Natural Resources Committee on May 2nd, 2016

[The Chair, Liberal, James Maloney]

Good afternoon, everybody. Welcome back. I hope everybody had a productive constituency week and is ready to roll here.

We have a full agenda today. I am very pleased to welcome two witnesses for the first hour. We have, live and in person, Katrina Marsh, who is the director of natural resources and environmental policy from the Canadian Chamber of Commerce. We want to thank you, and also apologize again. This is your second time attending, and this time we're going ahead, so we appreciate your patience.

We're also joined through video conference by Byng Giraud, vice-president, corporate affairs and country manager, Canada, from Woodfibre LNG Ltd., who is in Vancouver. Thank you very much, sir, for participating today.

Perhaps, Ms. Marsh, we'll start with you. Thank you.

[Katrina Marsh, Director, Natural Resource and Environmental Policy, Canadian Chamber of Commerce]

Thank you, Mr. Chair.

I'd like to say how much we appreciate the opportunity to address the Standing Committee on Natural Resources. I think this study on the future of Canada's natural resources sectors is quite timely.

This is my first time presenting in front of a parliamentary committee, and I'm glad I get to present on a topic that has been so central to the chamber's advocacy for the last few years.

The overarching concern of the Canadian Chamber of Commerce can be summed up with one word—competitiveness. Representing businesses of every size from every economic sector, the Canadian chamber focuses on the policies and programs that will help Canadian businesses compete in the global economy. For that reason, improving access to markets for natural resources has been a priority for the chamber since 2013.

Through our resource champions initiative, which brings together over 100 chambers of commerce from across Canada, we've argued that Canada's unique advantage in the global economy is our dual strength as both a resource economy and a knowledge economy. Why are Canada's resource industries so essential to the national competitiveness? I will illustrate using oil and gas.

First, the process of taking hydrocarbons from the earth creates tremendous value added for the Canadian economy. Most people understand that transforming raw materials into manufactured goods, such as auto parts, adds value. When manufacturing an auto part, a firm takes a uniform commodity and transforms it into a unique process. The reverse is true for a natural resource project. Each individual project is unique in terms of the geological attributes of the resource. The value added comes from the design and construction to create a uniform product from very different resources.

According to a report by the University of Calgary, natural resources are the leading creator of value added in the Canadian economy. Oil and gas extraction creates $1.36 million in value added per job per year, which is 15 times more value added per job than the national average for all sectors.

Just as in the manufacturing sector, extensive supply chains are needed to support this process of transformation. These supply chains serve to transfer wealth from remote regions to cities, and even across provincial borders. Doug Porter, chief economist at the Bank of Montreal, states that oil and gas is tied to roughly 20% of Canada's manufacturing sector. This includes not just manufacturers, but also service firms like Maxxam Analytics, a Mississauga-based firm that offers specialized laboratory services. The firm has 500 clients in western Canada's oil and gas sector, which accounted for half of the company's revenues a couple of years ago.

Service chains are also about suppliers. There isn't a single mine, oil rig, or paper mill in Toronto, but the city is a global centre of finance and professional services for the resource industry. Last year more than half of global mining finance happened in Toronto. The TSX and the TSX Venture Exchange have more oil and gas listings than any stock exchange in the world.

One group of oil and gas suppliers that is receiving a lot of attention these days is clean tech firms. Cleantech Canada magazine recently surveyed 500 firms on where their main market is. The oil and gas sector was listed as second largest, just one percentage point behind the consumer and public market. One example from our membership is Titanium Corporation. This company extracts heavy metals like titanium and zirconium from oil sands mine tailings, preventing their release in the environment while creating a new revenue stream for the company.

Our energy resources are also an important calling card on the world stage. As we look to Asia, energy will be one of the key reasons that businesses and government leaders in these regions take our phone calls. We recently held an event in partnership with the Japan Chamber of Commerce and Industry in Vancouver. One of the key reasons business people from the world's third-largest economy and second-largest importer of fossil fuels made the trip was B.C.'s LNG industry.

Of course, it's also essential to recognize that oil and gas are fossil fuels. The chamber network has spoken out clearly on the need to act on climate change. The chamber has been calling for a price on carbon since 2011. We listed a lack of clear, substantive climate policies as one of Canada's top ten barriers to competitiveness in 2014, and again in 2016. However, as long as the world needs oil and gas to fuel our cars and power our plants, we need to support the competitiveness of Canada's industry. For our network, this means building export infrastructure, both pipelines and LNG facilities. Stopping pipelines in Canada does not speed up the development of alternatives to oil, and it doesn't slow growing oil demand in emerging economies, which is where most of the growth in energy demand will come from in the future. China and India need petroleum, but they don't much care if it comes from Canada or somewhere else. As investment in the oil sector moves away from Canada, greenhouse gas from oil production just moves with it, likely to jurisdictions with fewer environmental safeguards.

As this committee considers the future of the oil and gas sector, I would leave you with one key message, which is that getting pipelines and LNG facilities approved and built is a key concern not just for the future of the oil and gas industry, but for Canadian competitiveness as a whole.

[The Chair, Liberal, James Maloney]

Thank you very much.

Mr. Giraud, do you want to go ahead please?

[Byng Giraud, Vice-President, Corporate Affairs and Country Manager - Canada, Woodfibre LNG Ltd]

Thank you very much. My name is Byng Giraud. I'm with Woodfibre LNG. We are a relatively small LNG facility to be built about seven kilometres south of Squamish in the Howe Sound region. For those of you unfamiliar with the area that's approximately 50 kilometres north of Vancouver. We call ourselves relatively small as we will be exporting 2.1 million tonnes per annum. By comparison that's about one-ninth, or one-tenth, of what might come out of LNG Canada, the Shell project in Kitimat, or Pacific NorthWest in Prince Rupert.

This equals about 36 to 40 ships per year, or one every 10 days. We ship through Howe Sound and then we enter the waters of the Port of Vancouver where we join in some 14,000 ship movements per year. We're owned by a company that's based in Singapore and Hong Kong, Pacific Oil & Gas. We're part of an international group also based out of Singapore called RGE. We're coming from downstream; as opposed to going upstream, assets are coming from downstream looking for products. Related to that is a key asset that we own, which is in partnership with PetroChina and the province in China, an import facility in Rudong near Shanghai.

Our LNG facility is somewhat different—and I think this relates to what this committee is trying to achieve in terms of innovation—from a lot of LNG facilities being built, and it's important to point out those differences. The fist is we have chosen to run this facility on electric drives. This is not an economic decision this is a social licence decision. By choosing electric drives as opposed to gas drives, something we are capable of doing because of the infrastructure in the area, we will be reducing GHGs by approximately 80%. This makes Woodfibre LNG possibly one of the cleanest LNG facilities in the world, and if you look in the presentation I provided there's a quote from Merran Smith of Clean Energy Canada, an NGO, from May 2014 that says that by doing this we may be the gold standard.

The other exception about Woodfibre LNG is our work with first nations. We entered voluntarily into an environmental assessment, possibly the first of its kind in Canada, conducted by, managed by, and with decisions made by the Squamish First Nation. It was a multi-year process. It was a process we entered voluntarily. It was a process that had risk for both parties, but ultimately resulted in a decision that resulted in an environmental certificate from Squamish Nation with conditions that will allow this project to proceed, again, should we meet those conditions. This is possibly the first of its kind in Canada.

There are a few other issues. Obviously we are a brownfield industrial site with existing infrastructure. I won't go through the details, but we have existing powerlines, existing pipelines, passing through site, and it's a historic deepwater port primarily making this a place where you can build a facility with less environmental impact.

I think what I really want to talk about today is our environmental reviews. Again, we have three environmental approvals. We have Squamish Nation's environmental approval certificate with conditions, which we received in early October of last year. We received the provincial government's environmental assessment certificate with its conditions also in October of last year, and with a little more of a delay, because there was an election I understand, we received a federal approval from the minister in March of this year.

I'm going to talk a little bit about Squamish Nation because I think that's what's relevant here in terms of innovation. We are located in the traditional territory of Squamish Nation on a former village site called Swiy'a'at and we voluntarily entered this new environmental assessment process. This process was new for Squamish Nation, was new for us, and probably incorporates a greater degree of decision-making by a first nation than most projects are perhaps even willing to contemplate. It was a closer view of our process and it resulted in the certificate I mentioned.

The next slide provides some of those conditions just to give you a flavour. It's recognizing some of the cultural elements of that site, providing access to Squamish Nation members, involving Squamish Nation in the co-management of many of our environmental plans, preventing certain activities that they objected to, no bulk fuelling in traditional territory. They have a direct say on some of our technology choices. We've created green zones around creeks that pass through the site, and we very much reached an economic agreement. These aren't just promises. We are contractually vowed to our agreement with Squamish Nation to fulfill these conditions, again making this something of a unique process.

This is related to the approach we've taken to first nations. I'm sure you can get a lot of legal experts and experts in this field to give you more detail on past court cases and why things need to be done this way, but we've just taken this philosophical approach. It's clear that first nations have rights above and beyond what's traditionally been applied to major projects. We all know first nations have the ability to help or hinder projects, and they are developing greater confidence in doing so. Business doesn't make the rules. The rules are set by regulators—federal governments, provincial governments, and in this case Squamish Nation, but we live in the environment that results from the consensus or conflicts that these rules make. By trying to reach consensus with the Squamish Nation, we think we've taken that additional step.

I won't really go through the next two slides. They simply summarize the provincial and federal approvals, and the conditions that have been placed upon us. All they do is reiterate that we have three different sets of environmental certificatesand a significant number of conditions, making this perhaps a unique project in terms of its oversight.

At the end, I've put the challenge of approval, and I think this is what we need to discuss. If we're talking about innovation, it's not simply innovation of technology. As somebody who has worked in the natural resource sector my entire life, in gas or mining or forestry, I believe what really needs to be innovated is the trust issue. We've adopted sort of a Jim Cooney approach to things. He's the creator of the term “social licence”. You need agreement with first nations. You need agreement with indigenous peoples. You need to do better at communication. You need to go above and beyond in your approach to regulatory processes. This does not necessarily mean having a referendum or getting consent. You can't simply meet regulatory requirements. Our choice of renewable electric, for example, is a clear example of that.

We live in a situation where we have incredibly detailed requirements when we build these massive complex projects—experts on bats, on herring, on different types of plant species. They spent their entire lives trying to understand these things. At the same time, we have a discourse that allows all citizens to participate and all citizens' voices to be heard equally. This is inherently going to create conflict among the scientists, the experts, the professionals, and the voices of the public, the community, and that's something we're going to have to address. Then, of course, an issue to those of us who build projects is the concern with economic cycles. If you take too long to do these things, then perhaps you lose the opportunity. There must be a process, and there must be a defined process.

I don't fundamentally believe that the environmental assessment processes run by the federal and provincial governments are broken. Perhaps they need some tweaking. There are things that can be improved, obviously. What is broken is trust. The issue of trust is not going to be solved simply by tweaking regulatory processes. We need to build processes that people trust. They will trust them only if decision-makers defend those processes and if the decision-makers advocate for those processes. Right now we have a situation of confrontation, in which companies may view environmental assessments simply as hurdles to overcome and may use people who are against those projects as tools to thwart them. Until there's more sincerity in that process, these things will never be overcome.

I would like to talk more about this, but I've probably exceeded my time. If we're going to get product to market, we need innovation in how we're going to improve processes and create the public trust to allow them to proceed in a timely fashion.

Thank you.

[The Chair, Liberal, James Maloney]

First in the batting order is Mr. Serré.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you, Mr. Chair, and my thanks to both our presenters this afternoon, and to Ms. Marsh and the Canadian Chamber of Commerce for all the work they've done in promoting small business in Canada.

I wanted to reference a document that the chamber produced in August 2015 entitled “Aboriginal Edge”. Your group says that the industry and government must lead on mitigating the environmental and social impacts of resource production.

Would you agree that the process that projects must go through with the NEB is critical to managing the public expectation in this regard?

[Katrina Marsh]

Absolutely, I would say that the Canadian environmental assessment processes are crucial. Our membership is not afraid of, or opposed to, rigorous processes, as long as they are clear and certain. In fact, through discussion with the communities and the regulators, often ideas for how impacts could be mitigated come up and projects can be improved. So it's absolutely essential.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

In that report, there is the following statement:

Canadians and our trade partners hold Canada’s resource producers to the highest standards when it comes to issues like safety, environmental impact and community engagement. Both at home and abroad, a lack of community acceptance and support for natural resource industries is restricting industry’s access to markets and resources.

The report goes on to say that Canada’s ability to leverage its forest, mineral, and metal endowment into prosperity will increasingly depend on industry’s and government’s ability to address concerns over environmental and social impacts of resource development and transport.

Do you agree that the work the National Energy Board is doing with the five interim principles and public consultations supports your organization's view that consultation is key to having development and a thriving environment on the resource side?

[Katrina Marsh]

Correct me if I'm wrong but my understanding is that the five interim principles apply to the cabinet decision-making process and not so much to the NEB process.

[Marc Serré, Liberal, Nickel Belt, ON]

No, it's part of the NEB, the five principles.

[Katrina Marsh]

We're not sure that extending the length of the process and having additional consultation is going to result in more confidence in the process itself. We will have more confidence in the process when governments stand up and make a strong case for why approving these pieces of infrastructure will be important for the economy as a whole, and for how this can be done in such a way as to mitigate the impacts.

We understand that the principles were conceived to increase the confidence of the public in the industry. We think that's fine. We're worried, however, that the delay is not going to make the end decision any easier, that it will still be difficult and controversial. We want to be sure that both the Canadian public and members of Parliament know why it is so important to the economy for properly regulated and reviewed export infrastructure to get built.

[Marc Serré, Liberal, Nickel Belt, ON]

The Quebec government has announced that they will be undertaking an economic assessment of the energy east pipeline. What do you think they should look at and what matrix would you recommend they use?

[Katrina Marsh]

Of course, the direct impact of the construction of the actual pipeline has an important impact. I would say that the flexibility it offers to local refineries in order to compete in what is a very competitive refinery market in North America would be another consideration. The ability to get Canadian crude when it's cheaper than imports would be of value to the industry, which is facing a lot of cost pressures, would be another one.

An additional one, I think, would be understanding how it improves the competitiveness of Canada's oil industry as well, in terms of being able to again compete in what has turned out to be a very tough market right now. The lack of export infrastructure means that Canadian crude is often, but not always, trading at a deeper discount which, when you're already kind of hurting for prices, is an additional burden to the industry. That benefit, obviously, is concentrated in Quebec, but as I did mention in my remarks, there are service providers, there are manufacturers based in Quebec who also sell into that industry, so it's not only an Alberta phenomenon.

[Marc Serré, Liberal, Nickel Belt, ON]

We all agree that we need to bring our resources to market, and you mentioned earlier about the length of time and the studies and that it may not necessarily be an advantage, but I'd like to get your opinion on something. We previously had a majority Conservative government for over four years yet they were unable to bring pipelines to tidewater. In your opinion, why was that, and what can be done about it?

[Katrina Marsh]

It's an interesting question. Obviously, there is only one—I guess there are two, the Kinder Morgan and the Northern Gateway. I think with the Northern Gateway the big issue that has arisen has been, of course, the aboriginal indigenous communities along the route, and the concerns of some of those groups along the lines. One of the things we're doing at the chamber currently is a major report into the duty to consult. Actually, one of my colleagues is right now in Saskatoon doing a round table; it's like the fifth round table. One of the questions we are exploring is exactly, as the government works with business in order to fulfill the duty to consult, what is the right balance to strike? What kind of guidance is needed to let everybody around the table know what they need to do in order to have these conversations? Also, have government at the table in an appropriate way to make sure that when there are things being asked from the communities that are beyond the reach of a single company, that these discussions are happening.

I would think that the conclusions of our report are not based on only the Northern Gateway, but that's obviously been a piece that has been a learning process. This is something that is new and evolving and I think that as we learn about what happened in the Northern Gateway piece, it's going to apply to future governments as well.

[The Chair, Liberal, James Maloney]

Thank you.

Mr. Barlow, over to you.

[John Barlow, Conservative, Foothills, AB]

Ms. Marsh, thank you very much for being here. For your first time before a parliamentary committee, I think you're doing a phenomenal job. You know your stuff.

[Katrina Marsh]

Thank you.

[John Barlow, Conservative, Foothills, AB]

To refer to my colleague, I just want to say that Northern Gateway was approved by the Conservative government, along with 17 other pipeline projects that were recommended by the National Energy Board and approved by the Conservative cabinet. I simply wanted to clarify that and correct his comment.

Interestingly, you said one of the first priorities of the Canadian Chamber of Commerce is that our energy sector be competitive and you talked about your support since 2011 of a price on carbon. I find those two points not very compatible, and the reason I say that is that now our biggest competition is the United States when it comes to our energy sector. The United States has lifted its ban on exports. It has doubled its production over the last five years, and I know my colleagues will say much the same. Eighty percent of Canadian jurisdictions have some sort of a price on carbon, including Alberta, which announced this earlier this year, and it has made absolutely no difference in terms of getting pipeline projects approved. It hasn't changed the social licence, for lack of a better description.

Has the viewpoint of the Canadian Chamber of Commerce changed its stance in terms of thinking a price on carbon is going to be a critical part of us being competitive? I ask this because I don't think those things mesh.

[Katrina Marsh]

Ever since 2011, when our first revolution on carbon pricing was approved, one of the main points we made was that, unless it's aligned with trading partners, the price of carbon can cause a lack of competitiveness. This should be of concern to people concerned about the climate as well as people concerned about the economy, because if you're simply moving business to other jurisdictions, you're not actually reducing overall carbon emissions.

The ideal would be carbon pricing that's North American or even worldwide, which would prevent those kinds of competitive leakages.

In the meantime, we always advocate that carbon pricing policies should be designed to have the industries that are exposed to trade and are carbon intensive be the ones most affected. That should really be considered in the design of the carbon pricing.

Last year, at our annual general meeting, there were two resolutions that passed with margins of about 98%. One of them was a reaffirmation of carbon pricing, and the other was an affirmation of the Kinder Morgan pipeline, so we don't really see a contradiction in supporting both of those policies.

[John Barlow, Conservative, Foothills, AB]

To clarify, it sounds like the Chamber of Commerce's view on a carbon tax would be something that is North American, not just Canadian necessarily.

I appreciate your answer. It seems like that is the direction you're going with and I would agree. If it's something that we can do as North America, it would make more sense, but for us to do it on our own makes us uncompetitive. We're seeing that already.

For example, I met with an Alberta energy company. Just from the Alberta carbon tax, they'll go from a $60-million profit per year to a $200-million loss when it comes into full swing in 2018. It shows you the implications for Alberta. If we do something across Canada, it could be even more damaging.

I want to switch to Mr. Giraud now. Congratulations on having wood fibre approved in March. I think that's very exciting news for Canada. You talked about some of the economic impacts of having the LNG project approved.

I was doing a bit of research on the project. You talk about $86.5 million in tax revenues for the three different levels of government once the project is up and running and 650 full-time jobs during the construction. There are outstanding opportunities in terms of the economy.

From what I understand, if you have one GHD fired power plant replacing one 500 megawatt coal power plant, it's like taking 500 000 cars off the road. What would be the environmental impact of having LNG from B.C. marketing itself and finding an access to Asian markets, which are highly reliant upon coal-fired power plants? What would be the environmental impact once the LNG energy from wood fibre starts hitting the market?

[Byng Giraud]

Essentially, for this project we're looking at customers in China. We have early stage agreements with customers in Guangdong province. We have an agreement with Beijing. They're looking at this from a purely green perspective.

If anybody's spent any real time in China, you will have seen what the smog levels are like. The WHO says that the standard for approximately one square metre should be 25 micrograms of particulate. You have cities in China where, on certain days, that can well exceed 100. This is causing deaths in that country, and it's a bit of a political issue.

The utilities we're working with in Beijing and Guizhou see this as a green initiative. They see it as an initiative to switch off coal power plants, to clean up their air, and to reduce their GHG emissions. I think this is critical when you're considering the life cycle of GHG emissions, which is something I know is a big discussion. If we're going to evaluate a life cycle, we need to calculate what's actually being reduced and where it's being burnt or consumed.

Certainly there are GHGs being created when we extract. There are some GHGs with our facility, even with our electric drives. But where's the real reduction? The only reason the Americans met their GHG targets for the Kyoto protocol, which they didn't intend to do, was that they switched from coal to gas.

In terms of quantifying reduced GHGs in China, it would depend on what they use it for. It would depend on which power plants use it and what is being replaced. But there's no denying that China wants to go this way, simply because, as they build up a greater middle class, people will just not tolerate that level of smog in their cities.

[John Barlow, Conservative, Foothills, AB]

When we talk about reducing GHGs in Canada, you're saying if we were exporting our LNG to countries like China to get them off coal-fired plants and reduce GHGs worldwide that would be a much bigger solution than our 1.5% impact on global GHGs.

[Byng Giraud]

I agree. Let's be clear, these jurisdictions are going to move to natural gas because the price is right, and the GHG and particulate reduction is huge.

They can buy it from us or they can buy it from somebody else. Prices are very competitive right now. I would argue that our contribution—this supports what has been said by the Chamber of Commerce—creates an economic benefit in a jurisdiction that is highly regulated and highly protected. It's better than China looking elsewhere.

They're going to get the gas. Perhaps they should get it from us.

[The Chair, Liberal, James Maloney]

Mr. Cannings, we'll move over to you.