Natural Resources Committee on May 2nd, 2016

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

Thank you both for being here today, at least electronically, Mr. Giraud. You mentioned that Woodfibre would be shipping 36 to 40 ships a year out of Woodfibre.

We've been seeing a lot of projects on the B.C. coast getting shelved or delayed over the past few months. I'm wondering how many shipments per month it will take to make your project viable in the long term. At what point does this project break even?

[Byng Giraud]

The size of the project is dictated by the pipe that comes to it. We are consuming all the gas that Fortis can give us. This is the existing pipeline that takes gas to Vancouver Island for industry and consumers over there. We asked Fortis how much gas they could give us and this facility was built to that size. The economics work for us.

In early days we possibly could run at a little less, but the economics require the full consumption of gas. That's why the number of shifts is restricted. That's all the gas they can give us. That's all the gas we're able to produce because that's what comes from the pipe. Therefore, those are all the ships we can fill. We need to do it all to make it economic.

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

There was a recent report from the Brattle Group entitled “LNG and Renewable Power - Risk and Opportunity in a Changing World” that states:

The investment risk of these proposed LNG export projects is increasing because there is a significant possibility that, over the 20 years of a typical LNG contract, power production from renewable energy sources will become less costly than the LNG sales prices needed to justify the upstream LNG investment cost

With so many of the emerging markets we talked about that we are hoping to sell LNG into, including China, making heavy investments in renewable energy, what's the financial viability of the entire LNG sector in Canada, especially British Columbia, in the long term? Do you see LNG facing some of the same supply and demand problems in the future that the oil sector is facing today?

[Byng Giraud]

You are correct; we face those right now. The price is very competitive. There are many producers. This is not an easy thing to do.

We have some advantages in the economics right now. We're a small project. We own port facilities in China with PetroChina. We own gas-fired power plants that produce electricity in China, so we have more of an integrated structure. It's clear that renewables are growing, and as a gas producer we shouldn't be afraid of that, but even if China were to quadruple its renewables over the next decade or so, they are still probably going to need to triple the amount of gas consumption.

There are about 20 to 30 countries importing LNG now; you're going to see that increase to 50. Demand is going to grow. It doesn't mean the demand for renewables isn't going to grow, and there is probably some opportunity there.

I happened to read a recent article in Foreign Affairs the other day. The reality is the firmness required for renewables still requires something else and the lowest GHG power other than large-scale hydroelectric is gas. With the absence of large-scale hydroelectric, which many parts of the world just don't have, they're going to be looking to import gas to firm that power.

Frankly our facility, by choosing to go to electricity, will facilitate the expansion of renewables in British Columbia.

I don't think these things are necessarily in conflict. They couldn't run in parallel because we're seeing a growing middle class in China. Huge swaths of China are still developing. We're seeing a similar thing in India and other emerging nations: the Philippines, Indonesia, whose middle class is going to be looking to move to the next stage.

They're not going to wait. They're going to move to the product that's available, and hopefully that's gas and renewables, so they can move off coal.

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

I'd like to ask Ms. Marsh a question.

You mentioned the competitiveness and the price differential that we're facing right now between Canadian oil and American oil, in particular. Part of that, we are told, is because we don't have pipelines to tidewater. I understand from recent events and analyses that this is shrinking.

How do you see those projections going? If we get a pipeline to tidewater, what will that price differential be? How much of that is caused by factors other than accessibility to world markets? At what price will oil drive investment in, say, new oil sands projects?

[Katrina Marsh]

I wouldn't say I have the expertise to say percentage-wise.

Obviously, one of the reasons bitumens in particular trade below North American prices is because they tend to be heavier, so that quality differentiation is definitely part of the cost, and that's a natural thing.

My understanding is that the differential has shrunk, and it's smaller than it has been relative to a couple of years ago when it reached tens of dollars in amount. The difference is that even though it might have shrunk, it's obviously a very sensitive time, so that any difference is impacting the bottom line of firms. Even though the differential has shrunk, it still matters to the competitiveness of Canadian oil firms.

Being able to remove the part of the lower cost that's coming from transportation bottlenecks through having pipe to tidewater would help with the competitiveness of the industry, even though the specific bottlenecks are small. It flares up depending on whether there's other production from other parts of the States coming online and whether refineries or storage facilities are open or closed and how much they have in them. It really does vary over time. I couldn't give you a percentage.

[The Chair, Liberal, James Maloney]

We're going to go back to Mr. Serré.

[Marc Serré, Liberal, Nickel Belt, ON]

This question is to Monsieur Giraud. What are the main obstacles you have faced since the beginning of this project?

[Byng Giraud]

These are complex projects and the regulatory processes are complex. I wouldn't say they're obstacles but they're quite rigorous. I started on this project in April 2013, and it took us until March of this year to get our third environmental assessment certificate. I think most Canadian companies understand that three years is about right. But I represent a company that's coming from overseas and works in different jurisdictions. Particularly when there are changes, because changes do occur, it makes them very nervous and uncomfortable. They come to North America not because we're necessarily the most economic place all the time but because we offer stability, rule of law, and process. When we disrupt that, it makes foreign investors very nervous.

Obviously we're trying to bring in foreign direct investments. But that's the past. We've achieved the things we've had to do, and we're proud to have received those certificates. Going forward, what remains are the economics. The Americans, who were our customers in the past, are now our competitors. They were able to sell gas out of Louisiana, the south-east, and the Gulf of Mexico at very low rates. They are brownfield projects. We need to be able to compete with that.

With our economics we have an advantage because of distance. We're closer to the Asian markets but our economics are very critical. We are going through an optimization process right now to lower our costs. It's a good time to do it because the markets are down.

We also need to make sure the fiscal regime in North America is competitive internationally. That doesn't mean we have a low tax environment or giving us some sort of break. It just means to be aware of the competitive nature out there. What's Louisiana doing? What's Australia doing? They're going to sell the gas that we probably should be selling. Otherwise, we won't have a customer, because the Americans are producing their own.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

Also, when are you planning to begin the construction of the LNG plant?

[Byng Giraud]

I'm going to knock on wood, sir. All things being equal, we have a number of permits we have to complete now that we have the environmental assessment. We could do some early-stage work within the next 12 months, possibly in building up the actual gas facility, which again means a different set of permits, sometime next year.

This really depends on the oil and gas commission permit process, which the province runs. It also depends on some of our environmental management plans that we have to work on with the federal and provincial regulators and, of course, on some of the decisions of environmental management plans we're working on in conjunction with the Squamish Nation. All of those things have to take place before we can actually begin full-scale construction. Like I said, we're a brownfield industrial site, so there are things we can do within the next 12 months.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

Also, as you mention on your website, you pay particular attention to environmental protection and sustainable development. Can you elaborate on Woodfibre's efforts in those two areas?

[Byng Giraud]

I heard the earlier comments about the five principles. We looked at those when they came out in terms of requirements in the process, and we think we were pretty much covered on four and a half, because we've made these additional efforts. Our effort with Squamish Nation is a huge risk for this company. We're a foreign company coming to North America with no experience with these issues, taking a leap of faith, and saying, “You know what—we're going to fund your process, a new process, because we know we need greater credibility.” We know that the public isn't necessarily entirely enamoured with federal and provincial processes, so we had to go above and beyond.

On the choice of electricity, this is a cost to us. This is not an economic decision. The rate for electricity for LNG facilities in British Columbia is much higher than the industrial rate that maybe a mine would pay. This is a decision we made because we knew it was the right thing to do. If you want to build an LNG facility in British Columbia next to population centres, you're going to have to go above and beyond. We've made these efforts. They're not perfect. We've tried harder.

We've made other changes that are not as noticeable as that, but if you're not going to go above and beyond regulatory requirements, you're not going to go above and beyond with first nations. If you're not going to go above and beyond in your efforts to communicate, you're not going to succeed, whether you're in British Columbia or anywhere else in Canada. It's hard to build projects, particularly if you don't do it the right way.

[Marc Serré, Liberal, Nickel Belt, ON]

That's a good job of going above and beyond. Four and a half stars is pretty good.

Also, does this federal government's openness with regard to helping the relationship with the provincial governments and the first nations help you in this regard?

[Byng Giraud]

As somebody who has lived through different stripes of governments coming and going in terms of federal-provincial relationships, I would say that's generally been all right, the federal-provincial relationship, but I know, in dealing with the aboriginal people, that there is a change in mood. There is perhaps a greater level of trust. That's for now, and let's be clear, you can burn that ability really fast. Promises only get you so far. The reason that we undertook this Squamish Nation environmental process is that we see this as the future.

A lot of governments and a lot of companies saw us doing this and said that it was a dangerous path Woodfibre was going down and they weren't sure that it was where we should be going. We may not be the best example of how it should turn out, but if people don't start looking at these types of opportunities to work with first nations and take it more seriously, these projects will never proceed. For our approach, I'm not sure you can apply it to the expansion of a facility. Maybe it's not as applicable to linear projects where you have multiple first nations along a power line or a pipeline. I don't want to say that our purpose can be extrapolated to all those things, but if you don't bring sincerity to this game, and if you aren't willing to take a risk with first nations, you're going to fail.

I would say that this is a cautionary tale for your government. It's easy to say that we're going to have a better relationship, but we've heard this before, and I don't mean just in the past four years. We've heard this going back to the Constitution in '82, right? We've had 30 years of court cases and 30 years of fighting.

[Marc Serré, Liberal, Nickel Belt, ON]

Thank you.

[The Chair, Liberal, James Maloney]

Thank you.

We are moving into the five-minute rounds. We probably have time for two of them if we're going to finish this off at 4:30.

Over to you, Ms. Bergen.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Thanks very much, Mr. Chair.

Thank you to our presenters.

I'm going to go back to you, Ms. Marsh, and then I will go to Mr. Giraud for a comment on the question I'm going to pose. It has to do with competitiveness and the window of opportunity.

I think Mr. Giraud will be able to comment because Woodfibre was living through it. My understanding is that you thought you had a certain date, Mr. Giraud, when the government would say yea or nay to your project. The election happened, which meant you had to wait, but then all of a sudden there were five new principles, which fortunately you had already gone through. These were five new steps that you had to go through.

Ms. Marsh, in the business world, when a business enters into an agreement with a certain set of rules and expectations and then those change midway through the process, what signal would that typically send? I know that your president, Mr. Beatty, had some comments about that. Can you tell us what that's doing and how that's negatively impacting the oil and gas sector?

[Katrina Marsh]

I think any business person across any industry will tell you the one thing that they're really looking for in government regulation is certainty and predictability. If those two conditions don't exist, it's difficult to make long-term investments. This is particularly the case in the natural resource sector where you're talking about capital investments in the millions and billions.

I believe in terms of the specific Trans Mountain and the energy east ones, there was some concern about the changing and how that would impact it. I think both companies have come out and said they're okay with what has been proposed, but in general it's not a good idea midstream to basically add another layer onto the process.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

You used energy east and Trans Mountain as two examples. For both of these projects, their final decision will be made by cabinet and the Liberals have been very clear it will be a political decision. Do you think any of these companies are afraid to say anything against...? I mean, is there the possibility that companies are afraid to speak out against the Liberals for fear that there will be retaliation in terms of the political decision?

[Katrina Marsh]

I can't speak directly to that issue. I haven't heard that from my membership, so I wouldn't have a background to say that. It would be pure speculation on my part.

[Candice Bergen, Conservative, Portage—Lisgar, MB]

Mr. Giraud, what would you say to that? You've been successful with your application, but you probably also know what's going on in B.C. as far as other applications. Talk about the uncertainty and the window of opportunity that exists and when that window closes, when uncertainty grows.

Also, is there some fear with oil and gas executives that they don't want to say anything that would tick off the Liberal government for fear that might affect the political decision that's going to take place?

[Byng Giraud]

Motivations...regardless of who's in government, I don't want to say things that are going to upset people. That's not our business. We don't make the rules. We just play by them.

Let me go back, I've been in mining and forestry and I've been in projects under environmental assessment for 14 years on and off.

Making change at the end is scary, even when you're a domestic company. I work for a company that's coming from overseas and British Columbia says to come and build an LNG facility. They're welcoming you. When you arrive, now you have to do this, now you have to do that, and you have to do this.

I kind of prepared my ownership for these things, because I'm a Canadian, a British Columbian, and I understand how it works, that there are changes. But when a foreign investor hears things at the last minute, or when new rules are imposed that they didn't anticipate, I tell you the phone call comes and they're concerned. They're making billions of dollars of investment at a great distance, so of course they're concerned.

I don't have a particular political stripe, because that's dangerous for a business to say, but let's be clear: whether it's the previous government or the previous government or the previous government before that, we keep changing the rules, we keep changing the method, and we create additional time frames that weren't anticipated at the beginning, and investors get scared.

We are in economic cycles. We are in the commodity business. In British Columbia, despite the growth in other sectors, we are in the commodity business; mining, forestry, agriculture, oil and gas, even tourism you could argue. We're in the commodity business. Things don't always last. In the past 12 years we saw a great super cycle for mining, but how many mines were actually built in British Columbia? You can count them on one hand.

I don't want to say I want certainty, as much as I do, because there is no certainty in a social environment. Things change. But if the government is considering reopening the idea that the Environmental Assessment Act needs to be improved, or we need to tweak it a bit, or it needs to be changed, realize that you're never going to satisfy everybody. Certain people will never be in favour of these projects. There will always be a debate on social licence. There will always be a debate that makes these fundamentally political decisions at the end, regardless of whether we listen to science, or traditional knowledge, or the public.

I danced around your question a little bit, but governments need to be aware, regardless of political stripe, that money can go elsewhere and, if it's too risky, it will.

[The Chair, Liberal, James Maloney]

Thank you. That's your time.

We're on to Mr. Tan. I understand you'll be splitting your time.

[Geng Tan, Liberal, Don Valley North, ON]

Yes, it will be with my colleague Mr. Harvey.

I prepared a few questions, but apparently I have the chance to ask just one. I want to ask a question similar to what Mr. Barlow just asked regarding carbon pricing. The Canadian Chamber of Commerce said it is a long-standing supporter of carbon pricing. Is that the case regarding the price of oil? The chamber also concluded that with a lack of access to global markets, Canada will accept a lower oil price.

If currently more than 10% of our oil is sold to the U.S., how can the Canadian oil remain competitive in the current low-price environment, when on top of that we have to pay the cost of the carbon tax, doing business in Canada? If oil production becomes sufficiently unprofitable, I guess we'll just have to decide to leave the oil in the ground. How will the carbon pricing affect the competitiveness of our oil and gas sector?