we could in our marketplace, and there is a distinction between market access and market acceptance.

I think it's more important to build confidence in Canada because, as we see around the world, people will buy oil from just about anybody, regardless of the standards. But as the world changes and advances, one of the things that we have promoted with the provinces that we work with, for example, is the notion that if we are doing such an excellent job decoupling our economic growth from this sector or any sector and the impact, whether it's GHG emissions or other, the parallel growth that you usually get, why wouldn't we be the global jurisdiction of choice for investment for carbon?

People should want to come and invest in carbon development here because we regulate it, manage it, and do it better than any other jurisdiction in the world. It's quite a visionary thing and a little pie in the sky, but it certainly is an opportunity. I don't know if COSIA, when they were here, talked to you about the Xprize. If you're not aware of it, the Xprize—it has been named different things over its time—Lindbergh's flight across the ocean was one of the original Xprizes.

Funding that groundbreaking moon shot, if you're talking in the U.S. context.... Our members through COSIA have developed the largest ever Xprize and the uptake is phenomenal from innovation teams from around the planet. I think several hundred applications have come in, and the prize question is carbon-related. If we're producing carbon, can we not create some value out of this carbon that we're producing? What's the value piece? If we extract carbon from our flows of energy production, what can we get for that? It's a $20-million prize that will create some innovation spark that will lead to the aha moment for our sector.

We're looking forward to that.

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

I notice in your deck you have one graph that shows world energy demand increasing over the coming decades and I notice it was produced in 2015. I just wonder if you could comment on how that might have changed or be changing, considering the commitments that the world's countries made in Paris last fall.

[Alex Ferguson]

We take our queue from outside agencies like the International Energy Agency. I think we understand clearly that global oil demand will continue to increase for a significant amount of time, and based on energy demand, it will always grow for our global economies.

The other thing that is particular about that graph in terms of oil demand over time is that it's not just demand from increased use, with more people coming out of the lower class into the middle class and wanting more clothes, cell phones, transportation, and those kinds of things. It's also a depleting resource in all jurisdictions, so we also have to replace what is used. There is a significant opportunity for feeding that global demand situation, and it will increase over time.

Nobody sees oil demand going down for the next 50 years. It depends on how optimistic or pessimistic you are in your view. The question for Canada, as a natural resource-rich jurisdiction in that product, is how can we find a position to generate wealth for Canadians for as long as we can?

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

I have a very quick question on the price of oil that was mentioned today. At what price for oil would the new oil sands projects that are being considered become viable?

[Alex Ferguson]

I think you're seeing messaging that new projects are probably less liable to go forward in the near term. I think you're looking at some of the new projects, the latest technologies, and it depends on the reservoir, but probably nothing below $50 a barrel. It's very project specific, so I couldn't give you a really good answer, but at $50, $60, or $70, I think you'll start seeing some new projects come online, perhaps.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Serré, we're going to you.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair.

First I'd like to acknowledge Vic Pakalnis from Laurentian Mining Innovation and Technology in the audience. Thank you, Vic, for coming.

Also, thank you to all the guests here today making presentations. I know you've done a lot of hard work, so thank you for your time to come and present to us today.

My question for Mr. Ferguson is related to the global oil supply and demand. Is it true that the global supply reserves are at record highs and that the supply problem isn't an issue solely based in Canada and Alberta? Could you expand?

[Alex Ferguson]

It's a fairly complex scenario. We should take comfort in the opportunities we believe we have in reserves. We're betting on the technology piece to do a lot of things for us. We have, historically in our society, counted on technology to do everything for us, innovations to help us move forward. You're seeing that phenomenon and have seen that phenomenon taking place with regard to finding and getting access to oil reservoirs that, 15 or 20 years ago, were unattainable. You are seeing a growth in reserves.

The reality is—and I can tell you as a former regulator of this industry—the way that you build reserves is by drilling and proving that you have something. The more you drill, the more reserves you can find and document. We see some parts of the world that are still seeing investment growth and production growth. There's a lot more drilling, and that's developing better estimates of reserves around the planet.

Where does Canada fit within that opportunity? We know we have world-class size and quality of reserves. I think the issue is more about where the demand growth is. One of the things that I like to comment on is this commodity price drop that we've had. A lot of people like to blame the Middle East and some of those jurisdictions for flooding the market. If you look at it over the last several years, the Middle East has not grown their production. The commodity price drop, as a result of supply increase over demand, has been fundamentally a Canadian and U.S. problem. We have increased the market supply, and we can't get access to anywhere outside of North America right now, so we have been, for the most part, the product of our own problems.

[Marc Serré, Liberal, Nickel Belt, ON]

Then a follow-up to that and to Mr. Lemieux's question, can you just clarify for us if the energy east pipeline would displace the foreign oil imports? Is the oil transported to New Brunswick going to be exported, therefore not for domestic consumption?

[Alex Ferguson]

I might have to get back to you on that specific. I don't know what the offloading opportunity is. It's a very project-specific thing that Trans Canada would know better. If I said something today, I may not give you the right information.

We do look at it, broadly, as an opportunity to put more oil into that eastern market and there are always opportunities to move some of that product into the refinery operations in eastern Canada.

I couldn't be exact right now, but I can get you information on that.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

Mr. Ferguson, the federal government and the provinces have recently met in Vancouver. What benefits came out of that for the industry? What follow-up do you think is needed?

[Alex Ferguson]

I guess the solution always starts with a good conversation. We were pleased to see that the federal government was working with the provinces on some of these issues. They're all related to our sector: energy use, climate issues, indigenous peoples. There's a nexus there that we see as a good starting point.

We've done a lot of good work with the provinces. The regulatory regimes in those western provinces are outstanding in North America. I can say as a former regulator in one of those provinces, it's a well-regulated industry. I think you heard that here as well.

Our perspective was of some anxiety. Having the federal government come in and tell the provinces that they haven't been doing good work and now they have to do something different, that kind of takes a lot of the effort that we've put in away. We were pleased to see the collaboration effort that is there and will continue to be there. There's a lot of work still to be done. Having the federal government facilitate those discussions between the provinces sometimes is very helpful, given some of the political challenges that occur across jurisdictions. We're looking forward to that.

[Marc Serré, Liberal, Nickel Belt, ON]

I also had a question for Mr. Walker. When you mentioned innovation, the international aspect, innovation robotics, and standards in the mining industry, are you aware of a project that was submitted to the Canada first research fund for $65 million called metal earth? It's a project that Laurentian University, UBC, and a few other universities across Canada put together. It's the only mining innovation research project submitted to the Canada first research fund.

Does that fit into what you're working on?

[Jeffrey Walker]

It absolutely does, yes. When you're looking at standards, in a lot of cases standards are initiated by industry and for specific purposes. It might be to open new markets, it might be to bring in new innovations, or it could be to comply with regulations more easily. There are many different reasons why you would bring in standards. Innovation is one of the areas that we're seeing much more of a standards perspective.

There really are some new areas like nanotechnology, genomics, and electric vehicle charging stations. These are all areas that are now part of standards. It's because there's a reason. It's not just about rules; it's about helping to facilitate what we're trying to do with advancing our economy and society.

That one, I'm not specifically knowledgeable about it, but we deal a lot with those academic institutions. That's often from where the information comes to us. If we have an opportunity, that's the way we want to go.

[The Chair, Liberal, James Maloney]

Thank you.

Ms. Stubbs, we'll move over to you.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thanks, Mr. Chair.

Thank you all for being here. I appreciate very much your affirming the world-class and socially and environmentally responsible history of oil and gas development in Canada. Of course this is timely, given the downturn in the industry.

You can imagine, I represent a riding that stretches from Bruderheim to Lloydminster. It includes places like Bonnyville, Elk Point, St. Paul, and Vermilion, and I have a little background in the Alberta government, working on oil sands and heavy-oil related issues. I am thankful for your being here and explaining all the reasons and all the ways in which we should be very proud of our history and ongoing development of our natural resources, which set us apart globally.

I might have a bit of a wonky question, but I am interested in your getting into specifics if you can on any measures or actions the federal government could take to assist in the recovery of the industry and then in its long-term viability and prosperity. To emphasize the context of the downturn, I just saw numbers that said two years ago the active rig count in Canada was 212, I think, and now it's 41. I'm mindful too of the way in which the federal accelerated capital cost allowances for oil sands projects in combination with the 1997 generic oil sands royalty regime in Alberta unlocked the development of in situ projects in oil sands, which will be the future of development there.

You're speaking a little about tax changes, and I wonder, Alex, if you could get into some more specifics on what could be done to help support this industry that does so much for all of Canada.

[Alex Ferguson]

Sure. We did provide a pre-budget submission to Finance that had some more ideas and we looked at innovations in that space. I can make it available.

Broadly speaking, I mentioned the one around the capital cost treatment for the sector, which we believe will free up some capital, and given that we spend it back into the ground pretty quickly, that will create some opportunities immediately.

What government can do I think in the short term is to provide some support to the service sector. I would encourage you to talk to some of the representatives from the service sector specifically. One of the things we have talked about with them recently and have talked to the Alberta government about is finding a way to help the service sector look at treatment in the orphan well program that you're probably familiar with. These are not assets that are owned by our current producing members. We're not asking for anything other than if government wants to discharge some of those problems they have in what's called the orphan program, that would immediately keep a pretty significant number of people employed in the service sector.

Clearly as an employment opportunity, we've been very careful to suggest that we don't need any of that support for our current assets that we have under care and custody and are responsible for. But the orphan program looks like a pretty good opportunity. It would be easy for governments to work with the service sector and get some people back to work immediately. That would be another specific example.

Broadly speaking in some of our dialogue and language, we look at how we find underutilized pools of capital and get them to work. One of the things you'll see in our submission was around a request to maybe relook, review, and perhaps change—although that's not ours to change—some of the large corporation tax rules in CRA. It's not a today issue because given the environment today, not a lot of corporations are paying a lot of tax because of that, but it is a mechanism that seems, when we get into recovery mode, to have been tying up a lot of capital or underutilizing some capital instead of getting it to work, so we've asked for some review of that as well. Those are a couple of more specifics.

I'm thinking off the top of my head if I can think of a few others.

[Shannon Stubbs, Conservative, Lakeland, AB]

That gives us a good idea. Then, yes, if you would like to provide anything further, that would be great, too.

Just on this issue of standards and our existing regulatory process, it was pointed out that both the industry and the crown have a long history of consultation with first nations. Of course we know upstream greenhouse gas emissions are captured and regularly monitored at the provincial level.

My concerns are that the length of time of a process and layers and layers don't necessarily equate to due diligence, and what we really want to achieve is due diligence, so measures that will be changed or the gaps that were pre-existing that these efforts are trying to fix.... I'm a little bit concerned that, if this is really just a matter of explaining to both Canadians and the world what we have historically and what we do responsibly, then that's really where the focus should be, instead of layering regulatory burdens on developers.

[Alex Ferguson]

We've scratched our heads a little bit—I'll be honest—around some of the interim measures for GHG on big projects, but as we've worked through it with our members, I think we've come to the conclusion that we can get through this. It does provide an opportunity to highlight, and in that interim measures piece we've asked to make sure that there is recognition for the leading climate policies in jurisdictions like Alberta, British Columbia, and Saskatchewan.

It's not just about every project increasing GHGs. We know that. Almost anything you do will increase GHG emissions, but it's really about how we use that mechanism in that environmental assessment process to highlight those pretty significant climate policy commitments made by governments like Alberta and British Columbia, for example. We think there is an opportunity in that space.

But we also have a steady eye looking forward to what we're hearing, that there is going to be some broader work done on looking at Canada's environmental assessment process broadly speaking and where we can backstop or increase the robust nature of the socio-economic analysis elements of that because that's a fundamental part of the story when you're deciding on a project and having—

[The Chair, Liberal, James Maloney]

Mr. Ferguson, I'm sorry. We've gone over time here, but we'll go back.

It's over to you, Mr. McLeod.

[Michael McLeod, Liberal, Northwest Territories, NT]

Thank you.

Thank you to both organizations for making your presentations today. The CAPP presentation I'm somewhat familiar with. I've met with representatives over the years.

To the CSA group, thank you for coming. Some of this is new to me.

I'm from the Northwest Territories and I've been watching as the economy has not been doing very well in the last while, and it's amazing what effect the price of oil and gas has on other sectors. The mining industry has seen the prices drop on their products there, and we're seeing other areas that have challenges.

I watch with interest as the rest of Canada talks about, if they had a pipeline, or if they had this piece of infrastructure, it would help them get the economy going. In the Northwest Territories we have a different challenge, and as I talk to the diamond mines they tell me that because there are lower prices, they need to produce more but they also need a better quality of diamond. The tourism industry is saying that, if they had a road, it would lower their costs and they would attract more tourists. That's what the mining industry is saying also.

We've just gone through a permitting process for a pipeline in the Northwest Territories, which took several years and a lot of money, only to see it sitting for I'm not sure how long, but that pipeline will probably never be built unless we see a road.

I'm really curious if you could talk, Mr. Ferguson, on how this government could invest in transportation infrastructure and how it could help all the sectors, but more specifically the oil and gas, because even if we do have a big find in the north, we can't get it out.

[Alex Ferguson]

For a while at CAPP I looked after our members who were focused on the north, in the territories in particular, and what an amazing opportunity that is for Canada. Bluntly, it's something that's waiting to enrich all Canadians.

But it's a frontier jurisdiction in terms of the exploration and the infrastructure that's required to really ramp up some of the unconventional resource play model that you have up there. Yes, you're right, in that it's about roads, but it's not just about the hard infrastructure. You're going to need a lot more workers there, so you need schools because they have kids. It's a growth opportunity. There's a need for infrastructure and not just for a road or a pipeline.

We need that, absolutely, but unfortunately, just when things were getting a little more interesting in some of the exploration from some of the companies up there on the oil and gas side—the tight oil stuff was a great opportunity—the oil price dropped. It was bad timing. I think there's a low because that exploration piece is no different. Whether it's mining, oil, or gas, it's really the high-risk frontier piece. Once you can prove up or de-risk the resource, then you'll start seeing more investment and you'll see that kind of leapfrog effect on investment.

How government can participate in that is to continue to look at, as you have in the Northwest Territories, some of the regulatory processes and the transition between the federal and the province and how that's going. We are paying attention to a lot of those legislative instruments that are going on there. I think the industry would be reacting positively. There's simply something that's not in the government's control and not in our control right now, which is the commodity price.

[Michael McLeod, Liberal, Northwest Territories, NT]

I was waiting for you to say, “Build the Mackenzie Valley Highway and that will solve all your problems.”

[Voices]

Oh, oh!

[Alex Ferguson]

Yes.