Natural Resources Committee on Oct. 9th, 2024

[The Chair, Liberal, George Chahal]

I call this meeting to order.

Welcome to meeting number 109 of the House of Commons Standing Committee on Natural Resources.

Pursuant to Standing Order 108(2) and the motion adopted by the committee on Thursday, June 6, 2024, the committee is commencing its study of the Trans Mountain pipeline expansion.

Today's meeting is taking place in a hybrid format. All witnesses have completed the required connection tests in advance of the meeting.

I would like to remind participants of the following points. Please wait until I recognize you by name before speaking. All comments should be addressed through the chair. Members, please raise your hand if you wish to speak, whether participating in person or via Zoom. The clerk and I will manage the speaking order as best we can. I use two cards: Yellow is a 30-second warning, and red is “time's up”. I'll try not to interrupt you mid-sentence.

Now, I would like to welcome the witnesses who are with us for the first hour today. From the Canadian Association of Petroleum Producers, we have Greig Sproule, vice-president, tolls and tariffs. He is with us by video conference. From Cenovus Energy Inc., we have Jon McKenzie, president and chief executive officer, also by video conference.

You'll have up to five minutes for opening statements.

I'll start with you, Mr. Sproule. The floor is yours. You have five minutes.

[Greig Sproule, Vice-President, Tolls and Tariffs, Canadian Association of Petroleum Producers]

Good afternoon, Chair and committee members. Thank you for the opportunity to meet with you today to speak about the benefits of the Trans Mountain expansion project to the entire Canadian economy.

My name is Greig Sproule, and I am the vice-president of tolls and tariffs for the Canadian Association of Petroleum Producers, otherwise known as CAPP. CAPP represents Canada's oil and natural gas producers from coast to coast, including the conventional, offshore and oil sands sectors.

The upstream oil and natural gas supply chain stretches across the country, reaching thousands of businesses located in every province and supporting over 450,000 jobs for Canadians. When factoring in induced employment, that number nearly doubles to 900,000 jobs. The jobs created by the industry are high-paying. The average wage in the conventional oil and natural gas sector pays about $47 per hour more than the national average, which means higher standards of living for workers and higher income taxes for government. The industry is also one of the largest employers of indigenous people in the country, and hundreds of indigenous-owned businesses make up a significant part of the supply chain.

There are two major points I want to make today in my opening comments.

First, the Trans Mountain expansion project is a positive net benefit to the Canadian economy and will deliver benefits for Canadian businesses and taxpayers for decades to come. This project will support Canadian crude oil production growth and allow for increased access to global energy markets. This will contribute to Canada's GDP, provide positive support to trade balances, create and sustain Canadian jobs, and generate additional revenues for governments that help pay for our teachers, doctors, roads and social programs. The Bank of Canada is expecting the project to contribute 0.25 percentage points to Canada's GDP in the second quarter of this year. To illustrate that, this increase is larger than the total increase in British Columbia's GDP growth for this year.

Recent reporting has indicated that the Trans Mountain project has also enabled Canadian oil exports to reach record levels, contributing to increased trade balances. Record exports are also contributing to government revenues. Looking back at the last fiscal year, Canada's oil and natural gas industry generated approximately $45 billion in revenues for governments at all levels through royalties, taxes and other fees.

This committee has been discussing, in part, the cost of building a pipeline. I would like to highlight the fact that much of the investment to build this project has supported Canadian jobs and businesses. Through construction, the project employed nearly 37,000 workers, including over 3,000 indigenous workers. Over $4.8 billion in contracts was awarded to indigenous-owned entities. In addition, over $600 million has been committed as part of mutual benefit agreements with indigenous communities.

My second point is that the project would have been even better for Canada if we had paved the way for private investment to build the pipeline. CAPP believes that, had the Government of Canada created a regulatory environment for the project to be economically viable for the private sector, it could have more appropriately de-risked the project while ensuring its completion.

Policy uncertainty, interprovincial challenges, delays in project approvals and regulatory complexity are making it incredibly difficult to build the nation-building projects needed to power Canada's economy. It is unfortunate that our complex and ever-changing regulatory environment is impeding Canada's ability to attract the private investment needed to build major projects like the Trans Mountain pipeline expansion. We need to fix our major-projects process in order to extract the true value of our natural energy resources and maximize that value for Canadians.

Thank you for your time today and for the opportunity to present the committee with additional information. I welcome any questions you may have.

[The Chair, Liberal, George Chahal]

Thank you for your opening statement.

We'll now go to Mr. Jon McKenzie from Cenovus Energy.

You have five minutes. The floor is yours.

[Jon McKenzie, President and Chief Executive Officer, Cenovus Energy Inc.]

Good afternoon and thank you. My name is Jon McKenzie and I'm the president and CEO of Cenovus Energy.

Mr. Chair, I appreciate the opportunity to speak with the committee today.

I'd like to start by acknowledging that I'm in Treaty No. 7 territory in Calgary, which is also home to the Métis Nation of Alberta district 5 and district 6. I acknowledge these nations as the current and original stewards of the land.

Cenovus Energy is a Canadian-headquartered, integrated energy company producing oil and gas in western Canada, Newfoundland and Labrador, and the Asia-Pacific region. We also have upgrading and refining operations in Canada and the United States. We are a founding member of the Pathways Alliance, and a member of the Canadian Association of Petroleum Producers. We are a shipper on the Trans Mountain pipeline expansion.

Canada's oil and gas industry delivers products to Canadians and the rest of the world that are required, necessary and integral to supporting our modern standard of living and quality of life. We should never take this for granted. Hydrocarbons still generate 80% of our global primary energy supply, and the demand for these resources will continue to grow for the foreseeable future.

With access to international markets, Canada is uniquely positioned to continue supplying some of the most responsibly produced oil at a time when the developing world requires energy to raise the standard of living. As the fourth-largest producer and exporter of oil, Canada supplies nearly 5% of global production. The reserves Canada has been blessed with allow our industry to make outsized contributions to this country's prosperity.

Specifically on the TMX pipeline, I'd like to make two important points.

First, the TMX pipeline is a critical piece of infrastructure allowing Canadian energy to access global markets, which strengthens our sector and our country. Canada will enjoy these benefits for decades to come—benefits that will make life more affordable for the average Canadian, extending far beyond the tolls that will be paid by TMX shippers. These are long-term benefits that include high-paying jobs, increased taxes and royalties paid to all levels of government and a strengthened dollar, making the necessities Canadians import more affordable and increasing capital investment in Canada.

Our industry provides more than 450,000 direct jobs for Canadians, which leads to billions of dollars being reinvested in our economy. These are some of the best-paying jobs in Canada, allowing people to earn a living wage and have a high quality of life. Similarly, our industry is one of the largest employers of indigenous Canadians, with salaries about three times the average for indigenous workers in other sectors. We're also developing partnerships with indigenous companies, which helps advance indigenous reconciliation.

Cenovus and our peers pay billions of dollars every year in royalties and taxes. Our industry typically pays more than half of what we make to governments. In 2022, for example, that number was $48 billion. That money is then invested in hospitals, education, social programs and other priorities, to the benefit of all Canadians.

As major exporters, our industry strengthens the Canadian dollar. In 2022, oil and gas accounted for about 30% of all Canadian exports. Without our sector, Canada would run a trade deficit of nearly $115 billion. The result would be an even weaker dollar and an increased cost of imported essentials, such as fresh produce, clothing, construction materials and electronics. To continue to increase our contribution to Canadians' quality of life, we must remain globally competitive, with access to international markets through the pipelines TMX represents.

The second point I'd like to make is that it cannot take 12 years for a major project to be built, as it did here. Canadians deserve better. While this project is an undeniable win for Canadians and demonstrates that we can still build projects in Canada, it also highlights how cumbersome and inefficient our regulatory and approval processes have become. The private sector should be able to build these projects, which are clearly in the national interest, without requiring this level of federal government intervention.

With that, Mr. Chair, I'm happy to take your questions.

[The Chair, Liberal, George Chahal]

Thank you, Mr. McKenzie, for your opening statement.

We will now proceed to our first round of questions. This is a six-minute round. We'll start with Mr. Falk.

You have six minutes. The floor is yours.

[Ted Falk, Conservative, Provencher, MB]

Thank you, Mr. Chair.

Thank you to both of our witnesses for your testimony here at committee. I found it very interesting and very useful.

With the TMX, we'll do a bit of background, with just a little bit of the historical numbers here. The government purchased the TMX project for $4.5 billion from Kinder Morgan, after Kinder Morgan made many attempts to get the project moving but was stymied by unrealistic assessment requirements and just wasn't able to get the ball over the finish line to make it happen.

The government picked it up and what should have been a $9.7-billion project quickly jumped to $12.8 billion. By 2022, it was reported that the pipeline was at $21.4 billion. That was in December 2022. In March 2023, this committee heard that the project was at $31 billion. In three months, the project had increased by $8.8 billion. In April of this year, it was reported that the project was at $34 billion and that in May it would begin to start shipping oil and transporting oil down the pipeline.

It was at $34 billion in April. It's October today. In order for something to be used, it has to reach substantial completion, but that doesn't mean it's totally complete. Do either of you have any idea of what the total cost of that project will come in at when it's totally complete?

[Jon McKenzie]

Maybe I'll start with the question. It's probably a better question for the people at Trans Mountain pipelines themselves. My understanding is that the last public figure was about $34 billion.

[Ted Falk, Conservative, Provencher, MB]

It was reported back in April, although that would have been just to the point of substantial completion, to where the pipeline could allow oil to start flowing. I imagine that there potentially could be a different number by the time the dust settles.

Can you talk a bit about some of the things that contributed to the time it took to get this pipeline built, the 12 years that you talked about? Was it government policy? Was it the requirements that were put on it by government? What was the problem with the lengthy delay in getting this project to completion?

[Jon McKenzie]

One of the things I'd say is that we don't necessarily have all the insight into the comings and goings of the TMX expansion in terms of the things that they were going through to get this pipeline built. I think your observation, though, is correct, in that this should not have taken 12 years to get built. The original timeline was much shorter. I think it is something that speaks to the regulatory process and our ability to get these major projects done in Canada.

[Ted Falk, Conservative, Provencher, MB]

Do you think it's important that Canadians find out what the delays were that caused the lengthy delay?

[Jon McKenzie]

Yes, and I think that's the work of the Canada Energy Regulator. I think that's their job. Their job is to look at the spend and to look at the construction period and determine whether or not that was reasonable.

It's a better question, I think, for the regulator and the TMX people themselves, versus Greig and me. We are on the outside looking in. We're certainly shippers, but we're not necessarily privy to the spend or to the timeline itself.

[Ted Falk, Conservative, Provencher, MB]

Thank you.

Mr. Sproule, you're in charge of tolls and tariffs. Can you tell me, prior to the TMX expansion coming into use, what was the toll rate to get oil from Alberta to the coast?

[Greig Sproule]

I'm going to give you an approximate one in terms of off the top of my head, but I think it was in the mid-two-dollar to three-dollar range, depending on whether it was heavy or light. I think that's a fairly representative number.

[Ted Falk, Conservative, Provencher, MB]

The Canada Energy Regulator is the entity that establishes what the toll rate will be. What are their considerations in determining what the tolls should be?

[Greig Sproule]

Yes. They have a number of tests that are really standard across the board for pipeline tolls. It starts with, first of all, that costs have to be prudent. For the assessment of the costs that are before them, they will do an assessment and the costs can't go into the tolls if they're not found to be prudent.

Secondly, tolls have to be “just and reasonable”. There are a lot of dimensions to that, but the “just” is really fairness, and they look at what the underlying agreements were between the parties that agreed to the commercial arrangements. “Reasonable” encompasses a lot of things, such as competitiveness in the marketplace.

[Ted Falk, Conservative, Provencher, MB]

What do you anticipate the tolls will be once the Canada Energy Regulator makes a determination in 2025?

[Greig Sproule]

I don't have any particular insight into what they are going to be, beyond what's being filed. The CER will make that determination. I think the current tolls, as some have suggested, are represented. The shippers would love for them to be less, but they are equal to other tidewater access from Canada.

[The Chair, Liberal, George Chahal]

Thank you.

We'll now go to our next speaker.

Ms. Dabrusin, you have six minutes.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

Thank you, Mr. Chair.

I appreciate that Mr. Falk started with a bit of historical context because, when we talk about issues that are important today, such as energy, our economy and climate change, it's important to talk about historical context too.

The historical context I want to start with is this: Under the previous Conservative government, there was no climate plan. There was no path to reduce emissions. Emissions were tracking up. In fact, if we had stayed under the previous Conservative government's plans, estimates say we would have seen emissions track up by 2030. They would have gone up by 41%.

It's important to keep that context in play when we talk about the work we've been doing as a government. We had to turn a big ship around, and we did that. We put in place a climate plan that includes carbon pricing as a very central and important part—I'll be getting back to that in a bit—as well as investments to support clean energy, investment tax credits and the like. It has been working.

I also think it's very important, when we're talking with people, to highlight that it was a huge ship we turned around. Like I said, 41% would have been where we are now. It would have been going higher. We're actually tracking emissions down. We're seeing that our emissions, at this current point, are dropping. They're at the lowest they have been in three decades, and that's as our population has been going up. It's as our economy is growing that we're seeing this. I'm basing this on two things: the inventory report we provided to the UN and the latest Canadian Climate Institute review.

I'll go to the Canadian Climate Institute piece. They pointed out that a lot of the reductions we saw were through electricity. One of the things I found interesting—and I'll get to this in my questions to our witnesses—is that our emissions would have been so much lower had it not been for the increases we've seen in emissions from oil and gas. That's why the oil and gas cap we're going to put in place on emissions from that industry is so important.

I find this fascinating: I thought the industry has been saying, until recently, anyway—and I'm going to ask them about this—that they are working to get to net zero by 2050. Actually, what we're seeing right now, when we look at our inventory reports on emissions, is that emissions are tracking up from the industry. That's a bit of framing for where my question will come from.

I also want to point out that the largest single tool we have to reduce emissions is carbon pricing. It's about a third of the reduction. It's considered the most efficient way to do this. It's the least expensive.

Look, I'm not surprised the Conservatives oppose carbon pricing, because that fits with their track record. Frankly, it also fits with what members of this committee have done in the past when they've talked about how they don't really believe in human-caused climate change. I think it's important to say, given that we have him joining us today, that I was surprised to see the leader of the NDP follow the Conservatives down that path and choose to step away from carbon pricing, since that alone could lead to 80 million tonnes of reductions by 2030. It is one of our most effective tools.

Welcome, Mr. Singh, to our committee.

However, I'm curious about whether he's coming here to say that he's going to hold oil and gas to account. His party has stepped away from the strongest tool we have in place.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I have a point of order.

[The Chair, Liberal, George Chahal]

Ms. Dabrusin, I will ask you to hold for a second. We have a point of order from Mr. Angus.

[Charlie Angus, NDP, Timmins—James Bay, ON]

I'm trying to get clarification.

I know she doesn't want to talk to the main oil sands companies. I think the oil sands industry is something the Liberals are very uncomfortable asking questions about.

I could certainly bring Mr. Singh in as a witness another time. Would that help?

[The Chair, Liberal, George Chahal]

Mr. Angus, that is not a point of order, and I think that's engaging in debate. We'll proceed.

Please, colleagues, as a reminder, let's use points of order for points of order, not to engage in debate. You'll have the time to ask questions and engage in debate when you have your turns.

Ms. Dabrusin.

[Julie Dabrusin, Liberal, Toronto—Danforth, ON]

My clock hasn't stopped. Is that right?

[The Chair, Liberal, George Chahal]

The clock will start when you start speaking.