Proceedings of the Standing Senate Committee on
Energy, the
Environment and Natural Resources
Issue 3 - Evidence
OTTAWA, Tuesday, November 25, 1997
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:30 a.m. to examine such issues as may arise from time to time relating to energy, the environment and natural resources generally in Canada.
Senator Ron Ghitter (Chairman) in the Chair.
[English]
The Chairman: On behalf of the committee, I would like to welcome Mr. Priddle and Ms Hanebury from the National Energy Board.
Colleagues, this is our inaugural meeting of what will hopefully become a yearly tradition, that is, meeting with the Chairman of the National Energy Board. Mr. Priddle has distinguished himself as the chairman of the board over the past 10 years. I am saddened to hear that his role will end with his retirement at the end of this year. Mr. Priddle has directed the board through some very difficult times in the fast-changing environment of the energy sector, a vital sector of our economy. One of the highlights for those of us who come from Calgary was the important relocation of the National Energy Board to Calgary.
Mr. Priddle has engendered much respect in the oil and gas sector and across the country. We are honoured to have him appear before our committee.
Please proceed, Mr. Priddle.
Mr. Roland Priddle, Chairman, National Energy Board: Thank you, Mr. Chairman. It is a privilege to be here.
It has been many years since the National Energy Board has appeared before either this committee or the House of Commons Committee on Natural Resources and Government Operations.
Mr. Chairman, I will give you a factual background on the National Energy Board, on the basis of which we could perhaps stimulate some discussion. I have asked the clerk to place before you copies of a simple presentation which has been prepared in both official languages.
Page 1 is an outline of the National Energy Board's mandate. The mandate, of course, stems from law, including the National Energy Board Act and parts of the Canada Oil and Gas Operations Act, as well as a small part of the Canadian Petroleum Resources Act. We also have responsibilities under the Canadian Environmental Assessment Act. Our staff act as inspectors under the Canada Labour Code.
The principal activity of the board is, of course, regulation of the construction and operation of interprovincial and international pipelines for which we provide certificates of public convenience and necessity. If someone wishes to build such a pipeline, we must make an initial determination on whether such construction is in the public interest. We regulate those pipelines from an economic standpoint, that is, we deal with tolls and tariffs.
We also regulate the relatively large number of very short international power lines.
There is latent power in the National Energy Board Act under which the Governor in Council could designate an interprovincial power line to be a power line requiring approval of the National Energy Board.
We are active in the area of regulation of energy trade, including exports of oil. They are all on a short-term basis, and ours is simply a monitoring activity, as is our activity relative to short-term exports of gas. We also provide licences for long-term exports which must meet the legislated criteria of being "surplus" to reasonably foreseeable requirements for use in Canada.
We provide permits for exports of electricity. There are no long-term imports of gas. We also regulate oil and gas activity, geophysical programs and oil- and gas-well drilling in those areas that are not covered by federal-provincial accords.
We provide advice to the Minister of Natural Resources as requested. Generally speaking, that is in the area of regulatory policy.
We see our purpose as being to make decisions which are fair and objective. Fairness speaks to process, to the board's independence and impartiality; and objectivity speaks to being concerned above all with facts. As one of my predecessors used to say, there is no substitute in the regulatory business for facts.
We hope that our decisions are respected. They might not always be liked but we hope that the process by which they are developed -- fairness and objectivity -- leads to them being respected.
The aspect of the board which we most prize is its independence and impartiality. Our stakeholders, applicants and intervenors look to us for that independence and impartiality.
If you would turn, senators, to page 2, it is important to note what the board does not regulate. We, of course, have nothing to do with the regulation of oil and gas production and conservation and the like in the provinces.
We have little to do with electricity which is, constitutionally a special case. The federal government has not occupied the area of interprovincial electricity transmission and trade. That is in contrast to the situation in the United States where our counterpart, the Federal Energy Regulatory Commission, purports to have a responsibility for interstate electricity trade and has used that to leverage major change in the American electric power market.
While we seek to retain our independence in decision-taking, we also seek to minimize, overlap and to make the most efficient use of all levels of governmental resources by cooperating with, for example, provincial regulatory boards, the very fine Alberta Energy and Utilities Board, as well as the offshore boards in Newfoundland and Nova Scotia. Yukon Territory will shortly have responsibility for the regulation of its own oil and gas resources and they plan, I understand, to contract the environmental and engineering inspection work back to our board, which is familiar with that area.
Of course, we work closely with the Environmental Assessment Agency, the Transportation Safety Board, and with the Department of Natural Resources, under which ministry we fall.
Page 3 outlines the structure of our organization. Presently, we have six of a possible nine permanent members. Since I will be retiring at the end of the year, that will leave five. The qualifications of our members vary from economics, law, economics, engineering, to zoology and environmental studies. We also have four temporary members, two of whom are environmentalists and university teachers. One is an engineer who is also the executive director of our staff. He has laid down that activity to work as a temporary member for a period of two years. Our last temporary member is a lawyer. We have about 270 people on staff, 250 of whom would be active at any one time because some may be on leave, on assignment with other departments and the like.
The cost of running the board amounts to approximately $28 million a year, 85 per cent of which is recovered from the regulated industry.
Since 1991, all of our staff have been headquartered in Calgary. Formerly we had offices in Ottawa, Calgary and Yellowknife. We opened a temporary office in Halifax to deal with the Sable offshore energy project. That office is still in being because there will be some follow-up activity, including, I believe, applications to build the lateral pipelines to Saint John and Halifax.
Our board has downsized on a self-directed basis rather than at the direction of government. We are now less than one-half the size we were in 1984.
Currently, on the organizational side, our major challenge is to deal with the huge workload caused by the Sable activity, and also by the high level of activity in the western Canadian oil and gas industry, with which you, Mr. Chairman, are particularly familiar, which is leading to many applications for pipeline and related construction.
A second challenge is to attract and retain staff in the current Calgary environment. We are just coming out of the five-year salary freeze. Meanwhile, the Calgary economy has taken off and we have lost some good people.
On the next page, I try to sketch for you, Mr. Chairman, what the National Energy Board is doing today, Tuesday, November 25. We are very much a working board. A hearing will commence in 40 minutes time to deal with the very important Alliance pipeline project. This pipeline, if the board were to approve it, would reach from northeast British Columbia across Alberta and part of Saskatchewan and then, in the American leg, reach down to Chicago.
In Magog-Orford, Quebec, a hearing is underway respecting a pipeline which would reach from the north shore of the St. Lawrence, just northeast of the City of Montreal, to the southeastern corner of the eastern townships, and there connect with the Portland Natural Gas Transmission System. The project is being applied for by TransQuebec et Maritimes. It would be an expansion of the existing network and carry western Canadian gas down into New Hampshire, Maine and Massachusetts.
Having concluded the hearings on TransCanada's 1998 facilities, the board is now deliberating. In fact, I will be taking part this afternoon, by phone, in a panel meeting of the board members who heard the evidence regarding that large scale expansion of about $825 million worth of pipeline, compression and other facilities.
We are also deliberating on a project which is smaller in dollar terms, about $80 million, but which can bring about a fundamental change, if it were approved, in oil flows in central Canada; namely, the reversal of the Sarnia to Montreal crude oil pipeline, Line 9 of the interprovincial system.
The board has before it two applications for what would constitute the TransMaritimes pipeline project. The first is the alternative pipeline routing to the Maritimes and Northeast Pipeline. Second, there is a scheme for a sea bed pipeline to gather and transmit natural gas in the eastern offshore. TransCanada Pipelines will be seeking our approval for a major expansion under the name "TransVoyageur" across the Prairies.
By way of describing the variety of matters the board has to consider, I would mention the Souris Valley carbon dioxide pipeline which would bring carbon dioxide from a coal gasification plant in the United States northward into southeast Saskatchewan where it would be used to enhance the recovery of crude oil in the Weyburn oil field, a partly depleted oil field. This is a Pan-Canadian Petroleum project.
Typically, our staff carry out 50 inspections of facilities annually. They conduct audits to ensure compliance with the Canada Labour Code. They also work closely with the pipeline industry to seek, cooperatively, to minimize the risk of pipeline failure.
Those are examples of current staff activity, Mr. Chairman.
On page 5, you will see seven examples of issues with which the board, in general terms, is dealing, and which manifest themselves, generally speaking, in applications for new facilities. It is widely felt in the Western Canadian industry that there is insufficient capacity to move natural gas out of western Canada, insufficient relative to the productive capacity of the western Canadian industry. It is felt that that means western producers and the royalty owners, essentially the provinces, are not getting the best that they can out of the market, so there are many projects to increase the capacity out of that very important region.
We have had several applications, some suspended, for by-pass pipelines which would by-pass the very large gas-gathering and transmission system of the Nova Corporation in Alberta. Whether those applications will be revived or others will materialize depends, of course, on the policy of the Nova Corporation, as permitted by its regulator, the Alberta Energy and Utilities Board, to charge competitive rates on a regional basis rather than be required to price its services on a postage stamp basis, that is, the payment of a fixed toll no matter what the length of haul in the province.
Last week, the Alberta Energy and Utilities Board brought down a decision which approved a load retention rate which will keep a number of important gas producers using the Nova system, rather than supporting the construction of the Palliser Pipeline which would have extended eastwards through central Alberta and into Saskatchewan to connect with the TransCanada and Foothills interprovincial transmission systems.
There are, of course, the pipeline activities in the maritime provinces and the Atlantic offshore to which I have already alluded, including the expected lateral pipelines. The heavy-oil business and diluted-bitumen business in Western Canada is booming, as is the natural gas industry, and there is clearly a need for additional heavy-oil pipeline capacity. Interprovincial Pipe Line has publicly referred to its plans for what is called, I believe, the "Terrace Project", for completion by the end of the century.
There is greater interest in northern exploration of a different kind than we knew in the 1970s and early 1980s. It is more of a progressive reaching northward from the producing provinces across the 60th parallel into the southern territories and southeastern part of the Yukon, rather than the remote and very expensive exploration in the Delta and the Beaufort Sea that aroused such great hopes in the late 1970s and early 1980s, hopes which were frustrated basically by technical difficulties and by the way in which the energy market turned against production at the geographical margin.
Electricity exports are dealt with by permits, and I think all Canadian utilities which wish to take part in the liberalized U.S.A. market, to the extent that American regulation allows them to, already have blanket export permits which give them a great deal of flexibility.
Lastly, the board is continuously seeking to refine, redefine and improve its regulatory approaches, to minimize their cost to ourselves and to the regulated entities, while at the same time ensuring that regulation is properly carried out.
It is reasonable to ask, and I am sure this is in the minds of all of you: Do we need a National Energy Board at the moment? Deregulation, rather than regulation, is the flavour of the day. I have outlined in the document before you five reasons why I think there is a need for the sort of regulation which we seek intelligently to dispense.
First, some pipelines have market power. The principal pipeline, for example, moving natural gas eastward from Alberta, is subject to indirect competition from other pipelines, but to have firm, assured transportation of natural gas from Alberta, let us say to the Ontario and Quebec markets, by another pipeline route, a shipper would pay considerably more and, I am not sure there would be the same assurance of supply. That, in effect, provides the long-established pipeline with what economists call "market power," the ability to charge what the market would bear against competitors who have a higher cost structure. That is the philosophy for regulating tolls, that is the prices, which pipelines charge.
However, with an initiative which the board started as long ago as 1988, most of the major transmission systems in Canada are regulated by long-term settlements, having a duration of five or more years, which have important incentive features which will demonstrably improve the economic efficiency of the pipelines, and share the efficiency gains between the pipelines owners and the shippers. There has been a completely revolutionary change in the direction of negotiated settlements which still require National Energy Board approval but, essentially, reflect agreements between the pipeline and its stakeholders: gas distribution companies, provinces, shippers and the whole panoply of people who have an economic interest in the tolls of pipelines.
Second, the terms of access to a pipeline can have an influence on the market for the commodity which it ships. The board has taken a special interest in this since the earliest days, for example, of gas deregulation, to ensure that gas is accepted on a non-discriminatory basis. In a couple of cases in the last 12 months, it has dealt with access terms for natural gas liquids, an important but relatively little-known part of the Canadian energy economy.
Third, when a pipeline receives a certificate from our board, under Part V of the act, it is given very important powers -- powers, ultimately, to take lands. Those powers are essential if a pipeline is to be built. If a pipeline did not have such powers, it would not have the certainty it requires to proceed. In deciding whether or not to grant that power, clearly, the interests of the land owner and the pipeline must be carefully balanced.
Fourth, pipelines are unlike other industrial enterprises, in that much of their assets will be located on private and public land which is owned by other interests. Therefore, the concern about safety has to be dealt with by an independent regulatory authority which enforces standards and compliance. Of course, the pipeline compressor stations will be on land which the pipeline owns.
Lastly, as I mentioned earlier, the law reflects long-term Canadian concerns about the possibility of energy resources being excessively depleted by export demand. The law requires that we must find exports of natural gas to be surplus to Canadian requirements. We have something called the market-based gas export procedure.
Mr. Chairman, Ms Hanebury is very much practised in the area of environment. She spent last summer studying environmental law at the University of Aberdeen. With your approval, she will deal with the environmental segment.
The Chairman: Certainly. It is an area that is getting a lot of attention these days. This is an area of particular interest to some of our members. Please proceed.
Ms Judith Hanebury, General Counsel, National Energy Board: Honourable senators, in relation to environmental concerns, the area the board regulates the most carefully is pipelines -- pipeline construction, pipeline operation, and also pipeline decommissioning. When considering pipelines, there is a lengthy list of areas in which the board seeks information. It looks for information on wetlands which are the home to migratory birds. It seeks out information on rare plant species and studies that have been done to determine their location, how they will be treated, and how any loss will be mitigated. It examines river crossings. How will the river crossing occur? It asks if there are fish habitat in that river and it inquires if it will be disturbed and replaced. It has a significant mandate to examine environmental effects in relation to pipelines.
The board has this mandate both under the National Energy Board Act, where it regulates in the public interest, and the Canadian Environmental Assessment Act, which is the over- arching federal legislation for environmental assessment. Many of the applications that come before the National Energy Board trigger assessments under the Canadian Environmental Assessment Act.
One of the major challenges to face the board in the last couple of years from a process point of view has been integrating its processes under the NEB Act, which are quasi-judicial processes, with the processes under the Canadian Environmental Assessment Act. That has been an ongoing development. We are learning as we move along.
The board has the ability to consider environmental effects in relation to international power lines, and it does so. It also looks at environmental effects in relation to the export of gas, oil and electricity. The export of oil is generally by permit, so usually it is not assessed. However, if an oil licence application for longer-term export came before us, the board would assess the effects of the export.
In relation to the export of energy, there is no trigger under the Canadian Environmental Assessment Act. Any assessment of the effects of exports is done only under the National Energy Board Act. Over the past few years, the board has been developing tests to establish what it would examine and how it would examine the environmental effects of exports.
The board also has a mandate under the Canada Oil and Gas Operations Act which gives the board the ability to regulate in the north and the offshore areas, other than the accord areas. A fundamental premise of that act is that the environment shall be protected. At virtually every stage of approval that the board gives out in relation to northern development, an assessment of some kind is normally undertaken.
I would ask you to turn to page 8 of our brief where we outline how we actually do environmental assessment.
The board has extensive filing requirements before a company can have an application approved. When it files an application, it must set out a detailed list of environmental studies, environmental considerations, and work it has done in relation to areas of concern to the board in environmental matters. That is just the start, though. That provides the basic information the board needs to undertake an assessment process. The board then examines that information, either in the context of a written process or, if there is a public process, an oral process by way of a public hearing. When there is an oral process, often environmental interveners will actively participate and question an applicant.
If an application is approved, the board conducts audits. It has an environmental inspection program, and inspectors have the ability to immediately shut down a project without going back to the board if they are concerned about environmental degradation.
The board also has a monitoring function. Companies are usually required to file a monitoring report after construction to ensure that environmental concerns that arose during the course of the application have been appropriately addressed and mitigation has occurred and has worked.
One of the challenges the board faces in relation to environmental assessment is harmonization. A recent example of harmonization occurred in relation to the assessment of the Sable offshore and onshore projects. That was with the province of Nova Scotia. As well, the board harmonized its process with the Canada-Nova Scotia Offshore Petroleum Board. With regard to Sable, a joint assessment panel was set up comprising five members, three of whom are members of the National Energy Board. A joint panel report was released approximately one month ago.
The board has also done joint assessments with the Canadian Environmental Assessment Agency. The Express Pipeline Project, a new oil pipeline going through native prairie grasslands in southern Alberta, is an example of a joint assessment done with the Canadian Environmental Assessment Agency where they appointed a member to the National Energy Board. The four members who heard the application were wearing, in essence, two hats: as assessment members pursuant to appointment by the Minister of the Environment and also as National Energy Board members.
One of the goals the board is working toward is substitution. Under the Canadian Environmental Assessment Act, there is the ability, where an agency has some environmental assessment process deemed to be satisfactory to the Minister of the Environment, to substitute that assessment process for a panel review under the Canadian Environmental Assessments Act. To date, to my knowledge, no substitution arrangement has occurred under this legislation, but the board is presently working with the agency to become a substituted process.
In relation to harmonization, the board is working with various agencies in the north to harmonize its processes for assessment with the various processes under the land claims agreement. For those of you who have looked at those agreements, it seems everyone has a different process; so this has been quite a time-consuming and challenging project.
Presently, "greenhouse gases" is a phrase on everyone's lips. The board itself has no specific mandate to deal with questions relating to greenhouse gases. Having said that, it is something the board considers when it undertakes environmental assessments.
Pipelines are emitters of carbon dioxide and nitrous oxide. Primarily, this comes from compressor units. Most of the pipelines are in the voluntary compliance program, particularly the larger pipelines. In addition to this, the board monitors the situation, encourages pipelines to install new compressor equipment, and asks questions about whether compressor equipment is using the new technologies for low emissions of nitrous oxides. As well, the board will sometimes ask companies to monitor the background ambient levels of nitrous oxides or CO2 to ensure that the guidelines the federal government has put in place, particularly for NOx, are not exceeded.
Mr. Priddle: I should point out that we have been fairly selective in the material we have put before you. We assumed that one of the areas the committee would have particular interest in would be the environment and how we do what we do.
The other area is energy supply, which we refer to at page 9 of our brief. There is always the question: What is the state of Canadian energy supply? Is there enough? Are our exports impairing the supply of energy to domestic markets, for example?
The board has a general mandate in Part II of the act to study and keep under review all matters within the purview of the Parliament of Canada. We also see a particular focus on gas exports. I keep using that word "surplus", which is mentioned in section 118 of the act. We are also required to see that there is an adequate supply of oil or gas for a new pipeline in Part III of our act, section 52.
We monitor and advise the public on the energy supply situation by our hearings into exports and pipelines. For example, the TransCanada 1998 facilities application was supported by a very careful analysis by a well-known engineering consulting firm in Calgary of the western Canadian sedimentary basin gas supply situation. This was used as evidence to support a supply finding. The board is still deliberating. Consequently, we have not yet found that there is an adequate supply of gas for existing pipelines, plus the incremental capacity that TransCanada's 1998 facilities will provide.
Public hearings are an element of monitoring. We do periodic natural gas market assessments. We have conducted nine such assessments. One of the most recent looked at producers' responses to market developments, namely, the fluctuations in the available price of natural gas. We found that producers respond remarkably quickly to price signals and bring forth additional supply if the price is moving up. They do that very readily.
We also conduct periodic supply demand studies. The last one was published three years ago this fall.
I cite here sections of National Energy Board reports. The first one, respecting gas, comes from the most recent natural gas market assessment. We found that the gas producing sector is a healthy, robust part of the petroleum industry that is actively exploring and developing our gas resources. It has clearly demonstrated its ability to ensure adequate supplies at fair market prices, even during periods of rapidly increasing demand.
It was the thinking in the 1970s and early 1980s that energy supply would not respond promptly to price signals. That was the era of government intervention and governments, rather than markets, fixing prices. One of the findings -- and I am sure it does not surprise many practitioners in the oil and gas business, but in public policy terms it was something of a surprise -- was that energy, oil, gas and gas liquids respond to market signals conveyed by prices just as readily as does the supply of most other commodities and manufactured goods.
Concerning oil, we cite the board's finding in regard to the Express Pipeline, the first large, new oil pipeline out of Western Canada in many years. When I say "new" I mean new in terms of its ownership. The story of western Canadian, interprovincial and international pipelines over the last 40 years has been, essentially, one of incrementing existing pipelines. One exception was the Foothills Pipe Line in the early 1980s. That is a gas pipeline. In 1996, we approved, and there has been constructed, a large new oil pipeline out of the basin owned by TransCanada PipeLines and the Alberta Energy Company Ltd.
In connection with looking at supply for that pipeline, we concluded that there will be adequate supplies, given the magnitude of the crude oil resource in Western Canada and the likelihood of technological progress in recovering that resource.
On page 10 we have attempted to outline what you can expect from the National Energy Board. You can expect prompt and fair treatment of ripe regulatory applications. We sometimes receive applications which are not ready for hearing, which do not fully respond to the board's Guidelines for Filing Requirements, and do not contain a corpus of information on the basis of which we can consider this sort of application for decision. However, ripe applications will be dealt with promptly and all applications will be dealt with fairly.
We are dedicated to giving careful attention to relevant environmental issues. We have an excellent procedure for examination in public hearings with cross-examination of the evidence on the environment, and we will be fair and objective in the way we deal with environmental matters.
We consider public safety to be a priority. Every pipeline company and the Association of Energy Pipelines consider public safety to be a very high priority and we are committed to working with the industry, not against it, in the cause of safety.
We are open to further regulatory process innovation. I mention here mediation and alternate dispute resolution. At the same time, we pledge to be vigilant in the public interest, particularly in environment, public safety and pipeline access. It is true to say that the board's record, particularly over the last dozen years, as well as the philosophy of all of the members, is to ensure, as far as possible, that the energy markets that move over these facilities -- that is, gas, oil, and natural gas liquids -- and are affected by our regulation of the hardware, which has monopolistic tendencies, function as freely as possible.
Mr. Chairman, that concludes our presentation. We would be glad to entertain questions at this time.
The Chairman: Thank you, Mr. Priddle and Ms Hanebury. We appreciate your comments and your suggestions to us. We will now begin our discussion.
Senator Kenny: Mr. Priddle deserves a great deal of credit for overseeing a tremendous evolution in the NEB over the past period. We are fortunate to have him as chairman of that board. In that vein, I welcome you back here, Mr. Priddle.
My question does not relate directly to your presentation, it relates to the question of energy supply in Canada, specifically, oil supplies. I am sure you are familiar with the work the OECD has done in relation to what would happen in the event of an oil shortage or an oil shock. The IEA has done country studies which concludes that Canada is a net exporter and would be obligated to assist other countries, in the event of a declared emergency, by providing them with oil supplies.
While we are a net exporter, the country is really split in two. The western half of the country would be fairly good shape in the event of an oil shock, but the eastern half of the country would dry up pretty quickly. The IEA has established reserve requirements for most countries. For example, the Americans have a 120-day mandate for oil reserves; other countries have at least 60 days. While there have been some promising developments offshore on the East Coast, none of that oil is destined for Eastern Canada. It is all destined for the southern United States. We do not even have any refineries in Eastern Canada that would deal with the type of crude that will be produced at Hibernia.
What will happen in the event of an energy shock? How will Eastern Canada be looked after? What will happen in New Brunswick or Nova Scotia or even Newfoundland in the event of a shortage, given the fact that none of our pipelines from Western Canada runs that far?
Mr. Priddle: That is a fair question by Senator Kenny. I should point out that this is not the National Energy Board's area of expertise, but I will try to respond as best I can on the basis of background knowledge.
In late 1974 and early 1975 I was involved in something called the "Kissinger Initiative" which gave rise to the Emergency Oil Sharing Scheme of the International Energy Agency, which is a part, as Senator Kenny has pointed out, of the OECD. There is a very elaborate and practised emergency organization in existence at the agency and in the different member countries. In Canada, it is organized by Natural Resources Canada.
Canada is a significant net exporter. As a result of Canadian diplomatic efforts, our exports of natural gas liquids, as well as of crude oil and condensates -- our exports of propane, butane and ethane -- count in terms of improving our net petroleum liquids export position. This gives us a considerable advantage in the Emergency Oil Sharing Scheme. Our net exporter position is expressed simply as a ratio of our consumption to our production. It does not consider actual flows. Consumption is divided into production of these gross liquids to get a ratio. It may reflect a 50 per cent export surplus. Because we are a large net exporter, we are excluded from the first round of cutting and sharing of imported oil supplies when the Emergency Oil Sharing Scheme goes into play, assuming, as I think we must, that it works effectively. It is the net importing countries which share in the first tranche of cuts.
The scheme is also devised to prevent or discourage countries like Canada -- although I cannot think of any others -- which are net exporters but which have an import dependence in one region, such as Eastern Canada, and an export surplus in another, such as Western Canada, from withdrawing exports in the west and diverting the oil to the east by maintaining the import flow through the first round of sharing of scarce international supplies. It also works in such a way that, if you cut exports, notwithstanding the existence of this scheme, your imports are cut. You cannot gain by shipping domestically.
The EOSS should look after Canada for a very considerable time in a situation of curtailment. However, let us assume that the scheme failed completely and a situation arose which made it necessary to ship eastward. The Interprovincial Pipe Line Inc., in its application for the reversal of Line 9, was careful to make provision for very rapid re-reversal so that oil could be flowed in considerable volume to the east, although, admittedly, not nearly in the volume that would be needed to meet the requirements of all of the Maritimes and all of Quebec. However, a very considerable eastward flow, probably in the amount of one-quarter million barrels per day, could be established relatively quickly.
That leaves hanging the question of whether the grades of oil would be available in Western Canada which refineries in Quebec and the Maritimes would require. I do not know the answer to that.
Senator Kenny: Mr. Priddle, my questions to you are asked having regard to your mandate as advisor to the government in this area, and also to the fact that you have a vast amount of experience in this area generally.
While the first tranche to which you referred would not call on us to cut our consumption, it would call on us to increase our exports. Increasing our exports creates a corresponding and equally difficult problem.
My second concern is that our domestic emergency plan calls for moral suasion once a problem develops. The first step is having respected people, such as yourself or the Minister of Energy, appear on television and assure the public that we are not in an emergency situation. We can all assume that every intelligent person will immediately top up their gas tanks to 80 per cent full rather than running at 50 per cent full. Moving only from 50 per cent to 60 per cent would be sufficient to cause a significant disruption in the supply chain.
The next step would be to move to some rationing process. However, if we mention the word "rationing" we will have line-ups around the block.
Why is there no reserve in Eastern Canada? Why do we not recognize that we have two quite distinct markets that are served in very different ways? Would it not be prudent, if we are considering Canada's long-term interests, to develop a strategic reserve that would dampen the shock, should it occur? Supplies in Eastern Canada are potentially unstable. Why do we not have a 60-day or 120-day reserve somewhere in Eastern Canada to protect us from this eventuality?
Mr. Priddle: Mr. Chairman, I will have to take refuge in the fact that those are policy questions. Certainly, Mr. Goodale and the department could very competently respond to them. It is correct that we would be expected to maintain our exports and, if there were surplus producing capacity and surplus pipelining capacity, which there tends not to be at any one time, we would be expected to increase them. I am not sure that would always be technically possible.
The issue of a strategic reserve in Eastern Canada has frequently been examined by the department. Much comfort has been gained from the fact that the Canadian oil supply system, including the foreign oil supply to Eastern Canada, has proven very robust in many different crises circumstances, including 1973-74, 1979-80 and 1990-91, and Canadians have never gone short.
I am certain that policy thinking would be influenced by the prospect that, over a considerable period of time, a number of crude oil fields, in addition to Hibernia, will come on stream. Perhaps the quality of oil from those fields or the refinery configuration in Eastern Canada will be such that a considerable stream of domestic east coast oil could move into eastern refineries.
Senator Cochrane: Mr. Priddle, have you any new applications for exploration or development of oil fields, in addition to Hibernia, off the coast of Newfoundland at this time?
Mr. Priddle: Senator Cochrane, with respect, I would point out that our board has no regulatory authority over oil and gas exploration and development in the offshore. That is handled in respect of Newfoundland by the Canada-Newfoundland Offshore Petroleum Board. We provide to that board very specialized technical advice on, for example, marine diving matters; however, we do not regulate the industry. I am not familiar with that situation at all, senator.
Senator Milne: I have second-hand knowledge of pipeline construction resulting from the fact that my husband worked in the field for many years. He is now retired and is consulting on environmental issues related to the construction of pipelines in other countries.
Page 2 of your brief refers to cooperating with the various provincial regulatory agencies. With what group in Ontario do you cooperate, and what happens if there is no such group?
Mr. Priddle: In Ontario, the principal interface is with the Ontario Pipeline Coordinating Committee on the environmental side. The Ontario government has an interdepartmental committee with which I am not overly familiar. When an NEB-regulated pipeline wishes to build a new line of pipe -- generally speaking in an existing right-of-way, although recently and in connection with Trans-Canada's 1998 construction there is new right-of-way involved -- the OPCC seeks to provide coordination between all of the interested government departments. Those departments would include the Ministry of Natural Resources, and the former Ministry of Energy and the Environment now called the Ministry of Energy, Science and Technology, the Ministry of the Environment. The OPCC would ensure that all of the Ontario-specific concerns are covered in a coordinated way so that the pipeline need not deal with several different departments.
The OPCC then brings to us, in one package, all the concerns they would like to see reflected in our certificate conditions. Those are the conditions which we impose on the pipeline in regard to, say, river crossings or wetlands, the sorts of things referenced by Ms Hanebury.
Senator Milne: The matter is simplified for you in that you need not deal with different departments.
Mr. Priddle: Yes, that is correct.
Senator Milne: Page 3 the brief refers to the make-up of the NEB. Did I hear you say that one of your temporary members was executive director of staff?
Mr. Priddle: That is correct.
Senator Milne: Is it not a conflict that one of your own staff members is now on the board?
Mr. Priddle: From time to time in the past, staff people with particular qualifications and those who are at the most senior level have been appointed as temporary members. Our previous general counsel Judith Snider was a temporary member for a period and then was nominated to a permanent membership.
Gaétan Caron grew up at the board as a pipeline engineer. At one time he was responsible for financial regulation and, for a couple of years, he has been the executive director. He is an experienced official with a lot of knowledge of our regulatory processes as a result of having been a project manager on some important hearings. He was an ideal candidate for a temporary membership. His executive director role is being fulfilled on a rotating basis by some of our other senior staff.
Senator Milne: You talked about the increased interest in northern exploration. Are you doing anything to update your own environmental requirements as you move north to increasingly fragile Arctic lands?
Ms Hanebury: Some of our environmental requirements set out in our guidelines already cover issues such as permafrost. We are, however, involved in ongoing discussions with various northern groups, now that northern development is becoming more active, to ensure that we are adequately covering off various northern matters. We are working together to ensure that our processes will complement each other.
Senator Milne: One of your requirements is restoration. How do you go about ensuring that lands that might take 100 years to restore are in fact restored? Are there special processes that you can utilize?
Mr. Priddle: Senator Milne is clearly touching on an important issue here. Pipelines are built in all kinds of different landscapes -- urban, agricultural, native prairie in the Express case referenced by Ms Hanebury, forested lands in British Columbia, unstable slopes and so on. Certainly, as you go north, you are in much more difficult pipelining territory. Much is yet to be learned. Much has been learned, Senator Milne, for example, in the experience of the IPL (NW) line. It is a relatively small-diameter crude oil pipeline from the Norman Wells field, which runs through the Mackenzie Valley in a south-southeasterly direction to Zama in northern Alberta.
I have not visited the pipeline, but in my reading of the situation, I understand that the problems that have arisen have, by and large, been manageable. The permafrost has not been damaged. There has been no permafrost melting that would cause an environmental problem as well as potentially affecting the integrity of the pipeline.
Means have been found to insulate the permafrost. The oil may be chilled. By and large, the experience, while it has been a learning one, has been fairly satisfactory.
Senator Milne: Have you gone beyond our own borders to assess what is happening in Alaska in relation to their pipelines? That information would be of great value to us.
Mr. Priddle: Senator Milne, I am not really familiar with international work done in this area. There has been a lot of work done, for example, in France, somewhat surprisingly. In Caen, in Normandy, there is a very comprehensive lab for the investigation of permafrost features where Canadian scientists and engineers have been working. The French interest has been in road construction at very high elevations in the Alps. Pipeline mock-ups have been subject to the permafrost environment there.
I am sure that the Canadian pipeline industry has learned from the experience of the Alyeska pipeline, the crude oil pipeline across that state.
Senator Milne: What sort of cooperation do you have with provincial and municipal authorities on environmental matters? You were talking about the environmental assessment of exports. Do you then propose some sort of regulation to prevent Canada from being, in effect, blamed for projects which are started beyond our borders by Canadian companies but which go terribly wrong?
I am thinking specifically here of TCPL or Iroquois Pipeline fiasco. Is there some way that Canadians can protect themselves from this? Are you extending your interests beyond our borders when you talk about the environmental assessment of exports?
Mr. Priddle: The senator has mentioned several points. Our cooperation with provincial governments would be reflected where the Joint Public Review panel dealing with, say, the Sable offshore energy projects, fulfils purposes not just federally but also vis-à-vis the interests of the Canada-Nova Scotia Offshore Petroleum Board and the Nova Scotia Department of the Environment.
I will ask Ms Hanebury to respond to the question of environmental assessment of exports and the question of environmental effects of Canadian energy projects across the international boundary.
Ms Hanebury: What has been determined as the result of a court case that went to the Supreme Court of Canada on electricity exports, and as a result of the development by the board of its own tests, is that when an export of energy is allowed by the board, the board will assess the environmental effects of related facilities, which are usually production and transmission facilities. It may be both facilities, or only one.
In very general terms, the test is that we look at the facilities that are to be constructed and assess if they are sufficiently closely interrelated to the request for the export licence that, in effect, they are being constructed in whole or part to facilitate the export. We will then undertake an assessment of those transmission or production facilities. That is what we look at when we assess exports.
The question of whether or not the board could assess the environmental effects of the ultimate use of the energy downstream, which could be, for example, burner tip, if it is gas, or the construction of facilities to move that gas south of the border, was raised in one case before the board in the last two years. I believe it was the Express Pipeline hearing, which was an oil pipeline going south of Alberta. In that case, the board examined its legislative mandate and came to the conclusion that for it to look south of the border, it had to have an express authority in its legislation to do so. Otherwise it was restricted to consideration of environmental effects within Canada. It came to the conclusion that no such express mandate had been granted to it in its legislation, so it does assess environmental effects south of the border.
I suppose the one exception to that is when something is happening in Canada which will have an effect south of the border. For example, if there is a river crossing of a river just north of the American border, and siltation will move south of the border as a result of that river crossing by a pipeline, then we may consider that environmental effect.
Senator Spivak: That is a very interesting statement on the valuation of environmental impact. Since your mandate of public convenience and necessity does not allow that, do you alert the Canadian Environmental Assessment Agency? They have a responsibility for exports. I ask this question because almost 50 per cent of Canada's 46 megatonne increase of CO2 or equivalents emissions, according to Natural Resources Canada, is due to the burning of fossil fuels and fossil fuel production. This raises major concerns in terms of greenhouse gas emissions. I am referring to the macro-picture, and not what particular pipelines do what.
Would you also comment on the accuracy of some information that was given to me? Apparently, in Ontario, emissions from sulphur have increased 25 per cent in the last 12 months, due to shipments from Alberta of high-sulphur-content heavy crude to ageing refineries, and the fact that upstream removal of sulphur is no longer done or is done to a lesser degree.
Does the National Energy Board have any say in the quality of the product shipped east or exported to the U.S., or on whether any upstream removal of pollutants is done by producers prior to shipping? Does it consider the abilities of refineries, particularly old refineries, to deal with dirtier crude?
Ms Hanebury: Exports are not on the list under the Canadian Environmental Assessment Act so, when the board receives an application for an export of energy, it does not trigger an assessment under that act. The only assessment is done under the National Energy Board Act.
In regard to whether or not notification is given to the Canadian Environmental Assessment Agency about an export application, no such notification is given. All of our records are public, of course, and if anyone seeks information in relation to exports, then that information is available, and that includes the agency.
As to the larger question related to pipelines that will, for example, be carrying product for export to the United States, on occasion we have advised the United States that we have an application in Canada and that a question has been raised about potential environmental effects south of the border. We notify them of that. The case I am thinking of is the Express Pipeline project where notification was given to American authorities in relation to potential environmental effects.
Our examination is within our borders.
Mr. Priddle: Let me comment on Senator Spivak's remarks about the increase in CO2 emissions due to the burning of fossil fuels. I presume that must be the case; I do not contest what she says. I think that my colleagues from NRCan and certainly from the western Canadian oil and gas industry would want to point out that some of the increase would be attributable to the great increase in energy production activity that has taken place in Western Canada since 1990. To the extent that that involves, say, the preparation, if you like, of a cleaner fuel for export, to the U.S.A., Canada, I am sure, would seek some kind of a credit for that. If you process natural gas which is, relative to coal, a clean-burning, relatively low carbon-dioxide-producing source of energy when it is burned south of the border, and you incur some carbon dioxide emissions through production and processing in Canada, then you should get some credit for that. That should not be counted against your Canadian carbon dioxide balance.
Senator Spivak, I am not at all aware of any significant change in the quality of the crude oil stream moving to Ontario refineries in recent years. Ontario refineries are essentially based on light- and medium-gravity, good-quality, relatively low-sulphur, western Canadian crude oils. There is some imported oil reaching Ontario of similar quality through the United States or even from United States fields, and there is a significant amount of oil sands synthetic oil, which is extremely low-sulphur, being used in particular by the Suncor refinery in Sarnia. However, to my knowledge, there has been no "heavying up" or "souring" of the crude oil stream moving to Ontario refineries.
Apart from the processing of the sulphurous bitumen in Alberta at the Syncrude and Suncor plants, there is no upstream treatment, of which I am aware, of natural crude oils prior to their refining.
Senator Spivak: My understanding is that the federal government is attempting to develop regulations that would reduce sulphur emissions from gas. This particular information relates to Imperial Oil.
Mr. Priddle: That is not novel to me.
Senator Spivak: My general question in terms of greenhouse gas emissions is this: Given your mandate to act in the public interest, not just in the commercial interest, what do you take into consideration in setting general targets? Perhaps you can answer that later.
Senator Comeau: With regard to the Sable Island gas project, do I understand the joint panel has given the go-ahead to the Maritime & Northeast Pipeline Project? If so, will the board be looking at competing or alternative pipelines?
Mr. Priddle: The Joint Review Panel has approved the scheme, with many conditions, put forward by the project developers both for the offshore and the onshore component. The principal onshore component downstream from the gas processing plant intended for Goldboro, Nova Scotia, would be the Maritime & Northeast Pipeline Project. The joint review panel approved that. It recommended, in a sense, to its three NEB members that they recommend to the Governor in Council the issuance of the certificate of approval for the Maritimes & Northeast pipeline.
That has not yet been done, senator. The Joint Review Panel report was published at the end of October, and there are a number of processes in hand relative to that report. If and when the government approves it, the board would then issue its National Energy Board Act recommendation respecting the Maritimes & Northeast Pipeline. Technically, the approval has not yet been given by the National Energy Board. That approval is subject to Governor in Council approval of the issuance of the certificate.
Senator Comeau: My understanding is that the TransMaritime group also had an underwater pipeline proposal which wanted to have considered but that it was not considered by the joint panel. I believe the board was vaguely aware that these two competing interests wished to make submissions, and that their only knowledge of it was gleaned from information found in the newspapers. No active consideration was given to alternatives. Nevertheless, the review panel did go ahead and make recommendations which will place the NEB in the rather uncomfortable position -- if they wish to consider other alternatives -- of putting aside their colleagues' recommendations. Do you not think this is rather an awkward way of considering alternatives for a project so important to the Maritimes?
Mr. Priddle: I will ask Ms Hanebury to respond to your question, but I am not sure it is true to say that the Joint Review Panel -- of which, of course, I was not a member -- did not consider alternatives. They said that they did.
The applications you referred to for the two pipelines under the TransMaritime Pipeline Project and the application for the North Atlantic Pipeline are presently before the National Energy Board and are being dealt with.
Senator Comeau: My second question relates to Georges Bank drilling. Could you give me a brief outline of the status of Georges Bank drilling applications?
Ms Hanebury: First, we are not sure we fully answered your question in relation to alternatives.
The joint panel took the view that it considered alternatives to the project before it within the context of the Canadian Environmental Assessment Act. The Canadian Environmental Assessment Act states that alternatives must be looked at. You must seriously consider them when you find out the project before you has significant environmental effects. In that case, you are considering whether another project should be put forward to deal with the significant environmental effects of the project.
What I think was being sought by the competing pipeline projects was a delay of the decision of the National Energy Board in relation to the Sable project until the other projects could be considered so that a decision would be given on all three possibilities at the same time. The board refused to do that. It said that it would not hold up an application that was before it while it waited for other applications to come in and catch up, so to speak. Therefore, the board said it would proceed with the consideration of the application before it, and the other projects would be considered in due course.
Senator Comeau: It is absolutely unfair to make a recommendation on a drilling and pipeline project without giving active consideration to alternatives. I am not in favour of any one of the other alternatives. This is not my point at all. However, I am very much against the panel giving the go-ahead or a recommendation without giving full and active consideration to alternatives because this impacts on all of us in Atlantic Canada. It is as if central Canada is coming down to Atlantic Canada again and telling us that we are just a bunch of "know-nothings." I think active consideration should have been given to the weight on the delivery system and that, perhaps, they should have had recommendations to go ahead with the drilling, but not delivery.
Ms Hanebury: This is one of the occasions where I am happy to say that I am just the lawyer, and that I will turn this question over to Mr. Priddle.
Mr. Priddle: I am sensitive to Senator Comeau's concerns. At the same time, Mr. Chairman, it is not fitting for me to explain the decision of the Joint Review Panel. I think that has to stand on its own, even if one has been a member of the panel. Certainly if one has not been a member of the panel, one should not try to explain the decision. The decision is out there in the public domain and it is well explained.
However, I should like to assure Senator Comeau that any application that, in a jurisdictional sense, is properly before our board and is ripe for examination, will receive prompt, fair and full treatment. We received the applications for the TransMaritime Pipeline Project. There are two of them: One for the TransMaritime Gas Transmission in the provinces of Nova Scotia and New Brunswick; and one for the extension of the TQM pipeline eastwards from the South Shore, south of Quebec City, to the New Brunswick, Quebec-provincial boundary. We received the TQM one at the end of July, and the TransMaritime Gas Transmission application at the end of August. We have started the regulatory process, beginning with environment, as must always be the case, in respect of those applications. They will receive the board's careful attention.
Concerning the North Atlantic Pipeline project, which is somewhat less well developed than the onshore projects, that, too, provided sufficient information is put before us, will get the board's careful attention.
Senator Buchanan: I also wish to welcome Mr. Priddle and Ms Hanebury.
I disagree with my distinguished colleague from Nova Scotia concerning the Maritimes & Northeast pipeline. I attended some of the hearings before Mr. Fournier and I thought they were extremely well conducted. A lot of time was given to witnesses to express their concerns on the environment, on the pipelines, and on any matter they wanted to discuss. Mr. Fournier and the committee worked day and night, and travelled throughout New Brunswick and Nova Scotia. They did an exceptionally good job.
As you said, the Tatham Offshore proposal is not too well developed. I attended the energy conference in Boston, where they gave a presentation. If we waited for the Tatham proposal, we would be waiting well on into the year 2000 and beyond.
As far as the other group is concerned, first, I think that they were late in applying. They could have applied earlier. Second, I thought they were given a good hearing by the Fournier panel.
I am satisfied with the recommendation for the Maritime & Northeast pipeline. We want to get on with it. We have been working on this for a long time. The first Canada-U.S. offshore petroleum board was set up in the 1980s. I signed the first agreement in 1982 to set up the board and then we revised it in 1986. We have been waiting for this for a long time. Hopefully, it will happen now.
I do not see how companies can proceed with production drilling without receiving approval for a pipeline. They must work hand-in-hand with one another. Do you agree with those comments?
Mr. Priddle: It would be difficult to envisage the offshore component of the project going ahead if there were great uncertainty about the pipeline route to be followed, the costs, and the market that would be at the end of the pipeline. You must have those activities -- that is, the engineering activities, the commercial activities and the selling activities -- taking place in parallel.
Senator Buchanan: What is the final date for approval by the federal cabinet of the joint panel recommendation?
Ms Hanebury: To the best of my knowledge, there is no provision for a certain time. Therefore, there is no final date.
Senator Buchanan: I have read varying accounts in the reporting of these matters. I heard that the federal cabinet must make a decision by December 15. I checked on the validity of that statement and found it to be incorrect.Are you saying no final date has been set? In other words, is there no particular time-frame within which the federal cabinet must make this decision?
Ms Hanebury: That is correct.
Senator Buchanan: If Mobil Oil and the other members of the consortium are correct and they do not get approval within a certain time-frame, they could lose valuable markets in the New England states. That is what they said continually throughout the Fournier panel discussions. In fact, they repeated it last week.
Another long delay would be a disaster. Gas markets can be volatile. They are anxious to get our gas because they would be at the front end of a pipeline. However, if they see more delays, as they did back in the 1980s, we may lose those markets.
You mentioned the lateral pipelines from the major pipeline to Halifax and the major pipeline to Saint John, and the possibility of a lateral pipeline from the Strait of Canso to industrial Cape Breton. That may be a good thing or not. Presently, Senator Butts and myself are very much involved in the Cape Breton Alliance which is trying to determine whether that would be good or bad for Cape Breton. As both of us are Cape Bretoners, we understand the situation there.
Those would be regulated by the province, not by the NEB, would they not?
Mr. Priddle: My understanding is that the lateral pipelines are likely to be applied for to the National Energy Board. They have not yet been the subject of a formal application pursuant to our act, but we have been asked to start the front-end environmental processes in regard to the two laterals to Halifax and Saint John.
Distribution systems, anywhere in the Maritimes or anywhere in Canada, come under provincial jurisdiction.
Senator Buchanan: The separation plant in Goldboro will separate ethane, butane and propane from natural gas and other liquid commodities. Would the decision concerning a petro-chemical industry at that site be made by the NEB or by the province?
Mr. Priddle: No, it would not be a National Energy Board decision.
Senator Buchanan: It would be a provincial decision. Premier MacLellan made the statement -- and I agree with it because we said it back in the 1980s -- that those liquids from the separation plant should not or would not leave Nova Scotia, but that they would be processed in Nova Scotia. He made that statement just a few weeks ago. The government of Nova Scotia and not the NEB would have the final decision on what happens to those gas liquids.
Mr. Priddle: It would not be the NEB who makes that decision. I presume that Premier MacLellan has taken some legal advice on the question of whether he has some authority to prevent them leaving the province.
Senator Buchanan: We took that advice in the 1980s, and it was good advice.
[Translation]
Senator Simard: I share Senator Comeau's view and since he has already asked the questions I had in mind, I would simply like to make a comment. Senator Comeau has voiced the concerns of the residents of southern and northern New Brunswick over the decision of the joint panel to approve the Mobile Oil proposal. I am not certain that I understood your response as to how the National Energy Board will meet its obligation to look at alternative pipeline proposals and weigh competing costs. Could you enlighten us further?
How do you plan to do this if the joint panel does not have a mandate to consider the two options?
Mr. Priddle: It is hard for me to explain the decision of the joint panel which was chaired by Mr. Fournier. The federal-provincial agreement resulting in the creation of the joint panel related solely to the Sable Offshore Energy Project. However, the panel also received a mandate to consider the Maritimes and Northeast gas pipeline application. As Ms Hanebury mentioned, the panel considered the alternatives, but decided that since the construction of the Maritimes and Northeast pipeline would have no harmful impact on the environment, there was no need, pursuant to the Canadian Environmental Assessment Act, to seriously examine alternatives. Alternatives do exist, such as the TransMaritimes pipeline proposal, but given that the Maritimes and Northeast pipeline was deemed acceptable from an environmental standpoint, they felt that there was no need to examine any further other proposals such as the North Atlantic Pipeline and the TransMaritime pipeline.
I can assure you that the National Energy Board will deal with the application for a certificate filed by TQM and TransMaritime Gas Transmission. We have already initiated the environmental assessment process in the case of these proposals.
Senator Simard: When can we expect the Board to have a decision ready? In six months, in eight months or in a year's time?
Mr. Priddle: That is impossible to say. We needed approximately 12 months in 1996 to consider the application of the Sable Offshore Energy Project. That was a fairly complex undertaking. The National Energy Board is required to hold public hearings.
I would also like to mention that with respect to the extension of the TQM pipeline eastwards from Quebec City, the company has commenced proceedings before Quebec's Bureau des audiences publiques sur l'environnement.
[English]
Senator Butts: I have a question about jurisdiction. Is it within the purview of the NEB to set up another joint panel or to override or reject the decision of the joint panel we currently have?
Ms Hanebury: Are you referring to the other proposals which have now been filed with the National Energy Board?
Senator Butts: Not necessarily. I just want to know your jurisdiction.
Ms Hanebury: Our jurisdiction in relation to joint panel reviews?
Senator Butts: Presumably you had some say in the setting up of this one.
Mr. Priddle: Yes.
Senator Butts: You had three members on it.
Mr. Priddle: Yes, three of the five members.
Senator Butts: You had the majority on it. Is it within your power to set up another joint panel or to override the decision of this one?
Mr. Priddle: I will try to give a non-legal reply.
The agreement for a joint review of the Sable offshore energy projects was negotiated over a lengthy period of time, I believe starting in 1995. The negotiation was conducted on behalf of the federal Minister of Natural Resources by officials of that department. Our board was involved, as was the federal Minister of the Environment, the Canada-Nova Scotia Offshore Petroleum Board, the Nova Scotia Department of the Environment and the Nova Scotia Department of Energy. It was a multi-party agreement coordinated by the federal Department of Natural Resource, to which we were a party.
I find it difficult to conceive that the National Energy Board would take an initiative such as the one you suggest. We were happy, while safeguarding our own independence, to take part in that agreement, but I cannot foresee us initiating another one.
Ms Hanebury: In regard to your question about whether the National Energy Board could ignore the decision of the joint review panel, the joint review panel had five members, three of which were members of the National Energy Board. It will be those three members who will ultimately issue the reasons of the National Energy Board in relation to that portion of the application that comes under the National Energy Board Act.
Mr. Priddle: Senator Butts, once the board has entrusted an application to a three-member quorum, I do not think the remaining members of the board have any authority to overturn the decision of those three members. Those three members in effect bind the board.
Senator Simard: That is a concern.
The Chairman: Mr. Priddle, when the next board is convened to examine the next application, could the membership of that board be different from the membership of the first board?
Mr. Priddle: Mr. Chairman, the membership of NEB panels is designated by the board as a whole with the approval of the chairman. One would look to a mixture of experience, people with different professional backgrounds, different experience in dealing with applications, members' availability at any one time. All of those factors would determine which three members are chosen. We generally work in panels of three; occasionally, we have had panels of five. I am not speaking of the joint review panel. One cannot predetermine which three members would hear subsequent applications relative to Sable gas.
The Chairman: That creates a slippery slope whereby the next panel could end up coming to conclusions different from those of the first panel. How would the board be affected by inconsistent findings?
Mr. Priddle: Mr. Chairman, that is not an inconceivable outcome. However, the outcome would be determined by the facts and arguments which were put before that panel.
The Chairman: Then you are back to the concerns of Senator Comeau and Senator Simard. In order to avoid that situation, it may have been more appropriate if everything could have been heard at the same time.
Mr. Priddle: Yes, but one of the problems, Mr. Chairman, was that the application of the Sable group, including Maritimes and Northeast, as you know, came in, in the fall of 1996. The TQM and TransMaritime project applications did not come in until July and August of this year, respectively.
The Chairman: That presents a very real problem.
Mr. Priddle: I do not want to get too far into this. There is also an element of fairness to the people who were there a year or more earlier.
Senator Cochrane: Mr. Priddle, now that Quebec and Ontario are opening up access to their energy grids, their transmission lines, will that speed up development of the lower Churchill Falls in Labrador?
Mr. Priddle: Senator Cochrane, it would be speculative if I tried to respond to that question. I just do not know. On the one hand, it is certainly a wonderful, relatively low-cost hydro site. It would require a very careful environmental assessment, of course. On the other hand, very large, capital-intensive, long lead-time projects tend not to find favour in today's world of electricity.
Senator Stratton: Mr. Chairman, I want to address a question to you. I am not a regular member of the committee. Senator Kenny's question has been reverberating around the room as we have discussed supplies to Eastern Canada.
Does the government have a policy with regard to supply in times of economic down-turn or shortages? Do we have assurances that Eastern Canada will have a supplier? I thought, surely, with the state of the country today, that the government's long-term policy would be to ensure supply from a source in Canada to Eastern Canada.
The Chairman: Mr. Priddle, as I recall, your board has traditionally looked at surplus in terms of meeting the requirements for 10 years. I think you have moved away from that time-frame.
Does your board not get into this area, highlighted by Senators Stratton and Kenny, of distribution of that supply on a basis that would be consistent with the Canadian interest?
Mr. Priddle: Basically, that is correct, Mr. Chairman. There is a senior official of Natural Resources Canada here this morning. He will carefully note the discussion about security of supply. If you want to hear from that department, I am sure they will be happy to appear.
Senator Kenny was quite correct in his observation that there is a very large, strategic petroleum reserve in the United States which was established in the aftermath of the 1979-80 crisis, although it has been somewhat depleted in recent years. We ought not to overlook that the United States is about 50 per cent oil-import dependent, whereas we are probably 50 per cent oil-export surplus. The United States only produces about one-half of the oil it consumes. It is in a completely different situation from that of Canada.
The Chairman: Thank you. Your suggestion is well made. Our committee should go into further detail on the questions raised by Senators Stratton and Kenny. You are somewhat limited in how far your board can go.
Senator Milne: Speaking of cooperation between the different levels of government, I have a horror story about pipeline construction where the national regulatory authorities required a construction company to restore a beaver pond after the pipeline was built. Two weeks later, the municipal authority came in and blew up the rebuilt beaver dam. Is that cooperation?
I am curious about this IPL reversal. You talk about your aging and deteriorating pipeline system. How do you assess a reversal project, particularly given the fact that a pipeline may have been unused for quite a few years?
Mr. Priddle: That is a very reasonable question, Mr. Chairman. We are still deliberating on this issue. The matter of safety was one of the most important questions raised in connection with IPL Line 9 reversal. We held part of our hearing in London, Ontario, to deal explicitly and very seriously with the concerns, for instance, of the Ontario Pipeline Land Owners Association. They were given a full and fair hearing.
The pipeline company had done hydrostatic testing on the whole line from Montreal to Sarnia, pumping water at a pressure significantly higher than the pressure at which the pipeline would operate in oil service. There was no failure on it. They were just delighted that this pipeline, which is now just over 20 years old, would pass the hydrostatic test with flying colours. That gives the engineers a lot of confidence about the integrity of the pipeline.
The Chairman: On behalf of my colleagues I thank you very much for taking time out of your busy schedule to be with us. It was certainly worthwhile. I am sure it augurs well for future annual get togethers with the board. We appreciate you being here.
The committee adjourned.