Natural Resources Committee on Oct. 23rd, 2024

[The Chair, Liberal, George Chahal]

I call this meeting to order.

Welcome to meeting 111 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 resuming its study of the Trans Mountain pipeline expansion.

Today's meeting is taking place in a hybrid format. I would like to remind participants about 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 for the folks online and in the room. Yellow is a 30-second warning, and red means your time is up. I will not interrupt you mid-sentence so that you can finish your thought.

I'd like to welcome our witnesses for today's study.

From the Business Council of Alberta, we have Adam Legge, president, by video conference. From the Calgary Chamber of Commerce, we have Deborah Yedlin, president and chief executive officer, by video conference. From Canada's Building Trades Unions, we have Sean Strickland, executive director, by video conference.

You will have up to five minutes for opening remarks, after which we will proceed to rounds of questions.

We will begin with our first five-minute opening statement. It's by Adam Legge from the Business Council of Alberta.

Mr. Legge, the floor is yours.

[Adam Legge, President, Business Council of Alberta]

Thank you, Mr. Chair, and good afternoon, committee members.

I represent the Business Council of Alberta, which is a public policy organization of Alberta's largest employers and most successful entrepreneurs.

I'm speaking from the traditional territory of Treaty 7 and the Métis Nation of Alberta regions five and six.

I'd like to speak to four key points: economic value, indigenous reconciliation, trade value and building major projects in Canada.

In terms of economic value, the oil and gas sector is Canada's most productive sector and our most important export sector. It's no secret that this country is struggling greatly with productivity and a lower quality of life for Canadians compared to our peer nations. Therefore, further production and export activity in that sector benefits Canada as a whole. EY estimates that between 2024 and 2043, the expanded Trans Mountain system will pay $3.7 billion in wages, generate $9.2 billion in GDP and pay $2.8 billion in government taxes. The Bank of Canada predicts a 0.25% bump in GDP in Q2 of this year due to the expansion.

The CER estimates that the TMX expansion will close the gap between benchmark oil prices and what Canadian producers receive by about nine dollars per barrel. This will result in more royalties and tax revenue for governments. CAPP notes that oil and gas companies paid $34 billion in oil and gas royalties to provincial governments in 2022, so it is reasonable to expect this figure will grow because of the TMX expansion, which will positively support Canada's finances.

We, as a nation, should be actively working to create more opportunities to grow our energy sector's production and export—not to curtail it with layered policy.

In terms of indigenous reconciliation, as has been noted by previous witnesses, the future of the pipeline could be a watershed moment in righting the wrongs of the past by enabling indigenous ownership of the pipeline at some point in the future. One can look at the opportunities for reconciliation being generated through the Cedar LNG project, which is majority-owned by the Haisla first nation. At the final investment decision announcement, Crystal Smith, chief councillor of the Haisla Nation, said, “Cedar LNG will make the most significant mark on economic reconciliation ever in our country. With Cedar LNG, we have proven that Indigenous communities can successfully forge a path to economic independence and generational prosperity.”

There is opportunity for the TMX expansion, at the right time, to do the same through an indigenous equity ownership position. That benefit will be on top of the incomes generated from the estimated $4.9 billion in contracts with indigenous businesses during the construction phase of the project.

From a trade value perspective, Canada's energy sector made up 23% of Canada's total trade export value in 2023. The expansion creates even greater value opportunity. However, Canada is highly reliant on a single trading partner—the United States. Exports to the U.S. account for 77% of Canada's total export trade value. With uncertainty as to the outcome of the looming U.S. election and for diversification of our trade portfolio, the expansion project provides welcome optionality for our energy products to go to other markets that can diversify our portfolio and reduce exposure to risks such as a downturn in the U.S. economy, energy demand or retaliatory trade measures.

Canada should be doing more to support the export of its natural resources to our allies and other nations in need of them, largely in pursuit of their own decarbonization efforts. Whether it is oil, LNG, propane, ammonia or critical minerals, the expansion can and should be the start of further expansion of Canada's resource export capacity.

In terms of building major projects, Canada struggled to get big things built and the TMX expansion project is illustrative of that challenge. We have a lengthy and uncertain regulatory and permitting process in Canada. It's a process with an inappropriate degree of political involvement. We must fix this so we can be recognized globally as a place that can build large projects quickly, efficiently, safely and to the highest environmental and reconciliation standards.

Our 2023 report, “Future Unbuilt”, addressed many of the changes needed in Canada's regulatory and permitting process. The ministerial working group on regulatory efficiency for clean growth projects' action plan made some progress but did not go far enough. Adding to that challenge, concerns remain that the federal government did not go far enough when it amended the Impact Assessment Act in response to last year's Supreme Court decision. We must use the experience of this expansion project and global best practices to further refine and improve Canada's regulatory and permitting process.

In closing, the TMX expansion is an important project for Canada's most productive sector—the energy sector. Even with cost overruns, it will be a huge net positive for our country. In fact, Canada needs more big projects like this one, and we need to build them faster.

Canada has a chance to globally step into the spotlight and deliver things the world needs right now—energy, minerals, food, wood and more. We must seize this moment for Canadians and for the world. We must improve our approvals process in Canada to allow us to build the right things for the world and build them fast. That will help generate prosperity for Canadians and solve global challenges.

Thank you. I look forward to your questions.

[The Chair, Liberal, George Chahal]

Thank you for your opening statement, Mr. Legge.

We will now go to Deborah Yedlin from the Calgary Chamber of Commerce.

You have five minutes. The floor is yours.

[Deborah Yedlin, President and Chief Executive Officer, Calgary Chamber of Commerce]

Thank you, Chair. Good afternoon.

I want to thank the committee for the opportunity to present to you today regarding the economic benefits of the Trans Mountain pipeline.

I'm a member of the Calgary Chamber of Commerce, which includes businesses, large and small, in Calgary.

It's important we look at this project despite the cost overruns and time it took to build and recognize it is important for the country in the long run. We've become too focused on short-term, quarterly results or election cycles without realizing projects that are worthy take time and, yes, sometimes they can be over-budget.

From the perspective of Trans Mountain, failure was not an option. This project needed to proceed to break our entire dependence on the United States as our only export market for crude oil and to increase the amount of money we receive per barrel produced. One of the key measures used in this context is a differential between Western Canadian Select and West Texas Intermediate. For every dollar the differential goes down, it means an additional $1 billion to companies and the economy. It's at $13 now and is expected to narrow to nine dollars because of the Trans Mountain expansion. That's another $4 billion in annual revenues flowing into the country, which translates into $2 billion a year in government revenues, half of which goes directly to the federal government.

We own the resource. We should be getting the highest price for it, but without options for egress to other markets, returns have long been compromised. As a trading nation, the more access we have to new markets, the better it is for us. This pipeline opens new trading routes. No country ever suffered from having more options for trading.

Also important is the context of the market valuations of the energy companies themselves. It bears mention that Canadians from coast to coast, through pension plans and mutual funds, own shares in these energy companies. It's for the benefit of all Canadians that returns are maximized. People are concerned about the costs. That's what gets the headline. Even with the cost overruns, the tolls levied on the shippers will cover approximately 30%, or $9 billion, of the cost of the tolling. While this is more than what was expected, consider that shipping oil by rail, which has been an important source of transportation, costs shippers between $15 and $22 U.S per barrel.

The TMX investment will pay for itself in the next 10 to 12 years. It also has to be noted that the cost overruns are covered by issued and outstanding debt, which will be part of the valuation of the asset when it is sold. It is not for the taxpayers to bear. Beyond that, the numbers show opportunity cost. If the pipeline wasn't built, it would amount to about $240 billion over a 20-year period. Who can afford that, given the fiscal challenges facing the country?

Let's break down the numbers: $34 billion to buy the project, about $8 billion in equity, revenues will reach $3 billion, expenses $500 million, and debt servicing costs are $1.6 billion. Revenues more than cover the servicing costs. Over the next 20 years, the value of revenue generated by Trans Mountain, depending on the discount rate, is between $26 billion and $38 billion. The higher the discount rate, the lower the valuation. During a time of falling interest rates, and as the project is effectively de-risked, the valuation should go up.

Was it worth the price tag? Yes, because of the value that will accrue to Canadians, starting with a 0.25% increase to our GDP in the third quarter. What were the reasons for the overruns? Time is one reason. Approvals that were given were withdrawn. The scope of the project changed and new approvals had to be granted. One hundred and fifty-seven conditions needed to be met. Sixty-nine agencies were involved. One hundred and thirty indigenous communities were consulted. It was technically more challenging than expected, including two mountain ranges and 47 slopes with a more than 15% grade. The pandemic didn't help, nor did weather events such as wildfires or atmospheric rivers that caused flooding. The project was the largest archeological dig in Canadian history, with 255,000 first nation artifacts uncovered at 360 sites, and 27,000 bird nests were monitored. Finally, shipping channels off the B.C. coast were improved as part of the work, which is of net benefit to all export and import activity.

There is no world in which estimating the cost of such a complex project was easy or could be accurate. Instead of being critical, we should think in the context of how Canada has set a new standard for pipeline construction, including the incorporation of ESG metrics and the benefits that will accrue to Canadians over the life of the project.

Here's what's also important: This project set the stage for true economic reconciliation. It included almost $5 billion in procurement deals, and 10% of the workforce came from indigenous communities. This is relevant when we think about who the buyers might be when the government decides to sell the asset. This shouldn't happen until the tolls are decided, because this is critical to the valuation of TMX.

Furthermore, there needs to be clarity on the emissions cap, which is a de facto production cap, and could compromise the barrels entering the pipeline. No project is perfect, but Trans Mountain, despite all its challenges, will prove to be of net benefit to Canadians and the Canadian economy for decades to come.

Thank you for allowing me to present this afternoon. I look forward to your questions.

[The Chair, Liberal, George Chahal]

Thank you, Ms. Yedlin, for your opening statement.

We will now go to Sean Strickland, from Canada's Building Trades Unions.

You have five minutes, sir. The floor is yours.

[Sean Strickland, Executive Director, Canada's Building Trades Unions]

Thank you, Mr. Chairman and members of committee, for the opportunity to address you here this afternoon and speak about the Trans Mountain pipeline expansion.

My name is Sean Strickland. I'm the executive director of Canada's Building Trades Unions, an affiliation of 14 international unions that represent 60 different trades and 600,000 members from coast to coast. Of our affiliates, four are concerned with pipeline construction: LiUNA, representing labourers and construction craft workers; the United Association, representing welders and pipe trades; Teamsters, who move pipeline equipment and materials; and the International Union of Operating Engineers, who operate and maintain the heavy equipment. Together, our four pipeline unions and signatory contractors constructed nearly 90% of all major federally regulated pipelines in Canada.

Patrick Campbell, who sits on our Canadian executive board for the operating engineers, gave evidence earlier this week. I thank him for sharing his depth of expertise with you.

As you heard from previous witnesses—and which I will reiterate—the construction of the 980-kilometre Trans Mountain pipeline is a major nation-building project, which brings Canadian energy to Pacific markets. The successful completion of this project is an ongoing, fantastic testament to the engineering and construction capability of Canada's pipeline industry. This is a major accomplishment for the benefit of all Canadians. However, as you heard from others, there have been real challenges—foreseen and unforeseen—during this project.

In the clearly predictable category, one foreseen challenge was labour supply. As you heard earlier, the involvement of unionized contractors and workers was not by choice but by necessity, with approximately one-fifth of the project delivered through signatory contractors. This was only once it became apparent, in 2020, that, due to regulatory delays, alternative and non-union contractors simply could not supply sufficient workers in competition with other projects that paid higher wages. This is a common challenge—a tight supply of skilled labour and what's called “project stacking”—and these factors frequently contribute to major project delays. In the future, as we recommended in other venues, strong workforce development planning is critical to ensuring there are enough skilled trades workers available to take on such nation-building and economy-driving projects.

I also reiterate comments that I made previously at other committees. Canada's Building Trades Unions believe that, any time the Government of Canada makes an investment or puts skin in the game, it should come with strong labour conditions—good wages and benefits, prevailing wages, as well as apprenticeship requirements and local and indigenous hiring obligations. These measures aren't “nice to haves”. They are essential to major project delivery. Strong apprenticeship requirements ensure we build the future skilled trades labour supply, and strong wages and benefits ensure that workers are attracted to major projects when and where they are needed. They also ensure that Canadian construction workers see real benefits and are adequately compensated for the work.

You also already heard about the other challenges—the lack of regulatory efficiency that drove up costs and unforeseen events such as the atmospheric rivers, floods, wildfires and a global pandemic, to name a few—all of which disrupted construction operations. Imagine going to work on a construction site, wearing a mask and adhering to the protocol that was in place during COVID. It's very difficult for workers to work in those kinds of environments.

Despite all of these unforeseen and uncontrollable challenges, the men and women of the building trades delivered. They built one of the most complex environmentally protected and safest pipelines ever completed—not just in Canada but in the world. It is a project with an immense legacy beyond what high-level balance sheets show: hundreds of new skilled trades apprenticeship opportunities for Canadians and indigenous peoples, more than 35,000 jobs during the construction, hundreds more for maintenance and environmental monitoring, and downstream multiplier jobs and economic benefits throughout Canada for the input materials in fabrication and welding shops right across our country.

Canadians should be proud of what our skilled trades workers, engineers and contractors managed to accomplish. We should learn important lessons for the future about workforce planning, regulatory efficiency and labour procurement, so that major project delivery can be improved in the future.

I thank you, and I look forward to today's discussion.

[The Chair, Liberal, George Chahal]

Thank you, Mr. Strickland.

That concludes our opening statements.

We now go to the first round of questioning, which is a six-minute round for each party. I'll start with Mrs. Stubbs.

Mrs. Stubbs, you have the floor, and you have six minutes.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thanks, Chair.

Thank you to all of the witnesses here today.

You talked about the long-known and proven importance of oil and gas to the entire Canadian economy and to indigenous communities for opportunities that are otherwise lacking in many of the regions and remote areas where they live. You talked, of course, about the fact that the oil and gas sector has, for decades, employed indigenous Canadians to a much higher degree than other sectors. Thank you also for articulating the importance of LNG and energy transportation infrastructure for the entire country.

Of course, the fact about TMX is that the federal government naturally failed, even after federal approval, to enforce the rule of law that would have given political and legal certainty to private sector proponents, so they could go ahead and build the big project in the national interest of Canada. In the case of LNG, we all know the only shovels in the ground on an LNG export terminal in Canada are the ones originally approved by the former Conservative government for LNG Canada. Zero LNG export terminals have been constructed in Canada since, even though there have been 18 proposals from private sector proponents since this government took office in 2015. The United States, of course, has rapidly constructed 22 export terminals in the exact same time frame.

This goes to the point that each and every one of you made about regulatory uncertainty, inefficiency and permitting. Those are exactly the issues that common-sense Conservatives seek to fix for all Canadians, to the benefit of every single community across this country.

All of that being said, there's still the fact that it's not quite true the TMX pipeline is the only export pipeline available. The vast majority of that product still goes out from the Gulf Coast of the U.S. In fact, a staggering, stunning decision was this Prime Minister's unilateral decision to veto and overrule the northern gateway pipeline, which was the stand-alone export pipeline that was previously approved. The court said the Prime Minister could go back and get indigenous consultation right. Of course, he surprised all of the indigenous communities that supported northern gateway by not consulting them on that and vetoing the pipeline. That's what killed stand-alone export infrastructure for Canada.

Here we are with TMX now well behind schedule and well over-budget, and we all know darn well that Canada is already running out of pipeline export capacity.

Thank you, Ms. Yedlin, for your point that is so true: The emissions cap is a production cap. Could you explain the impact of Canada's production cap on the royalties and taxes that get paid, providing services all Canadians care about, and the impact on TMX?

Adam, you may want to comment on that as well.

Thank you to the representatives of the workers who do all the work here.

[Deborah Yedlin]

Thank you. I would be happy to go through some of the numbers.

There was a report published by Deloitte that found that the cap would curtail production by 10%—626,000 barrels a day by 2030—and natural gas production by 12%. It would hit Alberta the hardest with 3.6% less in investment, 70,000 jobs lost and a 4.5% decrease in the province's economic output by 2040. Ontario would lose 15,000 jobs and $2.3 billion from its economy. Quebec would lose 3,000 jobs and $400 million from its economy.

The entire country would experience an economic loss of about 1% of GDP, translating into lower wages, the loss of nearly 113,000 jobs and a 1.3% decrease in government tax revenues. We already know we're struggling with GDP growth, and this would represent a significant decrease in our economic opportunities. As Adam pointed out, the productivity factor would also be compromised.

This is something that would also compromise the valuation of Trans Mountain. We know it is contracted, but there is a portion that is not. If there's no certainty in terms of what can be produced and fed into that pipeline, the valuation of the asset will be compromised.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you for those facts.

Adam, I don't know whether you want to add some comments or context to this.

Also, do you have comments on regulatory uncertainty, permitting timelines and, especially, your point about the fact that the government hasn't gone far enough to fix the broken system they introduced in the first place with Bill C-69, otherwise known as the Impact Assessment Act, which was declared unconstitutional?

[Adam Legge]

Thank you, Mrs. Stubbs. I'll touch on the regulatory issue first.

In our report from last year, it's very clear that the regulatory system is broken in Canada. We are not building things quickly enough. We are not giving investors certainty, which sends a signal to the world that investment is not to be guaranteed here in this country. I can tell you that, when CEOs are standing in front of their boards and asking for investment capital, the first question the board will ask is whether there's certainty and confidence that this investment will actually materialize. If a CEO can't guarantee that for their board, it's unlikely the board will get a final investment decision. They will scan the globe to see where there is certainty and where the returns are greater, and they will put their capital there. Unfortunately, the signal Canada is sending is that we can't give that certainty, so capital is going elsewhere.

In terms of some of the changes that were made in the Impact Assessment Act, we don't feel they went far enough. There's a whole host of issues, whether it's the concept of standing, the continued political risk associated with ministerial designation and decision, even after an extensive process....

I see, Mr. Chair, you're holding a red card.

[Shannon Stubbs, Conservative, Lakeland, AB]

Thank you for your comments. Hopefully, there will be more time to get into more issues.

Of course, just be careful of the use of the word “we”. Certainly, there's only one party that's been in government for nine years.

Thank you for all your testimony.

[The Chair, Liberal, George Chahal]

Thank you, Mr. Legge, for seeing the red card. The time's up.

As I mentioned earlier, you can finish your thought. I don't want to cut you off mid-sentence, but I appreciate your being aware.

Thank you.

We'll now go to our next speaker.

Ms. Lapointe, you have six minutes.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you, Mr. Chair.

My first question is for Ms. Yedlin.

From a business perspective, can you tell us how the federal government's purchase of the TMX pipeline has contributed to job stability and business confidence in Canada's energy sector?

[Deborah Yedlin]

Certainly.

The purchase of the pipeline has provided certainty in terms of getting the project across the finish line. This is because we know Kinder Morgan was not going to proceed with the project on its own, and that was due to the regulatory challenges that were consistently put in front of the company. It needed to make a decision, as Mr. Legge just pointed out.

Companies in the energy space have the opportunity to make investments all over the world. We compete with the world for investment dollars, and without this certainty, this project would not have been built and Canada would have lost, as I said in my comments. The opportunity cost of this not being built would have been significant, so this was the only way it was going to get across the finish line.

It's unfortunate, but it really was the regulatory challenges and the fact that Kinder Morgan had to think about looking elsewhere for its investment opportunities.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

My next question is for Mr. Legge. Your organization has done some incredible work toward securing long-term economic growth in your province.

How do you see the TMX pipeline fitting into Alberta's strategy and Canada's broader strategy to transition toward clean energy, all while maintaining competitiveness in the global market?

[Adam Legge]

The expansion provides the opportunity for the sector to continue to grow, flourish and provide good jobs and economic contributions, not only for the province of Alberta but for the country as a whole, and to generate government revenues.

As many of my members in the energy sector will tell you, the continued growth and operation of their companies and their plans are integral to supporting cleaner investments, whether they're in carbon capture and storage or looking into the hydrogen economy. We simply can't cut off that sector's capital flows, investment flows and revenues.

This continues to enable them to operate successfully and begin to move additional funds into some of these newer technologies that will help reduce emissions as a sector and as a country.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

Mr. Strickland, I appreciated the experiences of your members in construction, which you shared in your opening statement.

Can you tell us how the experience you gained from building such a large-scale project like the TMX pipeline can be leveraged to accelerate Canada's clean energy transition? What role can the federal government play in facilitating the transition for your members?

[Sean Strickland]

I think many of the skills that are involved with constructing a pipeline are transferable. When we talk about our energy transition to hydrogen, carbon sequestration, small modular reactors, etc., the welding and the earth-moving are transferable, but we'll need some additional training for these new energy sources of the future. Our industry has been around for hundreds of years, and we constantly evolve and adapt to new technologies, but every now and again we're going to need some help from the federal government with training dollars to help position us for those new energy sources of the future.

I would add, if I might, that when I hear about regulatory certainty, I think that's important for these major infrastructure projects, but it's not a race to the bottom. I think what we need is regulatory efficiency. We have so many permitting bodies and so many different agencies involved that are cross-ministerial, cross-departmental and intergovernmental. For major infrastructure projects like this one, and for the new ones to help us transition to a net-zero carbon economy, we need to achieve that regulatory efficiency across all those different government bodies so that we get these projects out of the ground quicker and get them to market.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

Ms. Yedlin, how do you see the pipeline balancing the need for economic growth with the ongoing efforts to transition to clean energy across Canada?

[Deborah Yedlin]

There's no transition to clean energy without the involvement of the energy sector.

As has already been pointed out, you have revenues that can be applied to technologies and you have processes that continue to decrease emissions. I would argue that this is something we have to consider. We also need decarbonization policies that balance economic goals and environmental goals. They must be structured in a manner that recognizes that this is a long-cycle investment time frame.

This goes back to how I originally started my remarks: We are too focused on the short term. These are long-cycle investments. There's no switch. We can't go from system A to system B. It has to be done in a thoughtful way so that we don't decarbonize and compromise our economic opportunities at the same time. Policies need to have certainty, and we need to understand what those look like in order to make those investments going forward.

[Viviane LaPointe, Liberal, Sudbury, ON]

Thank you.

[The Chair, Liberal, George Chahal]

Thank you.

We will now go to Monsieur Simard for six minutes.

[Mario Simard, Bloc, Jonquière, QC]

Thank you, Mr. Chair.

I'm going to take a few minutes to move a motion. I apologize to the witnesses. I hope we can get back to our discussion with them right away afterwards.

I had an email exchange with the Parliamentary Budget Officer, who indicated that his updated Trans Mountain analysis would be completed shortly and that he expects to table the printed version in early November. The Parliamentary Budget Officer also told me that he himself would be prepared to present his findings to the committee verbally.

I therefore move the following motion, and I hope we can deal with it quickly so we can continue our discussion with the witnesses:

That the Committee invite the Parliamentary Budget Officer to appear before the end of the Trans Mountain Pipeline study to share the findings of his update.

That's all there is to it. I think we need to have a discussion with the Parliamentary Budget Officer about his updated analysis. His last analysis of the pipeline project was in 2022, when the estimated cost was $12 billion, if I remember correctly. Today, it is an estimated $34 billion.

In his analysis, the Parliamentary Budget Officer told us that the project was unsustainable and represented a net loss for Canada. I suppose that, at $34 billion, a positive outcome for taxpayers will be even less likely.

I think we can have a quick vote on this. Also, it ties into the study we're doing now. If my colleagues are ready to vote, it's basically just a formality.

[The Chair, Liberal, George Chahal]

Thank you, Monsieur Simard.

I'll let you know, witnesses, that we do have a motion on the floor. We will go to the proceedings on the motion and get back to you very soon, hopefully. Please wait patiently as we deal with the motion.

I think everybody has heard and understands the motion on the floor.

Is there debate on the motion?

Go ahead, Ms. Stubbs.