Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 17 - Evidence - February 3, 2011
OTTAWA, Thursday, February 3, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:05 a.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: Good morning everyone. This is our first public meeting since the Christmas break. I welcome everybody back and wish you all a good and happy New Year.
It has been busy, as we continue planning for our fact-finding and public hearing trips to Quebec next week and to Atlantic Canada a couple of weeks after that. I will ask members, when we finish with our witnesses today, to stay behind for a moment to have an in camera session and talk about those trips and other future business of the committee. The session will be brief but it is good to bring everyone up to date, as the steering committee met yesterday.
We continue our study on developing a framework for a strategic way forward in the energy sector. Everyone seems to agree that there is a great need to develop clear arrows and signposts for how we will develop energy in the future in light of the huge population explosion around the world, the issues with climate change and the need for a more efficient system for more sustainable sources of energy. We are well along in our study.
I welcome not only the people in the room, but our viewers on the CPAC network and people who are plugged into our special website that we now have, which is dedicated to our study. It can be visited at www.canadianenergyfuture.ca.
I am happy to say that having put our feet in the water — as one journalist wrote this week, Stodgy old senators into the modern world of the social media — we have followers, albeit not a lot, on Twitter and Facebook, so we are engaged. We are asking Canadians — and I am addressing those of you who are not in the room — to participate with us in this important dialogue on the energy sector.
Without further ado, I will introduce our own people here so our witnesses and viewers will know who they are with. My name is Senator David Angus. I am a senator from Quebec and I am chair of the committee. With me is Senator Grant Mitchell, from Edmonton, Alberta, who is the deputy chair of the committee. Then we have our excellent people from the Library of Parliament, Marc LeBlanc and Sam Banks; the only elected senator, Bert Brown, from Alberta; Senator Judith Seidman, from Montreal, Quebec; Senator Richard Neufeld, from Fort St. John, B.C.; Senator Linda Frum, from Toronto, Ontario; our clerk, Lynn Gordon; my predecessor, Senator Tommy Banks, from Alberta; Senator Robert Peterson, from Saskatchewan; Senator Daniel Lang, from Yukon; and Senator Yonah Martin, from British Columbia, who is representing another colleague this morning.
It is nice to have you here, Senator Martin. I think it is your first time at the committee and I hope you will enjoy our deliberations. I know we are dealing with subjects dear to the heart of British Columbians.
I especially welcome our guests. From the Canadian Gas Association, we have its president, Timothy M. Egan; and from Enbridge Gas Distribution, Arunas Pleckaitis, who is Vice President, Business Development & Customer Strategy at Enbridge.
Prior to assuming the role of President and CEO of the Canadian Gas Association, Mr. Egan was most recently President of High Park Group, a public affairs consulting firm whose principal specialty areas include regulatory and policy matters affecting Canadian industry, particularly in the natural resources and transportation sectors.
Mr. Egan is well regarded among the energy industry and stakeholder community as a result of his extensive energy sector public policy and communications work that has long been a mainstay of High Park Group's portfolio.
Mr. Pleckaitis, in his role as Vice-President of Business Development and Customer Strategy at Enbridge, is responsible for business development, strategic planning, marketing and sales, demand side management and customer care. He is also responsible for all aspects of his company's customer strategy, including the development of its new customer information system.
Gentlemen, I understand you have a slide deck and a presentation you will present jointly, so we are delighted with that. As I said earlier, we will go ahead with you two gentlemen and then there will be questions.
Following that, we will terminate the public part of the meeting and go in camera for 5 or 10 minutes with the committee.
Please proceed.
Timothy M. Egan, President and CEO, Canadian Gas Association: Thank you very much, senators, for the opportunity to be here this morning. I had a conversation in the fall with one of your colleagues, who is not with us this morning, Senator McCoy. That conversation prompted this particular presentation.
I had recently joined the Canadian Gas Association, CGA, in September and on initial rounds of meeting had gone to see her, as she had been in touch with my predecessors several times. She thought it would be good if I came before the committee and gave an overview of CGA's current activities, and also to bring forward one of our member companies to talk specifically about initiatives they have under way. Therefore, Mr. Pleckaitis from Enbridge, which is the largest member company in my association, has kindly agreed to join us.
We have an extensive deck I thought we would walk through. If it is all right with you, we will take interruptions and questions as we go. I will present through the first portion of the deck and then hand over the presentation to Mr. Pleckaitis to talk specifically about Enbridge's activities.
The Chair: That will be fine, Mr. Egan. I believe you have been following our deliberations since we started this study. We are looking at all the various trees in the forest, as someone said, but we are also looking at the forest as a whole from a systemic energy system perspective.
We are also looking at all the different energy sources. We are starting to focus on the gas business, which we have not visited extensively until now. In fact, in this trip to Quebec, we will look at the shale gas part of things. Therefore, if there are any inter-relationships there, please let us know.
At the end of the day, I realize it comes down to how we access the resource; the methods of drilling, fracking and so on. However, we are interested and we are starting to focus particularly on your resource, so we are anxious to hear from you.
Mr. Egan: Our presentation is in four parts. First, I will give an overview of the industry in natural gas in Canada, which I think will speak to one of the principal trees in your forest, if you will. Second, in light of the fact that you are looking at a framework for energy in Canada, it will be useful to go through a short primer from the consumer's perspective on energy; I think we need to look at the energy system from the consumer's perspective. That is what we do at the Canadian Gas Association, as we are the distribution side of the gas industry.
You mentioned shale gas. We are not the extractors or the producers. I think you have had witnesses before you from the production side to speak to some of those issues. I would be happy to take general questions because we care a great deal about that product because that is the product we are selling to customers.
In the third part of the presentation, Mr. Pleckaitis will give specifics on some of the things that Enbridge is doing that I think you will find interesting. Finally, there will be final thoughts on an energy framework for Canada that I wanted to address. Those thoughts come out of work in my previous life as a consultant but that was initiated by four trade associations in the energy industry: CGA, my current employer; as well as the Canadian Association of Petroleum Producers, CAPP; the Canadian Energy Pipeline Association, CEPA; and the Canadian Petroleum Products Institute.
We think there is real value in a consistent framework for how energy issues are addressed in the country. How that framework plays out will differ, jurisdiction to jurisdiction. I will talk about that framework towards the end of the presentation.
First is an overview of CGA. Slide 4 shows a couple of things about the context for our activities as an association and where our interests lie. In our view, the gas distribution industry is the leader in what we call "smart energy solutions" for the country, and natural gas is the foundation fuel of those solutions. That is our one line; that is our elevator speech, if we have an opportunity to meet anyone about this subject, one-on-one.
Let me expand on that line now. When we talk about how we will provide those solutions, we think there is a need to raise an understanding of the role of natural gas in Canada's energy system. Natural gas is 30 per cent of the end use of energy in the country. Most Canadians do not appreciate that role; when they think about energy, most Canadians will think about hydroelectricity, the oil sands or their automobiles. They will not realize how much of their energy comes from natural gas. Therefore, our first role is to raise that appreciation.
Second, we advocate for a sound energy policy framework for the country in which the benefits of natural gas can be realized. We think those benefits are extensive.
Our third role involves a sound regulatory framework affecting natural gas. Overwhelmingly that framework is set at the provincial level, but there are federal issues that are relevant.
Our fourth role is operational excellence and enhancing the public safety in respect to the delivery of natural gas. Our first priority as an industry is safety. We value our record on safety and the industry has the culture of continuous improvement on safety.
In terms of the product itself — natural gas or smart energy — as I said, we are part of a broader initiative that we started last year called the Canadian Natural Gas Initiative. It involves the full value chain of the natural gas industry: from the Canadian Society for Unconventional Gas, which looks at new developments; to CAPP, which is the association producers; the major pipelines and distributors; and also with the Canadian Natural Gas Vehicle Alliance. The initiative involves the whole panoply of the natural gas industry.
That initiative has identified a list of seven key attributes we think people need to appreciate about natural gas. First, it is Canadian and supports thousands of jobs in the country and represents about $30 billion in annual export revenue. Natural gas is a significant Canadian resource. It is part of an integrated North American marketplace. There are obviously significant natural gas resources in the United States and extensive trade between the two countries.
Second, natural gas is abundant in that North America has over a century of supply. Right now, innovation promises even more unconventional renewable and other sources of natural gas. A few years ago, we would have said we had 30 years of supply. We now speak about 100 years because of the number and range of unconventional resource opportunities that have come forward.
The Chair: Are you referring to shale gas, or other unconventional sources?
Mr. Egan: There are several so-called "unconventional sources," shale gas being the largest of them. The number reflects the number of shale plays coming forward. It is important to appreciate that more are coming forward all the time and they are coming forward across the country. At the end of the presentation, there is a map on changing supply basins, which gives you a sense of where some of those plays are coming forward across Canada and the continent.
Third, we talk about natural gas as clean energy. It is not a primary source of particulate matter; it has a low greenhouse gas emission profile and a whole range of efficient end uses. Natural gas is unique in that it can go directly to the home. The more efficient use of energy is at the burner tip, so the more burner tips we put in front of people in their day-to-day use, the more efficient their use of energy is.
Fourth, natural gas is versatile. Home owners, businesses, hospitals, schools, industry and power generators across the Canadian economy depend on natural gas in our homes, businesses and industry.
Fifth, it is affordable. Due to such abundant supply, robust infrastructure and because the industry is so effectively integrated, prices can remain stable. Prices are low right now. Our forecasts for the near- and mid-term are that they should stay low. The ideal scenario is one where we have a bandwidth of price change within which we stay. We think that bandwidth is a reliable and relatively narrow one for the foreseeable future.
The Chair: Regarding price, we keep hearing how low the price of gas is at the moment. I suppose it is largely a function of supply and demand. In that context, we hear that since the price is so low, there is a disincentive to investment and development for extracting the product and shipping through pipelines, et cetera. Is that view accurate or more of a myth that you are trying to dispell?
Mr. Egan: I am sorry: What is the disincentive?
The Chair: There is a disincentive to make big investments to take the gas out and bring it to market.
Mr. Egan: Gas is an openly traded commodity, so extraction and production opportunities will depend upon what the market price can deliver. Currently, gas can be extracted economically for what is historically a low price. I am not an expert on the price of extraction but at a price under $4, producers are making money in the extraction of gas. I know that.
Is that a disincentive to new development? In a sense it is. Developers will go where there is business opportunity. We have significant supplies of gas. Does that mean some of the market opportunities will not be developed? It is possible. Investors will look at where the best return is on their capital. The system is one of supply and demand. As demand increases for gas, prices will probably move up within that bandwidth. That movement will encourage more development, which, in turn, will bring prices back down. It is an efficient system in the way that it operates.
Are low prices a disincentive to investment? Perhaps they are in the sense that an investor will look for the best return, and if natural gas does not give the best return, investors might develop another commodity. The key point to remember is that there is an abundant supply and there are abundant new investment opportunities so that, should our demands for natural gas increase, we have lots more supply to go after across the continent.
The Chair: Thank you.
Mr. Egan: Two other attributes of natural gas are its reliability and safety, which are obviously related. There is an extensive pipeline infrastructure across North America for natural gas. I refer to it as the "silent giant" because we do not see its infrastructure, for the most part, although we see some of the principal pipelines. The infrastructure comes into our homes and businesses right across the continent and is extraordinarily reliable and dependable; in particular on days like this one when we all appreciate the use of natural gas.
The Chair: The man sitting to your right knows a lot about gas pipelines. We have seen the name Enbridge in connection with the pipeline system so we will hear from him.
Mr. Egan: Yes; Mr. Pleckaitis has a good map that shows the extensive Enbridge network.
Finally, on safety, Canada is a world leader in safely producing, transporting, delivering and using natural gas. As I mentioned, safety is an enormous priority for the industry.
I will move to a quick shot of who is in the industry. We call them the smart energy service companies. This map of Canada shows my membership across the country of natural gas distribution companies. You will recognize companies in your jurisdictions. The key point to emphasize is that there are 6.2 million customers, or 6.2 million burner tips, across the country. That figure represents about 20 million Canadians using natural gas in their homes and businesses across the country every day.
The Chair: That raises a question. You have 6 million customers but 20 million users. Does that number represent about three to four people per household?
Mr. Egan: The overwhelming number of those customers is households. The quick math indicates 2.5 people per home, resulting in a large number. However, we have to factor in business and industry and the people who work there. The estimate is a rough one, senator. At my first board meeting at the end of September, I said to my members: How many constituents would 6.2 million customers represent for senators and members of Parliament, because I am likely to be asked questions about this number? It is not an exact science. We are trying to derive a much better number but a back-of-the-envelope calculation is 2.5 people per home.
The Chair: You have to appreciate that these are the kinds of basic questions you will receive from an audience of lay people in discussion about your business. In the big picture of percentages, what does the 6 million or 20 million figure represent? Let us say that you had all the business and that there was no oil or other source of energy supply, would it be 10 per cent or 20 per cent?
Mr. Egan: Of energy supply, it represents 30 per cent, which I will speak to later with a breakdown of the system overall. We also represent transmission companies, manufacturers and suppliers, but natural gas represents 30 per cent of our energy needs. When I go into the primer, I will tell you a little about that supply.
The next slide shows some of those services. When I say 30 per cent of Canada's energy needs, it is industrial, residential, commercial, agricultural, power generation and a little bit on the transportation side. I would say that transportation is the biggest business development opportunity for natural gas.
This picture shows some of the applications where natural gas is used across the country. On the industrial side, natural gas is a source of heat for industrial processes. For power generation, we have natural gas power generation facilities in several jurisdictions across the country, which are particularly useful for immediate start operations.
In more efficient applications, such as combined heat and power, more opportunities are coming forward in denser urban areas. Transportation fuel is the newest business opportunity for natural gas. Transportation is approximately 30 per cent of the overall energy system, and natural gas is only beginning to identify those significant opportunities.
I will talk about our four specific initiatives to help us position our product and member companies. The first is about innovation and technology; the second is about integrated community energy systems; the third is about information and data, which speaks to your question, senator; and the fourth is about damage prevention.
On the first initiative of energy technology and innovation, as an industry we have created a new initiative recently that is a collaborative venture among our member companies with the pooling of their economic resources to look at strategic investment in technology commercialization and innovation for natural gas. I have talked about some of the current applications of the product. We think there are a variety of new applications, and innovations on existing applications, that we want to pursue. These applications include everything from new more innovative water heaters to micro combined heat and power units.
Micro CHPs are small combined heat and power systems. Think about having a unit in your home that can generate both electricity and heat. It will use natural gas and can eliminate the need for electricity delivery to your home because you generate it on site. This innovative technology is in the market in some applications, and we are trying to encourage new applications.
As well, there are new technologies around the use of renewable natural gases. The recovery of bio-methane from waste facilities or agricultural waste, et cetera is a significant opportunity to bring that technology into the natural gas system and feed it through our network. There are various such opportunities. As I mentioned, the companies are pooling their economic resources and looking to leverage them so that they can capitalize on some of these opportunities that traditionally might not be pursued in Canada. This pooling exercise allows us to capitalize on opportunities. That is one major initiative we have launched as an industry.
The Chair: I am considering the mini power pack for every home that you described. Will heat and electricity be available in one little unit?
Mr. Egan: Yes, that is the potential opportunity.
The Chair: In this day and age of ice storms and the like, this unit might be popular.
Mr. Egan: That is the opportunity. These units are not available at the corner store yet. We need that first major initiative to see what we can do to make such things much more widely available at a price that is good for the consumer.
The second major initiative, which I believe was presented before the committee in the fall. It is called Quality Urban Energy Systems of Tomorrow, QUEST. My association was instrumental in creating QUEST, which is a collaboration of a range of interests; governments, our industry and others, environmental groups, developers and businesses.
We are looking at developing integrated community energy systems, which are systems in urban areas where we can draw on the fact that there is significant demand for energy and significant use and waste of energy. The opportunity is to recover that waste, and with heat recovery through district energy systems, we can incorporate other technologies because there is this dense demand group, and it makes many technologies economic that might not be otherwise.
The role of natural gas is that, first, it is a core foundation for the use of all those other applications. Those other applications may not be as reliable and they may be intermittent. Natural gas is the steady, guaranteed foundation for that system.
The second advantage that we bring to that equation for integrated community energy systems is the fact that my member companies are the energy service companies. They understand the pipes and the energy systems required to get those things off the ground.
QUEST is the second major initiative. The first is about addressing new demand opportunities and driving innovation and opportunity. This one is about efficiency and addressing the efficiency question.
The third initiative is another collaborative one called the Canadian Energy Partnership for Environmental Innovation, CEPEI. We are trying to ensure we have a robust set of data about our industry and natural gas in Canada, particularly on the environmental side, which looks at climate change and air quality data, pipeline data, air, land and water implications and the environmental attributes of energy systems and new technology.
The fourth initiative is a major initiative on damage prevention. The intent is to document much of the existing work we are doing around public and worker safety in Canada, first and foremost, but also to look at one of the major concerns. We are an increasingly urban society, and there are always threats because much of the infrastructure is in the ground in our urban centres. As we develop new infrastructures and build new buildings, infrastructure such as water, waste, electric and cable can be damaged in the course of that development and construction.
We are pursuing a national initiative for a three-digit dialing program for a one-call centre for utility locations, province by province, and for mandatory Call Before You Dig legislation, province by province, to reduce significantly the damage that occurs to infrastructure in the course of growing our cities.
A first step on that front is that we will be part of a submission to the Canadian Radio-television and Telecommunications Commission, CRTC, early in 2011 for a three-digit number.
That is the overview of Canadian Gas Association and the industry.
The second thing I want to discuss is a short primer that answers some of the questions you had, and to the policy substance of the study you are pursuing here.
We have a couple of slides about the energy system. As I mentioned at the start, natural gas is part of the equation that is often not appreciated. Part of the reason is people do not understand how energy is used in Canada. This chart shows three principal uses of energy in Canada: mobility, power applications and heat.
For mobility, the most obvious is automobile, but rail, truck, air and marine are also included, and mobility represents 31 per cent of our energy use in the country. This energy comes overwhelmingly from petroleum and petroleum products.
Second are power applications, what we call "plug load" in the home, namely, lights and appliances, but also machinery and industrial applications. That use represents 17 per cent of our energy use, 75 per cent of which is nuclear and hydro, and roughly 6 per cent from natural gas. The rest comes principally from coal and emerging renewables.
The third use is heat, and it is the overwhelming part of the energy mix. Fifty-two per cent of the energy use in the country comes from a diversity of sources. Over 60 per cent of those sources is natural gas. I gave a number earlier of 30 per cent; if we calculated the amount of natural gas in the whole system, that would be 30 per cent and it is overwhelmingly in the heat application.
The next slide gives a breakdown of each sector of the economy, namely, residential, commercial, industrial, and transportation, and the portion of each that is mobility, power and heat.
The next one is with respect to what we use. It is diverse across the sources, as I mentioned. For mobility, which is overwhelmingly petroleum and petroleum products, it gives a breakdown. The largest portion of mobility is gasoline.
On power applications, the largest single percentage in the country is hydro, roughly 65 per cent; nuclear and coal, the next most significant; and natural gas at 6 per cent.
Then, on heat, natural gas is the largest percentage, both directly and indirectly through electricity, because natural gas used for electricity can then be used in heat applications.
We try to speak to that breakdown all the time when we talk about natural gas use in the country. When people use energy, they use it in three ways: for moving around, electricity needs and heat. I find it useful to break down that use for people because they start thinking about the energy system in a different way, and that, from a self-interested perspective, starts them thinking about a product like natural gas.
It is also good for people to understand their energy system better. If we want to drive efficiency and innovation, people need to understand better the system we are using right now. It is easy to draw conclusions that all we need to do is build a million of these and everything will be fine. The fact is, we have a diverse and complex energy system. That is a strength in Canada, one that we want to continue to build on. We think natural gas is a core part of that exercise.
I have been long-winded here. I will turn the presentation over to Mr. Pleckaitis to speak to some of Enbridge's particular interests. I thank you for this opportunity to give you that overview, and I will come back at the end to talk more about an energy framework for Canada.
The Chair: Thank you. Before you turn it over, some of us, particularly the older members here, remember when natural gas came on the scene for home heating, and the big explosions and the safety. There is kind of inherent fear. I know one of your main points is safety, and you have emphasized it three times this morning. Is there a huge push- back out there, or have you overcome the fear, which, I admit, is an uneducated fear? I have detected it, and, surely, it must be one of your biggest challenges.
Mr. Egan: Mr. Pleckaitis has occasion to deal with that fear first-hand on a regular basis as vice-president for customer strategy, so I will turn it over to him.
Arunas Pleckaitis, Vice-President, Business Development & Customer Strategy, Enbridge Gas Distribution: The number one concern that our industry has is safety; not only employee safety but also customer safety. I have had the opportunity to work in the gas industry, both in provinces where gas was well established before I was born, for example, Ontario and the city of Ottawa, but also in developing provinces like New Brunswick, where gas was introduced only in the year 2000.
Customers, generally speaking, that are used to natural gas in places like Ontario generally accept that natural gas is a safe product. That view is the general one.
In New Brunswick, where I worked for two years to try to establish the business, overcoming the fear and safety concerns of customers about having a flammable product in their house is a challenge. It takes a lot of time to overcome that fear and concern. It is not done simply with a few advertisements.
One thing our industry shakes at is whenever there is an accident. If there is ever a response that shakes our company and rallies our employees, it is when there is anything to do with safety that might affect or injure a customer.
You have seen examples, such as in San Bruno in California, where there was an unfortunate accident. That has had ripple effects in all of our industry in terms of an increased focus on safety and the safety of the infrastructure. It is always top of mind because of the implications it can have in terms of our product.
It is my great pleasure to be here. I have never spoken to the Senate, and I have to admit I am intimidated by the wisdom and the experience in this room. Please bear with me if I stumble a bit through my presentation.
This morning, I want to first provide you with an overview of who Enbridge is. I promise it will not be a commercial. I work for a relatively — not small part but one part of Enbridge, which is Enbridge Gas Distribution, the gas distribution business. Most of my comments will be targeted to talking about that business, which is a customer interfacing part of our work; what we are doing, some of the challenges we are seeing in our industry, how our company and our industry is changing, what we see for the future and how we are responding to that.
The Chair: As an integrated company, you will be aware that your people on the exploration side and on the offshore of Nova Scotia gas fields have been before us, so we know of your company and we have great respect for it.
Mr. Pleckaitis: Thank you. If you go to page 20, this map of North America hopefully illustrates the scope of our operations. We are a North American business. We operate both in Canada and the U.S. We are a North American company in terms of operations, but our head office is in Calgary. We are 75 per cent owned by Canadian business.
Thinking of our business, you would see it in four components in terms of four foundation business lines. First, we have the liquids or the oil pipeline system, which basically transports oil from where it is produced to customer end markets. The oil sands are obviously a big part of the start of that infrastructure system. We have the longest liquid pipeline system in the world.
If we turn to the gas transmission aspect, big pipes going from the production area where gas is produced again to markets, people do not recognize that 40 per cent of all the gas that comes out of the deep water of the Gulf of Mexico are Enbridge pipelines.
Then there is gas distribution, my side of the business, which delivers gas to customers in their homes and businesses. Consumers Gas — what used to be Consumers Gas; I still call it that — Enbridge Gas Distribution in Ontario is the largest and oldest gas utility in Canada.
Finally, our newest and smallest line of business in terms of earnings but the quickest growing is our renewable and green energy business. The next slide summarizes elements of our renewable or green energy business. The chart on the bottom right-hand corner, for those of you who can see it, illustrates how quickly this part of our business has grown.
In a short time, by the end of this year, we will have developed electricity production capability or capacity of approximately 900 megawatts. That amount is enough to provide all the electric needs for about three quarters of a million homes. In a short period of time, these various green energy and renewable sources of generation have become an increasingly growing part of our business.
The biggest part of that generation today is wind. About 700 megawatts of the 900 megawatts are from wind farms. These wind farms are primarily in Alberta, Saskatchewan, Ontario and, most recently, Colorado.
We have also entered into photovoltaic solar farms recently, and our first venture was in Sarnia, Ontario. We now have an operating solar photovoltaic facility that is the largest of its kind anywhere in the world.
Fuel cells are another area we are entering into and we have been involved for a while. In fact, we are operating a 2- megawatt fuel cell facility that is extremely ultra clean by California standards. The facility sits outside my office and generates 2 megawatts, which is enough to power all the electric needs for almost 2,000 customers.
Then there is geothermal technology in Oregon. We have entered into geothermal technology, which is basically taking heat — reheat — from the earth's crust. Many of you may have heard of carbon sequestration with CO2 capture projects. We are involved in demonstration projects, along with over 40 other companies in Alberta and Saskatchewan, trying to demonstrate the technical feasibility and the economics of injecting CO2 into aquifers below the earth's crust.
Turning to the next slide now, the rest of my comments will focus on the gas distribution side. You can see from this map that our gas distribution business is in four jurisdictions: Ontario, Quebec, New Brunswick and New York State. We have over 1.9 million customers, and we add between 30,000 and 60,000 customers per year.
The thing I am most proud of — I was involved in its creation — are our demand-side management programs. I do not know how familiar senators are with demand-side management, but it is conservation and energy efficiency. I think demand-side management was something termed by the utility industry, but our company was the first gas utility company in Canada that began formally introducing conservation and energy efficiency programs to our customers back in 1995.
When it first started, I have to admit I was a junior manager, and it took a while for the senior executives in our company to come around to the notion that we would encourage and promote the idea with our customers to use less of our product. However, today, with the cultural change that has taken place in our company, there is not a single marketing or sales effort that does not have the principal tenet of energy efficiency and conservation; ensuring that customers use our product as inexpensively and as efficiently as they possibly can.
The next slide tries to capture maybe in a phrase what keeps me up at night in terms of thinking about our business and how our business is changing. You might think that with all the customers we have, and adding 30,000 to 60,000 customers per year, that we are comfortable. If you look at the slide, the top right-hand corner demonstrates the average gas use by our residential customers. Again, as Mr. Egan said, most of our customers are residential customers, home customers. You can see from this slide that beginning in the year 2000 — in fact, you can take this trend back to about the mid-1990s — the average use by our residential customers has declined year after year by about 1.3 per cent.
That decline is for a variety of reasons: everything from more efficient furnaces and water heaters in their homes to more air-tight homes, better insulation, windows, et cetera. As a result of all of those reasons, we are seeing less and less use per customer. Even though we are adding 30,000 to 60,000 customers per year, if we look at the total amount of gas we send through our pipes, it is almost the same today as in the year 2000. Overall, using our product efficiently is a good-news story.
If we couple that efficiency with what Mr. Egan said about having an abundant supply of natural gas, over 100 years, and that does not include other technologies or products that I believe one day we will be looking at more seriously, such as methane hydrates, we have a tremendous amount of natural gas for our future.
Natural gas is viewed by many still as a fossil fuel. As senators here are well aware, lots of government policy around the world is driving companies and customers to use cleaner energy and move further away from energy sources that emit carbon to the atmosphere.
I think amongst the energy practitioners, there is a growing awareness that at one time the view was that the world would all go electric. There is a term I am sure everyone here has heard, the smart electric grid, which was the common phrase; that the world would go electric and that our transportation systems would go electric. There is a growing pragmatic understanding that world is not in the foreseeable future, and I cannot even see it in the distant future as a practical reality.
The realities are that there will be a need for a thermal grid, an electric grid and a gas grid working together. There is no definition of the right percentages, but the ultimate reality is those three energy grids working in combination, and obviously encouraging conservation and energy efficiency at the end use.
The Chair: When we hear the term, "smart grid," as one of the initiatives say in the Canada-U.S. clean energy dialogue, we think not only of a smart electricity grid. We are thinking about wind et cetera. I believe you said "energy practitioners" see a move away from a specifically electric grid, but what you have described is a smart grid, is it not?
Mr. Pleckaitis: Yes, it is. Mr. Egan talked about the fact that almost 50 per cent of all the energy needs in homes or businesses are from heat. We cannot practically and economically obtain that energy from electricity. If you talk to anyone who works for any electrical utility and ask them if it makes sense from their perspective to put baseboard heaters in customers' homes as an efficient way of using electricity, they will tell you that is not the most efficient way to heat homes or businesses.
For thermal processes in businesses, water heating, space heating in this building and for homes, the most efficient way of producing that energy is natural gas. The question is: Can we do it in a more efficient and cleaner way? I will talk about that question in a subsequent part of my presentation.
The last part here is the uncertainty. I will be the first to say that no one that I am aware of in the energy industry has a crystal ball on exactly what the energy system will look like anywhere in the world. Everyone has theories on which direction it will go. One thing I have come to learn in over 25 years in the energy business is that there is no sure thing here but that every jurisdiction will be different.
When we look around the world and we look at why things have developed certain ways in different countries in Europe — why they have developed in certain ways in China or Japan, and then even in Canada, if we look across the provinces — countries have gravitated to certain energy systems, preferences to using one energy form over another, based on their own indigenous needs, advantages or disadvantages. Again, all we need to do is look across this great country — at how things have developed in Quebec and compare it to, say, Alberta or Ontario — and ask why have things developed? It is because of their own particular resources or advantages or disadvantages that have caused them to develop.
One message I will leave with the Senate is that there will not be a single solution across Canada. It will be customized to the particular needs of Canadians in those individual jurisdictions.
The Chair: Will it be needs or resources? If we take hydro in Quebec, it is a no-brainer I would think. Then we look at a province that has a lot of coal, like Alberta. There must be some way of predicting.
Mr. Pleckaitis: Yes; clearly, a province like Quebec that has abundant hydroelectricity that is clean will utilize that resource. That in itself, as you know, comes with its own challenges in terms of its implications. That gets into, again, a balance. You said you will hold hearings in Quebec. Quebec is also discovering large amounts of natural gas. The question is: How will those two energy forms come together and what is the right way of coming together?
Again, competitive advantages or disadvantages that one jurisdiction will have over another may be a better way of phrasing it than needs. Advantage will be a significant factor in determining how an energy system is developed in that particular jurisdiction.
The Chair: That is a good correction. It was the word "needs" that confused me. Ultimately, the marketplace will dictate.
Mr. Pleckaitis: Yes, it will.
Mr. Egan: You referenced Quebec. In anticipation of coming, I pulled some statistics on the breakdown of end-use energy in Quebec. The assumption is that because of hydro in Quebec, because it is such a significant player as a global energy player, that Quebec's energy needs are met overwhelmingly by electricity, but, in fact, 40 per cent of Quebec's energy needs are met by hydroelectricity; 10 per cent right now by natural gas; approximately 40 per cent by oil and oil products; and 10 per cent by wood and pulp and paper waste, so the recovery of energy from wood waste.
The Chair: I stand corrected. It is not a no-brainer.
Mr. Egan: The point is, if we look at each province, we will see that there is a remarkable diversity of energy supply in that province. It goes back to my point about mobility, electricity and heat. I think we all have assumptions because we have particular resources in particular regions and they are extraordinary resources, but we have a diverse supply across the country.
I would say what you will look at, region by region, is diversity of supply, availability of that supply, cost of that supply and environmental implications. However, the other piece I want to bring to the conversation all the time is the need to look at those things from the customer's perspective more and more. That customer is one of the key drivers in the energy system. We often think of Canada only as a key energy supplier. We are a key energy consumer and the energy consumption side of the energy equation drives many of the things we care about when we look at an energy framework around innovation and so on.
Mr. Pleckaitis: I will not move to the last point on my slide 23. I talked about the uncertainty of exactly what the energy system will look like in the future. The other thing that is uncertain is the pace at which this change will happen. If we were to look at the situation even two or three years ago, a tremendous amount of effort went into trying to transform the energy industry quickly. Ontario is a good example. More recently, there has been consumer push-back in terms of the price impacts. An important factor is balancing and recognizing the need for change in the energy sector, but also recognizing the consumer or customer implications of that change in terms of price and behaviours. Mr. Egan touched on that factor.
The other thing that influences companies like energy utilities, whether they be electric or gas utilities, is the regulatory construct, and I will talk about that factor in the next and subsequent slides.
Our company's perspective is that efficient and effective, regulated utilities, both gas and electric, are critical to helping transform Canada's energy system. The reason I say that is because utilities, and again I say utilities, both gas and electric, have unique business constructs. They have established relations not only with their large customer base — and Mr. Egan talked about the number of customers they connect with on a regular basis across Canada — but also the companies are community based. For example, in our business, we have to obtain franchises and those franchises are not guaranteed for life. Franchises have to be renewed, which requires a working relationship with the municipality in which franchises operate, particularly when companies are involved in digging up streets and having to put in pipelines in rights-of-way that are used. The business requires an integrated and coordinated effort with the communities in which we operate.
Utilities also have economies of scale that are unmatched by many organizations, again, in terms of the numbers of customers that we deal with. We have long investment horizons. As opposed to a company that might go into business thinking it has to earn its return, recover its investment over 5 or 10 years, our industries, utility industries, tend to look at recovering their investment over 25 and 50 years, because that is how long that infrastructure generally lasts.
For a number of factors, we are generally considered to be low-risk operations — safety and the type of long-life capital we have — and therefore, we also have access to low-cost capital. In fact, few entrepreneurial investors will invest in energy because of the high risks involved. Utilities, by the nature of their businesses, have low-cost capital.
Finally, utilities have tremendous experience in operating, running and developing energy systems both safely and reliably.
The last point on that slide is, in some ways, the most significant one. Utilities are, from my perspective, instruments of government policy. That is why they were created. An advantage of utilities over many other types of organizations is that utilities are transparent in nature. They have to testify regularly and provide full access to their customer information, their financial information and their investments to the regulators that oversee them.
The Chair: Is that oversight because of rate-setting?
Mr. Pleckaitis: Yes, it is because of rate-setting. That access provides transparency to the types of businesses and the way the businesses operate, and holds them accountable to the regulator, and also to the customers and communities they serve.
I will speak to the next slide rather than try to have you follow this diagram, which you can look at if you are trying to get to sleep one night.
This slide tries to talk about the utility of the future. If there is one message that I want to leave with senators today, at least the way Enbridge looks at it, it is that we are not in any way wed to our past successes. We recognize that energy and the energy system has to change. It is absolutely our intent to be part of helping to steer that change.
If you were to ask me what changes I see happening, some of them I have already touched on, and Mr. Egan has touched on them. First, we see a multi-fuel approach. More and more we will see, I believe, a closer and closer integration between utilities and systems. I mentioned the electric system. It is not only an electric system or gas system; it is a gas system, an electric system and a thermal or heat system where we are commonly transmitting heat and exchanging heat between buildings and common areas.
Increasingly, we will see distributed generation in the systems of the future. Chair, you picked up on the concept that Mr. Egan mentioned: small combined heat and power units located in each home. The technology is real; it works. It is expensive today — it costs over $10,000 to purchase a unit — but it is being demonstrated and used in many countries in the world. That generation, to me, is the ultimate distributed generation, where we generate the energy in our home for the amount of energy we need. The surplus heat that always occurs when we create electricity from a fossil fuel is then captured and used to heat our water or living space, and then at the times when we do not need that energy, that electricity can be put into the grid and used by others, distributed by the common wires with which we are connected. When we talk about a distributed and integrated system, at the ultimate, that device is one example of the integrated system I am talking about.
The Chair: You are not recommending that Canadians run out and buy home generators?
Mr. Pleckaitis: Not yet.
The Chair: Nor should they dig great big holes under their homes to try to go geothermal?
Mr. Pleckaitis: That is correct.
There will be characteristics of the energy system that continue to be important, I believe, for senators to remember: safety, reliability, fiscal responsibility or financial responsibility of the system and, ultimately, accountability. Accountability to the customers and to the communities that are served will be another characteristic that I believe will be an enduring one for the utility of the future.
Turn to the next slide. I do not intend to go through all these areas.
The Chair: Are you at 27 now?
Mr. Pleckaitis: I am at slide 26.
The Chair: Thank you.
Mr. Pleckaitis: This slide summarizes a number of focus areas that our company and the gas distribution side are looking at.
Again, much of the downtown core of Ottawa is heated by a district energy system. I do not know if you are familiar with that system. It is run by the federal government. Hot water and steam are piped under the streets to serve the individual buildings as opposed to each building having its own heating and ventilating system.
That system is common in Europe. It is not something that is common in Canada, but we believe that you will see more and more of that type of system as we see greater densification of housing and businesses rather than being spread out far away.
We can have district energy systems where we efficiently generate the heat, potentially from a renewable resource in combination with natural gas or whatever, and then distribute that heat amongst the community in the area — homes, businesses, et cetera — through hot water pipes located in the street.
The system is extremely efficient, but you can imagine the cost to put it in the first time. It is like trying to build a subway system after a city has been built. The time to build it is during the initial planning stages when they are planning and developing a community or when they are redeveloping a brownfield part of an existing city. That is when the utilities, electric and gas, and the community planners need to work together with the developers to plan something like that.
The Chair: How does that system come under federal jurisdiction? This is infrastructure.
Mr. Pleckaitis: Natural Resources Canada is a proponent of district energy systems. They are trying to encourage, through pilot programs and incentives, municipalities and utilities to do that. It is providing technical knowledge; it is providing incentives to encourage the growing knowledge and piloting of these so more and more communities can start developing these systems across Canada.
The other area that Mr. Egan mentioned was renewable natural gas and this area is exciting. Again, a lot of garbage ends up in waste dumps and it produces methane. The gases that are produced are largely methane gases, which, if we clean them up, become natural gas, which is the natural gas that we use in our homes.
Studies in the United Kingdom and the United States estimate that the technical potential of renewable natural gas is up to 25 per cent of all the natural gas that we currently use in our systems. That gas is from garbage, and that garbage can be landfill waste, organic waste from green bin programs, farm waste or ultimately from biomass, waste wood products from the forest industry. The gas is recovered, treated and then injected back into the pipeline system, the gas distribution system, the same way we would inject gas coming from a well in Western Canada or from shale gas.
That exciting new area of development, I believe, will be a perfect example of showing the further greening and cleaning up of the gas system, because otherwise the gas is emitted to the atmosphere in many cases.
Liquid natural gas, LNG, for transport may be something that you have heard about. The technology is real and proven. The long-haul trucking companies believe in this technology, but the infrastructure does not exist for providing liquid natural gas fuelling for these long-haul trucks, which are extremely clean relative to the common fuel used, which is diesel.
One project that we are working on is being led by Gaz Métro in Quebec. A leading trucking company, Robert Transport, in Quebec is also an instrumental part. We are doing our part in Ontario by providing a fuelling station in Toronto that will allow long-haul trucks from Montreal to go through the transportation corridor into Toronto, to demonstrate the efficiencies and the economics of LNG for transport.
That example is another one.
The Chair: Honourable senators, we will meet with the people from Robert Transport on Tuesday during our hearing in Montreal. We will also meet with Gaz Métro.
Mr. Pleckaitis: That sector is extremely exciting, senator. As Mr. Egan mentioned, 30 per cent of all the greenhouse gases that are emitted in Canada come from the transportation sector, and it is almost all petroleum products. If we can take part of that sector and convert it to natural gas, both the efficiency and environmental impacts will be large.
The last point on this slide is the co-operation between electricity and gas utilities. When I first started in the gas industry, there was an aggressive rivalry between gas and electric utilities. We competed for customers. Some of that rivalry still exists between our industries. I am pleased to say that with the increased recognition that the world is changing, and with the need for electricity grids, gas grids and thermal grids to work together, we are seeing significant more cooperation between the electric and gas industries. That is something I can only encourage more of.
I have listed this coalition of large distributors on the bottom of this slide. For example, nine of the largest gas and electric utilities in Ontario that represent 80 per cent of the customers in Ontario now work together on co-operative programs.
A program in Ottawa, still in the early stages, is a prime example. We are working on a program with Hydro Ottawa where we will develop electricity conservation programs to electrical customers. We already deal with those customers on gas conservation programs. If anything is more confusing to a customer whether they are an industrial or commercial customer or a home owner, it is having this array of different types of conservation and energy efficiency programs. Some of them come from the electric utilities, some from the gas utilities, and some from the federal or the provincial government. We are trying to simplify the messaging and delivery of those programs to our customers.
On the last slide, I wanted to speak to what I see as some of the highest level challenges that our industry faces and some of the responses. When I start with the challenges, I do not in any way mean to offend anyone in this room when I talk about the uncertainty and conflicting nature sometimes of government policy.
When I look at this challenge and try to figure out how I would write policy, it is not a simple matter because, as I said, there is no simple solution and no single solution that I can see that will be applicable to every jurisdiction.
Having consistent government principles on where we are moving our energy industry is extremely important for both industry and the energy sector to look at and to be guided by. Increasingly, we are seeing more and more conflicts between provincial policy in Ontario and community interests.
More and more, we see communities, either individual homeowners or municipalities, opposing transmission lines, gas pipelines, and the location of wind farms or solar farms in their area. More and more, I think communities themselves, individually again, will end up dictating how energy policy and the energy system will evolve.
The importance of aligning, as much as possible, on principles between federal, provincial and municipal bodies will be, in my mind, critically important for the future of energy. There is also an ongoing debate between regulated and unregulated. That is, should the energy industry be deregulated further, should regulation be maintained at the same level, or should there be increased regulation?
I have been involved in both the unregulated and the regulated aspects of the energy business for over 25 years. I am absolutely convinced that there is an important role for regulated businesses, for the reasons that I provided earlier, in terms of the advantages that regulated industries provide to customers and communities that they serve.
The last challenge, which we talked about earlier and which Mr. Egan mentioned, is the customer challenge. Canada has been blessed by an abundance of energy. It is one of our competitive advantages in the world. As a result, it also has worked against us.
As a result of that abundant advantage of energy, energy is extremely cheap for the average consumer relative to virtually every other jurisdiction in the world. It is also extremely reliable. Customers expect that when the switch goes on or when they come home at night, the furnace will be working and the lights will go on. It is expected absolutely. That is not common in many other jurisdictions in the world.
Customers also expect energy to be available. If they build a house, they expect energy will be available to connect to. It is what we take for granted. With that abundance, energy is low of mind and low of interest, or has been historically, and customers' knowledge with respect to the energy industry and where energy comes from and the implications is not something that they are generally aware of.
An important part of what all levels of government and utilities must do involves educating and working with customers to ensure that they understand what is happening to the energy industry and the implications on them. Ultimately, they will be the ones who will push back and resent what is being imposed on them, either through changes required in behaviours or, potentially, through price impacts.
One looks at all of this and asks, what is our response? I would categorize our response in three ways. First, it is a multi-level response. I talked about the co-operation between electric and gas utilities. The co-operation and need for finding common interests and principles between governments and all industry stakeholders is extremely important.
A multi-leveled, integrated approach is important, as is the dialogue. However, again, there will be neither a single solution nor a simple solution. The transformation of our industry, which, in the case of the gas industry is over 160 years old, will not happen in five years or in 10 years; it is a long path. However, it is one that we must embark upon. Our company, our industry, is interested in embarking on and playing a leadership role in the solution.
Mr. Chair, those are my comments.
The Chair: For someone who was nervous about coming before the Senate committee, you hit a home run. You have done a beautiful job. Thank you very much.
Mr. Egan: Could I bore you with one more slide, senator?
The Chair: Yes; I will mention we do have a time issue because all this interesting information is coming out.
Mr. Egan: Page 29 is entitled "An Integrated Energy Framework for Canada." A lot of discussion is taking place; various people are putting forward various proposals for energy policy for the country, energy strategies for the country.
I will put this proposal before you. As I mentioned before, it was developed about two years ago at the initiative of the Canadian Gas Association, the Canadian Association of Petroleum Producers, the Energy Pipelines Association, and the Petroleum Products Association — that is, the four associations in the hydrocarbon value chain.
We wanted to develop a framework for energy policy. We do not recommend a specific policy as such for the country. We think one of the dangers of a specific policy is entering into a debate about picking favourites and saying what should happen where. We do not think picking favourites is the role of the federal government in respect of energy. However, we think some things can happen at a national level. This energy framework tries to lay out the structure for those things.
First, at the bottom of that framework are the foundations. We think there is room for articulating explicit policies in respect of environmental, social and economic objectives that reflect the needs and interests of Canadians. On that foundation, there are six pillars of policy activity where the federal government can become involved in respect of sustainable end use of energy, for example, some of the things Mr. Pleckaitis mentioned around policies and programs aimed at helping to develop new technologies, to drive efficiency and to address codes and standards, et cetera.
Second, regarding a commitment to sustainable resource extraction, production and transmission capability, the federal government has a key role, principally around regulatory reform. A whole range of legislation at the federal level affects energy development, and these pieces of legislation are in need of ongoing reform.
Third, a stainable approach to energy and climate change is needed. Obviously, the environmental concern that has the highest public awareness but not necessarily the highest public understanding is something on which the federal government needs to articulate a view.
Fourth, an ongoing social licence to build and to operate is needed. Big energy plants are difficult to build in today's society. There needs to be clear engagement of customers, be those customers local communities, First Nations communities or whatever. The point is that if we do not have people on side, we will not move these projects forward.
Fifth, the continuous improvement in capacity is needed, ensuring we have the human resource capacity and the information and data available to understand our energy system better, and to ensure we have people to continue to work on it.
Finally, we need a collaborative approach to intergovernmental engagement. We think there is a need for constant discussion about energy issues between the federal government and the provinces and with our trading partners. Those pillars of activity will help us deliver security, reliability, affordability, innovation and sustainability.
I am the president of the Canadian Gas Association; I am, to put it bluntly, a pitch man for gas, or the "gas man," as my daughters call me. However, I recognize that our energy system is dependent on a variety of energy sources. That variety is a strength we have in Canada. We want to build on that strength.
We are not talking about gas over everything else. It cannot be, but the portfolio does need to be diverse, where each particular asset is allowed to develop in the best manner possible to meet the interests and needs of Canadians.
The Chair: Thank you both. Honourable senators, I ask you to keep your questions brief and, witnesses, the answers, if you can. We have approximately half an hour for the question period and I have six people on my list. Senator Mitchell is the kick-off man.
Senator Mitchell: Thank you, gentlemen, for a good and interesting presentation.
To begin, I will focus on the issue of uncertainty in regulation. Clearly, some of that uncertainty is related to uncertainty about climate change policy and initiatives. Would you, in that context, officially as an association or as a company, call for a pricing of carbon? If so, how would you do it? What would be your preference: cap and trade, carbon tax, or none — just letting prices go up?
Mr. Egan: I have not polled my board on the question. Our focus is not on the carbon debate per se. There are two much-debated approaches of carbon tax or a cap and trade system. As we understand the position of the current government, it has taken a third approach, which is to see what our biggest trading partner does and, in the meantime, let us take a sector-by-sector approach to address specific opportunities. We think that approach can be prudent in the context of the fact that our trading relationship is such an important one.
We are focused on driving efficiency through innovative applications, through integrated community energy systems and other approaches because we think that, irrespective of what is decided, natural gas will be part of the solution because it delivers low emission energy, which is a priority for everyone across the board.
We think if the energy policy framework is right, the investment framework is right and the regulatory framework is right, carbon emissions will probably fall as a consequence. Over time, our system is becoming more efficient because there are a number of drivers to that efficiency; and with that efficiency comes a reduction in carbon emissions. I do not think a focus off the start on the carbon emissions is always the best approach.
Senator Mitchell: As an association, do you accept that climate change is occurring and that it is a pressing issue we have to deal with?
Mr. Egan: I think if you talk to the chief executive officer of any one of my member companies, they will all acknowledge that CO2 emissions are going up. Those CO2 emissions are going up because of human activity and the emissions appear to be having an effect on the climate. The short answer is yes.
I think you will find a significant difference of opinion about the implications and extent of that effect, and a real concern about some of the rhetorical excesses that follow from that effect. However, I think you will also find across the board that they will say this effect is a major concern for Canadians and one we need to address, and we are addressing it in a variety of ways.
Mr. Pleckaitis has spoken about some of those ways, such as bringing renewable natural gas into the mix. It helps reduce emissions significantly. Driving efficiency forward reduces emissions. Bringing integrated systems into place is another avenue. Everyone has talked about the integration of gas and electric energy that drives emissions down. That integration delivers affordable energy to Canadians on a go-forward basis.
Senator Mitchell: In your presentation, Mr. Pleckaitis, you indicated that you have wind, solar and geothermal technologies. How close are these technologies to being competitive? Are you in these technologies because you think they will be competitive? If not, why?
Mr. Pleckaitis: The question is, first, why are we in these technologies? For all the reasons that everyone here knows, there is an increased focus on sustainable energy. We are in these areas because we realize the world is changing and we do not want to wait for that change to happen. We want to learn by doing.
To be frank, the reason that those developments are happening and the investments are being made is there are subsidies involved. In one fashion or the other, governments — provincial, federal and state — are putting forward incentives in different mechanisms that allow those investments to be made. The belief is that through increased scale, the economics of those technologies will bring down the costs. Certainly, that is the case.
The number one question that our company faces — and I know that the board of our company faces — is how quickly do we move into and invest in green energy? If we go too far, for example, believing that the trend toward sustainable energy investment will continue to grow and suddenly governments pull back on incentives, we have a business that is growing, built on the backs of taxpayers at all levels. Then suddenly industry moves in that direction and that subsidy disappears. If the industry is not sustainable because customers will not pay the full cost when the subsidies disappear, what happens to the industry?
The pace of development, the customer impact and the consistency of government policy is all part of the question. That is why we are taking a measured approach. However, that part of our business is the fastest growing part of all the businesses that Enbridge operates.
Senator Brown: I appreciate your presentation. Another gas company that appeared before Christmas gave us good information on this area also.
You said that one solution will not solve the problem of energy consumption, but I wonder if you have not already found the best solution for this period of time we are in right now, which is transportation. I think it has been mentioned in three or four of your points.
I think you told us that transport causes 30 per cent of greenhouse gases. We have been told before that compared to the trucking industry we are using now, LNG could reduce 50 per cent of the pollutants; that is all pollutants, not only greenhouse gases that we cannot see but the pollutants that we can see.
Why do you not focus more on trying to have the government take certain measures like incentive taxation that allows the industry to cover the cost of renewing the engines now existing on transport trucks or installing brand new engines before they come off the assembly line that are devoted to LNG operations?
My understanding is that it costs about $18,000 to convert an engine, and to order that engine for natural gas consumption is about $10,000. Transportation is something that is everywhere in this country. It is huge and it is the one thing we can have the biggest impact on.
Mr. Pleckaitis: I will ask Mr. Egan to speak to the incentive component and maybe I can speak to the industry perspective on transforming the transportation sector.
Mr. Egan: Senator, we are pushing for that incentive. First, on the statistics, you are right; approximately 30 per cent of the emissions come from heavy and medium duty vehicles, which I think constitute about 3 per cent of the vehicles on the road. There is a huge opportunity for emission reduction if more efficient vehicles can be made.
A proposal is before the Department of Finance right now that is being driven by our sister association, the Canadian Natural Gas Vehicle Alliance, and we have endorsed the proposal. It calls for a tax credit to cover 50 per cent of the incremental cost of those engines. If the cost of a diesel engine is $X, the tax credit is intended to cover 50 per cent of the $X, plus the additional cost of that engine.
We think this tax credit will have a significant impact on emissions. We also think it will be a great entry for natural gas vehicles into the transportation market. I think Encana might have presented to you in the fall. They are one of the largest producers in the country, and are huge advocates of natural gas for vehicles. They are pushing aggressively for an even broader program; they are of the view that we can move forward on natural gas vehicles more broadly across the board.
I think you will find there is a great deal of interest in this incentive from and across the industry. It is being pushed.
The proposal we have before the federal government is focused on a good targeted initiative. I will also point out that we proposed a sunset clause. We do not think this tax credit should be indefinite. Rather, it is about overcoming a current hurdle in order to bring the vehicles into the market. Once that hurdle is overcome, it becomes a more competitive market, and then natural gas can work on its merits.
Senator Brown: The second problem we heard before is the distance between natural gas stations. The gas stations we have right now are around the corner everywhere. We need to have a LNG or a natural gas station within the limits of the vehicle's range, to be able to carry that much energy from place to place. You have already mentioned Montreal, and places like Calgary and Edmonton are ideal for that kind of thing.
Are you are pushing on that issue as hard as you are pushing on the engines.
Mr. Pleckaitis: Yes, senator, we are. I would also add the Maritimes to your list, with liquid natural gas being available in Saint John and the significant amount of long-haul transport that goes from Halifax right across the country. Including Halifax, the Maritimes and that transportation corridor makes a lot of sense, as well. Again, liquid natural gas is available not only in Montreal but in New Brunswick, also.
I will mention that our company, Enbridge Gas Distribution, has the largest natural gas transportation fleet in Canada. We have been pushing natural gas vehicles for our fleets as well as for residential trucks. We rent home fuelling appliances where our customers can fuel their natural gas vehicles at home. We have been renting these appliances for over 25 years.
You have to think back and ask why that trend has not continued. The reality is that the industry, until recently, has been in decline. Today, there is not a single manufacturer producing dedicated natural gas vehicles in Canada. They are available in Europe, Asia, South America and in the U.S. We had to import the vehicles from the U.S. to be able to operate our vehicles in Canada. Canada got out of the industry and the focus was on big cars and big engines fired on gasoline.
As awareness increases of the environmental impact of transportation and of the amount of natural gas that is now available in North America and in Canada, the manufacturers are starting to take notice. The manufacturers are recognizing it. The third part is that, if we were to ask many people around this room where the transportation sector is going 20 years from now, many people will say it will be toward the electric vehicle. Maybe it will be. However, based on the information I am aware of, there is still a lot of concern about whether electric vehicles will be a success and whether the technology will work. I am not aware of any electric technology available for long-haul, heavy trucks. The technology does not work for them.
I believe there is a role for natural gas in transportation for long haul and in some cases for medium and light transport. I believe ultimately there will be a mix, trying the different technologies. It could be that in 20 or 30 years, one technology will win out over the other, but we need to have the mechanisms in place to encourage the development of multiple transportation fuels.
The Chair: That area was an interesting one. We have to move on.
Senator Neufeld: I appreciate the presentation. I have long been an advocate of using natural gas for fuelling our vehicle fleet in Canada, so I am glad to hear where you are moving to.
In terms of electricity for cars, that may work better in the large centres such cities, but we have to generate the electricity. You spoke earlier about the difficulty of locating sites for generation and transmission facilities. That is true; I have first-hand knowledge of that difficulty.
One of the slides on page 23 shows the U.S. production in trillions of cubic feet. In 2010 you show that 11 per cent was imported. Projecting to 2035, they will import only one per cent of their gas. They have a bit of LNG, but most of it comes from Western Canada and a bit from Eastern Canada that is sent into the U.S. market.
I look at page 35, at the shale gas basins, which will be where most of our gas comes from. I am familiar with, for instance, the Horn River Basin in northeastern B.C. The estimate by the industry is 500 trillion cubic feet. I look at those round dots in Canada and I see a lot of shale gas, even compared to the U.S.
I see those numbers diminishing for exports for Canada. I also look at slide 33 and I see that by 2020 — almost the same time frame as those other slides — shale gas will play little part in the mix in Canada, according to your predictions. I do not know how all that information comes together, because I know the industry is hot after the shale. They are producing a lot of shale. I am familiar with Alberta and British Columbia, specifically.
It comes to mind that we need to look at markets outside of Canada for our natural gas. Enbridge, with their pipeline from the oil sands to the west coast of British Columbia is important, as far as I am concerned, but we also need a natural gas pipeline along with it, so we can ship LNG around the world.
Do you agree, or do you have any perspective on those kinds of issues? It worries me when the U.S. drops to one per cent of about 25 trillion cubic feet a year in total use. That drop is an awful hit to the Canadian economy. Earlier in your slide presentation, you spoke about the value of exports being $30 billion. Can you comment?
Mr. Pleckaitis: That observation is an excellent one. I have not reconciled the number between the Canadian projections and the American projections. However, the American projections are also influenced in that up to 10 per cent of the natural gas entering the American market was from offshore LNG. Not many years ago — certainly within the last five years — there was an expectation that LNG gas from other countries would come to North America and that, potentially, as conventional reserves declined — and there has been a decline in conventional reserves — we would see more and more foreign natural gas in the form of LNG being brought to North America. That picture is completely reversed.
Due to there being so much gas in North America, and because so much has been uncovered, producers are trying to figure out if they can liquefy natural gas onshore to ship it to other countries. That is the possibility.
The mix of exports from Canada to the U.S. is changing. That change is predicated on the fact that most of the shale gas reserves to date have been found and developed in the U.S., Texas being a big part of that development in the southern States. B.C. is still in the early stages of developing its potential.
The quantity of shale gas that might exist in the Maritimes, in Quebec and in other provinces that have hardly been explored yet could substantially change the picture you have in terms of where the basins exist. It will take at least another five to ten years to truly understand where shale gas exists in North America. Depending on how close that shale gas is to markets, it will change the directions of how that natural gas will flow. At the highest level, that number is declining because LNG is going down and the expectation that more and more U.S. gas will be sited from shale gas located within the continental U.S.
Senator Neufeld: Do you agree with me that the chances of a highway of pipeline from Alaska to the lower 48 states are pretty slim, using that analogy?
Mr. Pleckaitis: I would say there is an issue in terms of when that gas will appear.
Senator Neufeld: In New Brunswick, you spoke about the advent of natural gas and the difficulty in talking to people about it. I appreciate that difficulty. I live in a part of the world where I am used to it. I have worked in it all my life, so I am used to natural gas. As a company, what are you doing in New Brunswick to work with the people and demonstrate that natural gas is a safe source of fuel for heat and other purposes?
Mr. Pleckaitis: The business is a relatively fledgling one in New Brunswick, and another business is owned by another company in Nova Scotia. We have 10,000 gas customers in New Brunswick, which has a population of about three-quarters of a million. We are ten years old in New Brunswick. We spend a tremendous amount of time trying to make customers aware, through everything from building a dealer network to word-of-mouth and trying natural gas.
Many political leaders and influential people in the province are using natural gas and becoming accustomed to it and that word gets around. The process is a long, interesting one. When I was part of the start-up of the gas business in New Brunswick, coming from Ontario I had expectations that things would be similar. Suddenly, I was in a place that did not have natural gas and had only one gas fitter for the entire province.
We set up training programs at community colleges for people who had seen only oil, propane or wood to date. They were trained to sell, install and service gas appliances. It was a long process to set up the multi-tiered capacity to deal with individual customers, the service industry and the necessary infrastructure to support it.
Senator Neufeld: I appreciate that you need gas fitters, but maybe you can give me an answer later on what you are doing to convince the general public. We do not have time for that answer now, but if you can provide that answer to us, I would appreciate it.
Senator Seidman: Thank you, gentlemen. There is no question in my mind that somehow the importance of natural gas has been lost in the public consciousness. You stressed that fact. Perhaps the shale gas and all the new technologies have brought that importance closer to our sense of reality in a way, and the importance of natural gas in Canada. It was positive to listen to you this morning. For all of us, it was probably a great learning experience. I thank you for informative presentations.
I am from Montreal, and I would be remiss if I did not ask you about the most recent bad publicity, shall we say, at the end of last week regarding a gas leak in a test well southwest of Quebec City at Leclercville. The publicity was such that it seems there has been a leak in that well for some time that has not been fixed. It came to light that there were several notices about problems at various wells in Quebec.
My question is two-part. First, can you tell us about this incident? I agree with you that it is important for us to have a good understanding of all the issues and not to have the fear that we might have had years ago, which is not representative of the current technologies and how we ought to think about them.
Second, one of the rather surprising facts that we discovered about the oil spill in the Gulf of Mexico when we talked to various corporations and as we watched this spill daily, was that companies did not seem to spend a lot of money on research and development in terms of how to manage catastrophic events. They spend a great deal of money on research and development in terms of drilling deeper and deeper in the oceans to bring their oil out. The spill in the Gulf of Mexico became a grand live experiment on a daily basis in figuring out how to cap the well.
Under CGA's core initiatives are the Canadian Energy Partnership for Environmental Innovation, CEPEI, and a Call Before You Dig program, which both seem to indicate that you are addressing these issues. I want to hear more about those initiatives.
Mr. Egan: On your first point about the leaks in Quebec, we are not on the production side and we are not the extractors. We can recommend people who are able to speak to the issue of leaks. Anecdotally, I had a conversation with a senior executive from Talisman Energy Inc. who described the situation to me as one of a series of isolated incidents. He said each leak was equivalent to a barbecue. He said that the amounts were so far below the reportable minimum in the province of Alberta, they did not know necessarily how to address them. He said they recognize that it has created an enormous communications challenge because the province of Quebec has not had shale gas extraction before. Quebecers look at this situation and wonder what is going on.
Yes, the industry needs to be better at communicating the realities. For the most part, they are experienced in jurisdictions where the public has a much better understanding of such issues. We need to address that issue and to demonstrate that natural gas can be used safely and to represent the community effectively and to ensure that community interests are reflected. That is the first point.
In terms of safety and CEPEI, these are priorities. If you walk through the door of one of my member companies, one of the first things you see is a billboard on safety. It is so much a part of the culture of the industry. It is extraordinary. It struck me when I became involved in September.
As Mr. Pleckaitis said, when there is any kind of incident, the industry as a whole addresses the matter and what to do to avoid such things in the future. There is extensive investment in safety and integrity management. We are trying to ensure that there is an awareness of how great that priority is and that we are becoming better at safety all the time. We are becoming better at it but the communications challenge is ensuring that the public is confident in the resource. We are trying to address that challenge through these initiatives.
Mr. Pleckaitis: I will echo Mr. Egan's remarks. First, I remind the senator that natural gas has a long history. Much of what we are talking about, for example the spill in the Gulf of Mexico, is brand new technology. Oil was being drilled for at depths that had never been drilled before, and there were unexpected consequences. The ramifications have been huge on our business because we are in both oil and gas transportation. San Bruno, California, is another example.
When that type of incident happens, in particular in an area where it is unexpected, it causes Enbridge, in our case, to look at everything we do and ask ourselves: What are we taking for granted? What could go wrong, when we do our risk analysis?
Our boards are asking such questions more often because of the liabilities that are involved. Much more of our effort is focused on trying to anticipate the unexpected and how we would deal with it. Again, examples like that cause us to look at those things much more carefully and extensively.
Senator Seidman: I appreciate that. This question follows what Senator Neufeld asked about in terms of what you are doing to convince Canadians of the importance of moving forward with natural gas. We will expect some response to that important question. Thank you.
Senator Lang: Senator Seidman commented about the amount of commitment that the various companies and organizations made towards technology and research and development, especially in view of the situation in the Gulf of Mexico. It became apparent that if money was being put forward, it was being put forward to seeing how quickly we could extract, not how quickly we could cope with the situation if it arose.
Mr. Egan, as the spokesman representing all the companies and organizations, when you referred to the pooling of resources for research and development and technology and innovation, what kind of dollars were you talking about on an annual basis? What type of arrangements do you have with post-secondary institutions working within the various jurisdictions or with the Government of Canada?
I hope we are not undertaking this initiative in isolation from other governments and things of this nature and that we are not duplicating or trying to reinvent the wheel in situations as we look ahead. Perhaps you can comment.
Mr. Egan: The purpose of this initiative is, in fact, to prevent us from reinventing the wheel. This initiative is not a government initiative; it is an industry initiative. I cannot comment on what resources have been dedicated by governments to this issue, although I will tell you that this initiative, which we started only a few months ago, is right now going out and having conversations with governments in an effort to find out what kind of monies are being dedicated to technology and innovation around natural gas right now.
In terms of the actual dollars being put on the table, in the first instance, it is in the order of probably a few million dollars across the country. Again, we started this initiative a few months ago, and ideally, long term, we will raise a significant sum of capital, multiples of tens of millions of dollars, aimed at technology and innovation.
We are trying to approach the initiative in a targeted way to identify the priorities across the country. I mentioned two — water heaters and micro CHP. We are creating a list of priorities right now. We want to find out who is doing what on these areas and what we can do together. In some instances, there are proprietary or intellectual concerns, but we are finding opportunities where we are more effective as a collective to look at deployment of commercialization opportunities that can drive some of these initiatives forward.
Senator Lang: To clarify, this initiative is only the beginning of this particular type of pooling of resources, and moving ahead in that direction?
Mr. Egan: Correct.
Senator Lang: It would be welcome by all that you are taking this initiative.
The other area I want to express a concern about, following up on Senator Neufeld and Senator Seidman, is the question of public relations. Frankly, the industry can be chastised to some degree, because I do not think industry has brought the story forward and informed the public. Industry has assumed the public knows.
Mr. Egan: The industry is facing a communications challenge right now. I would say, and Mr. Pleckaitis alluded to this challenge, two and a half years ago we were all talking about the importation of natural gas to meet declining supply. All of a sudden, remarkable technological breakthroughs made supply abundant. People started paying attention to natural gas in a way they never had before.
To be frank, this attention caught us somewhat off guard. We are trying to respond to it. Communications efforts are improving, jurisdiction by jurisdiction, but we have a lot of work to do. My predecessor told me when I came into the job that he has been trying to tell people for years that natural gas is part of the energy mix and no one was paying attention. All of a sudden, everyone is paying attention to natural gas. We have not refined our response to that attention as well as we should, but we are endeavouring aggressively to refine that response right now. I take your point.
Senator Lang: I will redirect into the area of environmental regulatory systems that are set up across the country, and with the federal government. Has your organization put forward a position paper on constructive changes that can be made to the present federal system to make it more user friendly and, at the same time, to meet our environmental responsibilities?
Mr. Egan: My association is on the distribution side. We have the least direct engagement with the federal government within the industry. That said, my colleagues in the midstream and the upstream, with whom we are working closely on this initiative, have done a lot more work on it.
I will take that question back to them, and I am sure they can bring specifics forward to you. They speak about a series of pieces of federal legislation where regulatory reform is required: the Canadian Environmental Assessment Act, the Fisheries Act, the Species at Risk Act, the Migratory Birds Act and the Navigable Waters Protection Act. Work is being done on all of those acts, and I will take back your request.
Senator Frum: I am a senator from Ontario, and I live in a city that has almost a fascist quality to its garbage collection. We have to sort garbage into all kinds of piles.
I am also intrigued by the concept of the gasification potential of garbage. Based on your last comment about the abundance of natural gas, I wonder why there has not been more investment and focus on the potential for gasification of waste. You have discussed it a few times as a great potential source.
Is the lack of investment because the cost of extracting it is so cheap that there is no point in investing in those gasification processes, or, following on the answer you gave to Senator Mitchell, is it only that the provincial government forced the incentives into wind and solar? Do you feel that the provincial incentives that exist in Ontario for wind and solar were the right focus for renewable energy?
Mr. Pleckaitis: Your first question was about why renewable natural gas or recovery of gas has only started to come to the forefront. I think it is all part of the increased focus on greenhouse gases and energy efficiency and conservation.
Europe has much more recovery of gas from waste products. When we asked ourselves how we can improve and clean up the gas stream, we said this recovery is one way we can do that. As we saw the reports in Europe and what they are doing there, we started looking at the technology that exists in Europe.
We started working with companies that are producing and storing this waste and trying to introduce the technologies. We are still at the early stages of even having standards in place that will allow us to inject that gas into transmission pipelines. It is a process of learning based on the increased awareness and concern for the environment.
The second part of your question related to?
Senator Frum: Incentives.
Mr. Pleckaitis: Yes, on wind and solar: I complimented the minister who was instrumental in creating the Green Energy Act in Ontario, because it clearly created an impact. The incentives created through these feed-in tariffs for wind and solar definitely stimulated the creation of the environment. New businesses are being formed with the installation of solar wind farms, et cetera. We are now seeing the consumer reaction to that energy and the recognition of the cost.
Again, that is not a criticism. It is this balance. The idea was that the act and the incentives were created to try to stimulate businesses to take hold, and that happened. The question is, will they be sustained if the dollars are then pulled back? The government is already talking about reducing the level of subsidies.
I think it is a balance. We need to stimulate and be able to invest. Governments play a key role in reaching that balance. The question is how to do it and how to do it in a fashion that then becomes sustainable.
Senator Frum: I agree with the thrust of Senator Brown`s thinking. You mentioned it is good to have diversity in energy, but when a government is focusing its investments on sustainability, maybe we need to be narrowly focused and say we want to invest in transportation engines or gasification of waste. Maybe spreading it out all over the place is not the most efficient way of investing.
Mr. Egan: I would say that these areas are policy choices that government has to make, and they have to look at a range of priorities. We think transportation is a highly visible issue for Canadians. To Senator Brown's comments, there are three principal corridors for transportation that are relevant — Edmonton-Calgary-Vancouver, the Windsor- Quebec corridor, and then a Maritime corridor — that combined, probably affect 80 per cent to 85 per cent of the population of the country. Transportation seems an obvious priority for many reasons. In a time of constrained resources, we need to select options, and we think that option is one that should be selected.
The Chair: Thank you. Colleagues, we have come to the end of our discussion with the Canadian Gas Association. It has been informative. I hope you gentlemen have detected an engagement by this committee. We are interested in what you have had to say, and I hope we can come back to you with further questions.
In a way, you have armed us for our visit to Quebec on Monday and Tuesday next week. I hope you will be watching. If we go off the track, I am sure you will help to put us back on. Mr. Egan and Mr. Pleckaitis, thank you for coming.
We will terminate this part of the meeting and go in camera briefly.
(The committee continued in camera.)