Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 4 - Evidence - April 27, 2010
OTTAWA, Tuesday, April 27, 2010
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:07 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: I call to order this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources as we continue our study into the energy sector, with a view to developing and identifying a framework for a national clean energy strategy for Canada.
My name is David Angus. I am a senator from Quebec, and I chair the committee. To my right is our deputy chair, Senator Grant Mitchell from Alberta. To his right are Marc Leblanc and Sam Banks from the Parliamentary Library. We have Senator Richard Neufeld from British Columbia; Senator Judith Seidman from Quebec; and Senator Kelvin Ogilvie from Nova Scotia with us this evening. We have Senator Elaine McCoy from Alberta. To my left is our clerk of the committee, Lynn Gordon; Senator Daniel Lang from the Yukon; Senator Robert Peterson from Saskatchewan; Senator Bert Brown from Alberta; Senator Tommy Banks from Alberta and Senator Fred Dickson from Nova Scotia.
Welcome to you all. Welcome to our guests in the room and to our viewers on CPAC and those listening on the World Wide Web.
We are fortunate to have with us as our first panel this evening two officials from Statistics Canada: Marie Brodeur, Director General, Industry Statistics Branch; and Andy Kohut, Director, Manufacturing and Energy Division. We have circulated to members of the committee the brief you filed with us, for which we are grateful. We will hear Mr. Kohut's statement. We will listen with great interest and then go to questions.
Andy Kohut, Director, Manufacturing and Energy Division, Statistics Canada: Thank you very much. We are happy to have the opportunity to come to this committee to make a presentation and have a discussion with you on this topic. We appreciate the chance to meet with you.
As was mentioned, I am Director of the Manufacturing and Energy Division at Statistics Canada. Part of my division is responsible for the energy statistics program. In that program, we collect data relating to the production and consumption of energy in Canada — supply and demand. The key product in our program is our annual Report on Energy Supply and Demand in Canada. We have three sets of main clients that use our data. One is the system of national accounts within Statistics Canada. They use our energy data to feed into key economic indicators that are produced by Statistics Canada, such as gross domestic product. Natural Resources Canada is another main user of our data. From the point of view of energy efficiency, the department uses our data to produce their own key indicators of energy efficiency. As well, the department is responsible for international reporting using our data to meet Canada's international reporting requirements in the energy area. Then, Environment Canada uses our data as well as the basis for the production of estimates on greenhouse gas emissions. That is a bit of information about what we do.
As an aside, before starting my presentation, I will comment that I was reading the minutes of previous meetings of this committee and I noted for the meeting of March 18 the committee had visitors from the Canadian Petroleum Products Institute and the Canadian Gas Association, talking about an energy framework. At one point in the discussion, they mentioned the need for facts, data and trends on demand and use of energy in Canada, and noted that they would commission a study on this area.
I raise for your information that we collect that data all the time. Our energy statistics program has been collecting data on supply and demand, production and consumption, for years. This is where a lot of data today will come from.
The Chair: To understand you correctly, you are saying there was no need for them to commission a study because you have that data already available at your fingertips?
Mr. Kohut: We already collect this on a regular basis. We have regular reports that come out every year. I guess that means our profile is not high enough.
The Chair: It is a good point although I know you have followed at least three of our meetings with our transcripts and so forth, but a number of witnesses are aware of the good work you do. It is on their recommendation that we asked you to come today. You should know also that we have written to the ministers and deputy ministers of natural resources and related fields in all the provinces and territories, and we prepared a comprehensive questionnaire for them. It will be interesting.
They seem to be responding well, colleagues. I have had at least five letters now acknowledging receipt of ours, saying they are interested and diligently preparing the data. Maybe they will gather it from your website, which I note for the record is www.statcan.gc.ca. I believe the website has links to various aspects of the sector. Is the data all there?
Mr. Kohut: Within the website, you will find various buttons and links to go to energy or some of the other key indicators for the Canadian economy, for example, international trade. You can follow many different paths to find the data you need.
The Chair: That is excellent.
Senator McCoy: How much do you charge?
Mr. Kohut: A lot of information is available free of charge on the site.
The Chair: To us, it is important to have these figures, obviously, on both the supply and demand sides. Senator McCoy, Senator Neufeld and others have said that to conduct this study in any meaningful way, we need the numbers. We are counting on obtaining tremendous substance from your presentation tonight and any follow-up that may be needed.
Mr. Kohut: With my presentation today, you each have a deck of slides in front of you with key messages or key indicators that are intended to give a high-level overview of energy in Canada. If you have additional questions that we cannot address today, we will be happy to go back, dig out the data and provide it for this committee as we can.
The Chair: Thank you, sir.
Mr. Kohut: On the first graph, the message is that Canada is a major energy producing nation. In this graph, you see 2009 data on crude oil production in millions of barrels per day. Statistics Canada produces the data that appears in this chart for Canada, but the chart was produced, in this case, by the U.S. Energy Information Administration, which gathered the information from the variety of participating countries.
As you see in this chart, Canada ranks seventh in the world in crude oil production, and we are second in terms of known reserves of crude oil.
The Chair: Do the known reserves show up on another chart?
Mr. Kohut: I cite those statistics, but you will hear more about that later from a colleague from the National Energy Board who produces the data on energy reserves for Canada.
The Chair: I see all the countries of the Organization of Petroleum Exporting Countries, OPEC, and then others. On this particular chart on page 2, are they all net exporters?
Mr. Kohut: They are not. I point out as well, in terms of oil production, that the production of unconventional oil, namely the oil sands, surpassed conventional oil production in recent years and is expected to double by 2025 — big movements in the area of unconventional oil, oil sands production.
The Chair: When you say ``unconventional,'' do you mean only the oil sands?
Mr. Kohut: Unconventional oil production is typically the oil sands for Canada. The conventional process is to drill and pump out the oil, whereas the huge volume of production in the oil sands is basically extracting the oil from the sands.
I also point out that Canada is a major player in the production and export of other types of energy, not only oil. For natural gas, we are second in the world in terms of export, and third in production. For nuclear electricity, we are seventh in production. For hydroelectric power, we are second in production. Canada is a major player in the international community in terms of energy.
The Chair: Do the figures you gave us as to where we stand on natural gas appear in any one of these documents? They are on page 4 — thank you, sir.
Mr. Kohut: Moving on to the next chart, the energy sector plays an important role in the Canadian economy. In this chart, we can see the share of total exports by different sectors. Energy products, along with machinery, equipment and industrial goods are at the top of the list in terms of the proportion of total exports. Energy products represent 22 per cent of the total exports. That percentage works out to $80.1 billion. The portion represented by energy products is significant.
The inset graph shows the energy component has been growing steadily over the past 10 years, and last year energy became the number one export earner in Canada before it dropped again over the past year due to the economic downturn. Right now, energy products and machinery and equipment are about the same. Energy is a significant player in terms of the export market.
Other key economic indicators are as follows: The energy sector contributes about 7 per cent to the GDP; oil and gas accounted for half that number; and electric power accounted for about 30 per cent.
In terms of employment, the number of people working in the energy sector is over 270,000, which is about 2 per cent of employment in Canada, and that figure does not include things like service stations and wholesale trade or feeder industries like heavy machinery or transportation equipment that manufacture equipment used in the energy sector. When we add all those things together, the energy sector is a large employer in Canada.
The next chart shows the value of Canadian exports in 2009 broken down by commodity type in billions of dollars. Crude petroleum exports totalled $42.3 billion. Natural gas was $15.8 billion. I point out again, if you look at the inset graph on the previous slide, last year there was a bit of a drop in terms of energy exports because of the downturn in the economy. As an example, natural gas exports over the past year dropped from $28 billion to $15.8 billion, a drop of about 44 per cent. That drop was because of the economic downturn in general.
The point we wanted to make on this chart is that Canada operates in a continental energy market. Virtually all our exports that I have been talking about go to the United States.
From the U.S. perspective, as a point of comparison, 18 per cent of the total imports of crude oil in the United States come from Canada, representing 12 per cent of the U.S. market for crude oil. For natural gas, 82 per cent of U.S. imports come from Canada. That is a 15-per-cent market share. We are a major player for the U.S. as well in terms of a source of energy.
Despite being a major producer and a net exporter of energy, Canada does import some energy. As you know, our transportation and distribution lines generally run north and south in this country. Whereas we have a lot of energy production in Western Canada, products are then distributed south to the United States. We then turn around and import energy products in Eastern Canada. To give you a sense of the balance of that trade, Canada's exports in energy totalled about $92 billion. If you subtract the imports, which were about $37 billion, that left us with an energy trade surplus in the energy area of about $55 billion.
Chart 5 is actually a map that we borrowed from the Canadian Centre for Energy Information. We thought it was a good way to display the location of reserves across Canada, crude oil on the left and natural gas on the right. The point we make here is that energy production is not evenly distributed across Canada. It is nice that we are an energy-rich country, but the energy is not evenly distributed.
On map on the left, the red blotches are where we have oil reserves. On the map on the right, the blue blotches are where natural gas resides. A little inset of the province of Alberta shows in green the oil sands locations there.
Turning to the shares of total energy production in Canada by province, Alberta has about 64 per cent, mostly oil and gas. That number represents 73 per cent of Canada's oil and gas production. British Columbia has about 13 per cent, including some oil and gas. Saskatchewan has 9 per cent. Quebec has 4 per cent of energy production, and it is also the number one producer of hydroelectric power. In the east, the Atlantic provinces, we have that bit of offshore oil in Newfoundland and Labrador and gas offshore in Nova Scotia.
Looking at the shares of total energy production by commodity, oil is 39 per cent. While it is number one for the value of production and exports, it is not number one in terms of consumption. I will talk about that point in later slides. Natural gas is 36 per cent of total energy production. Then there is a drop to coal at 8 per cent, hydro at 7.4 per cent, nuclear at 6 per cent and then down from there.
The next chart looks at electricity production in Canada by energy source. Electricity is produced in Canada in a number of ways, the main one being hydroelectric power, representing 60 per cent of all electricity production in Canada. As I mentioned earlier, 30 per cent of all hydroelectric power comes from Quebec. Then we see nuclear is 16 per cent, and the combustion of fossil fuels — coal is 15 per cent, natural gas is 5 per cent, and oil is 2 per cent.
The Chair: Does uranium means nuclear?
Mr. Kohut: Right.
I will say a few words about renewable resources. You will see it off to the right in terms of wind and tidal electricity. It represents less than 1 per cent at the moment, but it has been growing rapidly. I will point out an issue there. Many of these renewable operations are small. Many small solar or wind operations are popping up across Canada, often to generate electricity for own consumption, such as companies or private operations. That situation makes this type of production difficult to count, because we have to know about these things, and if they are small and not feeding the electricity grid, for example, we may not find out about them. There may be a bit of undercounting here because it is difficult to keep track of all these small operations.
Similarly, we have the area of co-generation of electricity. Companies or industries may produce heat or steam as a by-product of their regular operations, and then they may re-use that energy. They use the heat, for example, to heat their own buildings, or they use the steam to generate electricity that may be for their own use or to feed the electricity grid. Once that sort of electricity reaches the grid, we count it, but if the electricity is produced for themselves for their own use, we may not be aware of it or count it. There may be a bit of undercounting there, and it may affect things like energy efficiency numbers if we include how much electricity they are actually consuming because we are unaware of co-generation. The phenomenon is relatively new, but it is growing rapidly because everyone wants to find ways to be more efficient with their energy.
The next chart on slide 7 goes into the energy consumption side of things. Canada is a large consumer of energy. This graph looks at energy consumption in two dimensions. If we look at the blue bars first, they show the energy consumption of a variety of countries on a per capita basis. Looking at those bars, we see that Canada is number one. On a per capita basis, we are the highest energy consuming country amongst all those included in the study. There are a variety of good reasons for that consumption. First, we have a relatively small population that is spread over a large geographic area, so that geography ups the amount of transportation costs, for example. Second, we are a northern country and tend to have a colder climate, which means more energy consumption in terms of heating. Third, we are also a developed, industrialized country, and these countries consume more energy because of their industrial base. We also have a large energy sector, and energy is a major consumer of energy in the extraction and production of energy.
In absolute terms, Canada ranks seventh in the world. Those are the red bars. We are still amongst the top countries in terms of energy consumption.
If we break down that consumption a little further and look at energy consumption share by province, Ontario is the largest consuming province, with about 35 per cent of the total. That number is compared to about 39 per cent of the population. Given the large population and the industrial base, it is not out of line. Alberta consumes 23 per cent of Canada's energy, which is well above the 10.7-per-cent share of the population. Again, that consumption is explainable by the large energy sector, which is a major consumer. Quebec, on the other hand, consumes 17 per cent of the energy compared with 23.3 per cent of the population. On a per capita basis, they under-consume, but the province does not have an energy industry of the same magnitude as Alberta. B.C. is at about 11 per cent of total consumption compared with 13 per cent of the population.
The Chair: Does it naturally follow that under-consumption by this measure means more efficient?
Mr. Kohut: That is not necessarily the case for a whole variety of factors. It depends on the economic base of the province, industrial versus service for example, and different amounts of consumption there. We would have to do more investigation before we would make a claim like that.
Chart 8 looks at total energy use by sector. We see in this chart that the industrial sector is Canada's largest energy consumer. The industrial sector uses about 39 per cent of Canada's energy consumption. This consumption has grown about 28 per cent since 1990. It has been growing regularly over the last 17 years or so.
Gas is the fuel source most commonly used in the industry, at 32 per cent. It is also the fastest growing. It has grown 32 per cent since 1990 as well. Electricity in the industrial sector is next, at about 24 per cent of consumption. Oil is third, but only at about 8 per cent. It is interesting on the oil side that while the use of oil has also grown since 1990, the relative share of the different types of oil has varied. We have decreases in the amount of heavy fuel oil over the last number of years as industries move out of that fuel and into more efficient types of fuel.
The residential sector is next, at 16 per cent. Residential sector energy consumption is for things like space and water heating, space cooling, appliances, lighting and that sort of thing. Natural gas is the most commonly used energy form in residences, at about 47 per cent. That consumption has grown by almost 30 per cent since 1990, and you can probably attribute that growth to there being more houses and larger houses. The average size of houses has increased by 11 per cent since then. There is also more air conditioning. There was not as much back in 1990. We also have the fact that the infrastructure available for the distribution of natural gas across the country has improved since 1990 as well.
In the transportation sector, passenger transportation represents about 16 per cent of energy consumption. If we add that to the freight transportation, transportation as a whole is about 28 per cent. It is a significant sector as well. Not surprisingly, motor gasoline represents 55 per cent of the consumption in the transportation area.
The Chair: Does that include air transportation?
Mr. Kohut: Yes.
The Chair: I have often wondered about air.
Planes take off from Canada. They load up with fuel here, and then they reload in Paris, London or wherever. Is that fuel counted?
Mr. Kohut: It is the fuel consumption in Canadian space. There are also foreign planes loading up here.
The Chair: The 28 per cent does not include the energy consumed by our commercial airlines when they are not in Canadian air space; is that correct? I do not know, but that is what I understand.
Mr. Kohut: It is hard to describe it in those terms. However, when they fill up in Canada, all the fuel they have is included, whether they are flying in Canadian air space or outside.
The Chair: That is what I meant.
Mr. Kohut: Similarly, foreign planes filling up in Canada, whether they are flying in Canada —
The Chair: Is that fuel included as well?
Mr. Kohut: Yes; it is included in the sales of the fuel that take place.
Senator Banks: Before you leave that slide, I understand what you mean by passenger transportation and freight transportation, but what is commercial?
Mr. Kohut: It is commercial buildings, for example.
Senator Banks: It includes stores, but not factories?
Mr. Kohut: No, factories are included under industrial.
I will make one other observation from this chart. Since 1990, the growth in the GDP for Canada has outstripped the growth in energy consumption. GDP has grown in constant dollars by about 55 per cent, whereas energy consumption has grown by about 20 per cent. You could say that GDP outstripping energy consumption could be a measure of energy efficiency, either by improvements in technology or by switching to more efficient types of fuel. That is an interesting observation.
The next chart on slide 9 is consumption by fuel type. Canada relies on a variety of fuel types. This breakdown gives you a better sense from the consumption point of view of what types of fuel we are using.
Natural gas represents 26 per cent of our total consumption, electricity, 22 per cent and oil, 17 per cent. Also, natural gas is growing most rapidly. It has grown about 30 per cent in consumption since 1990. Electricity grew about 24 per cent and motor gasoline about 26 per cent growth since 1990.
Senator Banks: Is this energy use measured by dollars? It cannot be by type because it is apples and oranges, so is it dollars spent?
Mr. Kohut: Yes, it is total consumption based on dollars, to make it comparable.
Senator McCoy: Oil and motor gasoline are generically the same, but at different stages of refining; is that correct?
Mr. Kohut: Yes.
Senator McCoy: Therefore, you might say 34 per cent is from that resource base.
Mr. Kohut: Yes, we could add them together.
Senator McCoy: And what is in ``other''?
Mr. Kohut: Other fuels include things like wood waste, pulping liquor, aviation, turbo fuel and wood — a variety of things.
Senator Neufeld: In ``oil,'' do you include diesel fuel? Aviation gasoline and jet fuel are all part of crude oil. Are you saying that refined products from crude oil include oil, motor gasoline and other — including biomass and other?
Mr. Kohut: The ``oil'' bar include diesel fuel, light fuel oil, kerosene and heavy fuel oil; and ``other'' includes things like wood waste, pulping liquor and aviation and turbo fuel.
Senator Neufeld: Can you tell me why you include biomass and jet fuel in ``other''? Biomass is hugely different than jet fuel. Why do you lump those together instead of having them with oil? Is there some magic to doing that? It is confusing to me, to be perfectly honest.
Mr. Kohut: We have all of those things broken out by categories. We have all that data available. For the purposes of this presentation, those were all small categories so we rolled them into one.
We had the four largest categories, and then we have a bunch of small ones. Rather than illustrating all the other categories separately, we said we have ``other'' things there. However, we have the complete breakdown if anyone is interested.
The last chart looks at energy prices. Energy is an important component of the Canadian economy and, over time, energy prices have had a certain volatility which, in turn, affects the Canadian economy. We wanted to show a chart here, and we selected crude oil prices as the point of comparison. We went back to 1990 to show how volatile the price has been over time.
In this case, crude oil prices are affected by a number of things. Prices are affected by supply and demand; increased demand or reduced supply can drive prices up. If we look at the chart in front of us, I can point to certain periods of time.
In 1974, for example, we see the significant uptick in the line. That was when there was an oil embargo. There was also another spike in oil prices in 1981 due to the Iran-Iraq war. Around 1991, there was another little spike, which was the Gulf War.
We see the other spike going up and off the side of the graph. If we included 2007 and 2008 — which do not appear in this chart, unfortunately — that number spikes up there. A number of things are going on, like the Iraq war and the growth in the Asian economies, for example, increasing demand and driving prices up.
A number of issues can increase or change the price of crude oil.
The Chair: ``Asian economies'' is a euphemism for China, is it?
Mr. Kohut: Well, China is the big one, but there will also be other big booming economies, like Brazil and India, for example. As those countries become more developed, the demand for fuel will increase.
However, other factors can influence this supply and demand as well. I mentioned war in a couple of those examples, geopolitical tensions, but other factors can be things like weather. Hurricane Katrina, for example, disrupted oil supply in the gulf area. All those things can influence supply and demand, which can influence the price of oil.
Over the last few years, there have been some efforts at the international level to stabilize oil prices as much as possible by trying to encourage transparency in oil markets. We have been participating on behalf of Canada, and along with more than 90 other countries, in a forum called the Joint Oil Data Initiative. That initiative is one example where all the participating countries try to provide timely, quality and comparable data on oil production and inventories to try to create a more transparent global market. If there are disruptions in supply in one place, countries will know where there is supply elsewhere; that will take some of the mystique out of the oil market, in the belief that transparency will help to flatten out some of these bumps over time. We will see if the initiative works but we are participating in it.
The Chair: It is a different kind of hedging.
Mr. Kohut: Yes; in a nutshell, that is an overview of energy consumption and production in Canada, and we will be happy to take questions.
The Chair: You and Ms. Brodeur have both signed the presentation and it was an excellent one. We have a long list here. First is Senator Mitchell, the deputy chair.
Senator Mitchell: It was an interesting presentation. I have some clarifications. I should have dropped them in as we went along and I would have had more questions, like my colleagues. I can barely keep up. You did not mention shale gas. Do you keep statistics on that energy production? If so, how much is being produced and where is it going?
Mr. Kohut: Shale gas is all the rage. Large reserves have been identified in Canada; in southern Saskatchewan, Alberta and British Columbia. Those reserves are not turning into big production yet. They will start to appear soon. At Statistics Canada, we do not count reserves. Our colleague from the National Energy Board later will talk more about reserves, but we are aware of those large reserves and inevitably, they will increase the production and supply of natural gas in Canada. Then those numbers will begin to appear clearly in our graphs.
Senator Mitchell: I must have missed this information, but I think you mentioned $92 billion worth of exports in energy. When I went to page 4 where those statistics are graphed, I added up the numbers and the total is only about $65 billion.
Mr. Kohut: Yes, it is a matter of different years. The numbers that appear in the chart are from 2009. The numbers that are quoted otherwise are from 2007. If you go back to the little insert graph, you see there was a significant drop over that period of time.
Senator Mitchell: That is the 44-per-cent drop that you mentioned that includes natural gas production?
Mr. Kohut: That is right.
Senator Mitchell: Looking at the one inset graph where you show the growth in energy production, you can see it took off in the late 1990s. Is that growth because of the tax structure changes that the government of the day provided the oil sands? Is the growth coincidental with that change?
Mr. Kohut: Sorry, which graph are you looking at?
Senator Mitchell: It is on page 3.
Mr. Kohut: Is it the inset on page 3?
Senator Mitchell: Yes; in 1997 it drops and then it rises again. Is that rise because of a lot of oil sands production coming on?
Mr. Kohut: That is the share of our exports.
Senator Mitchell: Okay.
Mr. Kohut: The oil sands would have contributed to that rise, but the graph is not specifically tied to production, if that is what you are asking.
Senator Mitchell: You talked about exports as a per cent of GDP, the growth in energy, but I do not think you mentioned the absolute percentage of GDP that is accounted for by the energy sector. You were talking only about exports.
Mr. Kohut: GDP accounts for about 7 per cent.
Senator Mitchell: You say 7 per cent of energy in total? That is it.
Mr. Kohut: Energy is 7 per cent.
Senator Mitchell: That is all?
Mr. Kohut: That is pretty big.
Senator Mitchell: Finally, do you keep statistics on emissions from these different energy sources?
Mr. Kohut: We provide our production data to Environment Canada, who have their own set of formulas. Depending on the fuel type and grade, and depending on the industry, they calculate the emissions. We had a test, a greenhouse gas emissions survey that we conducted for about five years or so. That test is now finished. It was a pilot to see if we could develop the methodology and the processes for collecting the information, and it was successful, but that has now been passed over to Environment Canada. The short answer is no, we do not in our program produce emissions data. We only feed the process.
Senator Mitchell: You know where it is.
Mr. Kohut: Yes, we feed the process.
The Chair: It is all secretly coded so you will not find out.
Senator McCoy: Is that the greenhouse gas inventory you are talking about?
Mr. Kohut: It is at Environment Canada, yes.
Senator McCoy: Is it still ongoing?
Mr. Kohut: It is. However, our pilot survey is complete. We had a greenhouse gas survey at Statistics Canada that looked at emissions of only the 400 largest emitters in Canada. We were testing our survey capabilities in that area. We produced some good data, but it was not a replacement for that inventory at Environment Canada.
Senator McCoy: There are so many questions and they let me ask only three or so at a time, because we have to go all the way around the table, to be fair to everyone. What intrigues me is the process by which all these data are collected. You call yourselves a survey branch. Does that mean that you are doing things like polling companies? You are conducting a random survey? What does this survey entail?
Mr. Kohut: In the energy statistics program, we have 22 different surveys. Each of them is focused on different components of the energy sector, whether it is production, consumption or fuel type. That gives you a relative idea of the size of our program.
As to how we collect our data, we call them surveys. For some, we tap into existing administrative data sources. For example, Statistics Canada can get tax data from Revenue Canada as one source.
Senator McCoy: What do you use that data for?
Mr. Kohut: It is used for financial information on production, financial costs that we gather.
Senator McCoy: Will that be a 100-per-cent data set on anything in particular?
Mr. Kohut: Yes.
Senator McCoy: Do you go through all the tax returns of everyone in Canada and extract this one line item that tells you something about fuel production costs?
Marie Brodeur, Director General, Industry Statistics Branch, Statistics Canada: Yes, but we are talking about a limited number of companies here, not individuals.
Mr. Kohut: We are not talking about people.
Senator McCoy: You are looking only at Shell Canada, Husky Oil or Irving Oil?
Mr. Kohut: Yes, depending on the survey: Some of our surveys have a small number of respondents. There are only so many oil refineries in Canada.
Senator McCoy: There are eleven or so.
Mr. Kohut: Yes.
Senator McCoy: That will be 100-per-cent data sets.
Mr. Kohut: That is right. For larger surveys, for example, our industrial consumption of energy survey, we take a sample of about 4,000 businesses across Canada. We come up with what we call a representative sample, so that sample of 4,000 will be a good indication of what is going on in Canada. It means we take all the large companies and a sample of the medium- and smaller-sized companies to come up with a good representative example. In that case, we are sampling but on a scientific, not a random basis.
Senator McCoy: There is then the question of the reliability of some of the statistics. You must have Mark Twain quoted at you all the time; statistics and other statistics.
Senator Banks: ``Damned lies.''
Senator McCoy: That is right. There is a question of reliability then on different data sets, and that is only on the pure number. That is before any interpretation is added.
Mr. Kohut: Before these data are released, we go through a wide range of data quality assurance steps. In the case where we receive data from certain companies, we always verify with them. We have a number of steps to go through to make sure that something unusual has not happened in the data. We have a variety of quality control measures where we look at previous data; we look at other sources of data to see if things are in line. We have automatic edits built into the system. We do not release anything until we are confident that the data are of good quality, and we are able to follow up with the same companies over time so that we have a good industry knowledge and if something looks out of line we can go back and check with those companies to see if there is any reason for a variation in their data.
Senator McCoy: Let us use Alberta because I am from Alberta, as are Senator Mitchell and Senator Banks. Alberta is an energy-producing province.
Senator Banks: Senator Brown is from Alberta as well.
Senator McCoy: Yes; he was not sitting there when I was going around the table.
Presumably, the data collected there for the purpose of collecting royalties is straight from the horse's mouth, so to speak. That is a 100-per-cent data set. Does Alberta share that information with you? Is there a cooperative arrangement?
Mr. Kohut: Yes; we have data-sharing agreements in a few provinces. The principle is to try to minimize respondent burden out there. If companies are already reporting certain data to Alberta, for example, we negotiate a data-sharing agreement with them to obtain the data from Alberta so that we are not both asking for similar sorts of things.
We have similar agreements with places such as the Ontario Energy Board where we obtain data from about 73 organizations. It saves a lot of time and trouble and reduces the burden placed on these companies.
Senator McCoy: Then there is a question of interpretation. We had an example. Coming from an oil-producing province, it would not occur to us to put oil in three bars on a chart because it would obfuscate the message. However, that is an interpretation question, so I will not go there.
An energy flow diagram from production right through to consumption is a valuable way of telling the energy story. It is not a way that we have used often across the country because, in my view, we have not had to tell the energy story heretofore, or, at least, not in the way that we are learning to tell it through this study and other efforts.
Do you have those energy balance diagrams worked out on a regional basis, which is the more informative way of presenting those stories?
Mr. Kohut: We have the energy flow worked out at the national level, so we have a nice detailed, complicated chart, as you say, that takes the flow right through the system, showing all the ins and outs, but we have it at the national level. We do not have it by province or by region.
Senator McCoy: I know Alberta has one, and I was talking to its originator, who says that his colleague in Newfoundland and Labrador has a similar one, and they spent significant time negotiating with Statistics Canada to conform some of the experts' definitions of terminology. I understood that Statistics Canada refined their interpretations of the data to match those of the people working in energy departments at the regional level. That sounds like a positive development to me, and I wondered if you will looking to expand upon that experience, and perhaps we can develop these useful energy flow diagrams for regions all across the country.
Mr. Kohut: We have in place federal-provincial-territorial advisory committees with energy people from all the jurisdictions, and we have been working with them regularly. This idea has come from a few places, saying it would be great if we can provide these diagrams. We have not been able to take that project on yet. It would be nice to try to do everything, I guess.
Senator McCoy: Will a request from a Senate committee help?
The Chair: That is it, senator. You are done. Thank you.
Mr. Kohut: That close — you were that close.
Senator Ogilvie: I found your commentary and interpretation of the slides tremendously interesting. It would have been nice to have that information in summary, some of your statistics in those areas. I have two quick questions with regard to page 9 because the way you describe total energy use by type is interesting.
First, I understand the use of dollar value as a means of determining the total energy use by type. Dollar value is an easy way to deal with it.
In terms of the energy content, of course, that does not give us an accurate indication, does it? The value for a British thermal unit, BTU, for example, changes over a wide range of energy sources, so when I first read ``total energy use,'' I tend to think in terms of the actual energy content as opposed to the dollar value. Some of the wind energy, for example, has a high dollar value per megawatt compared to hydro generation. However, you figure it is the easiest way to show the overall value.
Mr. Kohut: Well, a dollar is a dollar, so it is the easiest way to make that comparison.
Senator Ogilvie: I leave my point.
Mr. Kohut: Yes, it is a good point.
Senator Ogilvie: Returning to the question of what is in what category, you mention that aviation fuel is in ``other.'' Can you give me an indication of what percentage of ``other'' the aviation fuel constitutes, approximately — a quick number off the top of your head?
Mr. Kohut: We do not give quick off-the-top-of-our-head answers.
Senator Ogilvie: Right, you are Statistics Canada. I forgot. This will take a while. Maybe you can send us the information.
Mr. Kohut: I will take a note of that, and we will send it to you.
Senator Ogilvie: Along that line, where have you included diesel and kerosene? I assume kerosene is within oil.
Mr. Kohut: Diesel and kerosene are within oil.
Senator Ogilvie: Diesel and kerosene are both within oil; thank you.
Senator Neufeld: Further on slide 9, this graph is Total Energy Use by Type, 2007. Do you have stats that show a more recent view than 2007?
Mr. Kohut: We can have the 2008 numbers for you fairly soon.
Senator Neufeld: That would be great if you could send us that information.
I want to go back to slide 4, and you can send us this information, too; you do not have to provide it now.
I want to know how many barrels. I understand the dollar part, but how many barrels of crude oil production is there? How many cubic feet in natural gas is there? How much petroleum is there, not coal products — I would say petroleum refined, I assume that is what it means — and electricity? Is this net of exports and imports? I do not expect you to have all that information. If you do, it would be great, but if you do not, you can send it to us.
Mr. Kohut: I do not have all that information with me, but we do have it, and I will send it to you.
Senator Neufeld: You have used many different sources: U.S. Energy Information Administration for the first slide; and the Canadian Centre for Energy Information on slide 5. As hard as I look in Eastern Canada, I cannot see any red dots for crude oil, and I wonder whether I am not able to see correctly or something has been missed.
Mr. Kohut: For Eastern Canada — yes, it is too bad we had to have these maps so small — I encourage you to go to their site. They have the full set of maps on their Internet site for all the fuel types, and we found them to be interesting and useful. Then you will be able to zero in on that area.
Senator Neufeld: Did you check the information against the information you have to ensure that it is correct? I have some background with the Canadian Centre for Energy Information, so you know.
Mr. Kohut: I printed out all of them.
Senator Neufeld: You are telling me that if I went to that site, all their information is correct, and agrees totally with yours, or have you taken the numbers from that site to include in your information?
Mr. Kohut: There are no numbers here. This slide is a pictorial indication of where the reserves of the various types of energy are. We are not including any numbers from them. I thought it was a nice map, a way for everyone to see energy production on a map.
Senator Neufeld: I appreciate that you sent that map. However, do you agree with the numbers of the Canadian Centre for Energy Information, or do you use their numbers by agreement?
Mr. Kohut: They are talking about reserves. We do not have information on reserves. It is the National Energy Board.
Senator Neufeld: Is this the only map that was significant to anything relating to what we are talking about today, then?
Mr. Kohut: That is right.
Senator Neufeld: They only do reserves?
Mr. Kohut: No, they do a variety of things. They try to serve as a focal point for distributing information on a variety of things. They also cover reserves, and we do not cover reserves, but the National Energy Board does. You can ask the next witness.
Senator Neufeld: That is why we are checking with every province.
Page 7 is from the U.S. Energy Information Administration. I have seen this type of chart before. Did you take this chart from them, or did you double-check the information with what actually happens? I am talking about Canada. Do you totally agree with that chart as it is? How is that chart developed?
Mr. Kohut: All these countries provided data. In this case, they provided it to the U.S. Energy Information Administration. They then did the calculations of total consumption based on population.
Senator Neufeld: How do they gather the information to show consumption?
Mr. Kohut: They would receive the information from us, and then they calculate it on a per capita basis. They take the Canadian population, divide it into there and put it on their chart.
Senator Neufeld: Is that inclusive of all energy?
Mr. Kohut: Yes.
Senator Neufeld: Is that whether it is electricity, natural gas or any crude oil products?
Mr. Kohut: In this chart it is, yes.
Senator Neufeld: I do not want to take any more time, but at some point I want to spend time with you folks about how you develop those bars. Sometimes I think they arrive at the information saying, they produce this much crude oil, electricity and natural gas, and we will divide the population into that number and that is how much they consume.
I think that is how they calculate it in many cases. That is not exactly a true number because so much of it is export.
Mr. Kohut: Yes; I hope they are not basing it on production.
Senator Neufeld: I hope not as well. Norway is a huge producer of oil and natural gas, and so are Canada and the United States. Obviously China is not. In fact, most of that country probably does not have access to any petroleum products or electricity that I am aware of. The chart is interesting. That is enough questions for me. If there is time for a second round, I will ask more then.
Senator Banks: I have a quick question: Do your statistics include seismic statistics?
Mr. Kohut: No.
Senator Banks: Thank you.
The Chair: Is that it?
Senator Banks: Yes.
The Chair: That is a seismic event.
Senator Lang: Unfortunately, I do not think I can equal Senator Banks, chair, but I will try to limit my time.
I want to follow up on Senator Neufeld's point on the graph on page 7. It jumped out at me as well. It is important that when we as Canadians and your organization look at graphs that we ensure we do not put ourselves in a situation where things are exaggerated. If this graph includes exports, then it is deceiving. In one way, it is right, but it is wrong in another way. Although we have a high consumption of energy, we have the qualifiers you said at the outset. When you made your comments, you pointed out the size of our country, the weather and all the other variables we face as a society. It is important that those qualifiers be put beside a graph so when people read it, they do not look at it and make a simple evaluation that is not very true.
The Chair: You did not pick up on that part showing that 90 per cent of that consumption is in the Yukon?
Senator Lang: No; we have longer winters, and we have further to go. It takes 12 hours to travel there.
I want to follow up on Senator McCoy's point about looking at the regions and provinces, and what is produced, how much is consumed and that type of thing. It is important that type of information be provided because it forms the basis for decisions that may have to be made, or might be made, between provinces from the point of view of transmission lines, interconnections and those types of things. I second Senator McCoy's point in that I think Statistics Canada has those statistics. It is a case of organizing them, I presume, and then having them, in conjunction with the provinces, in one national information bank. Perhaps you can comment on that point.
Mr. Kohut: We do not have all the statistics at the moment to allow us to produce provincial energy balances. As I mentioned, some of our surveys are samples, and the sample is constructed currently to be representative at the national level and not for each province. In other words, we need to increase the sample for a number of the provinces to have enough respondents to provide good data. However, your point is well taken. We have heard this point from a number of places, including our federal-provincial-territorial advisory council. The representative from the Yukon has been arguing for jurisdictional energy balances.
Senator Lang: Maybe I can pursue that point a little further. How long does it take to make a decision on whether you will take that approach?
Ms. Brodeur: That is definitely a question of cost. If we increase the sample size, that increase means we have to survey in more detail all over Canada, which costs more. As well, increasing the sample size increases response burdens, and we have to be careful about that issue. It is a point we can bring back and raise with our Chief Statistician.
Senator Lang: I assume that if Statistics Canada does not have the information right now, each province or territory should have probably 90 per cent of that information available to them because of what they do and how they operate. Is it advisable to work with all 13 jurisdictions and say, give us the information you have, and that information may be 90 per cent to 95 per cent of the information you need to compile the information we are asking for?
Mr. Kohut: That is a possibility. If we did that, we may find issues such as differences in how each province gathers information. The information may not be perfectly comparable, but that is where we would start.
Senator Peterson: On page 5, you show very little oil sands production in Saskatchewan. Can you quantify that amount, or is this production only a pictorial presentation? There is some there.
Mr. Kohut: Spilling over the side?
Senator Peterson: I think it is a little more than a spillover. Do you have numbers?
Mr. Kohut: Right now, I do not think we can quantify the amount of unconventional oil for Saskatchewan. That production would roll up into our totals.
The Chair: We are all parochial in our regional interests, but that is what it is about.
Senator Seidman: I am also interested in the regional breakdown of consumption and production. I am also interested in how you ensure that information is reported in the same way from each province. I think you touched on both those things, so we will leave that for now.
Senator Dickson: You talked about the cost of compiling this information. What is your estimation of the cost and over what period of time? It seems to be vital information for the work of this committee. What is the cost and, assuming you had the money, how long would it take?
Ms. Brodeur: There are two steps to that answer. The first step is to talk to the provinces and determine what we can do in each province. If each province has the information and we decide to come up with common concepts, it is probably only a matter of time and not much in costs.
I know some of the larger provinces have solid statistical offices that can produce that kind of information. It is impossible for all the provinces or territories to give us information, so we will probably have to expand the survey.
It is not necessarily a matter of time; it is a matter of cost. It can be high. Unfortunately, I cannot give you an estimate here. We need time to investigate that question.
Senator Dickson: Can you investigate it and come back with an estimate for us, depending upon your consultations with your advisory committee?
Ms. Brodeur: Yes, that is a good point. We can talk to the provinces. Unfortunately, the meeting is in October, and you need to have results much sooner, I suspect. However, we are meeting with them in October and we can see what we can obtain from the provinces and also, if possible, what we can do to expand the program.
Senator Neufeld: We have garnered information from Statistics Canada. We developed a lengthy questionnaire about most of the things that people are talking about here. As our chair said before we started, we sent it off to every jurisdiction to ask them to say that they agree with the number that Statistics Canada provided or no, they do not, and also to fill in the blanks of things that Statistics Canada does not have. Therefore, you may not have to ask anyone. We may be able to help you with that information as we receive it, and we will share it with you by agreement.
Ms. Brodeur: Thank you very much.
The Chair: There will not be a charge, will there, senator? They are on a tight budget.
Senator Neufeld: I thought we could have a bit of a charge, at least for the mailing costs.
Senator Banks: I want to confirm one tiny thing.
The Chair: Since you were so seismic before, you may.
Senator Banks: I will try to come close. I want to ask you a question that has been inferred, but I want to be specific. With respect to chart 7, can you find out whether those numbers include exports? If so, will you please tell us the answer to that question?
Mr. Kohut: Yes, we will do that.
Senator Mitchell: We seem to have much focus on chart 5. If you can go to chart 5 and look at the Northwest Territories on the map on the left side, I grew up in Alberta believing we had more oil than almost anywhere else in the world. Now there is a huge red swath in the Northwest Territories.
Senator Neufeld: I thought that was only a smear of ink.
Senator Mitchell: I am wondering, is that real?
Senator Neufeld: Because it is incorrect.
Mr. Kohut: Now I am sorry I borrowed their map.
The Chair: I bet you are. Can you explain that to us? We are bemused about the Northwest Territories vis-à-vis Alberta.
Mr. Kohut: Rather than speculate, I would have to ask them.
Senator Mitchell: I want to point out that it absolutely cuts down the border with the Yukon. The Yukon has none of it.
Senator Neufeld: I think it was only a splash of ink.
Senator Mitchell: Can you provide that information for us?
Mr. Kohut: Yes.
The Chair: Senator McCoy, do you want the final word here? I thought you wanted to say something. Indeed, you were saying something. Please go ahead and we will wind up the meeting.
Senator McCoy: I am delighted that the committee has come to this consensus around pursuing the question of data on a regional basis. Congratulations and thank you for helping us reach this conclusion, because the policy setting in the energy field needs to be well tuned to the differences in regional profiles.
The only way we can make decent policies at a federal level is by having absolutely unassailably magnificent data from the regions, and also by having their collaboration. If we can accomplish anything with this study, if it were to convince the chief statistician to provide the tools that the policy-makers need, it will be a wonderful benefit for this nation.
The Chair: Ms. Brodeur and Mr. Kohut, thank you both very much. You can see we are engaged in this field of inquiry. We are delighted that you came to share this data with us.
Of course, we all know we can do anything we want with statistics, but I think Senator McCoy summed up, as did Senator Neufeld, how critical it is in this study that we do not base policy recommendations on misleading numbers.
There are a couple of follow-up areas. I think you have taken note of them. If you will send that information to us, that will be helpful. I understand that if we want to bring you back to the committee, you might be willing to come another time.
Mr. Kohut: We will be happy to come back.
The Chair: We are fortunate that our next witness, Gaétan Caron, is the designated chair and chief executive officer of the National Energy Board of Canada. Prior to that position, he was vice chair of the board, having been appointed in 2005. He was a member of the board before that appointment. He has had a long career. I note, for example, that he was Chief Engineer and Director, Financial Regulation, for the National Energy Board.
You have been involved with the National Energy Board for the better part of your distinguished career, sir.
We were told early on as we entered this game that Canada is a federation. As we all know, that fact affects every part of our life: what is provincial, what is federal and what is concurrent jurisdiction? In this study, which embraces both environment and energy, we know we are at least nominally into the provincial domain, whereas some things are exclusively federal. The National Energy Board will tell us in detail about being one of the exclusive federal agencies. I believe Mr. Caron will also tell us how the National Energy Board interacts with federal and provincial jurisdictions in the country.
I am happy to report that Mr. Caron has been following our deliberations and the commencement of our study. I consider even before hearing him that he will be a key witness to our study. I urge us all to pay close attention.
Without further ado, sir, we turn the floor over to you. Thank you for appearing tonight.
Gaétan Caron, Chair and CEO, National Energy Board of Canada: Thank you, chair. I am happy to be here this evening.
The reason I am so pleased to be here, chair, is that the focus of your study is aligned with what I think the National Energy Board is trying to do, which is to help Canadians make informed, sustainable energy choices. As you said, since I received the first email from Ms. Gordon about a month ago, I have been reading much of what has been produced. I have been watching CPAC. I saw Professor David Keith last week from Inuvik where the Mackenzie Gas Project hearings were ending; I had the pleasure of hearing what he told you.
On the second page of what you received from us, there is an outline of what I want to speak about. I will try to be brief because I think the question and answer period is the better part of this exchange.
On the third page of my document, which might be numbered 2, there is text that says ``Role of the NEB.'' I will spend a minute on what the National Energy Board is.
We are a mid-sized organization of about 350 people. We are all located in Calgary. We do not have an office in Ottawa. I call Ottawa one of our regions, and I am visiting one of my regions here. We are not a policy shop; we are a practical board.
We do essentially three things. First, we regulate oil and gas pipelines that are interprovincial and international in nature. In that respect, we do not have conflicts in terms of federal, provincial and territorial jurisdictions because it flows naturally when a pipeline is, in fact, interprovincial and international that the National Energy Board is the right place to go for that regulation.
The beauty of our mandate is that we have a life-cycle mandate. We become involved even before an application is filed. We have guidelines on how companies should consult with citizens, Aboriginal peoples, environmental groups and landowners. Once their consultations have taken place, we then have a public hearing, if the project is big enough, so we can hear from all Canadians who have something to offer on the public debate. In those cases where we approve a pipeline project, we continue to be involved. We have jurisdiction to monitor and inspect the construction. We have accountability for the operation and we also need to give approval to the abandonment of facilities before they can be turned over to the natural environment.
We also regulate the tolls and tariffs of those pipelines. We have a nice, rounded, economic, safety, environmental mandate that is rare in terms of single-window regulation in the world. I think Canada has that regulation.
Second, we regulate the international power lines in Canada. To give you an idea of that regulation, it is limited in scope because we do not regulate interprovincial power lines. Our act will allow for that regulation if cabinet chooses to specify that a given line be federally regulated. However, it has not happened in 51 years of NEB history. We regulate about 1,400 kilometres of international power lines. Contrast that part of the mandate with 71,000 kilometres of oil and gas pipelines that we regulate. The lines of business are not the same size.
Third, we regulate exports and imports of energy — natural gas, electricity and oil for export, and we regulate the imports of natural gas. We do those imports and exports on a market-based approach, mostly by complaint, based on rules of fair market access. It is a soft, by-exception style of regulation of exports. As long as the market is seen as working, our interventions are adapted to that view.
As a by-product of those three lines of business, because we need to know so much about energy in Canada, we give back to Canadians what we learn about the state of the energy sector, in terms of supply, market and links to environmental matters. Also, the Minister of Natural Resources has the power in our act to ask us for advice — to give advice to the government — because the act requires us to keep under review any matter about energy over which Parliament has jurisdiction. Therefore, the connection between your current study and our mandate for the last 51 years is strong.
The next page of my document is one of the main slides I want to show you. It is titled ``The World's Hydrocarbon Reality.'' About two months ago, I was preparing for a speech in Washington. I asked my staff to find me the greenest scenario of energy demand in the future they could find. I told them to go anywhere on the planet and tell me, if they assume successful environmental programs, what it looks like to meet the world demand for energy to 2030.
The upper solid line is fossil fuels; the lower line is zero carbon fuels. When you add those two lines under that scenario, between 2007 and 2030, primary energy demand in the world grows by 20 per cent. I call that the world reality check, when we talk about energy in the world. That scenario is one produced by the International Energy Agency, the so-called ``450 Scenario.'' The scenario assumes that the world is successful in implementing, I will not say aggressive, but effective strategies in terms of renewals and conservation. The scenario assumes that we limit the concentration of greenhouse gases, CO2,equivalent to 450 parts per million, and it assumes that we limit temperature increases in the world by 2 degrees Celsius. When we make all those assumptions, between now and 2030 the world will need 20 per cent more energy to satisfy its demand. As the graph shows on the dotted line, two thirds of that energy will come from fossil fuels, if we believe that scenario. A third, including nuclear, will be renewables and so-called zero emissions.
I thought this was a helpful graph to show to senators here tonight. There is one key message.
The Chair: You said, if we believe that scenario.
Mr. Caron: Yes.
The Chair: Will you tell us whether we should believe it?
Mr. Caron: I will if you allow me. I will respond indirectly. I hope I am wrong. When I presented this graph in Washington, a young man from the Sierra Club told me: You are wrong; I think we can show you a scenario that shows less fossil fuels in 2030; we will email it to you.
I have not seen it yet. I hope we can be even more effective, but that is all I can find. I hope this scenario is wrong, but that is all we can find.
The point is the following: Even if we assume some other path to success in tackling the challenge we face in terms of climate, we will need all we have for a long time. We will feel bad about ourselves for the longest time if we start criticizing forms of energy for not being so clean. The blame game is perhaps not helpful as we try to find energy solutions for Canada and the world.
This slide is helpful to take stock of a potential reality. We know that all forecasts are wrong eventually. I am not saying this scenario will happen, but we should take stock of the fact that hydrocarbons are part of the journey toward sustainability.
The next page, ``Canada's Hydrocarbon Reality,'' is one we produced ourselves a few years ago. We have not updated it yet. It is a triple-E scenario that has made some assumptions. It is a different kind of triple-E. When you look at this scenario, you can see that the story is roughly the same. About a third of our primary energy needs can be met by zero emission fuels by 2030. I will not elaborate on what the previous slide showed but I only wanted you to know that.
The next page is simply a picture entitled, ``Sustainability.'' When you look at what needs to be said — the story that needs to be told to Canadians and the debate one must have with Canadians — it is about sustainability, moving forward and finding solutions to what we have.
Luckily, when the National Energy Board was formed in 1959 by Parliament, on the advice of the government of Mr. Diefenbaker, it was included right in the National Energy Board Act that we are required, when we make decisions, to integrate in one action all the relevant social, environmental and economic dimensions of the matters that are brought to our attention. I suggest that sustainability is about integration, and that is why your committee's work is so important. You have listened to a broad range of witnesses. I can see that you face the difficult question of how we integrate the social, economic and environmental dimensions in the one path forward. It is easy for people to give you advice on how to improve the environmental journey, how to improve economics and how to improve social conditions. Few people are required to bring those tasks together and advise Canadians, or, at least, inform Canadians as to what needs to be done for our path to sustainability to be successful.
The next page is about the electricity chapter of our future. Statistics Canada does a wonderful job explaining the past and the present. The NEB tries to provide glimpses of what the future can hold, and this graph is about electricity in the future. It is only a scenario, as I said, and all forecasts are wrong, but some good news is shown on this graph.
First, the graph shows the wealth of hydro. Coal remains present but continually decreases over time. Natural gas fire generation continually increases, and alternative and emerging technology continually increases. Just as I wished that the 450 Scenario from the International Energy Agency is wrong, I am sure Canada can do better in terms of renewables, as long as we tackle the question of sustainability; integrating all three dimensions of our future.
Our challenges to pursuing a sustainable energy future are well known, and my next few pages will talk about the dimensions I want to flag for you.
Trade, I believe from a philosophical and practical standpoint, is part of the journey. If we consider simply the transmission of electricity between provinces and between Canada and the U.S., that capacity to transfer electrons allows for synergy in the general mix. It is good economically, and it can also be good environmentally. Free-trading nations like Canada are in a better position to achieve economic and environmental gains together than are closed nations. It is well established both in theory and in practice, and I will refer quickly to the concept of the comparative advantage that the economists use. When we are good at producing something, we produce it; and when we are not so good, we go elsewhere and buy it. Canada is wonderfully equipped to have a number of comparative advantages, hydro being one of them, and we must not ever forget that open countries are more successful as they pursue sustainability.
The next page, entitled ``Complementary Technologies,'' has the same kind of message. The classic culmination of hydro, wind and gas-fired generation is a wonderful trio of complementary technologies that Canada is well equipped to leverage.
My next page is about the role of the consumer. You have been talking about two famous Canadians, Fred and Martha, I believe. They have become famous. I do not know that they want to be famous, but by now they are, thanks to your committee.
You cannot tell consumers what to do. You can create an environment where they are eager to make informed choices that are sustainable. I think Canadians are ready for understanding and behaving in a sustainable way, and all we are missing is a dialogue with Canadians that allows for, in their mind, in plain language, the integration of what the future looks like when we combine in one gesture the economic, social and environmental dimensions of their future.
This committee can do a wonderful job, if you are patient enough, of reaching Fred and Martha.
You have heard a lot about the smart grid, transformation and growth, and I will be delighted to answer questions if you have them. The smart grid is an example of what integration and parts of the system talking to each other can produce. We can consume less energy and have energy consumed at better places than without it, so I leave comments at that.
With respect to carbon capture and storage, we, as the National Energy Board, monitor it; we do not regulate it because, obviously, energy production, development and related activities like carbon capture and storage are typically provincial in jurisdiction, and some of your comments, chair, were about federal-provincial jurisdiction. We do not interfere with things that provinces do well, but we keep an eye on them. One day we might regulate a CO2 pipeline if it crosses an interprovincial boundary. That regulation will be an accepted normal action to take, and we will be ready for it. We already regulate a couple of CO2 pipelines.
Mr.Chair, you asked me to talk about jurisdiction and federal-provincial considerations. As we search for energy solutions in the public interest, it is obvious that effective regulation is a strong component of that process. The National Energy Board believes in that regulation, and we never finish our journey of looking for other ways to find the next even small margin of improvement in regulatory efficiency.
Part of being effective as a regulator is being good at engaging the public — the people who have something to say about something that disturbs them about an energy project and listening to the questions they have. In that respect, in recent years, we have launched a couple of initiatives that your committee might want to monitor, and we can send information to the clerk about them. One is called the Land Matters Consultation Initiative. It is well known that anywhere in Canada when a project is proposed and a pipeline will cross land, some farmers and ranchers are okay with that pipeline crossing their land, some are not and some have questions. Sometimes the industry and the regulator are able to answer their questions to their satisfaction. Sometimes we are not able to answer them very well. In an attempt to become closer to ranchers, farmers and landowners, we have been listening to them for many years, and we are beginning to take action, so that when these concerns emerge, they will believe that we will treat them and their concerns with respect and with due consideration.
We have done something similar — a rapprochement, in diplomatic terms — with environmental non-government organizations, ENGOs. We do not know whether they feel that the NEB processes were effective in conveying their thoughts and concerns about energy projects. We made special effort to talk to opinion leaders in the field, listen to their concerns and make our processes even more adaptable, flexible and transparent so that when they come to the NEB for a public debate, it feels comfortable to do so.
You noted that reference was made in the budget speech about the National Energy Board becoming substituted authority under the Canadian Environmental Assessment Act, and this authority is proposed in the Budget Implementation Act with participant funding. We are bit of an anomaly in Canada. We are among the few energy regulators without the legal authority to provide assistance to people who want to speak to the board about their concerns about an energy project. If the Budget Implementation Act is passed, the board will acquire legal authority to provide participant funding to people who have concerns or ideas about major energy projects.
The Chair: Does that authority make sense? Are you pleased with that development?
Mr. Caron: I am delighted, because, as I said, the NEB has been an anomaly. When the concept of substitution was being discussed, we were, of course, supportive when we first heard about it. Under the Canadian Environmental Assessment Act, CEAA, there is a program for certain kinds of proceedings for participant funding. Had substitution been given to us without participant funding, it would have been a lesser situation for those who want to participate before the NEB. We are delighted to see that proposal to Parliament. It is still about the NEB operating under the Canadian Environmental Assessment Act.
The act, as it exists today, allows for the government, the Minister of the Environment, to find a process to be equivalent to the process in the act. What will change, I would say, are the procedural aspects of providing good environmental assessment. The substance is unchanged. We have been providing environmental assessments for 51 years, since Mr. Diefenbaker proposed to Parliament that we exist. We have been providing environmental assessments under CEAA, the legislation, since the inception of the act in 1995. We have 50 out of 350 people who are environmental, socio-economic or citizen engagement specialists to make the process of environmental assessment work smoothly and professionally.
In terms of hearings and the regulation of operation and construction of energy projects, there is virtually no tension between provincial regulators and the National Energy Board. B.C. was used as an example, Quebec's Régie de l'énergie and the Ontario Energy Board — we meet several times a year under the Canadian Association of Members of Public Utility Tribunals, CAMPUT. We talk all the time. We see projects come in. If there are difficulties in terms of federal-provincial-territorial jurisdiction over energy projects, we talk about those difficulties, and I would say that cases of negative tension are few and far between, if any.
To me, the substitution and participant funding initiative is a nice improvement while still ensuring superb environmental assessments and removing the overhead that comes with the process to go into a joint panel review kind of format with a bunch of people involved in writing documents to feed the process.
The last thing I will mention about initiatives is our complete support towards the Major Projects Management Office, MPMO. It is led by NRCan. We sit at the table with other agency heads, including the Canadian Nuclear Safety Commission, CNSC, and we have been working at creating a culture of project management within the federal government that I think is working. We are starting to see the fruit of that collective effort. The MPMO also will evolve, I believe, to engage provincial authorities that want to be part of that journey to also acquire the same kind of focus on project management; to have a budget, timelines and be proud that we meet them. The process will reduce the time spent resolving those big public discussions on energy projects while the debate still goes on and the content is the same or improved.
The Chair: Before you leave the jurisdiction and the regulatory initiatives section, I mentioned earlier and you agreed that the other federal regulatory agency in the field is the atomic one?
Mr. Caron: The Canada Nuclear Safety Commission.
The Chair: Can you tell us where the demarcation is?
Mr. Caron: Between us and them, there is complete clarity, because they deal with the safety of nuclear reactors, which is predominantly federal, and we take care of pipelines, energy exports and imports. There is no overlap between us and them. In their case, in terms of federal-provincial-territorial relations, my understanding, and I cannot speak for them, is that the federation is working well on that side like it is between us and the provinces and territories on the oil and gas pipeline side.
CNSC too will acquire the same kind of legal authority to provide for participant funding, and it will also be recognized under the existing Canadian Environmental Assessment Act to be substituted authority to the same quality of environmental assessments under a simplified process.
The Chair: Is it under CEPA?
Mr. Caron: No, it is a piece of legislation on its own. The Nuclear Safety Control Act was passed in 1995. The act has the same acronym as the agency. I describe the agency and the act as the conscience of the nation in terms of being serious about high quality environmental assessments, the method of environmental assessment, and the necessity for good EA to take place before major energy decisions and other kinds of decisions take place. It is a very nice tool in Canada's toolbox to have an institution and a piece of legislation that requires that you do not do big things without a proper environmental assessment.
This Budget Implementation Act will simply make the whole thing easier to administer and result in savings in terms of what I will call the bureaucracy, respectfully, while maintaining the process and allowing our limited resources to focus on content as opposed to process. It will at least result in environmental assessments, EAs, of similar or possibly improved quality, and the it will cost less in time and money.
The Chair: You had two more slides?
Mr. Caron: No, only one. The slide, ``Toward the Successful Energy Future,'' was my way of saying that I think this committee is undertaking important work, chair, because the committee, in my view, is attempting to define what success looks like. I will repeat even if it means over-communicating that, to me, to talk about sustainability is to talk about integration into one gesture our environmental, economic and social future; integrating them into one thinking process.
It is too easy for anybody to say, I have great ideas on the environmental front, or, I have great ideas on the economic front. Those ideas are easy. What is difficult is to think of Canada's future by looking at jobs, the quality of the environment and social programs together, because they are all interrelated. It takes money and a good economy to have good environmental assessments and to create and support social programs that take care of people who need them. I suggest to you that energy is a big part of that future, and integration is part of energy. I urge you to continue to look at actions that allow us to reach that goal.
You are not playing this game, but the blame game is saying, This is not clean energy, or, You are not doing enough. I will not blame the blamers, because then I would be part of the blaming game as well, but I suggest focusing on the concrete action Canada can take beyond what is already done. Support your institutions that are constantly looking for ways to improve their processes every day, and I hope you find that the National Energy Board is one of them. To me, that focus is on solutions, and that focus is on sustainability. I applaud your work.
There are so many more things I could have said, chair, and I have probably spent way too much time in my opening remarks, but I have this weakness called enthusiasm about things like this study. I applaud your work. If there is anything the National Energy Board can do, we will be delighted to offer it to you. We are not big, but maybe we can help, modestly.
The Chair: We listened carefully to what you said, and we noted when the last witnesses from Statistics Canada were here that you were sitting behind them and nodding your head vigorously when they said you were the man who knew about the reserves. As you said, there were a number of things you did not talk about, and one of them was the reserves. I make that point in case any of my colleagues want to delve into that area. We will go to the deputy chair, Senator Mitchell from Alberta.
Senator Mitchell: Thank you, Mr. Caron. I think we share your enthusiasm. You said that the NEB will probably end up regulating pipelines, and you specified, if they are interprovincial. Any carbon capture pipelines strictly within a province will be regulated by the province?
Mr. Caron: That is the general rule, senator. There are exceptions if fundamentally a piece of pipeline is entirely within a province but is an integral part of an interprovincial network. I will give you an example. In Quebec, there is a pipeline called the Trans Québec and Maritimes, TQM, pipeline. It is all located within Quebec, but it is part of the TransCanada pipeline network. We regulate that pipeline because it is so connected with TransCanada pipelines that it makes sense for NEB to be the regulator. It makes the federation work better.
The general rule, as you say, Senator Mitchell, applies if the pipeline is within a province, if it is a CO2 pipeline, and those pipelines are proposed now. There are plenty of them. I have my own list here, and it is not complete, but the ones I have seen so far are all provincial, senator.
The Chair: You are talking about a CO2 pipeline?
Mr. Caron: I apologize. I am speaking like an engineer. Carbon dioxide is the product that they inject into the ground when they do carbon capture and storage.
Senator Banks: Like the one from North Dakota to Weyburn.
The Chair: I understand that but we are not talking about carbon dioxide as a specific name for a pipeline.
Mr. Caron: I apologize for my use of the name of the chemical formula for carbon dioxide, which is CO2, and it is often referred to in our circles as CO2, but it is a carbon pipeline.
Senator Mitchell: Some argue there is danger in trying to sequester carbon dioxide or using it for enhanced oil recovery. The argument is made that it will not stay there, but that seems to me to be counterintuitive; it is heavy but it is under pressure. However, it is also true that it replaces gas that has stayed there for billions of years. What is your assessment of danger, or have you assessed it?
Mr. Caron: The NEB has not done an independent assessment. We are back to the point about jurisdiction. We know there are competent provincial authorities dealing with that issue.
However, my sense overall is that the debate is ongoing about that issue, and I think it is a healthy debate. If citizens are concerned about these things, I think it is good that they express themselves. It is also a good thing that corporations, governments and regulators respond to that concern as best they can.
Since most of the projects are still at the development stage and we do not have a large number of operational facilities like that yet, I think the timing is perfect in the sense that both the science for safe storage and the commercial dimensions will probably evolve together toward a societal outcome that is acceptable to all.
I do not know that one can stop the trend. One can have the trend affected in terms of rate of growth of the business. That is what I would say, Senator Mitchell. I do not have authoritative knowledge that will bring closure to the discussion. It is a valid discussion and I think it will be resolved.
Senator Mitchell: On two graphs, you indicate ``coal'': graph 4 of demand outlook, and graph 6, which is the amount of its relative use in the generation of electricity.
Mr. Caron: That is right.
Senator Mitchell: What strikes me in graph 6 is that the amount of coal does not seem to be reduced all that much by 2020 — the reduction is not insignificant, but not all that much — whereas the reduction seems much greater in graph 4, which goes to 2030.
However, if it does not reduce in coal-generated electrical plants, where it does not seem to reduce that much, where else will it reduce to give the kind of graph that you have on page 4? Does that make any sense?
Mr. Caron: I understand your question fully, and I wish I had an immediate answer. I was trying to blame the scale, but I cannot do that.
Senator Mitchell: It is being pinched there; it is not relative to its start.
Mr. Caron: My sense, as your question infers, is that when we look at the coal consumed today, it has a lot to do with electricity generation. Therefore, I cannot answer that question right now. Instead of speculating, I will undertake to advise Ms. Gordon of the answer my staff can find.
Senator Mitchell: A follow-up to that question is that Minister Prentice has recently announced — I do not know the details of his announcement or how specific he is about reaching this goal — that he wants to see coal-fired plants weaned off coal and on to natural gas. It seems to me, when I look at the electrical generation graph, there is not much of that change taking place in that graph. Is the reason only that Mr. Prentice's announcement has not been considered in this graph?
Mr. Caron: I can guarantee the announcement has not been considered. This work is something we did some time ago, based on the consensus knowledge out there between industry and academia. As a policy shift, it would not be reflected. Directionally, as this vision is implemented, we should expect the narrowing of the width of the band to increase, other things being equal — and we know it is not.
I will repeat that a thing I have learned over 30 years about forecasts is that they are all wrong, but they can give us a plausible future. This example is a good one of why these forecasts are already outdated.
Directionally, the band will shrink more and something else will take its place. Given Canadian values and the potential pricing of carbon in the next few years, clean energy sources will occupy more space, proportionally, over time than the others —
Senator Mitchell: That is revealing.
Mr. Caron: — which is where we want to go.
Senator Mitchell: I do not notice shale gas here, and I notice that demand for natural gas on chart 4 is basically flat. The chart does not seem to reveal that shale gas might become a bigger factor, and that bar could begin to spread. Is that, again, only timing in your data?
Mr. Caron: In this case, it is timing and it is also the fact that it is a bit early to have a clear view on the future of shale gas. I will confirm what the Statistics Canada people told you. I will not modify that information, although their focus was on the present. That is why I was listening with interest to your questions of Statistics Canada.
Chair, you picked up from my body language that I want to tell a story about shale gas. In 2009, our estimate was that Canada produced about a half billion cubic feet, BCF, a day of shale gas. To give you a sense of proportion, today Canada produces, on a daily basis, about 14 billion cubic feet per day of natural gas. Production has been declining for various reasons, both the geology and the economy, and it is hard to separate the two factors.
In 2009, half a BCF per day came from shale gas. When our staff talk with people about the future of shale gas, in 2012, the first year for which I have data here, shale gas could become five times bigger, 2 BCF per day. This production is over the Western Canadian Sedimentary Basin and a Sable Island gas production area which, in terms of production without shale gas, has a tendency to go down because of the geology and factors like that.
In 2020, production of shale gas could be, according to these numbers, 4.3 BCF per day. For those interested in the breakdown, that number includes lots of production in B.C. of shale gas — Horn River and the Montney formation — they have the lion's share of shale gas. Alberta, in terms of Duvernay and Colorado Shale would have 60 million cubic feet, MMCF, per day. Quebec's Utica formation would have 100 MMCF.
Those numbers are consensus views, so I would not bet on them individually, but the point is that shale gas from its present production of about 0.5 BCF per day could become ten times bigger by the year 2020. For a sense of proportion, 4.3 billion cubic feet per day, in terms of natural gas, is equivalent to the gas that will be carried by an Alaska Highway pipeline if it is built. We are talking about big amounts in terms of potential.
Various factors will influence that production. I do not subscribe to the view necessarily that gas other than shale is on the way down dramatically. It is hard to know what the upstream sector will want to do in terms of investing in not only shale gas, but more traditional areas of gas discoveries.
The price of gas will be the signal to people who want to drill holes and do seismic work. We do not know what that price will be. At $4 per thousand cubic feet, MCF, as it is today, I am not sure the market sees things clearly as to the future of natural gas. I hope this is responsive.
The Chair: So BCF is billion cubic feet, and MCF is million cubic feet.
Mr. Caron: No, MCF would be a thousand cubic feet per day. If you go into million, you say MMCF per day.
The Chair: By 2012, did you say the production of shale gas will be five times greater than today? Do I have that right?
Mr. Caron: I will give you the more detailed numbers since you are interested. In 2009, the number I have here for Canada is 428 million cubic feet per day.
Senator Mitchell: It is 500,000 right now, or you said recently?
Mr. Caron: No, for 2009, it is 428 million cubic feet per day, but then I jumped quickly to call this 0.4 or 0.5 BCF, which is a billion cubic feet per day. It is a factor of 1,000.
Then in 2012, I said five times bigger because the exact number I have — keep in mind it is a forecast — is 1,982 MMCFD, or a million cubic feet per day; and 2020 was 4,320 MMCFD.
Shale gas has been among the most pleasant surprises I have seen in 30 years watching the energy sector. There was lots of talk about coal bed methane a few years ago. Then people went sideways on coal bed methane, although it is still a sizable proportion of gas production.
Now shale gas has been called a ``game changer'' for good reasons in that people did not see it coming. Its production is thanks to technology, to a large extent — horizontal drilling and favourable alignment of planets. That is all I can say to explain.
Senator Mitchell: To produce 1 BTU from burning coal versus 1 BTU for burning natural gas, shale gas, petroleum, is there a difference in the amount of greenhouse gases, GHG, that are emitted? To produce a BTU by burning a fossil fuel, no matter which fossil fuel it is, does it have the same emissions? We know that natural gas is cleaner in other things.
Mr. Caron: The answer is no, because of the chemical composition. Natural gas is mostly methane and the molecule is not CO2, it is CH4, one atom of carbon and four of hydrogen. If we go into more complex molecules, we have bigger molecular entities that produce more than only the plain energy that methane can be seen as producing. I would say that the environmental outcome of burning hydrocarbons, 1 BTU, is different, which is why natural gas is so favourably perceived. At today's prices, I am not sure that the environmental externalities are built in. One can safely assume that the United States, for instance, will want to take some action about coal-fired production of electricity. I do not know when, and I do not know what kind of courage it takes to tackle that issue, but if we believe in sustainability in terms of the planet that does better by integrating social, economic and environmental considerations, natural gas is bound to have a future that is at the margin, more promising, more complex molecules of hydrocarbons. As I said in my first reality check graph, until 2030 we need all we have. What we need to do is, every time we have a chance to reduce the environmental footprint of a hydrocarbon, let us do that. The oil and gas sector is doing that. They are investing heavily in the environmental footprint of things, such as investing in oil sands. Day after day, it takes a little less energy to produce energy compared to the previous day. Of course, the journey includes doing all we can to create conditions where people invest in renewable technologies as well. It is a long, patient journey that I suggest should be focused on solutions, as opposed to calling energy sources more or less clean.
Senator Banks: I will almost bootleg a question to the regulatory aspect of what you do. I have an interest in that area. My uncle by marriage, who was an Oklahoman, moved up here and established, or continued, a pipe-pulling business from wells and pipelines. I worked for him for a while and then I worked for Northwestern Utilities in the summer, in a job relating to pipeline security and safety on the gathering network of pipelines around Tofield, Alberta, which feeds into the national system. I became acquainted, as a matter of course, with the farmers and ranchers over whose land those pipelines run. You talked a moment ago about regulating the circumstances around abandonment of pipelines. Every once in a while, pipelines need to be abandoned. All pipelines leak in one way or another. When a pipeline of any length is abandoned, there is environmental degradation. Where does the responsibility lie for the stewardship? Farmers and ranchers are stewards of the land by necessity. When a pipeline is abandoned and it needs to be closed up, left in place or taken out, depending on your determination, are the landowners over and through whose land this pipeline runs, and over which question they had nothing to say — they can have things to say about the terms and the extent to which they will be compensated for the use of their land and the rights of way and all of that — are they saved harmless from cost in an abandoned pipeline?
Mr. Caron: Senator Banks, one of the great outcomes of our Land Matters Consultation Initiative was that after listening and sharing perspectives of landowners, ranchers, farmers, the industry and ourselves, that responsibility became clear. The industry said that they assume responsibility before they can abandon a pipeline. They assume responsibility to return the land to a state consistent with its intended use. I do not have the correct words. We have authoritative language in our final report on the Land Matters Consultation Initiative.
As a regulator, we feel we also have accountability in that we will not authorize abandonment until not only we see in the whites of the eyes of a company executive a commitment that they have done what needed to be done, but that we independently assess that to be the case. I cannot tell you tonight, Senator Banks, that this commitment will guarantee the absence of civil litigation down the road. Courts will resolve that question. I can say that there is a commitment on the part of the energy sector and on the part of NEB to return the land to a state that is consistent with its intended use. I do not recall the exact wording, but this is what we said. I hope that at least partly answers your question.
Senator Banks: It does, but subsequent litigation aside — that will be extraordinary, I think — the cost of the process under your regulation of returning the land after the pipeline has been abandoned is entirely that of the owner of the pipeline?
Mr. Caron: That dimension of your question I neglected to answer. Another great outcome of our Land Matters Consultation Initiative is that we decided to initiate a financial process comparable to the nuclear industry, whereby pipeline companies must accumulate over time the financial resources to take care of that process. We have consulted on that process more recently. Now we are at a stage where there are technical workshops on the basic assumptions. It is a complicated field. We are doing that. We are tackling the matter for the first time. We started about a year and a half ago. It was one of the four streams of our Land Matters Consultation Initiative. I will not say we have it nailed in terms of final outcome but we have it nailed in terms of determination and resolve to make that process a reality where money is set in a trust or somewhere like that where, when it is time for companies to take care of an abandonment situation, companies have the financial resources to take care of that cost, under our watch.
Senator Banks: Not to put too fine a point on it, but if I am the landowner, I will not bear any of the cost of that return?
Mr. Caron: That is right.
Senator Neufeld: Thank you for your great information. I have great respect for your organization, having had a lot of interaction with it in British Columbia.
I want to talk about delegating the environmental assessment. I know that you carried out environmental assessments before, but this process is going one step further. Now they are delegated. You carry out the environmental assessment and it is totally completed; it is finished. Can you assure me that CEAA cannot come back and say, as it has in many cases, We need more information; we want to reopen this assessment? When you complete your environmental assessment, I hope the matter is finished.
Second, I attempted to convince the minister that we should have that same delegation transferred to provinces if they have an environmental assessment that is equal to, or better than, the federal one. So far, I have not been able to convince the minister to transfer that delegation to provinces, or CEAA to transfer that delegation, but at least they have delegated to you. Can you tell me with all confidence that once you have finished an environmental assessment, it is finished? I have seen it happen the other way too many times.
Mr. Caron: We have not seen the details yet. The first step is for the Budget Implementation Act to pass. I do not want to be presumptuous about what follows. My anticipation is that the decision as to which is the right process, the CEAA route as opposed to the NEB route, is made early in the process. That is, if the NEB has a substitute authority in a case, which I believe will be the vast majority of cases, we take the matter all the way to the federal cabinet for a government response to the proposal and then go back for the proposed certificate of convenience and necessity, if one is recommended.
I suggest that if the NEB starts an environmental assessment, it will finish the environmental assessment and go through the same validation with the Governor-in-Council in terms of a government response to the proposal, as we have done all along under the legislation. The risk of NEB providing an environmental assessment and having someone say it is not good enough, in my anticipation, will be nil. There might be cases where it is preferable for a joint panel review to be held, as opposed to relying only on the NEB's authority to provide that assessment. I cannot speak to that point. I do not know how the details will unfold. One thing I can tell investors or proponents is that if the board starts the job of a great environmental assessment process, it will finish the job.
Senator Neufeld: As I understand it, the ministry will make the decision of what route the environmental assessment will go.
Mr. Caron: That is right, at the get-go stage.
Senator Neufeld: I will watch carefully and hope that, at least on the interprovincial level, it will work that way, and we will see what happens.
I want to ask about the Major Projects Management Office. You talked a bit about it. I was part of a government when that office was created to move forward huge projects in the province of British Columbia that, I might add, are still at a standstill; pretty well all of them. There are about 50 projects across Canada; 25 are in British Columbia and are still at the same standstill.
In what capacity do you work with the Major Projects Management Office? Those projects are usually mines specific to a province, not anything that transverses a border. Can you explain that relationship to me?
Mr. Caron: The NEB is simply one of the players at the Major Projects Management Office table, being part of the creation of a culture of project management. The NEB, when working alone, already has a project management attitude. We are proud that we meet most of our service standards. We published in our annual reports, Senator Neufeld, how long someone can expect to wait between the end of a hearing and when they will have our decision.
Where this time becomes more of a challenge is when we depend on each other — the NEB, the Department of Fisheries and Oceans, Transport Canada and other departments. The Major Projects Management Office has created a culture of wanting to work as a team better than we have ever done before.
In answer to your question, the NEB was there at the design stage to create the MPMO. We were ardent supporters for creating the MPMO, and it becoming operational. We lent our staff to the process. We have seen the MPMO grow. We describe it now as at least a teenager; it looks like an adult and is capable of creating great conditions for project management.
Now that we are more at the operational stage, we are at the table when a project is an NEB-regulated project. The Northern Gateway Pipeline Project, for instance, is on the radar screen of the MPMO. When the application is filed, which we expect imminently, a clock will start ticking. The NEB, as well as the other players, will have its share of accountabilities to meet the standards of timeliness and quality that we assign to ourselves through a project agreement.
You are right; many projects are not NEB-related, so we abstain from participating in discussions in those cases.
The Chair: Can you mention the other people who are at the MPMO table?
Mr. Caron: All the federal departments and agencies involved in mines projects are there.
Senator Neufeld: They are all feds. The MPMO was created to deal with a backlog of major projects, not only in British Columbia, though most of them were in British Columbia and still are. They cannot seem to finish the environmental assessment. You name it; a multitude of factors held things up for years, and in fact still do. This office was created by Ottawa to hustle this process along. I am happy that these people are there to give advice as to how that process should work.
I will talk a bit about pipelines and what happens to farmers who have pipelines crossing their land. I am familiar with that situation and I have tried to deal with it. There is degradation, regardless of how well they do it. We can see it in farmers' fields. All we have to do is look at a seeded field after a pipeline has gone through, for the first 10 years and maybe even longer. There is a farmer in the crowd who might help us talk about that. It takes a long time for that land to heal. Regardless of how well they remove the topsoil and put it back again, there is heat that was not there before, which affects the growing to a degree, but also the land is disturbed. It is a huge problem.
I assume you work closely with provinces, such as Alberta, Saskatchewan and British Columbia, on the pipeline issue as to how it affects the landowner. You are going out on your own and having consultations, which is great, but are you incorporating some of the knowledge that those jurisdictions have in dealing with these issues?
A pipeline was built in the early 1990s from Fort St. John to Chicago. I cannot remember the name of it.
Mr. Caron: It was the Alliance Pipeline.
Senator Neufeld: Thank you. That pipeline was an NEB responsibility.
Mr. Caron: Yes, it was.
Senator Neufeld: I still have farming community people who were after me before I left the province, complaining that that land was never rehabilitated to the same degree in British Columbia as it was in Alberta. It is perhaps a good thing to let you know that, and that people, where I come from, are having trouble with the NEB saying: Leave it with us; we will look after it.
I am not trying to be negative. I am only trying to warn you that the issue is there. The farmer has taken me out in the field in the last five years, and he can show me.
Mr. Caron: Thank you, senator. I am aware of the situation you described.
The Chair: Some senators have asked me whether I should swear in Senator Neufeld as a witness. Maybe you can at least confirm or deny the accuracy of his testimony.
Mr. Caron: I will confirm that relationships among pipeline companies, landowners and the National Energy Board are works-in-progress. The board is the first to admit that situation, and I think companies admit it as well. The dialogue is unfinished.
In terms of provinces, our Land Matters Consultation Initiative was fully open and public, and provinces were invited to participate. Some chose to; some did not have that initiative as a priority. I do not recall to what extent B.C. was engaged, but they were invited and this initiative was an open process.
On the issue of the land being in a state that is not satisfactory to the landowner, among the things we have improved is our landowner direct line. Landowners are encouraged to call our 800 number. Our role, at least initially, is to facilitate the conversation. If that conversation does not work to the satisfaction of the landowner, they can go to the next stage of adjudication and intervention.
Senator Neufeld: I will take your card and give it to the gentleman I am talking about.
Mr. Caron: I would be delighted. We probably know him already, though not myself personally.
Am I happy with the progress we have made: no. Do I think we can do better: yes. Will I ever give up: no.
The Chair: Now we will hear the farmer's perspective.
Senator Brown: Thank you, sir. I wanted to ask you about your chart 3, where you show that the zero-carbon fuels will go from about 13 per cent up to 32 per cent, which will be a 19-per-cent increase and will overtake fossil fuels at the 2030 mark. Am I reading that chart correctly?
Mr. Caron: No; thank you for asking. In fact, my scale is not clear. The dotted line refers to the scale on the right side. It is the proportion of the energy needs of the world met by zero-carbon fuels. The dotted line adds up to 33 per cent. That is what I was trying to say. In 2030, a third of our total energy needs will be satisfied by non-fossil sources.
In answer to your question, if you want to see the growth of zero-carbon fuels, you look at the lower line, the one that begins at 2,000. The scale is megatonnes of oil equivalent, Mtoe.
Senator Brown: I calculated 19 per cent growth.
Mr. Caron: We go from 2,000 to 4,000 something, so it doubles. That scenario includes nuclear.
Senator Brown: I see. That is what I wanted to ask you about. What is packaged in zero-carbon fuels? Uranium is there, nuclear is there, along with wind and hydro.
Mr. Caron: Hydro is there as well.
Senator Brown: That makes it clear.
Mr. Caron: The upper dotted line is what we know as fossil fuels. In terms of broad categories, that category includes coal, natural gas, oil and oil products.
Senator Brown: As the farmer in the group, I back up what Senator Neufeld said. It seems to be funny; the only pipelines that were on my farms were 10-inch water lines for my pivots. They were plastic pipe. We dug them ourselves with wheel diggers and pushed them back in. For years, more grew over the pipelines than before we put them in.
When we deal with the energy going through pipelines, Senator Neufeld is correct in saying crops do not grow as well over the pipelines, no matter how the soil is replaced. I do not know why the difference is there, but I know that is my experience over 25 years of irrigation.
Mr. Caron: We hear those stories as well. I cannot tell you the proportion. There are many places also where the land seems to have recovered fairly well, and we do not hear stories about those farmers being happy as much as we hear about those who understandably have concerns. Our job is to listen to everyone.
Senator Brown: Do you have any staff trained to be the opposite of land men? My wife and I were co-chairs of Olds College Campaign for a long time and they put in a big study of production of land men to deal with the oil companies. Do you have anyone to work with the farmer on the opposite side of the question?
Mr. Caron: We do. We have people who — using the technical expression I have described — have been trained in appropriate dispute resolution, which is mostly about good listening skills and trying to find win-win situations. Sometimes there is a bit of history between the landowner and the pipeline company. Sometimes the mutual listening can be a little shy of what is needed for consensus. We have people who are well trained to do that. Sometimes it works, sometimes it does not. As I said, we never give up.
Senator Peterson: Thank you, sir, for your presentation. Under the topic of energy security, it says the federal Energy Supplies Emergency Act and the Emergencies Act provide a means to conserve the supplies of energy within Canada at a time of national emergency caused by shortages, et cetera. Can we do conserve that supply under the North American Free Trade Agreement, NAFTA?
Mr. Caron: NAFTA determines the extent to which we can. You were referring to pieces of legislation, were you not?
Senator Peterson: The mere fact, yes, that the acts allow the federal government or Canada to conserve energy. My understanding is that, under NAFTA, we cannot do that.
Mr. Caron: NAFTA has specific provisions that I cannot recite to you. The provisions are about, in cases of shortages, the proportionality of where the supply goes. As two fair trading nations, in the case of shortages, which are intentionally about short-term situations, NAFTA, as I understand it — and I am not an authoritative adviser to you on that — is about a share of limited supply, based on the history of the flow patterns.
These provisions have never been tested, at least that I am aware of in my history of working with the board for 30 years, because given the fact that we are open traders, that we are an open nation, inevitably the systems of energy distribution between two countries are redundant in many ways. We have many more than one pipeline flowing from one country to the other, and the corporations are quick.
For instance, say a compressor unit blows up, which is rare. Say a compressor station is malfunctioning and the flow of a pipeline is reduced by half. Immediately, red phones operate all over North America to help each other to regain the capacity they have lost in terms of pipelines.
In terms of supply of the molecules of hydrocarbons, the hydrocarbons come from so many different places that it is hard to envisage how a crisis can emerge without us seeing it. Again, we have the benefit as a nation of a diverse supply mix between energy sources and also within hydrocarbons. We have pipeline companies that have learned to cooperate. They can be competitive to gain market share, but on a bad day, when there is some emergency, they are good in terms of collaboration to overcome the short-term difficulty.
I know that is not fully responsive. I cannot tell you how I would manage a NAFTA situation. I have not had to. I know where to find the provisions and how to intervene quickly and ensure all the laws of the land are complied with.
Senator Peterson: If we are doing a study on energy in the broadest sense, that is something we should have an opinion on. It could affect the study.
Mr. Caron: I do not think the board can do that within legal dimensions, but I can validate that information. If the issue is on your mind, it should be examined.
The Chair: What is on his mind are the reserves of uranium.
[Translation]
Senator Massicotte: I do not want to repeat the comments that have already been made. As members of this committee, we have received a number of e-mails from owners who are unhappy. In a way, that is normal; you cannot please everyone. People have even started a magazine to reflect all the dissatisfaction.
Mr. Caron: I have seen that magazine.
Senator Massicotte: You must be aware of it. As you say, the challenge is there and the work is underway.
I would like to go back to the chart called ``The World's Hydrocarbon Reality''. It shows the rate of zero-carbon fuels going from 6 per cent to 12 per cent. If we follow the black line, we see that the rate is now 30 per cent. How can it go up to 31 per cent when the green line is just at 12 per cent? Where is the other 18 per cent?
Mr. Caron: I can see that my graph needs to be improved because that is not what I wanted it to show. The dotted line in the middle, between the two solid lines, refers to the right axis, the percentages. If you follow the dotted line, you see that, in 1990, the percentage of zero-carbon fuels was 18 per cent. In this scenario, this will increase to 33 per cent in 2030.
When you are following the solid, continuous lines, you have to look at the left axis.
Senator Massicotte: You mean the green and red lines on the left.
Mr. Caron: Exactly. The lower line indicates that, in 1990, zero-carbon fuels represented about 2,000 megatonnes of oil equivalent in terms of satisfying the demand. In 2030, those zero-carbon fuels will represent 4,200 megatonnes.
Senator Massicotte: That figure of 4,200 represents the amount of zero-carbon fuels in 2030.
Mr. Caron: Yes.
Senator Massicotte: So, if I understand correctly, it is 10,000 for fossil fuels.
Mr. Caron: Exactly.
Senator Massicotte: But they both represent 30 per cent in 2030?
Mr. Caron: No. The dotted line shows the percentage of the total represented by the lower line.
Senator Massicotte: But the two are at 30 per cent in 2030.
Mr. Caron: No. The 30 per cent is just for zero-carbon fuels. You have to add the two lines to get the world's energy consumption. If you add the two, you get the total. The lower line represents 33 per cent of the total. I realize now that this graph needs to be made better and clearer. I am sorry for the confusion.
Senator Massicotte: Your mandate is to make sure that there is some fairness between the players in the various sectors. Do you have a mandate to work towards a vision or sell one? Is it to make sure that those players fill the needs?
Mr. Caron: Yes. Our vision is to be impartial. Our only goal is the public interest. Since we are morally and legally a quasi-judicial body, it is obligation to keep an open mind until a debate is over.
In public hearings, when we are hearing from environmental groups, owners, farmers and businesspeople, our duty is to pay careful attention in order to understand everyone's opinion. When everyone has made their case and have nothing more to say, we begin our deliberations.
Senator Massicotte: With your committee?
Mr. Caron: The act allows for three people to make decisions on behalf of the Board.
Senator Massicotte: Are those three people part of the 12-member committee?
Mr. Caron: The act allows us to have nine permanent members and up to six temporary members. At the moment, we have seven permanent members and five temporary members. Those people are appointed by the Governor in Council, and, from them, we form groups of three who have the legal authority to make decisions on behalf of the Board.
Senator Massicotte: What areas do these permanent and temporary members come from? Do a number of them come from oil companies or are they consumers?
Mr. Caron: The government has done an excellent job. It has managed to find people from all across Canada with very varied backgrounds. We have lawyers, environmental experts, economists, and I myself am an engineer. We have a staff of 350 with experience in engineering, law, economics, accounting and finance. Our mandate is very cohesive.
[English]
Senator McCoy: You may have covered this while I was out of the room encouraging the people from Statistics Canada to pursue the questions on the data side, but I heard you mostly talking quickly about interprovincial pipelines and international pipelines and the regulation thereof, certainly on the facilities side.
Mr. Caron: Yes, that is right.
Senator McCoy: Do you issue operating permits?
Mr. Caron: Yes, senator. If we find a project to be of public necessity, we issue a certificate saying so.
Senator McCoy: Is that certificate renewable annually?
Mr. Caron: It is in effect for the duration of the life of the project.
Senator McCoy: Is it an operating certificate or a certificate that says they can now operate? Do you monitor the operations of the pipeline?
Mr. Caron: Our mandate, senator, is for what we call full life cycle. We regulate, to some extent, the manner in which a company must consult with the public before they can even apply to us for a permit or a certificate. We entertain the public debate about the project through the hearing process. We retain jurisdiction in those cases where we approve the project and, therefore, we monitor and audit construction of the assets. We monitor the safety, environmental and economic aspects of their operation, and we actively monitor the abandonment of these pipelines so that the land is returned to a condition consistent with its intended use.
Senator McCoy: On electricity transmission, have you moved to regulate interprovincial electricity ties?
Mr. Caron: No, we have not. Our mandate is clear in that we regulate the international power lines. We regulate 1,400 kilometres of lines, compared to 71,000 kilometres of gas and oil pipelines.
The NEB Act stipulates that the board will regulate interprovincial power lines so identified by Governor-in- Council, and it has not happened once in 51 years.
Senator McCoy: We are talking then about international lines. Am I right that those lines are the ones going from Quebec south, Manitoba south and B.C. south?
Mr. Caron: Yes, senator; in fact, I would say south-north, north-south in that there is a bilateral trade in electricity where the two countries benefit from open borders.
Senator McCoy: Precisely what do you regulate? Do you regulate the construction, the operation and the abandonment, if such a thing happens?
Mr. Caron: We regulate comparably to pipelines save for the tolls and tariffs aspect. For pipelines, we regulate how much a pipeline company can charge its shippers, which is under Part IV of the act. There is no equivalent to Part IV of the act for international power lines.
Senator McCoy: How are export commodities regulated? Electricity is perhaps not the same thing. You used to issue export permits for the commodity on the oil and gas side. Do you still issue those permits?
Mr. Caron: We still do. Much of the trade nowadays is short term, so it is a light-handed style of regulation. To export gas, electricity or oil on a short-term basis, it is a standard procedure with the onus on those opposing the export to intervene, but it is hard to imagine that intervention would happen because the export is of a short-term nature.
For long-term exports, we still have in our act the obligation for an exporter to acquire a licence. The style of regulation changed a little between the three commodities, but the licence is a bigger deal in terms of exporting. It gives the holder of the licence more certainty about their ability to export over a long term. However, it comes with a process that is more substantive and includes broader public interest considerations, mostly about fair market access and regulation by complaint and ensuring that Canadians are given a fair chance to have service on terms no worse than Americans in the case of Canada-U.S. trade.
Senator McCoy: You used to make a determination of how much resource and reserve there was before you would license that amount.
Senator Lang: My first question follows up on that of Senator Neufeld about environmental assessment and the fact that the National Energy Board will have a clear line of responsibility. Will timelines be built into these hearings? Will timelines be applied by law so that they have to be adhered to, or will it be at the discretion of the proponents and other players, depending on the type of facility or energy project?
Mr. Caron: We do not know yet. Our intention is to substitute NEB processes for others. I can say that under the MPMO initiative, we are monitoring every month how long projects take compared to what is stipulated in the project agreement. Any major project is the subject of a project agreement under which every agency and department accountable for action signs off that they will take that action as follows.
The NEB, on its own volition, has been reporting on its service standards for many years. For instance, for a public hearing involving a pipeline project, our service standard says that 80 per cent of the time our decision with reasons will issue within three months of the end of the hearing.
Whether this standard will become a legislated requirement, I do not know. I do not know what the wishes of Parliament are in that respect, and I do not think it is part of what is currently before Parliament, so I cannot speak to that issue.
Senator Lang: I was asking whether timelines could be set by regulation. We have all grown old watching the Mackenzie gas pipeline, and as far as I know, no definitive decisions have been taken or will be taken. That situation is of concern to me, and I want to register that I think there should be regulated timelines to which all players must adhere. A nice guy might be in charge today but what happens when someone else takes over?
I also want to talk about reserves. In your forecast for reserves, you indicated that we are looking at a 20-per-cent increase at least in the requirements for energy by the year 2030.
Mr. Caron: That is for the world.
Senator Lang: Yes; obviously, we hope to play a part in that increase. Perhaps you can outline the reserves we are able to provide and will continue to provide for export and for national consumption. Perhaps you can include a comment about the Arctic's potential reserves.
Mr. Caron: Being an engineer, senator, I will speak in terms of the amount of energy flowing through pipelines to markets. I spoke to shale gas earlier in response to Senator Mitchell's questions. I will not repeat that information. We have enough natural gas reserves to meet Canadian requirements for as long as the eye can see, in terms of domestic requirements. We live in a 14-billion-cubic-feet-per-day world. Shale gas will change the dynamics. According to what we see and what people have forecast for the future, Canada is bound to have the natural gas it needs for decades. Proportionally, all things being equal, exports to the United States are approximately one half our current production of 14 BCF per day. This amount will go down proportionally. I do not believe other things will be equal. If the use of natural gas increases as a result of the environmental direction of society, then the resource will become scarcer and the price will go up. More people will want to invest in drilling and seismic work, and more gas will be found. It is hard to envisage economically a finite amount of resources in the ground because technologies, market signals and entrepreneurs being what they are, more resources can be found if the price is right.
The figures for oil are a bit different but comparable. Currently, if I round up a little, Canada has enough reserves to produce 3 million barrels of oil per day, including the oil sands. The oil sands represent about one half of that amount at 1.5 BCF per day. Looking at the future, we can envisage oil continuing to produce at those levels, if not higher, and the oil sands representing a bigger proportion.
Senator Lang: Will they double?
Mr. Caron: They could double. I do not have those numbers but I will provide the clerk of the committee with information on the anticipated growth in the oil sands component of our capacity.
Canadian demand for oil is 1.7 million barrels per day. We produce more oil than we need to consume. Canada is tremendously advantaged in terms of oil and hydro. We export about 1.8 billion barrels per day and we import 0.8 billion barrels because it makes more sense economically to export from Western Canada and import to Eastern Canada. The net oil exports are about 37 per cent.
To give you a sense of proportion, the wells produce about 3 million barrels per day. The world produces about 86 million barrels per day. That production puts Canada in a positive position as an oil-producing nation, given how small we are as a population. Proportionally, the U.S. would want to produce 30 million barrels per day. That would change completely the equation of who supplies oil to the world.
The Chair: For clarification, we produce 3 million barrels of oil per day. Canada demands and consumes 1.7 million barrels and exports 1.8 million barrels. That total comes to 3.5 million barrels.
Mr. Caron: We also import 0.8 million barrels. The net exports represent 37 per cent of what we produce.
The Chair: Where do we import oil from, Venezuela?
Mr. Caron: We import from Venezuela and other countries.
Senator Lang: I want to pursue one other area. I am not sure where the NEB plays a role in this area but we talked about diversifying our exports. Currently, we export to the United States. I believe that EnCana is the proponent of a potential pipeline to export oil.
Mr. Caron: The project to which you refer, Senator Lang, is by Enbridge to build the northern gateway project, which we expect to be filed within a month or so. It proposes to go straight west to make oil available on the Pacific coast for possible export.
The project is not before us yet, so I can speak about it. Once it is under consideration, I am unable to speak about it. The board is ready. A joint panel is set up between Minister Prentice and the NEB to listen to Canadians about the proposal in an orderly fashion, one community at a time. We have a panel and a team ready to go. However, we still do not have an application to consider. In terms of diversity of markets, the role of the NEB is to assess fairly in the public interest, after hearing from Canadians, the pipeline projects that should be considered for approval. That is our job.
Senator Banks: Following Senator Lang's question, will you express an opinion, or state a position, on the value- added factor? We export more crude oil than we export refined oil or petroleum products. We export bitumen to China or wherever, where jobs will be created and value will be added to the product and it will be sold at a much higher price. You are concerned with national interest. Would not the national interest be much better served if we extracted the resource, processed it here and exported the finished product? It would cost more, but in the national interest, should we not move away from being hewers of wood and drawers of water and produce more value-added products in our country? Is that under your bailiwick?
Mr. Caron: Your question, Senator Banks, is an excellent demonstration of the meaning of sustainability. The NEB was asked by Mr. Diefenbaker in 1959, and Parliament agreed, to look at things with regard to all relevant matters as determined by the NEB, independent of all others. The board is considered independent and must have regard for supply, markets, economic feasibility and any other factor that its members believe to be relevant.
It has been the case in our hearings that sometimes the question you pose has been offered to the board. When the board is asked to approve a pipeline with perhaps numerous jobs created versus turning the project down, the board looks at that issue and builds it into its determination of the public interest. It is looked at on a case-by-case basis while integrating all matters relevant by a panel of three board members. There is no pre-assigned answer to whether it is good or bad for Canada to allow lower or higher value-added initiatives or pursuits to occur in Canada. This answer becomes part and parcel of the public interest. We do not have such a policy, if that is part of your question. We have to walk in the hearing room with an open mind and listen to the proponents, to the unions, to everyone else who has something to say about the proposal. At the end, we say, thank you; and then we deliberate and make a decision.
Senator Seidman: I want to ask another question about electricity. We have said that electricity markets are regulated by each province. A witness before this committee suggested that provinces can benefit from more electricity market integration; where households in one province can purchase electricity from another at a de-regulated market price.
Is it possible for you, perhaps, to discuss the feasibility of that kind of integrated market among provinces?
Mr. Caron: It seems to me that is the role of public institutions, such as the NEB but also the provincial counterparts; it is the role of public regulators, to be more specific, including the Régie de l'énergie in Quebec, the Ontario Energy Board and the NEB. I think as regulators not in the policy field, our job is to create an environment where investors and the marketplace can work. If it is of benefit to Canada that there is more market integration, I think the role of the regulator is to grant that.
By the way, as I mentioned to, I think, Senator Banks, a regulator cannot have a predefined view on whether things are good or bad. We must hear the case. After we hear from everybody, then we may have an opinion.
In terms of market integration, the job of regulators, including ours, is not to be in the way of economically efficient choices made by the marketplace. If regulation is an obstacle to integration, I would say, ``Houston, we have a problem.''
I do not know right now that lack of regulation or excessive regulation, senator, is part of the reason for the level of integration we have today. Some of situation might be the natural outcome of economics. I am not sure that the market would not have found a way to integrate more if there was a way to integrate and regulators had prevented it.
I could be wrong because we do not operate in the field of interprovincial trade, so I am not giving you advice on whether or not there is a role for regulators to promote, provincially, or otherwise affect trade. At the least, I see the role of regulators as staying out of the way when the market is attempting to find a solution to integration.
I agree with the premise of your question: Integration almost always creates benefits, economically and environmentally, thanks to the theory or the concept of comparative advantage. I hope that answer is, to some extent responsive, senator.
The Chair: Good question; thank you. Finally, this marathon will draw to an end with the fine senator from Halifax, Senator Dickson.
Senator Dickson: I surrender.
The Chair: No, you have your equal time. You are a little late on the list, but we will not restrict you.
Senator Dickson: Thank you.
I am pleased you brought up the subject of sustainability, and I think it is the right theme to go forward with. It is too bad it took so many years for government to come on side.
I have so many questions I do not know which end to start with. However, one area in particular that seems to be overlooked is on the resource and supply side, as particularly Newfoundland and Labrador, Labrador gas, is concerned. Have you factored recoverable reserves and such into your numbers? Also, Georges Bank has been sitting out there for a long time. Georges Bank will not move, and I understand the reserves there to be massive. That leads to the lower Churchill River and how that resource is developed. There is a whole inter-relationship here with all the factors.
I have one other question I want you to comment on. On the shale side, there is New Brunswick and Nova Scotia.
Mr. Caron: That is right. There is shale gas. Let me acknowledge that, yes, in the scenarios we project and the thoughts we offer to Canadians, Newfoundland and Labrador on the oil side and Nova Scotia on the gas side feature prominently in our minds as we think about the future. The two producing regions are somewhat different in their current position in terms of the future, but these regions are two big dots on the radar screen of what may happen.
Interestingly, on the Newfoundland and Labrador side, the oil produced offshore is not pipelined; it is shipped through other means. We do not have a direct lens on the oil from Newfoundland and Labrador, but our staff talks continuously to the people in the province and stays current. When we produce numbers, they are always numbers that we validate in terms of peer reviews and consolidation with the people who know what is going on.
In terms of Sable Island and the other initiatives that are in the planning stage, that gas is pipelined. We know precisely what is going on in terms of the pipeline component. Sable Island, of course, is currently the feeder to the pipelines, and Deep Panuke is expected to come on-stream soon to at least offset the natural decline in the production of natural gas from Sable Island.
These projects are on our radar screen, and you are right: The potential of the region is not well known because, at least on the gas side, there has been some slowdown in terms of exploration and development. However, at the same time, it is natural for young basins like those two not to be well known. The shale gas caught us pleasantly by surprise. We do not know whether we will be caught by pleasant surprises in terms of what is available commercially for natural gases in Nova Scotia and elsewhere in the region. Newfoundland and Labrador has shown through their action how much promise there is from developing that resource. That is what I say at least initially in response to your question.
I acknowledge there are shale gas numbers in my table in New Brunswick, as there are in Quebec. This region is so young in terms of potential that I have no idea how big they can become. That said, it is worth keeping on our radar screen and monitoring actively, so people will know what the future of the sector will look like thanks to these energy supplies.
Senator Dickson: The second question relates to the extent to which your regulatory jurisdiction has not been fully exercised or may have been, insofar as the Sable offshore line is concerned.
Mr. Caron: I have a story to tell about that line.
Senator Dickson: Go ahead.
Mr. Caron: Sable Offshore was a fine example of multi-jurisdictional cooperation. We had the environmental agency, the Province of Nova Scotia, at least two agencies of Nova Scotia, ourselves and a panel of five members who started the proceeding. Then, after the environmental assessment was conducted, three NEB board members finished the task beyond the environmental assessment. It was a perfect example of how the federation can work in spite of, perhaps, jurisdictional uncertainty.
More than that, Deep Panuke was a fine example of partnership between the Canada-Nova Scotia Offshore Petroleum Board, CNSOPB, and the NEB. Regarding the offshore line, Deep Panuke, there are views on who has jurisdiction. The CNSOPB and the NEB like to work things out. CNSOPB had a commissioner sit at the hearing with one of our board members, designated under section 15 of the act, to listen to evidence on our behalf. This hearing was one hearing, and those jurisdictional uncertainties were left behind us.
Senator Dickson: Did you set the tariff on the offshore line?
Mr. Caron: That is a good question. I presume we may have authorized the tariff under the Canadian Oil and Gas Operations Act, COGOA, but I am not entirely sure. I will double-check.
Under the NEB Act; we regulate tolls and tariffs. However, I have a sense: I will double-check. Again, it is one more commitment to Ms. Gordon and I will give you an answer as to under what act we regulate the offshore line to those two places.
Senator Dickson: My last question relates to interprovincial transmission for pipelines as well as electricity transmission lines. As I understand from your evidence, there is a section now in the NEB Act; it is only a question of an order-in-council.
Mr. Caron: That is right.
Senator Dickson: Then you can regulate. Will you comment as to why nothing has been done in 50-plus years?
Mr. Caron: Senator, I suspect there was no business need for it. There is a tool in the tool box that has not been used.
Senator Dickson: Do you think the reason relates a business need or more of the political environment from time to time?
Mr. Caron: I do not know because we are on the other side of the question. Had we been asked, we would say ``sure.'' We would have the legal authority to do so and we would deal with the matter with the same impartiality as we deal with any other business we do.
I cannot presume what the reason for the lack of motivation, if you like, would be.
Senator Dickson: I want to make one comment.
Senator Dickson: Is it true — I know that Senator Mitchell and anyone from the West will say this same thing, and whether they agree with me or not, it is my theory — that in the first pipeline, the Alberta gas pipeline, the philosophy of the premier at the time was that they did not want any truck with the feds. Likewise, other provinces in Canada did not want any truck with the feds for 50-some-odd years. In another committee today, we talked about the post office, and finally someone said: We will have a task force, we will set out principles and we will look at the post office act and come back with ideas about management. Who knows whether it will involve new legislation?
When we take into consideration what Senator Banks said about value-added products, there will come a time, will there not, when we will look at a new president in the United States and someone will have to look at the more fundamental public policy questions, and politicians will live or die on the answers? Will you comment? Something has to happen.
Mr. Caron: The comment I will make links back to your point about the Alberta Gas Trunk Line, AGTL, and that system remains today the pride of Albertans. It is comparable to Hydro-Québec. For the longest time, academia and observers of the energy scene said they were not sure whether the line should be provincially regulated or federally regulated. Nothing happened until recently, unlike the Alberta Government Telephones, AGT, situation of the 1980s, which took seven years to resolve between the Canadian Radio-television and Telecommunications Commission — the federal side — and the provincial side. There has never been an AGT of pipelines in Alberta.
I cannot explain why, but naturally, almost two years ago, TransCanada Pipeline — the then owner of what used to be known as AGTL, now called the Alberta system or the Nova system — applied to the NEB asking the board to recognize the Nova system as something fundamentally federal in its character because of its degree of interaction between the main line from Saskatchewan onwards to Quebec and the north-south flow.
It was a classic case of how the world operates. First, philosophically, we are not jurisdiction seekers. We do not say we wish we had regulation over this and that. We try to make the federation work by being receptive to suggestions made, and, when they are made, we look at them with impartiality.
To the surprise of some, TransCanada Pipeline applied for a significant jurisdictional transfer, and I forget the number, but I think it involved something like 20-some thousand kilometres of pipe. The application from TransCanada Pipeline had the effect of: By the way, we want this system to be federally regulated; would you mind, NEB? The methodology was classic: there was a hearing where we listened to all, concerns were expressed, but there was no huge fuss. I will not call it uneventful, but relative to the AGT situation in terms of telephone service in Alberta, this hearing was, if I dare say, straightforward. We listened to everyone.
As I recall, between such and such a date in 2009 and the day after, the Alberta Utilities Commission and the Alberta Energy Resources and Conservation Board, ERCB, said: NEB, take this. We said: Thank you very much. At 12:01 a.m., we were the federal regulator.
That example exemplifies how the board will deal with constitutional questions. We are a practical board. We respond to applications. Then we listen to everyone fairly. We try to make the federation work in partnership with provinces whenever we can. Most of the time, we can.
I hope that answer was partially responsive. It was a big question, and I gave you a mid-sized answer.
Senator Massicotte: We talked about the importance of shale gas. You predicted a ten-fold increase. Last week in a newspaper — I forget which one — the most significant hedge fund in the United States in the oil and gas sector, which predicts every oil and gas movement — said shale gas will be a disappointment because the amortization in the first year is up to 50 per cent, and they are discovering that fact only now.
Is there strong evidence about the importance of this resource, or are we still speculating on its importance?
Mr. Caron: It is interesting you mention this article; I read the same thing. I will be brief. I think the point demonstrates my theory that all forecasts are wrong. We have reasons to believe that shale gas can play a bigger role, and it was a pleasant surprise. To what extent it makes conventional gas less relevant and to what extent this situation informs us on the future direction of prices, I do not know. We do not know what explains the current situation with natural gas. Some of it is the economic slowdown in the last year; some of it is the simple cyclical nature of the business. I have seen so many cycles in 31 years working at the board that, whenever I hear a contrarian view like the one you read about, I say, ``Interesting.'' Then you read the other view, and keep an open mind as to where the industry is going.
As a regulator, our job is to be always alert, to seize opportunities for value-added work when we see them, and to keep an open mind. Shale gas can be big in Quebec. I read this morning or yesterday, in The Globe and Mail, I believe, about what might take place between Montreal and Quebec City. Geologically, we do not have enough information, just as we do not, for instance, on the East Coast with respect to Sable Island. It has signs of promises.
The Chair: Senator, beware of SSGS — beware of selling shale gas short. We have had an enlightening evening.
[Translation]
Mr. Caron, we have greatly appreciated your appearance this evening. Your expert testimony has had a great effect on us.
[English]
We enjoyed it. I am sure we will accept your offer to come back. This is not a study with a short sunset. We are learning as we go. You are helping us very much.
Colleagues, I declare the meeting terminated.
(The committee adjourned.)