Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 21 - Evidence - Morning
ST. JOHN'S, Thursday, December 6, 2001
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:10 a.m. to examine such issues as may arise from time to time relating to energy, the environment and natural resources.
Senator Nicholas W. Taylor (Chairman) in the Chair.
[English]
The Chairman: This committee has held hearings in Vancouver, Toronto, Edmonton, Calgary, Montreal. We have also visited Vienna and Paris.
I would now ask Mr. Stanley from the Canada-Newfoundland Offshore Petroleum Board to proceed.
Mr. Halcum Stanley, Chief Executive Officer, Canada-Newfoundland Offshore Petroleum Board: I want to thank you for the opportunity to appear before your committee. I am the Chairman and Chief Executive Officer of the Canada-Newfoundland Offshore Petroleum Board. I understand that you were in Nova Scotia on your way here, and you may very well have heard from the Canada-Nova Scotia Offshore Petroleum Board, so I hope some of the things that I mention are not repetitive. Our mandates and the roles that we perform are essentially the same and the legislation is essentially the same in both jurisdictions.
The Chairman: We heard there are similarities and that we should ignore anything you might say about who owns the Laurentian Basin.
Mr. Stanley: I certainly do not intend to comment on that.
I will provide a broad overview of the offshore oil and gas industry here in Newfoundland at present, which should not take me much more than fifteen or twenty minutes. Then it might be more productive to answer questions you may 1have specifically about what is happening.
As you probably discussed yesterday, the history of the Atlantic Accord, the Canada-Newfoundland Atlantic Accord, goes back to 1986. I will not go into too much of the background, other than to say that it was a political agreement between the Government of Canada and the Government of Newfoundland with respect to the management of offshore resources. The Atlantic Accord was signed in 1986, and then both governments introduced mirror legislation in 1987. It is a very unique arrangement in the Canadian government structure. In my understanding, the Offshore Petroleum Board here and the one in Nova Scotia are probably the only examples of this that exist.
Our board, under the legislation, reports to both the Minister of Mines and Energy in the Government of Newfoundland and Labrador and to the Minister of Natural Resources in the Government of Canada. The board is made up of seven people. Three are appointed by the federal Government, three are appointed by the province, and the Chairman is appointed jointly by both governments. At the moment, we are missing one federal representative and one provincial representative so that currently number five.
The list of our board members is in the handout material I gave you. We have six board members and our responsibility is for environmental affairs, operations and safety, exploration, reservoir engineering, industrial benefits, legal and land and administration. We have approximately 40 people employed in all of those areas, most of whom are professional engineers, geoscientists, computer people and, of course, lawyers to look after the work that we are responsible for administering.
The governance instruments that we operate under are two statutes, one in the Government of Canada, and one in the Government of Newfoundland and Labrador. There are ten sets of regulations, which are set by the governments. The board provides an advisory role in that process to governments, but the regulations are passed by both governments. Then there are eight sets of guidelines and these are instruments of the board. We examine the regulations and interpret the way in which we expect them to be delivered by the operators in our offshore area and put that out in this form of guidelines. The other instrument we use is memorandum of understanding between our board and the various departments of government that have a responsibility in the area in which we operate. The departments that come readily in mind to that are the Department of Fisheries and Oceans, the Coast Guard, the Department of the Environment and Transport Canada. We have memoranda, between ourselves and all of these agencies and departments, outlining how we will exercise our jurisdiction and how we overlap, where we overlap, and how we deal with that overlap of responsibility.
Just to give you an idea of the area that we operate in, this is a relief map of the ocean, which very dramatically shows the continental shelf. Our jurisdiction is totally in the water. We do not deal with land production at all. Our concern is essentially for the continental shelf off the coast of Newfoundland and Labrador. As you mentioned, there is discussion on the go at the moment about where our jurisdiction is with Nova Scotia. That is between governments. As a board, we do not participate in that. There will also be discussion at some time about where the jurisdiction is between Quebec and Newfoundland in the other part of the Gulf. There is not a lot of exploration interest in that area at the moment. Therefore, it has not received much attention.
Senator Kenny: While we have the map visible, what about France?
Mr. Stanley: I have another map that shows the boundary around Saint-Pierre and Miquelon, which is a very peculiar boundary. France is in the middle there. This is the Flemish Cap that you hear about. Our jurisdiction extends out to the edge of the Flemish Cap.
We provide a graphic of the same information, which essentially shows the areas where drilling has taken place off Newfoundland and Labrador since 1966. The graph indicates that off Labrador, surprisingly, there were quite a number of wells drilled in that area in the 1970's and early 1980's. There were significant gas discoveries off Labrador, but, of course, there were a number of problems related to development in that area, which I will reference in a little more detail later on. A big problem is ice and how to deal with ice. While we have iceberg problems on the Grand Banks, they exist, in spades, off the coast of Labrador.
Further down the graph, you will see that while there has been some scattered drilling in this area, most of it is in the Jeanne d'Arc Basin. That is where Hibernia is located as well as Terra Nova, White Rose, and Hebron. The big discoveries that have been made in our offshore area are all in this area. There has been a fair amount of drilling toward the Laurentian Basin. As you can see on the graph, even in the early days there was a lot of interest in that area, but there were not any discoveries from the drilling that was done at that time.
In terms of resource estimates that we have for our offshore, one of the board's responsibilities is with the Geological Survey of Canada, GSC, to maintain an estimate of the oil and gas resources off our shores. With respect to oil, there is a total of about 8 billion barrels estimated to be off the shores of Newfoundland, of which 2 billion barrels have been actually discovered and the other 6 billion barrels are estimated by the geoscientists to be there. It is a science and it is an art once you get into that upper part of that bar graph in terms of the 6 billion that is to be found. The geoscientist estimate it is there, but somebody still has to drill a hole to actually find it.
In terms of the gas, it is estimated to be 72 trillion cubic feet, TCF. We found 9 TCF, roughly half of which is off Labrador and the other half is off the south coast of Newfoundland.
Senator Kenny: Is this proven?
Mr. Stanley: The 9 TCF is proven. The 63 TCF is estimated to be there. Again, showing more detail of where these resources are located, you see on the graph, there are wells that were drilled and discoveries that were made off the coast of Labrador. There is some 5 TCF of gas confirmed in this area with not a lot of drilling, so there is certainly good potential there for the future. From a development point of view, the problem with the gas in this area is the sheer distance from the market. It is a long way to the markets from the coast of Labrador. Of course, the other element is the technology required to be able to have producing facilities operating in this area because the pack ice and the icebergs all come right through here. That is a major problem.
The Chairman: Is any of that under permit right now?
Mr. Stanley: Yes, some of it is under what they call significant discovery licences, SDL.
The Chairman: Who controls the SDLs there?
Mr. Stanley: The people who found the resources still control them. There are three, actually, off Labrador.
Senator Cochrane: Once people have these licences for this area, how long can they keep them? Does that mean that nobody else can come in and do anything in this area?
Mr. Stanley: Under our operating regulations, when you get a significant discovery licence, you have it for perpetuity, basically. There are no time limits on significant discovery licences. This region is an area that has been talked about a number of times by various governments and industry groups over the years, but at the moment the SDLs control it.
Senator Cochrane: I find that strange. They control the whole area there, but what happens? Can they just leave it and make no commitment to do anything with the land forever?
The Chairman: To understand the difference between an SDL and the whole area, the size of a significant discovery licence is only a certain amount of land around a discovery made in the past. The SDL territory is a very small area of less than 1 per cent.
Mr. Stanley: A very small area is covered by the SDLs.
Senator Kenny: You might also mention how much it costs to drill a hole.
Mr. Stanley: Yes.
Senator Cochrane: I can imagine.
Mr. Stanley: I really could not tell you what it would cost to drill a well off Labrador because it has been a long time, but on the Grand Banks it's about $30 million in the shallower water. In deep water it is about $50 million a well. It is a substantial investment of money. With respect to the SDLs, it is true they have rights in perpetuity, but under the legislation and regulations, the board has certain authority to order that things be done if, indeed, it appears that development or activity is being impeded in some unreasonable way by the owner of those rights. Obviously, that is an authority that you would only exercise very prudently because you are dealing with large amounts of money and significant rights, but there are instruments that are open. Having said that, one area that has been raised a number of times is the need to probably revisit the time period for SDLs.
Senator Cochrane: Good.
Mr. Stanley: Then you move south on the map to the Jeanne D'Arc Basin. As I mentioned, this is the area where all of the discoveries have been made that we are dealing with in our offshore at the moment. There is Hebron, Ben Nevis, Terra Nova, Hibernia and White Rose, which is the one we are dealing with at the moment. They are all there in that relatively small area in the Jeanne D'Arc Basin. Those are all the potential developments that are either producing now, or are being considered.
The Chairman: When you produce gas now in that basin, do you re-inject it?
Mr. Stanley: Yes.
The Chairman: Do you allow a flare percentage?
Mr. Stanley: We allow a very small percentage. We have only one producing platform at the moment, which is Hibernia, and what is used in flaring and for fueling the generators is in the area of about 5 per cent.
The Chairman: Will you use the same ratio for the new development?
Mr. Stanley: Yes, we will. We are continually moving toward smaller and smaller percentages of flaring, but as you will appreciate, when you are operating in an isolated area like the Grand Banks where there is not an associated pipeline, you must exercise judgment at times with respect to what you do. Our policy is the only flaring that is required should be to maintain the flare so that, from a safety point of view, it is always there and ready if you have to resort to that. That is the way Hibernia has been operating for the last year and a half or so.
Senator Kenny: What sorts of platforms are contemplated after Hibernia?
Mr. Stanley: I will say a few more words about that when we get to the Terra Nova and the White Rose projects.
With respect to the fields that are in the Grand Banks, these are the projections of the oil in those fields. Hibernia is really in a league by itself. It is substantially larger. There is a good prospect, on the Hibernia field, to recover even significantly more resources than are shown here on the map.
Concerning the Terra Nova field, the company says it will have first oil by the end of this year, which is becoming less probable at the moment. We are getting down to the line, but the company is still aiming for first oil by the end of the year. It is 406 million barrels.
White Rose is a smaller field of 283 million barrels. Generally, it is felt that a field would have to have at least 200 million barrels to be, in any way, attractive for development on the Grand Banks because of the substantial cost involved.
Senator Cochrane: My question is not related to the Grand Banks. You are giving out these specs. Do you have anything to give out for the west coast?
Mr. Stanley: The activity on the West Coast at the moment is on land, which is not under our jurisdiction. That comes under the jurisdiction of the province.
Senator Cochrane: All right. I thought I would get you there.
Mr. Stanley: We do have licences issued on the West Coast. We just had a round of licences for new land area for exploration.
Senator Cochrane: Is that on land or offshore?
Mr. Stanley: That is offshore. The four areas are all around the Port-au-Port Peninsula, and four of them were taken up by companies. They now have five years to do exploration. There is still a lot of interest.
Senator Cochrane: Are you telling me that you have given out licences to these companies?
Mr. Stanley: Yes, we have given licences for exploration.
Senator Cochrane: Were they given to four different companies?
Mr. Stanley: They were given to three different companies, if I recall correctly.
Senator Cochrane: Okay.
Mr. Stanley: That area surrounds Port-au-Port Peninsula essentially. You will see a little bit of that in a very much larger scale later. The 11 other discoveries on the Grand Banks are small, from about 4 million to 36 million barrels. The conventional wisdom is that these are going to have to be developed from the existing structures if they are developed at all because they are too small to be developed on a stand-alone basis.
Mr. Chairman: Can these be developed those as satellites?
Mr. Stanley: Some of them will. Some of them can be developed from the existing platforms. That will be a later phase as production reaches its plateau and drops off. Then there will be a need for more sources to produce.
Just talking more generally about the board and its mandate, we have four broad areas of responsibility: resource management, operations and safety, environmental protection, and Newfoundland-Canada benefits. I sometimes refer to this as being like an iceberg. The part that sticks above the water, in which everybody is interested, is number four. That receives all the attention in the media and from a lot of the local groups, but, of course, the big meat of the board's responsibility, in terms of our staff, is in the areas of operations and safety and environmental protection. All of these are large responsibilities.
I will say a few words about each. This is a schematic that shows the land process that we go through. Starting at the top, all of our land is in Crown reserve. We ask the industry to identify the land that it is interested in because, obviously, the industry is continuously doing seismic work and its own very confidential assessment of the potential. We ask companies, on a confidential basis, to identify for the board what lands that they would like to have put up for bids.
Based on that, and our own work internally, we then come forward with a plan for a land sale. Those plans have to go to both ministers. This comes under the category of fundamental decisions. The governments retain a hand in actually approving the areas that are put out for sale. We then call for bids. The system we operate under is a work commitment bid. It is not a bid of direct money to government. It is a bid by the operators to determine how much they are prepared to spend in the next five years to explore the lands that they are bidding on.
We have what is called a "single criterion process" for selection. The company that bids the most money gets the land. We do not get involved in any further assessment than that. It is a straight single criterion system. Quite often we are compared with Norway and the North Sea - the British sector of the North Sea - where, over the years, there has been a lot more discretion in terms of allocating bids than just a single criterion. The Canadian system is very definitive. It is a single criterion system. We can have different ones than the work commitment, but at the moment, Newfoundland, Nova Scotia, and the Government of Canada in the North, are using a work commitment system for allocating the land. We call for bids. The company that bids the highest on the land gets an exploration licence, which is good for five years, and it is required to spend the amount of money that it said it would spend on exploration.
The way we try to keep the company's feet in the fire in that regard is that 25 per cent of that money has to be deposited with the board on account. For instance, if it did not do any work on the licence, then it forfeits the 25 per cent deposit money. If it only spends 50 per cent of what it said it would spend, then it forfeits half of the 25 per cent deposit money. The amount is significant. For instance, we have had bids for $110 million on one parcel of land. The $25 million, $26 million, or $27 million that is deposited with us is a substantial amount of money at stake. Companies certainly have an incentive to do what they said they were going to do.
Senator Eyton: Are the parcels roughly the same size?
Mr. Stanley: No. They are larger in the remote areas and, as you get into the Jeanne D'Arc Basin, for instance, where there is a lot known, they become smaller. The principal thinking there is that we are trying to encourage people to go into these more remote areas to start exploration. Therefore we provide them with larger parcels in those areas.
Senator Eyton: What size is the $110 million parcel?
Mr. Stanley: I could not tell you exactly how many hectares are involved, but it is a big parcel of land. Up until the recent Nova Scotia land sale, where there was a bid of $175 million for a parcel, $110 million was the most that had ever been bid out here. That was in the Flemish Pass, actually. I will say a few more words about that later when I discuss deep water.
Senator Kenny: Does the single criterion assure you of benefits coming back to Newfoundland?
Mr. Stanley: It does not at this stage. Companies have to submit benefits plans to the board. They have to go through the normal things of making sure that companies here have an opportunity to bid on any work that is available. They employ Newfoundlanders. All of that applies, but there is no opportunity in the bidding process, for instance, for a company to say, "We will do all our work in Newfoundland, and we will bid $75 million."
Senator Kenny: Is that something that may be coming in the future?
Mr. Stanley: Under the existing legislation, it cannot be done. You can only have one criterion. You cannot require that of the one that is going to do the most work and commits to do most activity in Newfoundland. We cannot do that under the existing legislation.
Senator Kenny: My question would be how much does the province benefit when these bids go forward? How much of the spending actually ends up in the pockets of people of the province?
Mr. Stanley: There is not a large amount from these expenditures. The big amount of money that is used in this is for the drilling rigs to operate in the conditions offshore. Costs are from $300,000, $400,000 to $500,000 a day. Crewing of those rigs, to the extent that we can provide people who have the qualifications that are needed, is done by local people. Local people participate in that, and depending on how long drilling rigs are here, that can comprise up to 80 per cent of the crew. If they are only here for a month or so, then, obviously, it is a much smaller group. This varies, depending on how long they are here and what supplies are bought.
The supply boats all operate out of Newfoundland ports, most of them out of St. John's. All the supplies for these rigs are bought here. For instance, drill pipe and specialized products, in most cases, are not even made in Canada, much less Newfoundland, because the quantities required are not high enough for Canadian companies to produce at the level of standards that are required for the offshore industry.
Within the five years, if a company has an exploration licence, it has to drill a well in order to maintain that licence regardless of how much money it bid. If it bid $1 million, or if it bid $100 million, it has to drill a well in five years in order to maintain its licence. If it does not, the licence goes back to the Crown. If it does drill a well, then it gets the licence for another four years, which makes a total of nine years.
If a company finds something, that is when you get into a significant discovery licence. First, there is a declaration of significant discovery, then there is a licence, then you go to a commercial discovery, which is a production licence. We have issued one of these to Hibernia so far. We have issued two of them now, actually, one to Hibernia and one to Terra Nova.
Senator Cochrane: Is there a consultation with scientists, the general public, fishermen and so on, before a licence is issued?
The Chairman: That is something we will want to take up at the end because we also heard concerns in Nova Scotia about who gets input.
Mr. Stanley: This indicates where a lot of the land has been misused. You can see, on the chart, the land that is now issued on the west coast. There are a number of blocks and, as you can see, the most recent ones that we have put out again were around the Port-au-Port Peninsula. These tracts have been issued before, by the way, and have lapsed. Some of them have been issued again. There is more interest in this area than there has been for a while.
I mentioned that off Labrador we have the significant discovery licence. This area on the handout is the Jeanne D'Arc Basin and these are lands around it and those lands are in what is called the Flemish Pass. These are the most recent lands that have gone out. I mentioned a block - I think it is this one - that went for $110 million. These lands were the most recent that were issued. In other words, this is where the industry has been requesting, in the last number of land sales, that land be put up. It is the area in which they are interested, and it is in much deeper water. I have a slide to illustrate that.
These are lands nearing the Laurentian Basin. The Laurentian Basin is here on the map. You will see two things in this area. One is the St. Pierre and Miquelon boundary, which is probably unique in the world. I have never seen anything illustrated on a map in any other country that has a boundary like that. It is about 10 miles - this distance here - and goes right out to the 200-mile limit. That boundary is there. ExxonMobil actually drilled a well in that corridor around March of last year, which it abandoned afterwards. So we can only assume that ExxonMobil did not find a lot.
This indicates permits that were issued prior to the board's system coming into place. When the boundary is finally determined - I should not say boundary; I should say demarcation line since some people are sensitive about calling it a boundary and I do not want to get into any sensitive areas - as to where our jurisdiction is and where Nova Scotia board's jurisdiction is, the legislation provides that these permits will be renegotiated into exploration licences at that time. They belong to ExxonMobil and Gulf Oil. Gulf Oil has since been bought by Conaco, so it is actually Conaco that is in there now - and Exxon.
As I said, that is a very unique situation we are dealing with there at the moment. The federal government is negotiating with the Government of France with respect to how they will administer all of the overlapping jurisdictions and rights in this area.
I mentioned the kinds of things we do in resource management and gave you some indication of regional resource assessment. That is the broad assessment of how much resource exists. Then you get into individual field assessments such as Hibernia, Terra Nova and all of these. For instance, with Hibernia, we have to approve and monitor the details of how the oil is actually being extracted from that reservoir. The other responsibility the board has in resource management is to operate a core storage facility and a research facility in St. John's, where all of the core samples from all of the 190-odd wells that have been drilled off Newfoundland are stored and are held by our board.
Operations and safety is a very important aspect of our work. Every program that goes on here, whether it is a seismic program, an exploration well, a production system or a supply boat, all of it has to go through a very detailed safety assessment process before permits to proceed are given.
These are some aspects of the risk assessment safety management system. We assess the equipment that is being used to ensure that it is fit for the purpose that is being proposed, and in that, we are assisted by the certifying authorities, Lloyd's Registry of Shipping, the Norwegian group, the French have one and the American Bureau of Shipping. These are the ones that are identified in the legislation. We certify that the equipment is safe. We review the management procedures for all aspects of the work to ensure that we are satisfied with that. In the final analysis, we review the personnel that have been assigned to the critical positions in the program. We are involved in all aspects of safety.
The international certifying authorities, most of whom have been operating in the shipping business for many years and have branched out into the offshore industry, issue certificates of fitness for installation.
The other area is environmental protection. In all of the projects that take place offshore, every activity that takes place is subject to an environmental assessment at some level. Large projects like Hibernia, Terra Nova, and White Rose go through a full-scale environmental assessment under the federal legislation. Smaller projects go through various levels of review. We assess the project, as a whole, under an environmental assessment, and then each and every activity that takes place after that, for which we have to issue a permit, goes through another assessment from an environmental perspective.
Key in this whole environmental area is that we recognize the offshore oil industry operates side by side with the fishery, which has been on the Grand Banks a lot longer than the oil and gas industry. Therefore, the interrelationship between the fishery and the oil and gas industry is an area in which we are very interested and that we watch very carefully, as a board. We have been operating fairly well so far. There are always issues that arise. At the moment, there is a very active process underway to set up a direct liaison between the fishing industry and the oil and gas industry so that they can talk to each other and work out their problems, rather than having someone in the middle. We are optimistic that will succeed in our area.
Places like the Gulf of Mexico, offshore Norway, offshore in North Sea, where they have had oil and gas industry operating for 30, 40, 50 years, have big fishing industries and there is a lot that we can learn from them in trying to decide how to proceed in the future.
I mentioned benefits being the area that draws a lot of attention. There is a lot of misunderstanding concerning what the benefits legislation says. We could talk for all of my time here about benefits, if you wanted to do that, but there are two key areas of concern. One is that there be full and fair opportunity for Canadian and Newfoundland companies to participate in the process. There is no guarantee you are going to win. The legislation very clearly says you have to be competitive in terms of fair market price, quality, and delivery. Our role is to ensure that the process allows any qualified Canadian company the opportunity to participate in the process. There are those who suggest that if a Canadian company can do the work, it should get the work, rather than participate in a competitive process. The legislation does not provide for that. The legislation very clearly talks about competition.
The second key benefits area is that there be first consideration for employment and for provision of goods and services. With respect to employment, if there is a qualified person from Newfoundland and Labrador, or from Canada, in that order, who has the qualifications to meet the requirements of the job, then that person has to be hired before the company brings people in from outside the country.
The first consideration is very clear in that - in terms of qualifications and in the provision of goods and services - it is first consideration for the province, but that is based on competition in price, quality, and delivery.
I will now turn, very quickly, to exploration activity in our offshore area. In 2001, the year just past, we did not have any exploration wells drilled. We had quite an amount of two dimensional, 2D, and three dimensional, 3D, seismic programs that were taking place both on the Grand Banks and on the west coast over near Port-au-Port. That information is now being analyzed by the companies and is the basis on which they will be coming forward in the future, we hope.
In 2002, we project there will be more seismic programs, but, in addition, there may be two, and possibly three exploration wells. The companies have not confirmed that at the moment, but that is under active consideration. All of these would be in deep water in the Flemish Pass.
At the moment, through the work commitment process I talked about earlier concerning licences, we have $550 million of work commitments in place in our offshore area for the next five years. If you translate that into wells, if indeed companies decide to proceed and drill these wells, then at $30 million and $50 million $ you can do the math as to what the potential is.
This graph illustrates where the activity is moving. The Hibernia platform is in about 80 metres of water. If drilling proceeds this coming summer it will be in the Flemish Pass in about 1,200 metres of water. That is not the deepest reservoir by any means. In the Gulf of Mexico, wells are pushing 3,000 metres in water depth. The Flemish Pass it is not the deepest, but it is a much more challenging area to drill in than are the shallower waters of the Grand Banks.
The cost is about $30 million to drill a well in the Grand Banks and in the Flemish Pass it is about $50 million. Obviously, this is not a business for people who do not have deep pockets. You really must have substantial capability to operate in this area. That is one of the reasons that we do not find as many juniors and small companies that the western Canadian industry runs off materializing here. The amount of money required is just so large.
The Hibernia platform has been producing for about three years. It is one of the heaviest platforms that has ever been produced in the world, and was one of the largest things that was ever moved in the world at the time it was constructed onshore and moved offshore. In Norway there are larger platforms. The Troll is a very large platform. At the base you can just see the top of it. This has a huge concrete caisson, which goes all the way around that is designed to withstand the force of a million tonne iceberg. That is where the weight comes from in this particular platform. Inside that caisson is the storage area, which has about a million barrels of storage for the platform itself.
This chart is a schematic, which gives us a better appreciation for the design that we are dealing with. This platform has two drill rigs on it, which you will see at the top here. All of the drilling that is done for this field is being done from this platform and is directional drilling. It goes down to the bottom and out. Wells have been drilled - which I will discuss a little later - that are 8.5 kilometres to 9 kilometres away from the platform. They are drilled down and out 9 kilometres. Some of the longest reach wells in the world are out at the Hibernia platform. There is tremendous technology involved. There have been many advances in technology in recent years.
In the illustration, this is the platform itself and this section is for offloading. The oil is stored in this caisson and goes into the tankers, which carry the oil away. These are the support vessels, which are there - 24 hours a day, seven days a week - on standby at all times.
I will provide some statistics on Hibernia. It was discovered in 1979. The first oil was extracted in 1997. The long time period that there has been, historically on the east coast, between discovery and actual production is one of the issues that people have raised. Everybody is concerned about shortening that time in the future. The first oil came on in 1997. ExxonMobil, Petro-Canada, Chevron, Norsk Hydro, the Canadian Hibernia Holding Company, which is the Government of Canada, and Murphy Oil are the shareholders in Hibernia. The reserves at the moment are 884 million barrels recoverable, 145 million barrels of natural gas liquids, and 1.3 TCF of gas in Hibernia.
The development cost was $5.8 billion. Most of that was spent before the first barrel of oil was produced. This is something, in terms of comparing western Canadian oil production and offshore oil production, which we must keep in mind. In Western Canada, if you drill a well that cost $10 million, it is a very expensive well. If the price of oil goes down to $10.00 or $5.00 per barrel, then your $10 million is at risk.
Offshore you have huge sums of upfront money at risk, and it is one of the areas that are reflected in the royalty system. The royalty systems around the world that operate in offshore areas usually have a provision for payback of a substantial amount of this upfront money before the really significant royalties kick in. Royalties are not an issue for which the board is responsible. That is the jurisdiction of the provincial government. People make the comparison from time to time between western Canada and offshore oil production and the amount of money that you get right away out of royalties. The amount of money at risk here is what really changes the royalty system and the way money is returned to the people.
The production capacity of Hibernia is 180,000 barrels of oil a day, and it is running at that, today, as we speak. The year 2000 production was 52.8 million barrels. To date, it is at 44 million barrels. So far, 158 million barrels have been produced from Hibernia. Some of the wells in Hibernia have the capacity to produce 56,000 barrels a day, from a single well. That is a world class well, by any scale by which you might want to measure. In western Canada, if you have 1,000 barrels a day coming from a well, it is a very profitable and productive operation. Some of these wells can produce up to 56,000 barrels a day. Of course, they have to when you have $5.8 billion invested up front.
On the operations side of Hibernia, it costs approximately $300 million a year to operate the platform. About 70-odd per cent of that is actually spent in Newfoundland, or Canada. There are 800 employees, of which 500 are offshore and 300 are support personnel. The vast majority of those employees are Canadians. Newfoundlanders, at the moment, constitute over 88 per cent. When all Canadians are considered the number rises to about 95 per cent - Canadians and Newfoundlanders. That is as high as you will probably ever get in an international industry like the offshore oil and gas industry.
This is a brief schematic to illustrate that Hibernia is made up of two reservoirs. This is the part that everybody is aware of. The real business end of it is where the oil is. There are two main reservoirs. One is called the Hibernia sandstones, and that is mainly what has been produced up to now. The other are the shallower Avalon sandstones, which actually have more oil in them than Hibernia, but have some real challenges for production. Production is starting to move into that area at the moment. In a general sense, that is the relative distance, and the depth is 3,500 metres here on the map, and 2,500 metres here.
As I said, some of these wells have been drilled down 8.5 kilometres out from the centre of this platform. This illustration depicts the Hibernia sandstones from above. That is just to give you an appreciation. It is a very complex business once you get into these reservoirs. These are all fault blocks. These are all lines where the earth has shifted, or there are faults, and a lot of these are essential compartments of sandstone that are filled with oil and gas. They have to be produced in a way to try to maximize recovery. It is a very complex and demanding business. One of our responsibilities, as a board, is to monitor the way in which this is produced to try to ensure that there is maximum recovery of the resource.
This is the Terra Nova project, which is a floating production system. Instead of the big concrete system that sits on the bottom, as exists at Hibernia, this is a floating production system called a floating production storage and offloading, FPSO. It is a ship that has about one million tonnes capacity on the ship. In terms of dealing with ice, it has a mechanism called a turret. You can see the top of it in the illustration. It comes up through the bottom of the ship. This can all be released, in an emergency, in as short a time as 15 minutes. If you ever had to use the turret, it could release all of these risers and let them go to the ocean floor so that the boat can move away.
The other accommodation for ice is glory holes, where the actual wellheads are about 10 metres, or 30 feet, below the level of the seabed itself. If icebergs come through, the design is such that the icebergs would go over the top of the wellheads.
Senator Kenny: How deep do icebergs scour?
Mr. Stanley: Some can scour about a metre and a half.
This is an illustration of the boat as it was finished here onshore in Newfoundland. Interestingly, the tower is 100 metres, or 300 feet, and the area that it operates it at Terra Nova is about 80 metres deep. In theory, if this boat were on the bottom, this tower would be out of the water. That indicates that operations are not in really deep water in those areas of the Grand Banks. Very quickly, it is a smaller project. You have a copy of the slide, which indicates the ownership is $2.8 billion. It is still a substantial project. It is smaller than Hibernia, but a lot of money is involved.
White Rose is another project that is just going through the development process. A floating production system like Terra Nova is proposed and a decision on that is anticipated imminently. The board has dealt with it. It has been sent to the governments, which now have to make their decision.
The next large project is Hebron, which again has tremendous potential. The decision to proceed has not yet been made and we are waiting. Indications are that could be coming forward next year.
Concerning the impact on the Newfoundland economy, I will just leave that with you. These are some statistics, many of which come from governments rather than from information generated by the board itself. As you can see, you will get into a fair amount of discussion if you come across certain sectors in our community that maintain we should be getting more out of these offshore projects. That discussion is always very animated. You will find not anyone who does not recognize that there is a substantial impact on our economy from offshore development, particularly in St. John's and in the Avalon area. Whether we can get more is usually the subject of debate.
The feature that makes Newfoundland's offshore different from anywhere else in the world where oil is being produced today is pack ice. There is pack ice off the coast of Russia, but there is not a combination of pack ice and icebergs. We have very unique challenges in operating offshore in Newfoundland and Labrador, which really raise the cost of operating in our area. This schematic illustrates that the portion of the iceberg that you can see above the water is really not as significant as what is happening under the water with icebergs. Somebody put this on the Web site as a picture of a real iceberg. However, it was determined that it had been doctored. This illustration does serve to make the point of the real business of icebergs is what goes on in underwater.
This illustration is not just the theory of icebergs on the Grand Banks. This was in April of the year 2000, and each of those triangles represents an iceberg that was being monitored by the offshore industry. This area is where Hibernia, Terra Nova, and White Rose are located. The circles indicate different levels of alert with respect to the icebergs as they move inside these areas.
Over the years there has been a lot of work done. This is a supply boat towing an iceberg. Seacore, with Memorial University, has done a lot on this. You can deflect icebergs, when they are far away, so that they avoid installations. That is easier when you only have a few installations. As installations increase it will become more challenging to do that. Another way to deflect icebergs is with water cannons from the boats. The course of the icebergs can actually be altered using water cannons.
Senator Cochrane: As you know, we are approaching the 20th anniversary of the Ocean Ranger tragedy in February. In the shadow of this devastating event, safety remains on the minds of many Newfoundlanders. I would like to hear about safety on the platforms. What are some of the major safety measures that exist that did not exist in 1982? Are there any national or international standards in place that all platforms are required to meet? Also, tell me about the training that is provided to the workers in this regard.
Mr. Stanley: Everybody - and certainly everyone who works at the Canada-Newfoundland Offshore Petroleum Board - is very conscious of what happened 20 years ago. Quite a number of people were involved in that process, either working in the industry or with governments at that time.
Since then, one of the major things that has happened is a big review by the industry and governments with respect to the standards of the facilities that are constructed and the requirement for inspection all the way through the process. With regard to design of facilities where critical components are located, standards for these facilities have all been raised for the whole process. There were amendments made to the Atlantic Accord legislation to raise the standards for facilities.
The first area in which this has been done is raising the standard of the requirement for floating production systems, or for Hibernia, which is a system that sits on the seabed. There has been a lot of attention paid to that area.
The standard has been raised with respect to the training of individuals and there are requirements for all of the people offshore. We have a survival training facility that operates in St. John's, which is run by the Fisheries and Marine Institute, that provides a standard one-week course for anyone who works in the offshore area. The course is a required to get a job. It covers everything from how to use survival suits to helicopters. There is actually a tank in which students have to sit in a submersed helicopter and turn over because one of the biggest hazards is transportation back and forth. Indeed, in the North Sea that has been found to be probably a bigger hazard than actual accidents on the platforms. All of that is covered in this basic survival course.
There has to be a 200 per cent capacity coverage now on platforms with respect to survival suits and lifeboats and it must be available at critical locations on the platforms.
Concerning the training of the supervisors, the board reviews the background and experience of the people involved to ensure there are management people and people in critical positions who have the necessary experience.
There is a lot of attention paid to safety right from the construction of the facility all the way through to the training of the people. A lot of that was covered in the amendments to the legislation that were made as a result of the Ocean Ranger tragedy.
I am sorry if I have not covered everything.
Senator Cochrane: That is an ongoing thing.
Mr. Stanley: Yes. Our board has 40 people. Ten of them are involved in some aspect of safety. Quite a number of them are engineers. We do regular audits on the platform. As you will appreciate, an offshore facility is not like a factory on land where you can walk in at any time and do an inspection or an audit without anyone knowing you will arrive. Our arrival is anticipated offshore because we have to go out on the helicopters that serve the platform. What we are on the platform to examine is not known when we go there. Our people do extensive research before they go out in a particular area. The focus might be lifeboats one time, or sprinkler systems the next time, fire emergency pumps or all of the safety components. We do regular audits on the platform and deficiencies are noted. If responsive action is not taken, we have tools at our disposal to ensure that whatever needs to be done is done.
Senator Cochrane: What reasonable action is taken?
Mr. Stanley: That depends on what the issue is. For very serious issues, the safety officer has the authority to shut the platform down. We have not come across any problems of that level. There are regular subsequent visits to make sure that any problem noted is fixed. A big focus of our activity and our responsibility - and one that keeps you awake in the night - is the safety side of what we do.
Senator Cochrane: So it should be.
The Chairman: We are running late. Possibly we could try to restrict the panel to two questions each and then we will go around a second time. That way everyone gets a chance. We have another group, which has been waiting for ten minutes.
Senator Kenny: Has Hibernia ever been hit by an iceberg and, if not, how close have icebergs come to the platform?
Mr. Stanley: Hibernia certainly has never been hit. I could not tell you exactly how close icebergs have come, but it is probably five or ten kilometres. This is monitored very closely. There are actions taken to deflect them when it appears they will come. The risk assessment that has been done indicates the probability of an iceberg ever hitting that platform is very low.
Senator Kenny: Did Hibernia not have to be so big and tough and strong?
Mr. Stanley: Industry people would say it is not necessary to make it as big and tough - some of them - but certainly there is a saw-off between the level of the risk and what you do to address the risk.
Senator Kenny: My second question has to do with the issuance of licences. Companies normally do their own seismic work. Given the fact that you were starting with a clean sheet here, was any consideration given to pooling seismic work before bidding took place, or having the board conduct its own seismic tests, to the exclusion of other people, and making that available to everyone for perhaps six months before bids were submitted? The difficulty is a lot of people bidding just do not know the seismic details in the area and do not know how much to bid.
Mr. Stanley: Yes.
Senator Kenny: Have you considered, conceptually, other methods of improving the take to the board from companies bidding?
Mr. Stanley: Is that in terms of money?
Senator Kenny: Obviously, it is in your interest to have companies pay the largest amount of money for drilling licences. The way the system is structured now, the company that is bidding highest is usually the company that has collected the information about the area and understands it best. If you do not understand the seismic in an area, you will not bid as vigorously as you might.
Mr. Stanley: Our system - the Canadian system, I guess, since it is the same in the federal government and in the Nova Scotia board - is very much driven by the private sector. The areas where seismic will be done are areas that companies identify. If we, as a board, started doing seismic work, whether we were in the right areas would be questionable. We have our interpretation, but, obviously, there are tremendous resources in companies like ExxonMobil and other huge international companies to be able to make judgments about where the oil is. Our system is driven by these companies' identification of the critical areas that they want to go into.
Senator Kenny: To save time, I understand the system. Have you considered other models that might maximize the return to the people of Newfoundland and to the people of Canada?
Mr. Stanley: Well, I do not know that there is a lot of opportunity to increase the return in that bidding process because the amounts of money involved in drilling wells are so large and the risk is so high. One of the ways you would do that, rather than a work commitment system, is to move to a cash bonus system. We have done a little experimentation with that with not very good results. Other jurisdictions do the kind of thing you are talking about. In Norway some seismic is done in very sensitive areas, but generally, the industry does seismic where the industry thinks the resources are. It is very much industry driven.
The Chairman: We will leave that go for now.
Senator Adams: I will be short, Chairman. Does that operate like mining? Mining companies do a lot of exploration and prospecting. If smaller companies have a land lease for exploration, are they able to sell that to larger companies? Does it work that way?
Mr. Stanley: Some of that goes on in our area. Again, the minimum bid amount is $1 million, of which $250,000 must be put on deposit with the board. The deposit is at risk because if you do not do anything, you lose your $250,000. There are western Canadian companies that have land positions that are trying to attract the bigger players to come onto their property to explore. Similar to the mining industry, that type of thing happens, but not as much because the amount of money at risk in just getting a licence is not insignificant.
Senator Adams: In the future, will those wells be served by a pipeline, or will the product be carried by ship?
Mr. Stanley: Had I not used up all my time, I was going to say more about gas. The big constraint in our offshore area at the moment is the absence of a gas pipeline to hook it into the North American market, in particular. That has received a lot of attention locally. This is a difficult issue to talk about in a short period of time, but I think the oil always will be transported by tanker. For gas to get to market, there will have to be a pipeline. That is one of the big challenges.
Senator Sibbeston: I will ask, Mr. Stanley, about the full and fair opportunity benefit provisions. In terms of the monitoring that is done, how does that work? Do you actively monitor? Are you aggressive about it? Do you have to be aggressive about it?
Mr. Stanley: The process is that companies have to advise the board if they intend to issue a contract. The board can then make a judgment as to whether the capability exists locally or nationally. If so, then we go through the whole process of the contract. We go through the structure of the contract to try to make sure that it is set up so that it does not automatically exclude local business, if that is possible. When the bids actually take place the companies have to report to the board on the results of that bidding process. We have the ability to get involved directly in the numbers if we must. There is a complete monitoring process that takes place.
In terms of whether we are aggressive, you will find people who think we should be more aggressive in this business, but, obviously, we operate within the law, as a board, and we operate by administering the regulations that we have within our control. There are people who think we should have more ability to get involved, but, of course, that is a decision for governments to make.
Senator Sibbeston: With respect to the board's ability to monitor, do you have that capability, particularly concerning aspects of drilling such as seismic work? Have you found over the years that you have been able to obtain the level of sophistication of expertise, as it were, to be able to monitor these companies that are, in terms of their capabilities, on the leading edge and very able?
Mr. Stanley: That is a very challenging role. You have identified a critical concern. We feel that our people are as good as there are in the world in the business of reservoir interpretation and reservoir management. We are certainly very knowledgeable about the particular conditions that obtain in our area. We have the ability, which we use from time to time, to engage consultants and outside expertise. If there is an area in which we feel we need assistance, there are many consulting firms that operate on a worldwide basis that can come in and do a piece of work for us. These companies have tremendous financial resources and personnel available to them. It is a challenge to deal with oil and gas companies on that basis, but we feel we are doing a reasonable job. I will just leave it there.
Senator Eyton: I have a couple of questions about the board itself. There is a vacancy on the board. Is there any particular reason for that?
Mr. Stanley: There are two vacancies on the board. One is federal and one is provincial.
Senator Eyton: Is there any reason for that?
Mr. Stanley: The federal vacancy has existed for about four years. The provincial vacancy has existed for six months.
Senator Eyton: We heard much the same comment in Halifax yesterday. It seems to me remarkable that the federal government would not have a full complement and be well represented. Funding for the board is a federal-provincial combination currently. You are relatively new in your experience, and, of course, the industry here is relatively new. You depend now on grants from both the federal government and the province. There is a nice little item called "cost recovery from the industry." Is that the beginning of a number that will become more substantial as you expand - which you will do - your responsibilities and operations? How will your operations expand?
Mr. Stanley: The guideline for cost recovery is an agreement that was negotiated by the governments with the industry. It was not negotiated by the board. The governments negotiated a memorandum between themselves and the industry on cost recovery. It is a five-year agreement, which, at the moment, provides for up to 50 per cent of the cost of the board to be recovered from the industry. That is lower than you will find, for instance, with the National Energy Board in western Canada, which is probably up to 80 per cent or 90 per cent. Whether governments will go there, I am really not in a position to say. In reality, we have recovered, for the last three years, somewhere between 48 per cent and 50 per cent of our cost from the industry.
Senator Eyton: It is kind of an ad hoc basis. I was considering the 25 per cent that you get on the exploration licence fees. I suppose, no one has forfeited those licences.
Mr. Stanley: Indeed they have, yes.
Senator Eyton: Where does that money go?
Mr. Stanley: That money goes to the governments.
Senator Eyton: Do you not get any of that?
Mr. Stanley: No, we do not get any of that.
Senator Eyton: Concerning the board, the first level of decision making by you has to do with the development of the gas and oil potential. You must consider environmental concerns and you also must consider, particularly in this area, the concerns of the fishing industry. Is it the board that does all that? Upon examination, the board is not complete. Is it the board that tries to decide what is the environmental hazard or risk, and would the board decide that the fishing industry in this particular area is not very significant or important and development can proceed? Who makes those decisions?
Mr. Stanley: I will deal with the environmental issue first. Our board is subject to the federal environmental assessment process. When I say, "The board makes a decision," the board coordinates the process that involves the federal government Department of Fisheries and Oceans and the Department of the Environment. All of these have an input in our decision making process. Indeed, the federal Minister of Environment has to sign off and approve projects such as, for instance, Hibernia, Terra Nova, and White Rose.
Senator Eyton: Are you the gathering point of all of this?
Mr. Stanley: We are called a "responsible authority" under the federal legislation. For activities in our offshore area related to oil and gas development, we are the responsible authority, yes.
Senator Eyton: If someone, say a representative of the industry, had a concern, would he or she speak to you?
Mr. Stanley: Yes.
Senator Eyton: Would he or she speak to the minister as well?
Mr. Stanley: No. We are the central point that people come to. They are always free to talk to the governments if they are not happy with our response.
Senator Eyton: What I am saying is when it is all said and done, subject to some sort of fiat by the ministers - and I assume that would be an involvement of both the provincial and the federal ministers, although, perhaps, offshore would be more federal - finally, the decision would be yours?
Mr. Stanley: The final decision would be ours on the actual project itself. Let us just consider White Rose as an example. White Rose is going through an approval process at the moment. The federal minister, through the federal environmental assessment process, has gone through a comprehensive study process. We coordinated it in terms of making sure that the process is all followed, but the decision, in the end, on the environmental side is with the federal Minister of the Environment. The board also has an environmental responsibility in that if there is any reason that we think, over and above anything that was involved, the issue must be considered from an environmental perspective, we have that responsibility as well.
The approval on the benefit side is by the board. We decide whether the submitted benefits plans meet the requirements of the legislation. Concerning the decision on whether a project proceeds, which is called the development plan decision, we make the first decision and then it goes to the two ministers for concurrence.
The Chairman: You are pushing your two questions pretty far. Is this the last one?
Senator Eyton: These questions are all supplementary. Where would the fishing industry come into that process?
Mr. Stanley: We consult largely with the federal Department of Fisheries and Oceans on anything we do that has a potential impact on the fishery. We have a memorandum of understanding which outlines how we do the liaison, the discussion. We have not been in a position of being faced with a recommendation from the Department of Fisheries and Oceans, for instance, that a particular activity not proceed. Its concerns always are that if a project is going to proceed, there is a time of the year and things that have to be involved, there are certain areas to try to avoid and certain times of the year and all of these things so that the two industries can co-exist without having to make the kind of choices that we are talking about. That is in the Grand Banks where we are operating in the offshore.
The Chairman: We will have a break and you will get a chance to collar him on your way back to coffee. One more question on oil spills will be asked by Senator Kenny and I have one quick question.
I am a sort of retired operator myself. One of the complaints you have from offshore here from the time you decide to develop a field until you go through all the permits that you are talking about can be three or four years, whereas in most countries it is only one and a half year to two years. What is your response to that?
Mr. Stanley: There is no question that our process can take time. In terms of the public review process that is provided for in our legislation, it does have a 270-day time period, so there are some constraints. The environmental process can take longer. The benefit we have now is that we have two projects that have been operating, from which are learning as we go. The environmental departments are learning from them. Confidence in the system is being established and we think we can be competitive in the future. Two years is a reasonable time. White Rose will take less than two years, in terms of its approval.
The Chairman: We will close off with your question on the oil spills and then we will break for a few minute so that our next witnesses can get set up. I am afraid we did not allot you enough time. Perhaps we will come back again.
Senator Kenny: I know you insist on deep glory holes. I know there are sophisticated blowout preventers in those glory holes. Having said that, given the sea state you have, when this committee was examining Hibernia we concluded that the maximum one could expect to clean up in the event of a blowout was less than 2 per cent. Mr. Hopper gave evidence before our committee that by the time a spill reached Ireland most of it would have dissipated. What comments do you have on the danger of a blowout and what requirements do you have to clean up a spill in the event that happens?
Mr. Stanley: Our responsibility is for spills that originate from the producing facilities themselves. For instance, if a tanker gets in trouble, it is the same as any other tanker.
Senator Kenny: I am talking about the producing facilities.
Mr. Stanley: Concerning the producing facilities themselves, all we can say is that there has been a lot of production going on in the North Sea and in the Gulf of Mexico for a lot of years, which is experience that we have benefited from as we have become involved in it here. There is a high level of confidence in the technology that is being used to be able to ensure that a spill does not take place in the first place. Our first line of defence, if you will, is ensuring that the best technology that exists today is used.
If a spill occurs, it is generally agreed that with the weather conditions on the Grand Banks, containing those spills, in certain weather conditions, could be very difficult.
In terms of preparation, all of the platforms have containment equipment. All of the standby vessels that are there 24 hours a day, seven days a week, have a certain level of equipment to be able to contain spills. For instance, we have had incidents, of a small nature, a number of times and we have been able to contain them and clean them up right there on the spot. There are various agreements to provide for calling upon the capability that exists onshore to assist. Indeed, there is an international agreement for sharing equipment in situations at that level.
Senator Kenny: Do you dispute the 2 per cent figure in the event of a blowout?
Mr. Stanley: I would not want to comment on that, sir.
Mr. Chairman: Thank you very much, Mr. Stanley. I am sorry we rushed you a bit.
Senator Adams suggested to me that it might be cheaper for us to bring you to Ottawa in the future. I know you would love to go to Ottawa.
We will now hear from our next group, the Newfoundland Ocean Industries Association. Please proceed, Ms Galway.
Ms Leslie Galway, President and Chief Executive Officer, Newfoundland Ocean Industries Association: We are entering our 25th year of operation as an association, and we have grown over those years. We started off very small with a core group of six individuals who saw opportunities emerging offshore oil and gas, and they wanted to position themselves to know more about it and be better placed for business opportunities.
Ten years ago we had approximately 140 members, and things were beginning to look more promising, particularly in our offshore area with Hibernia. Today we have over 460 member companies involved in primarily the supply and service sector in business in Atlantic Canada.
NOIA represents an expanding membership of companies and organizations with a stake in the development of the region's petroleum industry. NOIA takes an all stakeholder approach since the industry. It is built on co-operation between the licence holding sector that will find the investment development, produce the hydrocarbons, and the supply and service sector, which provides a vast range of capabilities to support these endeavours, everything from drill strings and drilling mods, to providing the drilling platforms, crews, catering, helicopter transportation and offshore medical services.
The federal and provincial governments and their agencies are included as stakeholders. They have played pivotal parts in the birth of the industry, and continue crucial roles in the industry's development.
NOIA's mission is to promote the development of Canada's East Coast hydrocarbon resources, and to facilitate its membership's participation in the oil and gas industry. In order to achieve those two objectives, we provide certain core services for our members. NOIA conducts or sponsors research and analysis on petroleum issues and trends. I have brought in a case with background information on the industry.
One report is a follow-up study we began with three other Atlantic province associations. OTANS is one of the associations. In New Brunswick there is an organization called the Atlantic Resource Industries Association. It is a new organization with an interest in becoming more active in the oil and gas industry in our region. We wanted to involve Prince Edward Island, so the chapter for the Canadian Manufacturers and Exporters became involved. We work together as a group because we see this as an important region and there are only so many of us and it is best that we co-operate.
The first research study was called, "Harnessing the Potential." It was published in 1999, and we had an opportunity to go not only throughout the region, but also to Ottawa to discuss that particular report. An offshoot to that was to do more work and study into technology transfer. Particularly, when you are in the supply and service sector, you get considerable opportunity to expand your area of the business, and bring opportunities to your region by bringing technology in from other more mature areas like the North Sea, Norway, the U.K., Gulf of Mexico and Western Canada.
We looked at technology transfer, and provided a map of what our service and supply capabilities are in Atlantic Canada. That is the report that I have included in your cases.
We also helped arrange an all stakeholder review of natural gas issues for Newfoundland and Labrador. We had a large stakeholder group, including the operators, the supply and service sector, and the provincial and federal government departments. The CNOPB was also represented on the steering committee, We looked first at natural gas utilization overall in offshore Newfoundland, and then moved into a four part study, which you might find of interest, and that can be picked up from our website. That study looks at the market for our gas. It also looks at the options for transportation. There are non-pipeline options as well as pipeline options, and there is a report on each.
There is also the economic impact report that was provided for natural gas. Again, we cooperated with the stakeholders in this area in order to bring that material together.
Another key service that we provide to our membership is an opportunity to look at new technologies, at the projects in the area, and at the export opportunities. We do that not only through our annual conference in June, but also through seminars, such as the deep-water seminar we held here not long ago; different types of workshops; consultations with the operators on supply issues and trade missions. We have been to not only the mature areas, but also we took a trade mission to Trinidad and Tobago.
We identify the business opportunities as they arise, particularly in this region, and we communicate them the instant we become aware of them to our membership, so they can get working towards partnerships or bidding on the opportunities themselves.
We provide networking environments, not only through the conferences and seminars and so on, but also specific networking environment so suppliers and service providers can get together and discuss various opportunities.
It is important that people understand that we are here, and that we have a great amount of service and technology that we can provide in the region and globally. We do that through the annual directory, which is provided in your package; through publications such as NOIA News, which is also included in your package; through our website and through our daily bulletin service. We also take as many opportunities to speak on issues of concern to our membership, and doing this today is one mechanism that we can communicate their interests to a wider group.
You will find in the directory the chronology of the development of the industry on the East Coast of Canada, and it begins with the first oil discovery at Parsons Pond in 1812. More notably, we think of such projects as Hibernia, Terra Nova, White Rose and Hebron in Newfoundland, and in Nova Scotia there is Sable and Deep Panuke. It is beginning to mature as an industry. We have come a considerable way since Hibernia days. We have had lessons learned. We know a lot more about the industry.
We have a considerable amount of work going on in exploration, development, and production. This includes Hibernia and Sable on the East Coast, as well as some onshore prospects, such as Garden Hill on the West Coast of Newfoundland. They are in the development stages now. Terra Nova is progressing through its final stages of commissioning, and White Rose, Hebron, and Deep Panuke are in pre-development phase. Onshore exploration continues in Newfoundland at the Garden Hill site, Harry's River and Flat Bay on the west coast of the Island.
Atlantic Canada offers some considerable advantage to the industry. In particular are some of the technological developments and innovations in the region built on partnerships among the industry. We have the NRC and the Institute of Marine Dynamics, which provides an excellent example of what we do in our unique environment here in Newfoundland. We have Memorial University partnerships, federal and provincial governments, and they all play a key role in enhancing our competitiveness.
Interestingly, we are leading the industry in the marine dynamics areas of ice research and ice management. You saw the slide that Hal Stanley had with all the icebergs in the area. It is a business in itself trying to manage the ice. Structure model testing and design is another area that we excel in. The marine equivalent to the black box, instrumentation and control, and many more areas are being provided in technology here.
We often are asked what we see over the next five years. Conservatively, in Newfoundland and Labrador, we are looking at three producing projects for 1,300 direct employees, and then you have the spin off effect from that. With 4,500 indirect jobs, 5,800 Newfoundlanders will have the opportunity to earn their living in the oil and gas industry. That translates in terms of dollars when we look at something like $450 million for operating expenditures.
Even allowing for September 11 and current economic downturns that have affected some of North America, NOIA believes there are aspects of the international context that will continue to position the East Coast of Canada very well for future developments.
The world is facing increasing demand for hydrocarbons under a normal economy for fuels, and we also have decreasing global reserves. We have well explored areas and maturing areas such as Western Canada and the North Sea, and the world needs to find new sources. Explorers will look worldwide to fill those production quotas. Therefore, the important message is that we remain competitive and ahead wherever possible.
In terms of the major themes or issues that NOIA sees as being relevant in the near future, I have already addressed the continuing international demand for oil and gas resources, and that there is considerable potential in Atlantic Canada for more discoveries of both oil and gas. The record land sales in offshore Nova Scotia indicate recent evidence of this. Significant deep-water exploration is expected in to take place offshore Newfoundland and Nova Scotia in 2002.
There has been increased discussion in the wake of September 11 about a continental approach for energy. There are preliminary discussions that are being made, and their ramifications will be further explored. These are the sorts of issues that NOIA will be looking at over its 25th anniversary, and we will hope to have a lot said on that particular topic during our annual conference in June.
Regionally in Atlantic Canada NOIA members see three major issues, and have been working on them for some time. They will all affect Atlantic Canada's competitiveness.
The first is the need for harmonization of regulations relating to exploration, development and production among the Atlantic provinces. We have had discussion on that and we are aware that work has taken place. NOIA members believe that, in view of international climate it is very important to allow for removal of any impediments that may be there now that would provide for more flexible movement of services among the Atlantic provinces.
Second, there is a need for enhanced cooperation among all stakeholders in the Atlantic region, particularly in promoting the industry and the region. We have talked about that in our harnessing potential report, and we talk about it once again in the technology transfer, and service and supply capabilities reports.
Third, NOIA looks forward, as most people do in this region, to the resolution of the Nova Scotia and Newfoundland and Labrador boundary dispute. This will remove some of the current uncertainty in that area, and we hope it will encourage more exploration and investment.
White Rose, as been pointed out by Hal Stanley in the previous presentation, has been an area of great interest over the last while. We have recently gone through the public hearings associated with the White Rose project. NOIA supports, of course, timely and responsible development of the White Rose oil field, and encouraged during the hearings that specific change be made to the current White Rose development plan, particularly to its Canada-Newfoundland benefits plan, or what we like to call local content. The change would clearly identify benefit targets and establish mechanisms for measuring benefits. That is part of the bidding process, the monitoring process and tracking of achievement.
One of the things that we try to do in this industry is look at technology transfer, and supply or development. If we have some idea where we are headed at the beginning of a project, and we can measure it and get some timely feedback, then we can determine where supply or development initiatives should be put in place, and do more to encourage business from this region.
It is critically important for Newfoundland's oil and gas industry that a healthy pace of development be established, providing sustained opportunity for businesses, their employees, and increasing levels of general economic activity within the province. A continuous pace of successive or concurrent developments will demonstrate timely return on prospecting investments and will encourage more exploration, which generates opportunity for our petroleum support sector. Development of the White Rose oil field in the near term will contribute to a healthy pace of that development.
In late November, NOIA wrote federal and provincial governments and the Canadian Association of Petroleum Producers to help initiate a forum on exploration of Newfoundland and Labrador. NOIA proposed the forum should take place early in 2002, by which time we would hope to see the Nova Scotia and Newfoundland and Labrador boundary delineated. The goal of the forum will be to develop a consensus among major stakeholders on attracting new investment to the oil and gas industry. We see that as a recommendation in the reports that I have mentioned this morning.
This idea came from our membership. It reflects an interest in ensuring that the 25 years of growth and development continues in Atlantic Canadian oil and gas industries. It is part of NOIA's effort to work with an all stakeholder framework, to think globally, and to act strategically. Those have been the essential elements of NOIA's approach over the past 25 years, and it is an approach we believe will serve the industry well over the next 25 and beyond.
The Chairman: I have been in the oil business all of my life and I compliment you on putting in the start of the oil business in Newfoundland in 1812. Very few Canadians know that.
Have any of your companies, using the expertise that they have learned in Newfoundland in the offshore, obtained jobs elsewhere? Are you exporting the expertise that you have learned here?
Ms Galway: Yes, we are beginning to see that. An example of that is a company that is a fabricator for offshore manifolds and templates. The technology associated with fabricating these were transferred from Norwegian interests under the support of the Terra Nova group and the Terra Nova project. Technology was involved from Norway and from South Africa. They acquired the experience in how to produce these, and then began bidding through their partnership with FMC Kongsberg on opportunities in the Gulf of Mexico and were successful there.
We also have some companies, such as Sea Systems, that have been very successful in instrumentation work, and they have been routinely accessing business in the Gulf of Mexico area, as well as offshore Brazil, is a new area. They are also partnering recently with SOFEC out of Houston for other opportunities worldwide. Oceanic also has opportunities worldwide. They are primarily involved in the design and model testing of vessels and structures, and they have been working in the global industry from the very beginning.
The Institute for Marine Dynamics also has its business on a global basis. We have C-CORE at the university that can only exist with the volume of business elsewhere.
The Chairman: You are exporting technology and doing quite a good job.
Senator Adams: What is the percentage of anything you are bidding on that includes companies that are based here in Newfoundland or Nova Scotia? How do you work with associations for the future bidding for anything supplying to the oil companies?
Ms Galway: Most of our businesses that are engaged in the direct bidding for opportunities offshore will become involved in a number of ways, and they will help to provide, if they are Newfoundland members, local content in a particular bid. When you are bidding on a project, you are really doing so under a very competitive system, and as a result of that, you must compete first and win on the basis of your price, your quality and delivery. After that it is your local content that can be used as an element of influence in terms of where that contract will go. That is why it is so critically important that our members are fully aware of the global industry, and what is required competitively of them because that is the basis on which they will win the work.
Senator Adams: In the meantime, there is a lot of interest in the companies outside of Canada. Oil companies ask you first when a tender comes out; is that correct? How does the bidding process work?
Ms Galway: I will use Husky as an example. Husky Energy established offices here very early on in the development of their concept. They did concept engineering using not only international engineering resources, but also local engineering offices through Kaverner SNC Lavalin that has established an office here in St. John's. What that particular approach does for local business is provide an opportunity for the company and its engineers to become more fully involved and knowledgeable with the standards and the businesses that exist locally, and in Atlantic Canada generally.
When some of this work is done in other locations, it means that they are going to seek out the standards that they are familiar with, and the companies that they have long-standing relationships with.
In an industry like this, while it is a large global industry, you meet the same people no matter where you go, so the more you can get out and the more they can learn that there are viable competitive businesses here, the better off we all are. Some of the engineering can then take place in the early phases positioning local businesses, with the appropriate talent, an opportunity to access it. We have reflected that policy for a number of years, and we reiterated that position again during the hearings last summer on the White Rose project.
Once everything gets in place and the bidding starts, it is going to be competitive. There will be bids coming from other sectors as well as our own, and it is important that the members understand that they complete all the information required under the bidding process, which sometimes be complicated. Often they partner with other companies and enter the system that way through another international company, gain experience, and position themselves well on the next.
Senator Adams: If a company from Newfoundland, or anywhere in Canada, is not accepted during the bidding process, do they have anywhere to turn in either the provincial or local governments?
Ms Galway: If a member was involved in a bidding process, and for some reason or another they were not successful, there will be feedback session locally and a debriefing on the bids. That will be more informative for them. If they still have difficulty, I am sure they can take a number of routes. They can either ask for NOIA to provide some input directly to some of the members or they can talk with their organization for assistance.
Senator Cochrane: As a resident of Port-au-Port on the West Coast of Newfoundland, I am interested in what is happening there. You mentioned Garden Hill. Would you elaborate on the activity that is taking place there?
Ms Galway: They have a triple drill rig that has come in from Guatemala. When you are on the west coast of Newfoundland, it is easier to float a rig in and set it up then it is to transport it from Western Canada. They have completed some work recently that has allowed them to continue drilling. They are spudding not only the first well, but also they have an offshoot well from that.
They will continue to do more work throughout the year. Their development plan application to the province has been approved. That particular company is also engaged in a drilling program, which they are planning for now, in another nearby site at Harry's River. There is additional activity with other companies onshore on the West Coast in that area as well, and it goes beyond Deer Lake. It is beginning to pick up. It is getting quite interesting over there, and in that last trip, I had an opportunity to speak with the Corner Brook Chamber of Commerce, the trip before, the Stephenville Chamber of Commerce. The businesses are becoming more aware of the activity onshore, and are looking forward to learning more about the industry.
Senator Cochrane: Are your members satisfied with the degree that Newfoundlanders have been able to gain access to this market?
Ms Galway: It is hard to give an average pat answer. Some think that things are progressing very well. We have come a long way in terms of being able to compete and bid on a lot of these projects, whether they are onshore or offshore. However, there are other members who would say that they would like to have more opportunities, and would like to engage further into the industry. Some of that will be done as a result of providing more information technology transfer opportunities and becoming better aware of some of the gasoline supply chain for companies.
Overall, I think the members are happy to see the progress, but what is keeping some members uneasy is the pace of development. They would like to see the projects proceed, they would like to see them proceed faster, and they would like to see it a little smoother instead of having booms and busts in the development side of the industry.
During lengthy time between project stops and starts you lose some of your human resources, and some of you key suppliers will go elsewhere. That is a big problem for business here.
Senator Cochrane: How many of your new member companies were brought in because of the industry?
Ms Galway: That is going to be difficult to document. In Newfoundland many companies that were involved in the marine side of the business generally, have expanded into offshore oil and gas opportunities. Some businesses would have been new. There are international and national businesses that are attracted here, and are setting up for the first time. We have many of the major tier-one contractors here, for example Baker-Hughes, Haliburton, and Schlumberger Oilfield Services. They help provide business that you might not identify instantly as oil and gas supply and services, but they are providing indirect opportunities.
Senator Cochrane: Can you provide the committee with that number?
Ms Galway: We are helping to work on a study for the Department of Finance with the province. They are doing a survey and one of the things they are looking at is how many new businesses have been generated as a result of these opportunities.
Senator Cochrane: We will probably get a copy of that study.
Ms Galway: That would be the best source.
The Chairman: We have explored that end.
Senator Sibbeston: What does the industry see as the role of government? Is it a laissez-faire attitude that the industry or business has, or do they look to government for assisting or promoting local employment and supplies?
Ms Galway: The federal and the provincial governments and its agencies played not only a cooperative role, but also a pivotal role in the birth of our industry. Our Department of Industry Trade and Rural Development spearheaded much of the work required by taking Newfoundland businesses to trade shows and introducing them to some of the major players. That was extremely important 25 years ago and 20 years ago. We still work with that department very closely. We also work with the Department of Mines and Energy.
The Atlantic Canada Opportunities Agency has people designated to look not only on the policy side, but also on the offshore benefits side. They have provided a perspective and helped with the development of the industry. I would love to say that after two projects we are a mature industry, but that would be foolhardy. We need to work very cooperatively with other stakeholders. We see the federal government and the federal agencies, the CNOPB, the CNSOPB, the provinces, our own association and members, and the Canadian Association of Petroleum Producers as all in this together, and we need to work together to build upon what we have started.
Senator Sibbeston: Over the last few decades there has been tremendous movement of people from Newfoundland into the North and into Western Canada seeking employment. Some of the work they find is in the oil and gas industry, but they will also take any other work that they can get. Do you think that there will be a movement back of Newfoundlanders from other parts of our country as the industry gets on its feet and there are more opportunities here? Has there been any of that already?
The Chairman: They cannot do without those cod tongues forever.
Ms Galway: I am afraid to say that there are fewer and fewer cod tongues all the time. Having said that, we have a petroleum industry human resource committee that NOIA is the proponent of. That committee has federal and provincial stakeholders, in particular HRDC, HRE and CAP. In the first phase of our work we looked at the direct employment associated with base case that would include the Hibernia production, Terra Nova exploration drilling activity and some White Rose development activity.
We discovered that there are few problems associated with staffing for some positions directly. For others it is a matter of not having enough specific experience, so people from other parts of the industry must take those positions. We thought that this was a great beginning and we are now beginning to look at the supply and service sector.
There is a new national sector council looking at the same types of issues for the country overall. Due to the gaps between the developments we lose a lot of valuable expertise. It is a global industry and it is still very small. If they attract a Newfoundlander with experience in the development of an FPSO down into a shop out of Houston, that is where that person will go if they are looking at a gap of a year or two. We lose a lot of our talent and find ourselves retraining and trying to attract back.
In Atlantic Canada we also have a personal tax structure that makes it more difficult once these people leave to attract them back. There are a number of factors associated with getting the labour here. We know it is an issue provincially and federally, and we are working on it. Whatever we can do in order to establish an economy in Newfoundland that would let us compete within the country for these same workers would be a great thing.
Senator Kenny: Workers in this business are global people.
Ms Galway: Yes, they are.
Senator Kenny: They go all over the world, but what brings them back to Newfoundland is that they like the place.
Ms Galway: Yes.
Senator Kenny: Eventually they are going to come back if there is a viable industry. You may have an upfront cost of training them, and they will go away and drill in different parts of the world, but sooner or later they are going to come back here because this is home.
That is true for people in Oklahoma, Louisiana, Alberta and Saudi Arabia. They train people and those people disappear to other parts of the world where there are new plays, and then eventually the work their way back.
Ms Galway: They will work their way back if there are opportunities to compete with what they are leaving. This is a reality for those workers who have perhaps gained experience in Newfoundland initially, but they want to see continuity in projects. If they are going to move back home, which is a great bonus, they would like to think that, when they re-establish their families and this project is done, they will be in a good position to get work on the next several developments. It is this stop and start with the uncertainty in between that makes it difficult for any family to relocate.
Senator Kenny: That is the real world everywhere in the oil and gas business.
Ms Galway: However, if you are in Houston, you have many more opportunities coming your way more frequently.
Senator Eyton: What kind of budget do you have, and how many people do you have on staff?
Ms Galway: We have ten people on staff. We carry out a number of functions throughout the year. Our budget numbers in gross dollars is close to a million, when you take all the expenditures associated with some of our projects.
Senator Eyton: There has been dramatic growth in your membership. What I am interested in is the composition of that membership. I am concerned about the tension that may exist between competitors who are also members of the association working together, and also the persistent economy between big guys and little guys. Can you describe your membership?
Ms Galway: Approximately 69 per cent are Newfoundland based companies. The remaining 31 per cent come from various areas, of which 12 per cent are Nova Scotian companies that are members of NOIA. About 70 per cent of these are small to medium size businesses. We consider businesses with zero to ten employees as small businesses, and businesses with 10 to50 employees as medium sized businesses. In many statistics they would both qualify as small, but that is how we breakout our groups.
Senator Eyton: Seventy per cent are in those two categories; is that correct?
Ms Galway: Yes.
Senator Eyton: What percentage of supply and services dealing with the industry does your membership represent? I expect it would be high. Would it be 80 per cent or 85 per cent?
Ms Galway: It is 80 per cent of the market.
Senator Eyton: Is your board representative of all of the members that you described?
Ms Galway: We have 12 members on our board. Our members elect them and we also provide a proxy opportunity to vote on the board each year. We have a disproportionate number of people coming from the medium and large enterprises because they are better known and are more likely to be elected. However, we do quite a bit to bring in the small members in order to compensate for that. We have developed a small and medium enterprise program, so we can get more directly involved with the association.
Senator Eyton: Can you comment on the relationship that your association has with the levels of government and with the public? It sounds like it has been positive with the government. Are you ever an advocate of the fishery industry and their concerns? How do you perform in this province, given the projects that we have talked about?
Ms Galway: We see our role not only in advocacy, but also in education, and providing people with background in the industry that is cropping up around them. It is not beyond the capability of having a population affected by the oil and gas industry and know very little about it.
We have been aggressive in getting out to speak with community groups. When I did the tour at the Garden Hill site, I had been invited to speak to the Chamber in Corner Brook, but I wanted to get to the schools and I spoke with two classes on that particular trip. One was an enterprise class, and the other was a global issues class.
We try when we get out into the community to give people some background information on the industry itself. When it is required, we will get involved in the issues that are very important to this industry, whether it is on a labour issue, on a current development, or trying to help facilitate an exploration forum so that we can look at some visioning.
We have found that the best way to do that is to take the extra time, the extra step, to cooperate with your fellow stakeholders. We do what we can to involve various areas, and have members whose business it is to look at the environmental side of this industry. We have not had any major overlapping issues of late with the fisheries industry. In some instances we talk about some of the same issues, such as if you are interested in the shipbuilding area, then we will probably get together to give input on shipbuilding.
When we made our move in 1997 to focus specifically on the offshore oil and gas industry, we relied heavily on our fishery partners to take the lead in some of the other marine areas, but we still talk. At the recent hearings here in St. John's, the fishing industry was very involved in providing information to the White Rose Commission, so that it could be considered in their ultimate decision.
The Chairman: If we think of some questions in our final report, I am sure you will be willing to answer them. If you thought that there was something important that you missed, do not hesitate to drop us a line. Thank you for your presentation.
Mr. Charlie Riggs, Executive Director, Newfoundland Environmental Industry Association: I understand you have had presentations on the benefits of eco-efficiency from the Canadian Environmental Industry Association. We echo the recommendations from our colleagues with CEIA.
The Newfoundland Environmental Industry Association is a business association that represents firms that provide environmental services and products in Newfoundland and Labrador. We are not an environmental interest group. We are a business association. The mandate is to facilitate the growth of the environment sector in Newfoundland and Labrador.
The environment sector in this province currently represents about 2000 jobs, and brings in about 115 million in annual revenue. While this is significant to a province of half a million people, we have far greater potential. There are examples to the contrary, but generally today in Newfoundland and Labrador we continue to challenge all thinking about the environmental requirements being an impediment to business development, and result in expenditures that can increase operating costs and provide no return.
The committee members may have heard that the opposite is closer to the truth. The environment once again is coming on to the public agenda, and more and more the public understand the link between environmental protection and public health. Sound environmental performance is more accepted as good business practice with environmental initiatives presenting both cost savings and marketing opportunities. If these trends continue, the growth and environment sector will continue worldwide.
We have 240 municipal waste sites for half a million residents, and none of these facilities have any type of liners, capping, control, et cetera, and are essentially just pits and valleys that we fill in with waste. Given the Newfoundland geology we are not generally suited for land filling. Therefore, we employ many teepee incinerators, which are metal cones to burn and reduce waste volumes, and we also employ open burning. As a result of this practice, Newfoundland, with about 1.2 per cent of the population, leads the country in emissions of dioxins and furans.
Newfoundland and Labrador also has significant waste-water issues. About 90 per cent of our sewerage goes into the marine environment untreated. Communities that do have treatment are all on inland water bodies, and only have primary systems.
These situations are allowed to continue due to enforcement issues on municipalities. The federal and provincial governments do not enforce their requirements on municipalities. Provincial regulations in this province are dated, and they have upgraded, but the double standard with enforcement is an issue for environment sector development in this province.
Environmental construction in this province also means that companies that implement environmental management systems can incur significant expense to meet their own standards. A recent example is an ISO 14000 registered company that underwent an office renovation. To meet the company policy, it was necessary that the demolition and construction waste be recycled or reused. The company requested that one of our member companies have the construction waste taken to an appropriate facility. When it was discovered that such a facility did not exist here, it caused concern for local managers because now to meet the requirements, they were going to have to ship this waste out of the province.
The same issue also came up with Ford in the recall of the Firestone tires. To meet the company's environment policy, the tires had to be put in containers and shipped out of the province.
As more companies implement stringent environmental policies, these gaps in infrastructure are becoming a significant impediment to business development. They are becoming significant as transportation and communication links in being able to attract business to this province.
The province of Newfoundland and Labrador has also initiated activity to begin addressing these issues. The House of Assembly is now debating, or is about to debate, a proposed Environmental Protection Act, and a proposed Water Resources Act. While these proposed acts alone will not address the regulatory problems of the province, they are an important first step and a good initiative that is supported by NEIA, and we are looking forward to working with the provincial government on subsequent regulations.
The provincial government has indicated that a new waste management strategy will be forthcoming within this month. This is a significant initiative supported by NEIA and one that, given the province's current status, should proceed with urgency.
NEIA has a strong interest in these issues of environmental infrastructure and regulation as they have a direct impact on business activity in the environment sector and industry growth. The implementation of a waste management strategy in this province represents significant business potential. Some of the areas of opportunity, should we proceed with waste management strategy, include everything from landfill selection and design construction, to monitoring, waste reduction, auditing, and hazardous waste treatment handling and disposal. Education and communication of a new system are also opportunities for the private sector. One of the things we hope to see evolve is private-public partnerships.
To take full advantage of the opportunities, an aggressive and assertive environmental policy is necessary. Half a modern landfill is not acceptable. We want the full thing. A strategy that includes adoption of high standards will also drive innovation, development of new technology and economic growth. New technologies and processes developed by investing in waste management can bring additional wealth and opportunity to the province if these solutions are exported. Newfoundland and Labrador has significant waste management challenges, but we are not unique, and there are others who could avail of solutions generated with an aggressive and an assertive policy.
In Nova Scotia, we have seen such an investment and there have been significant results. The environment sector in Nova Scotia that had 4,200 jobs in 1994 now has more than 8,200. It is important that the province act now and proceed with the waste-management initiative. NEIA has seen some government noise about these types of initiatives in the past, but without further action now, our companies will lose ground in competitive position to those in other jurisdictions who have already acted. Even without regulation today, the communities in this province are showing a will. Several communities in this province are already installing new technologies for waste water in partnership with NEIA companies.
As the province moves forward to address municipal environmental infrastructure, it will be important that the federal government be there with programs, such as the Green Municipal Investment Fund. This fund is seen as a significant tool in addressing our current environmental infrastructure upgrades, and providing opportunity for business growth, and less reliance on transfer payments. The Green Municipal Investment Fund should be sustained and renewed to ensure that it can be employed to solve the problems of this province, and facilitate initiatives such as private public partnerships in waste diversion.
Investment in the environment will initiate new research. Research and development has been identified as a key pillar in growing knowledge based sectors, such as the environment industry, and NEIA is supportive of the innovation initiatives announced by the federal government. However, the federal government has other technology development programs, specifically the Technology Partnerships Canada program and the Environmental Technology Advancement Directorate with Environment Canada, that largely serve only companies in Quebec and Ontario.
Technology Partnerships Canada has some reach into Newfoundland and Labrador, and has worked with companies from this province, and generally gets here through the current IRAP Program. However, the Environmental Technology Advancement Directorate, which is a really good program we would like to see here, has no presence in this province.
These programs need to be applied equally in this province and NEIA is looking to have staff from those offices established in Newfoundland. These are good programs and facilitate development of new technologies with commercial goals. However, they will require a local office.
There are increasing market opportunities from industrialized corporations in areas of minimizing corporate risk by attaining and surpassing compliance through voluntary initiatives in providing a broad range of services over large geographic areas. Some of this you alluded to in your discussions with NOIA.
These opportunities point to the need to build capacity in the province's environment sector to achieve sustained growth. In addition to the much needed implementation of high standards in the province, we also need investment and tax structures that encourage investors and partnering. Like NOIA, we have a number of members that would qualify as small and medium enterprises.
The environment industry is a significant part of the economy in this province and with the right strategy it can become a high growth area and a facilitator to increase jobs, productivity and wealth in all regions of Newfoundland and Labrador. We believe that by acting local, we can certainly go global.
The Chairman: Did you follow Bill S-18, which was a bill presented by Senator Grafstein, to put drinking water that you use under the Food and Drug Act, meaning we could control it as to purity and so on?
Mr. Riggs: No, I did not follow that legislation closely.
The Chairman: Bottled water now is under federal jurisdiction, but if you take water out of a tap, it is under provincial jurisdiction.
Mr. Riggs: Water is certainly an issue with municipal infrastructure in this province as well, and the number of boil orders has been on national news stories. We believe it is a symptom of how we manage the environment here, as well as water quality. We need to improve our overall management of environmental infrastructure with municipalities.
Senator Adams: Do you deal only with issues in Newfoundland, or are you also involved in the rest of Canada?
Mr. Riggs: We are affiliated with the Canadian Environmental Industry Association, and we work with them on some initiatives. I am a part of a working group that attempts to facilitate activity to encourage trade in the Europe cluster. That is a national working group and is part of the Team Canada's trade environment. We are also working actively with our colleagues in Atlantic Canada, and the environment sector, more than some of the other sectors, has formed a "team Atlantic" environment. We also work with Nova Scotia Environmental Industry Association, the New Brunswick Environmental Industry Association, and the provincial governments from those provinces.
Senator Adams: Do any other provincial governments have regulations in this area? I come from the Arctic and we live in a small community. We have dumps, sewage lagoons, and stuff like that. You mentioned that about 90 per cent of the sewage goes into the sea. I will get into this when the government will let people live off the land and not worry about the environment. The population is growing twice as fast in our community than it is in the rest of Canada. We do not have any regulation in the community about water, sewers and dumps.
Mr. Riggs: You have a lot of similar issues that we have here, and when you think about some of the more remote parts of the province, probably very similar challenges. In Labrador and northern parts of the island, there are real challenges in how we provide services that meet modern standards in these smaller communities. We cannot shy away from requiring the same standards for these remote areas that we require for St. John's, Halifax or Toronto. We may use the same technologies and approaches, and we are going to have to be innovative, but if we adopt the aggressive and assertive policies, we will start the innovation and the technology development to provide solutions there which can be exported to other areas of the world that have the same problems.
Senator Adams: Some communities have bylaws that people are not allowed to burn waste. There was talk about some kind of incinerators, but now people cannot afford it. Is there a type of model that could operate in the cold weather communities? Is your organization looking into this?
Mr. Riggs: Some of our member companies are doing work in those types of areas. Incineration is not a word I use in our presentation, and is a word that many members of the public have adverse reactions to, and you will even see equipment today that does incinerate called thermal oxidizers, and reducers, and all kinds of other terminology to avoid that word that invokes an emotional reaction. A modern incinerator that is properly designed and set up can be an effective tool for waste management. For the technologies that we are going to employ in some of the remote areas, we need the strategy from the provincial government, and we need to see what those requirements are going to be before we can get ahead of ourselves and see exactly what technologies we are going to employ. Thinking practically, with some of the challenges of creating landfills and transportation in remote parts of Newfoundland and in other parts of the country, it is a technology that we cannot throw out just yet.
The Chairman: What is the difference between sewerage water and waste water? We have been defining waste water as surface runoff. Are they interchangeable?
Mr. Riggs: Most municipalities around here may refer to it as storm water. Waste water can also be part of an industrial process.
The Chairman: What would that be?
Mr. Riggs: A part of an industrial process with pulp mills or whatever.
The Chairman: I believe it is a much bigger problem in the West than it is here. Sewerage water is looked after, but waste water is not.
Mr. Riggs: Sewerage is certainly not looked after here.
The Chairman: I know.
Senator Cochrane: What is your association doing about the St. John's Harbour cleanup?
Mr. Riggs: One of our Board members also sits on the Board of the St. John's Harbour ACAP, which is a group actively pursuing resources and technologies to get that project moving. NEIA has indicated public support for that project. Right now that is essentially our role. That is part of what we are advocating. We would like to see the St. John's project take place and move forward, and equally, we would like to see other parts of the province that have the same issue have activities initiated and moved forward in those areas.
Senator Cochrane: You are not doing anything specific; is that correct?
Mr. Riggs: No, not specific to that project. Corner Brook has an ACAP group looking at the same issue in their community.
Senator Cochrane: Are you are familiar with the Blivet system in Bishop's Falls?
Mr. Riggs: Yes. That is sold by one of our members.
Senator Cochrane: What is your view on that technology? Is it worthwhile?
Mr. Riggs: The Bishop's Falls installation is the first installation in Newfoundland, actually the first installation of that technology in North America. It is an Irish technology that has been used for some years in Europe, Africa, and Asia. I understand that they have had good results. It is sort of a mechanically activated or accelerated septic tank type system. It is working well for the people in Bishop's Falls. We have other members that sell alternative waste water or sewerage water treatment technologies, and we are actively working with the Atlantic Canada Opportunities Agency and communities in the province to try and encourage more demonstration projects.
Senator Cochrane: Has ACOA been involved in this?
Mr. Riggs: I do not believe that the ACOA was involved directly in the project in Bishop's Falls. We have had some discussions with ACOA, and at least one meeting now with St. John's to try and initiate some demonstration projects, so all our members will get an opportunity to demonstrate their new technologies.
Senator Cochrane: Have you had any input into the proposed Environmental Protection Act that is being debated in the House of Assembly?
Mr. Riggs: My first knowledge of the proposed act was when I was invited to a press conference on the day of the press conference. At that press conference, the Minister of Environment announced that there were going to be public information sessions across the province. We attended those public information sessions, and also asked for a private meeting with the minister on the proposed act. We had that meeting and we gave our own presentation to the minister. Although there was an extremely short time frame, one of our members that is a lawyer and provides environmental law services was able to give us a quick legal review of the proposed act. We were able to facilitate some change and improvement to the proposed act. That type of improvement is necessary. We did not want to be seen in any way to be an impediment to that process, but we would have liked more opportunity to be involved in the concept and development of the proposed acts, and have more of an opportunity to get as right as possible the first time. There will always be room for improvement. We are strong advocates of a participatory process and we would much prefer that key stakeholders, including our association, are at the table, whether it is about proposed acts, waste management strategy or other related initiatives of the government.
Senator Cochrane: As this is still being debated now, you still have an opportunity to have more input.
Mr. Riggs: We do have an opportunity for some input, although there is a government majority, and we are expecting that it will be passed before Christmas.
Senator Sibbeston: When you talk about the 90 per cent figure for sewerage not being treated, are you saying that Newfoundland and Labrador is lagging behind all of the other Canadian provinces in this area?
Mr. Riggs: We feel that we are quite a bit behind. New Brunswick, P.E.I. and Nova Scotia are well ahead of us in waste management. They have gone with regional systems and are reaping the benefits.
Senator Sibbeston: What needs to be done to it in order for sewage to be properly disposed of?
Mr. Riggs: Even today with existing regulations it requires a primary or secondary treatment to get to levels that would meet the effluent criteria of the federal Fisheries Act and the provincial environmental control water and sewer regulations. Typically, these plants do involve some sort of primary treatment and a secondary treatment system, which includes some biological activity and sludge removal. It involves a technical treatment process to bring the water to a certain quality so it is acceptable for discharge.
Senator Sibbeston: However, it is put back into the water; is that correct?
Mr. Riggs: In Toronto the same water goes back out into Lake Ontario, and then comes back into the drinking water system, but it is possible to treat it to a fairly clean condition.
Senator Sibbeston: Is the oil and gas industry an area that you are very involved in? How do you feel about of the oil and gas industry generally? Are they taking measures to sufficiently protect the environment?
Mr. Riggs: The oil and gas sector are a big source of business for my members. We have members that derive a lot of activity from this sector. Oil and gas companies tend to be sensitive about the environmental implications of what they are doing. Their customers tend to be watching what they are doing, which is why large corporations invoke environmental management systems. They also like to see companies that are ISO 14000 registered, or ISO 9000 registered. They are into quality. Some of the larger members in my group provide some key services, and have done a lot of environmental assessment work, waste management work and monitoring work for oil companies. From a business point of view, would love to see more oil activity here because it does generate a lot of business for our members and because the oil companies do tend to be more pro-active than the public sector with environmental work.
Senator Sibbeston: In the eventuality of an oil spill or a disaster of that sort, do you feel your industry is big enough to be able to contend with it?
Mr. Riggs: It would depend on how big it is. Some of our members work with the oil companies on emergency response planning and preparedness for such an event. If we were to have one of the shuttle tankers and a tanker going to the oil refinery, and a production facility all spill at the one time, it would create a situation that we would have to bring in outside capacity. Small spills that occur often are handled. A large spill is going to present some challenges for the capacity we have here right now.
Senator Cochrane: From your brief, I gather that nothing through the various government departments is working; is that correct?
Mr. Riggs: On the municipal side what we find frustrating is that right now the cost of solid waste disposal and sewerage disposal is really being borne by the environment. The tax base is low. There is not a lot of money there for investment. That is why it is critical that all the stakeholders be there in a participatory process in developing that strategy. Government by itself is not going to come up with a strategy that is going to sell. The condition that we are in it is going to require buy in from municipalities. The industry has to be there as a key player along with the Department of Environment, Municipal Affairs, and likely other departments, maybe even Finance. The federal government may wish to be there as well since they are a potential investor in any new systems.
If we put together a participatory process together with the right strategy that includes waste diversion, resource recovery and opportunity to get resources from waste as well as divert waste out so we can go with smaller systems, it is possible to move forward. There will be some cost, but we want to try and develop a strategy so the cost to the individual taxpayer is as low as possible, and we come up with a most effective and efficient system.
Senator Cochrane: That is the problem with the municipalities.
Mr. Riggs: That is a challenge, and that is why they have to be at the table. There needs to be a lot of understanding and education about what a modern waste management system really entails. Right now we have a very basic system. The waste is collected and it is trucked to a local dump. We are looking at something to be far different than that.
Senator Cochrane: You want the federal government to put in a local office here; is that correct?
Mr. Riggs: Industry Canada has technology, and Environment Canada has this Environmental Technology Advancement Directorate, and a lot of what that group does is work with the private industry and research facilities in developing technologies. Most of the companies who are using that service right now are based out of Quebec and Ontario because the staff who work with that directorate all work out of Ottawa. We would like to see some other provinces, including Newfoundland, be able to take advantage of the services that are there. I have already had some discussions with the other environmental industry associations of Atlantic Canada about putting a proposal to the Atlantic Canada Opportunities Agency to have us do the same thing. We would like to have a coordinator in our office to work with our member companies, identify potential research projects, and facilitate partnerships with our research facilities. We would even like to the point of developing an environmental centre of excellence here.
Senator Cochrane: You have applied to ACOA; is that correct?
Mr. Riggs: I have drafted a preliminary proposal for some feedback from them to see if there is an appetite to proceed further. The response so far has been positive, and we are hoping to proceed further.
Senator Cochrane: Keep pursuing that one. It is a good one.
The Chairman: Has your association done any presentation to the provincial government to try to get the natural gas ashore from their offshore to replace the fuel oil you are now using in your electrical generators? It would be quite a cut down in the emissions if you did.
Mr. Riggs: We have not been involved with that group. Some of our power is generated thermally, but a large part of the power in this province is hydro generated. We still have a large hydro generation facility down on the South Coast part of the province. The Holyrood facility thermally generates some power, but we are not as reliant on thermally generated power as other provinces.
The Chairman: Do you know what percentage is thermal versus hydro?
Mr. Riggs: We can find that information for you.
The Chairman: Maybe you could drop us a note.
Mr. Riggs: Yes.
Senator Buchanan: Is there an environmental engineering degree at Memorial University?
Mr. Riggs: There is a masters program in environmental science that is offered at Memorial.
Senator Buchanan: DalTech had one for quite a while. Which emission plant were you in?
Mr. Riggs: I worked as a student in the plant in the valley at Waterville, and after I graduated I worked for a year at the plant in Bridgewater.
Senator Buchanan: Did you work in Pictou County?
Mr. Riggs: No. I visited the plant there, but I did not work in Pictou County.
Senator Buchanan: When were you there?
Mr. Riggs: I was there in 1988 and 1989, and I think in the valley sometime in 1987.
Senator Buchanan: I was there too. Have you been following what has been going on with the Halifax Harbour cleanup? I wish I had taken it with me today. There is a big write-up in the Halifax Herald today. The proposal filed by a Swiss-French company, and a consortium of Canadian companies, including some Halifax groups, have accepted a proposal for about a $300 million cleanup of Halifax Harbour, and it will involve three major treatment plants. It will be operational within three to five years. You might recall there was an agreement we signed back in 1988 to do the same thing. The problem was that it was again over $200 million and most of the money has been spent, but nothing has happened. Are we looking at a proposal here in St. John's?
Mr. Riggs: The St. John's Harbour ACAP group has put together a proposal for a new system. The City of St. John's has committed one-third, the province has committed their one-third, and right now we are waiting for the federal government to commit their one-third to the project.
Senator Buchanan: That is where your problem is going to lie. The City of Halifax will put in probably over one-third because they have about 60 million. The province will put some in, but the federal government has not made a commitment of any kind, and I suspect what they will do is probably not make any commitment there until they are ready to make a commitment here and a few other areas. Do you know if the City of St. John's and the Province of Newfoundland would be prepared to proceed without federal help?
Mr. Riggs: That type of discussion has been initiated, and the St. John's Harbour ACAP and others are trying to see if the technology and the process that they propose can be phased. Then they could the first two thirds started and do the project in a phased approach. They would hope to get the federal government to come on board as the project proceeds.
Senator Buchanan: The Halifax-Dartmouth area, St. John's, and maybe New Brunswick may have to get together to encourage the federal government to put up that one-third for the whole area. I doubt if the federal government will do it in one without the other. The experience that we have had in the past is that it will be done on the basis of the whole region being funded. It is very important over the next few years that this happens in Halifax-Dartmouth and here in St. John's because you have as bad a problem here as we have in the Halifax-Dartmouth area. Would you agree?
Mr. Riggs: We have a smaller bowl and a more concentrated waste, but outside of the environmental reasons and the social reasons for doing it, our position is that these are great business opportunities. We are going to develop technologies in Atlantic Canada that we can sell around the world and bring extra wealth to the provinces.
Senator Buchanan: I am pleased in your brief that you mentioned waste management in Nova Scotia because we are moving in that direction very quickly, and I understand that you have 8,000 jobs for Nova Scotia. I understand that by the end of next year that will be probably in excess of 10,000 in the environment sector.
Mr. Riggs: It would not surprise me to see a number like that. There needs to be an understanding that this work on the environment is a great generator of wealth.
Senator Buchanan: There is no question about it. It is also a big generator of jobs.
Mr. Riggs: Yes, these are good, knowledge based jobs. Fifty per cent of the people that work in the environment sector have university degrees, a lot of them post-graduate degrees.
Senator Buchanan: You are moving in that direction now for waste management here in Newfoundland; is that correct?
Mr. Riggs: There has been some activity like this here in the past, and many of my members are apprehensive and concerned it is going to get so far and get shelved. However, now there seems to be some momentum, and I hope it is going to keep moving forward. Nova Scotia and New Brunswick are well ahead and getting on with this, and we have to catch-up.
Senator Buchanan: We also do it in Nova Scotia on a regional basis. There is a Cape Breton group, a mainland group, the Halifax-Dartmouth group, and others.
The Chairman: Come By Chance Refinery is allowed to sell gasoline into Newfoundland. That was part of the deal; is that correct?
Mr. Riggs: They can only sell in this province. They cannot sell to the rest of the country. That is the restrictive covenant.
The Chairman: Therefore, Newfoundlanders have oxygenated gasoline, whereas the rest of Canada does not; is that correct?
Mr. Riggs: Yes. They also sell a very low sulphur fuel.
The Chairman: Is that lack of competition? The price of gas seems higher here than in the rest of Canada.
Mr. Riggs: The prices here do tend to be higher than most other places in Canada, except for probably the North, which would be the highest. I am not the right one to comment on that. There are people in Mines and Energy who monitor that system. To compare it apples to apples, you would have to strip all the taxes across the country as well.
The Chairman: The rest of Canada argues that they cannot afford to have clean gasoline and low sulphur. How many cents that does add to a litre of gasoline?
Mr. Riggs: All the gasoline sold in Newfoundland does not come from Come By Chance. Only a very small amount does. Come By Chance refines their crude. Most of that actually goes to the U.S. They cannot afford not to because of the market conditions down there. They have to refine fuels of that type of quality, which really goes back to my argument about the environment and environmental management. Our companies and government need to move ahead because if we do not, we are going to be left behind. We really cannot afford that.
Senator Cochrane: Last evening the price was 69 cents here. In Ottawa yesterday it was 49 cents.
Mr. Riggs: That is a huge difference.
Senator Cochrane: That is 20 cents a litre. That is atrocious.
Mr. Riggs: There are transportation issues that come in there. You would have to strip off the taxes to be able to compare apples to apples because the tax structures are different in each province.
The Chairman: Senator Cochrane has a very good point. Cleaner gasoline and lower sulphur will get blamed for that high price, and it is not right.
Mr. Riggs: If there were someone here from Irving Oil, they would make arguments that they had implemented a similar process.
The Chairman: Thank you. If we have any more questions, we will write to you.
Mr. Riggs: I will send you some information on the percentage of power that is generated thermally.
The committee adjourned.