Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 17 - Evidence - February 10, 2011
OTTAWA, Tuesday, February 10, 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 Grant Mitchell (Deputy Chair) in the chair.
[Translation]
The Deputy Chair: Good morning everyone and welcome to the meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
[English]
I am Grant Mitchell, and I am deputy chair of this committee. I am from the province of Alberta. I am chairing this meeting today on behalf of the chair who is, regrettably, unable to be here with us. His name is Senator David Angus and we will miss him.
I would like to welcome all the honourable senators who have joined us today and also any members of the public who are here in the room this morning, and those watching us on television. We appreciate your interest very much, and we appreciate your input and ideas. If you have a moment and want to go to the website that we have established for the study we are undertaking now as part of a two-year study, it is www.canadianenergyfuture.ca and www.avenirenergiecanadienne.ca. That is a place where you can find out what we are doing. You can follow the witnesses, you can track Hansard, the transcripts, and you can have input, which we would greatly appreciate.
I would like to introduce a number of the people around the table with us: Senator Bob Peterson from Saskatchewan and Senator Tommy Banks from Alberta. We have two critical and important staff members from the Library of Parliament, Sam Banks and Mark LeBlanc; the Clerk of the Committee, Lynn Gordon, who manages us exceptionally well; Senator Richard Neufeld from British Columbia, Senator Judith Seidman from Quebec and Senator Daniel Lang from Yukon.
Today we are continuing the long-term study which I mentioned just moments ago. This study is to look at developing a Canadian energy strategy. We have heard from so many people that there is a vacuum in that regard in Canada and that leadership is needed. We hope we can assist in developing some of that leadership and provide at least a pathway for how a strategy can be developed.
Today, we have the pleasure of having Kevin Heffernan as our witness. Mr. Heffernan is Vice-President for the Canadian Society for Unconventional Gas. He is a geologist with more than 30 years' experience in resource development industries, including assignments across much of Canada as well as internationally for oil and gas, coal, pipeline and consulting companies. Prior to joining the Canadian Society for Unconventional Gas in mid-2008, Mr. Heffernan was director, government and regulatory, at a private company developing unconventional gas resources, including coalbed methane, tight sand and shale gas in Western Canada.
We welcome you, Mr. Heffernan, and ask you to make your opening comments. We would then appreciate the chance to ask you questions and listen to your answers.
Kevin Heffernan, Vice-President, Canadian Society for Unconventional Gas: I propose to read my comments so that I stay on track and do not wander. I will leave that to the chair's discretion. If people want to ask questions, I would be happy to take them. Certainly, I would welcome any questions you have.
The Canadian Society for Unconventional Gas, CSUG, is a not-for-profit association that was formed in 2002. Our focus is on broadening the understanding of unconventional natural gas resources — and I will talk probably half the time about that — and broadening the understanding of the technology required to develop those resources among industry, governments, regulators and the public.
Since its inception, CSUG has had a significant impact on the evolution of the unconventional gas industry in Canada. With a strong focus on technology transfer between industry, government and public stakeholders, our major role is to provide this information to enable resource development in an environmentally, socially, and economically responsible manner.
I will not read our mission statement as it is there in the slide.
We have our roots in the original Canadian Coalbed Methane Forum, which was an informal group of companies whose common goal was to promote the development of natural gas from coal or coal bed methane in Canada. That goes back to the early 1990s.
In 2002, that forum evolved to become CSUG, and our mandate expanded to include tight gas, shale gas and methane hydrates in addition to coal bed methane. That was in response to increasing interest from operators, the public, regulators and governments in Canada's unconventional gas resources.
Our funding comes from memberships and from a number of technical events we host during the course of the year. Occasionally, we do a little bit of research work, mainly for the Alberta government, focused on things like the industry side of the business.
The next slide is just an outline of the things I will talk about today. I understand you have already spoken this week with someone about hydraulic fracturing. I think I do have one slide in this package about hydraulic fracturing. I will not dwell on it but will do my best to answer your questions if you have any.
I wish I could answer some of the questions that are in your report. I may end up simply restating some of the questions and recognizing the magnitude of the challenge that you have.
Let us start by talking about Canada's natural gas resource base. We are blessed with a vast natural gas resource in Canada. During the past decade, our resource base has grown from 390 trillion cubic feet, TCF, or about 70 years of supply, to more than 700 TCF. These natural gas resources include gas in conventional reservoirs that we are mainly familiar with, primarily in Western Canada and also some on the East Coast offshore; gas in Canada's far North and in the offshore; as well as in unconventional reservoirs such as coal seams, tight sandstones and shales.
The primary change in Canada's resource base in the past 10 years has been the emergence of unconventional gas resources as a major part of Canada's natural gas portfolio. Unconventional gas is just natural gas. The term "unconventional" refers to the reservoirs in which it is found. We have found that the concept is not fully appreciated in many audiences.
These reservoirs have been beyond economic reach in the past because they are technically challenging. One of the key differences between conventional and unconventional resources is risk. Conventional reservoirs are generally smaller and risk is exploratory; our big question lies in where it is. Unconventional resources are generally large and laterally pervasive. We have a good sense of where they are. Risk is concentrated in the technical challenge of producing economic volumes of gas. The big question there is how to get it out.
Starting first with Canada's conventional marketable natural gas, our assessment is that Canada's conventional natural gas active resource base occurs primarily in Western Canada. However, it is also in the North, the offshore East Coast and the West Coast, to a lesser extent. We estimate Western Canada has 121 TCF of conventional natural gas. Northern Canada has 116 TCF and the offshore about 120 TCF.
Most of those numbers are from work that the National Energy Board and the Geological Survey of Canada have done. We do not disagree with them; we have only updated one of those numbers.
In terms of natural gas from coal, we project a marketable natural gas resource base of 34 to 129 TCF. As I talk about these numbers, please keep in mind that we produce 5.5 TCF a year of marketable natural gas in Canada. Natural gas from coal is just natural gas stored in coal seams. Coal seams are unique reservoirs, so they pose some technical challenges that conventional reservoirs do not. Natural gas from coal, NGC, is the same thing as coal bed methane, CBM.
Most of what we currently consider to be recoverable and marketable occurs in Alberta and British Columbia. There is significant potential for growth as new technologies are developed. The particularly wide range of 34 to 129 TCF primarily reflects resource access uncertainties. Our estimate also includes 3 or 4 TCF for Nova Scotia.
We project a marketable tight gas resource base of 215 to 476 TCF, primarily located in Alberta and British Columbia, with a very small currently identified resource in New Brunswick. British Columbia resources include the prolific Montney formation and several other zones. The Montney might be a term many of you have heard before. Some refer to it as a shale resource. However, the purist geologist might say it is a hybrid or shale/tight sandstone mix.
The Alberta resource is dominated by a series of tight sandstone formations in the Deep Basin in the Alberta foothills, north and west of Calgary.
While most currently identified shale gas resources are in Western Canada, important and potentially very significant resources are being investigated in Ontario, Quebec and the Maritimes. Our assessment is that there are known shale marketable resources of 128 to 343 TCF. In addition, shale gas geological trends in many parts of Canada are currently poorly defined or understood, and we expect to see growth in the resource base in many parts of the country.
To summarize the resource base, including unconventional, we are estimating a natural gas resource base of 733 to 1304 TCF. That is considerably more than 100 years of natural gas supply at current production rates.
Conventional natural gas resources are in decline and becoming increasingly costly to find and develop, but technology has evolved and is being adapted to unconventional reservoirs. By our estimate, unconventional resources comprise more than 50 per cent of Canada's natural gas resource potential.
I will make a comment on emerging opportunities in unconventional gas resources. Many unconventional opportunities are not included in the current estimate. One reason is because there is no public assessment of the resources available. That is the case with the Montney formation in Alberta, which is simply the extension of British Columbia's Montney into the province of Alberta. We know that will be a fairly prolific gas-producing formation. It is currently being developed. In fact, there is production from it.
The other reason for opportunities to not be included is because industry's evaluation is at a very early stage. Duvernay shale in Alberta would be an example of that. It is a vast shale plate in Alberta that only has one or two wells that have been tested for shale gas development.
To give you a geographic sense, most of what we estimate to be larger untapped, untested, unconventional gas opportunities are shown on that slide.
Additionally, as industry continues to evaluate and test identified resource opportunities, we believe our estimate of Canada's resource base will grow. We expect this, in particular, for the Montney in B.C. As an industry, we do not really know what the northern or western limits of the Montney are, but it is a world-class natural gas field.
We also expect to see, over time, a significant increase in natural gas from coal in Alberta. We expect our resource estimate there to grow a great deal. Moreover, we are just beginning to understand the Utica shale in Quebec and the Frederick Brook shale in New Brunswick.
Technology has unlocked unconventional gas potential, not just in Canada but also in the United States, and the United States has led Canada. We have experienced a dramatic evolution of horizontal drilling capability with the development of custom drilling rigs and supporting technology, resulting in significant reductions in drilling costs.
Multiple wells drilled from a single surface location can reduce cumulative surface disturbance by two-thirds or more, compared to single well development drilling approaches. In fact, industry is now looking at multiple horizontal wells that are drilled from a single vertical well, and that will result in small incremental reductions in surface disturbance as well.
Hydraulic fracturing has been practised for 60 years, and the evolution of hydraulic fracturing techniques to enable multi-stage fracing in both vertical and horizontal wells has resulted in greatly enhanced production performance. In addition, micro-seismic monitoring and other techniques have enabled an improved understanding of where fractures go and how they behave.
On my one slide on hydraulic fracturing, the words are different than they are in my comment, and I would encourage you, when you get a moment, to read the comment in the slide as well.
Hydraulic fracturing is the process of inducing fractures in reservoirs by pumping a fluid often containing sand or a similar proppant down into a well and into a rock formation at a predetermined location. The fluid creates fractures or opens existing ones, and the proppant holds the fractures open. With multi-stage fracturing, the process is repeated a number of times in a single well. It is done in both vertical and horizontal wells. For horizontal wells, the process is repeated at various locations in the horizontal part of the well. Many kinds of fluids can be used for hydraulic fracturing, although some use no water, for example, propane fracs and nitrogen fracs. Water-based fracs are common.
There is widespread recognition within industry that the hydraulic fracturing process is water intensive, and producers and the service sector are working aggressively to reduce water use, including strategies such as recycling and the use of non-potable or non-drinkable water.
At this time, all unconventional gas evaluation and development activity is provincially regulated. Although regulations can vary from one province to another, the primary functions of health, safety and environmental protection are always addressed. In some places, water management is, understandably, a particular concern to many people, and it is important to recognize that through various government departments in all jurisdictions, the use and disposal of water is regulated, including for shale gas development.
Without question, shale gas evaluation and development activities create concern, especially in areas that have little or no experience with oil and gas development, and this is understandable. Evaluation and development, like any industrial activity, can be disruptive. Activity levels are particularly high during drilling and fracturing operations, but much lower once production is under way. As an analogy, think of the construction of a shopping centre — lots of truck traffic and piles of dirt, but you do move beyond that eventually.
Unconventional gas development brings economic activity and growth. In a July 2009 report, the Canadian Energy Research Institute estimated that every dollar of expenditure in the upstream oil and gas arena generated $3 of impact on Canadian gross domestic product. Most of that impact occurs in the jurisdiction of activity. Through economic development, employment, property sales and income taxes, all levels of government benefit, from municipalities to the federal government.
I will take a few minutes on the next slide, given the prominence that unconventional gas supplies have in the North American natural gas portfolio today. It is important to understand how we got to that point, and why they make sense.
Unconventional gas developments are expensive. They can be technically intimidating, but in comparison to conventional reservoirs, the gas resource can be large. Generally, development has a long lead time during which technical characteristics of the reservoir are determined, and technology is fine-tuned to address specific reservoir conditions. As the technical challenges are addressed, costs are reduced and well productivity increases. Commercial development often takes a manufacturing approach to achieve economies of scale and logistics.
This slide is taken from an Encana Corporation presentation, and it illustrates how companies make these expensive, long lead-time investments work. The two charts on the left side of the slide illustrate the drilling capital cost reductions achieved in the Deep Basin, a deep, tight sandstone play in Alberta, and in natural gas from coal.
Regarding the natural gas from coal cost numbers there, achievements over time have been quite a bit better than what is reflected there because development has been going on since 2002 or 2003. The key message there is that, as we understand these plays, we reduce the capital cost of drilling.
The two middle charts illustrate how hydraulic fracturing costs have been reduced as the understanding of reservoir characteristics improved and technology and logistics were fine-tuned.
The top chart in the middle, the Montney, is what we consider a tight sand reservoir, and the bottom is from the Horn River shale project in British Columbia. With the Montney, you are probably looking at a 60 per cent reduction in hydraulic fracturing costs over the last four or five years, and Horn River is at least the same. As we understand these reservoirs, we get better at getting gas out of the ground in a cost-effective way.
The two charts on the right are also for the Montney on the top, and Horn River on the bottom, and they illustrate the improvement in well productivity achieved over corresponding time periods, even as the costs were being reduced. This cost and productivity outcome is occurring in unconventional resource developments across North America. It is not unique to the Montney or the Horn River or Western Canada; it is occurring throughout the United States, and is now being applied in other places. Australia and Europe, in particular, come to mind.
The next slide illustrates the impact unconventional gas can have on natural gas supply. The chart shows U.S. shale gas production to the end of 2009. In the United States, which is a few years ahead of Canada, as I mentioned, the impact of shale gas alone illustrates that potential. We see, over the last decade, shale gas production grow from about 200 BCF, billion cubic feet, a year, or .2 TCF a year, and to end of 2009, it was about 4.5 TCF a year. The growth and contribution are phenomenal.
More to the point, from 2005 to 2010, shale gas production from those seven shale basins grew from 0.6 TCF per year to 4.4 TCF. Current U.S. shale gas production alone is equal to two-thirds of total Canadian natural gas production in 2009.
Following are a couple of comments on natural gas strategic considerations that this committee would probably want to reflect on.
The U.S. Energy Information Administration, EIA, recently released its annual energy outlook for 2011. This current outlook projects continuing growth in U.S. domestic gas production, largely attributable to development of unconventional natural gas resources. Production growth, you will note, significantly exceeds demand growth. The dashed lines reflect the EIA outlook one year ago; the solid lines are the current outlook. Both outlooks project dramatic reductions in imports. The reduction in the 2011 outlook from 11 per cent of U.S. demand in 2009 to 1 per cent of U.S. demand in 2035 is particularly striking. Although some of this reduction in U.S. imports will be accommodated by reductions in LNG, liquefied natural gas, imports, LNG represents only about 0.5 TCF of U.S. supply today — and that is generous. Most of the impact in reduced imports by the United States will be felt by Canada.
Canadian natural gas exports are about 2.5 TCF per year — one-half of Canadian marketable gas production. The Canadian natural gas industry, up and down the value chain, employs hundreds of thousands of Canadians across the country and, through taxes and royalties, is a major contributor to federal, provincial and municipal revenue streams. This scale of reduction in natural gas exports would be felt right across the country.
In April 2010, the Honourable Jim Prentice said, "Natural gas could be a bridging fuel." I would take it a step further. Natural gas can be a foundation fuel for Canada's energy strategy. We have a century of supply; we have opportunities across the country; we have a transmission system serving major energy demand centres; and we have supply robustness ensured by storage, interconnections with U.S. pipeline systems, and a very large LNG import capacity in North America. We are a society accustomed to natural gas use. You will see from our remarks later that society is not truly aware of the benefits it realizes from natural gas.
Attention Canada! asks Canadians a number of questions: What do we mean by a strategy? What are the foundational principles? I am sorry that I do not have the answers for you, but I do have some comments. It is clear that where we would like to be in 20 or 50 or 100 years and how we get there must deal with the practical considerations of today and the next decade. We want to see a lower emissions future, but have a massive existing infrastructure built over many generations. It provides us with the benefits that we have come to expect every day. Moving away from that will have positive and negative impacts on each of us. It is my view that a sustainable energy strategy must pass three tests. The first is social sustainability. Canada's strategy must be respectful of the public interest but it must also recognize the public capacity for change, both positive and negative, or at least perceived negative, change. The second is environmental sustainability. Emissions may be the driver of change, but consequences will include a shift or dislocation of physical energy development impacts to regions where they will be new. A classic example of this from an upstream perspective would be resistance to wind turbine development in areas where they have not had to deal with that sort of surface disturbance. The third is economic and fiscal sustainability. A sustainable energy strategy needs to consider individual, corporate and government capacity to bear the costs of change. These costs will include the variety of government supports that will be necessary, and potentially, the costs or the cost impact of stranding both resources and physical and intellectual infrastructure.
The current emission reduction target of 17 per cent below 2005 levels by 2020 must create a sense of urgency. Even recognizing federal and provincial emission reduction initiatives, near-term action will be needed in that 2020 is strategically mid-term. Clearly, achieving emission reductions will require change which, as we all know, takes time. I will give you the natural gas sales pitch.
Natural gas can play a key role in meeting emission reduction targets. It is here and is widely used and accepted across the country. Emissions comparisons with coal and traditional transportation fuels are well understood. Natural gas offers opportunities for near-term emissions reductions, in particular in transportation and heavy vehicle fleets, and as a complement to renewables in meeting power generation needs.
Energy makes our society go. It is in everything we do. It is complicated. From our perspective, energy literacy affects our comprehension and appreciation of everything from the balances of whether we need and where and how we develop natural gas resources, to the balances or trade-offs and consequences of installing solar panels on new schools, hospitals, shopping malls or our own houses. True energy literacy requires transparency in the real costs of energy choices and the unavoidable need to meet the test of economic and fiscal sustainability.
Comprehension of benefits and implications include how benefits flow and the consequences of the choices that we make. For the upstream natural gas industry, we know we need to do a better job of communicating and building understanding among all stakeholders. It requires demystifying obvious, intrusive and complicated processes. For governments at all levels, it requires ensuring that the benefits flow is apparent and understood.
The sustainable energy dialogue is underway under this committee's leadership. Emissions targets for 2020 require immediate attention to the challenge of energy literacy as an enabler for strategy development and acceptance. I have four or five key summary comments here. Canada is blessed with an abundant natural gas resource that provides opportunities in many provinces. It is a strategic asset. Technology has been critical in bringing unconventional gas resources within economic reach, which is reflected in both Canada and the United States. The Canadian natural gas industry faces significant challenges in the North American marketplace, but it also provides a foundation for a sustainable energy strategy. To me, a sustainable energy strategy must meet social, environmental, and economic and fiscal tests. It must recognize the urgency necessary in order to meet emissions reduction targets, and it must address the challenges of energy literacy to enable strategy development and implementation.
Thank you for your patience.
The Deputy Chair: Thank you. It did not take patience because it was very interesting and we appreciate it. Before going to questions, I would like to welcome two other senators who have arrived recently: Senator Fred Dickson from Nova Scotia and Senator Linda Frum, from Ontario.
Senator Lang: Welcome and thank you for being here today. I appreciate the well-thought-out and well-researched presentation. It is goes a long way to addressing some of the questions that we have put forward to the public in our search for answers.
I want to get a little closer to home, if I may. In your slide on Canada's natural resource base, you identify natural gas resources in British Columbia, Alberta, the Northwest Territories and a couple of areas offshore. Is there a reason that you have not identified Yukon's natural gas resource in the Peel Plateau?
Mr. Heffernan: Old Crow Flats and the Peel Plateau should be reflected and the Liard River Valley is included in the Western Canada sedimentary basin numbers. It is probably small because of the size of the resource. We know there is gas in the Old Crow Flats area as well, which is not reflected on the map.
Senator Lang: I ask because I think there is some new information coming to light in that area. It is substantially more than what initially was thought in that area, even for the limited exploration that has been going on.
Mr. Heffernan: I can make copies available to the committee of a report we have that talks about the Liard Basin. We have identified the Liard Basin as one area where we expect to see significant growth.
Senator Lang: Also, Yukon is looking at the Peel Plateau as a possible alternative.
Going back from there, before getting into the question of unconventional natural gas and shale gas, which is obviously dominating the industry at this time, you initially were set up to promote the development of natural gas from coal in Canada. Obviously, your mandate broadened.
Could you give us a brief overview of the prospects of natural gas from coal? Is it economical? How does it relate to shale and other conventional and unconventional sources of gas; or are we looking at putting that on the back burner in view of the dramatic change in the costs of gas and being able to procure it?
Mr. Heffernan: Coal bed methane is very highly developed in Alberta today. There are about 14,000 producing coal bed methane wells in Alberta. Development programs are continuing; production is about 750 or 800 million cubic feet a day.
There is a much slower start in British Columbia. I think there have only been one or two coal bed methane wells that have been under evaluation.
The real challenge with coal bed methane wells is that they tend not to be as prolific as shale gas wells and costs are not that different on a dollar per unit of energy basis. Over the long term, I believe coal bed methane will be a very significant contributor to Canada's supply mix. There are deep coal seams in Alberta that probably have 500 TCF of gas in place.
We have a technical challenge that we have not overcome to get that gas out. What the shale basins have pointed out in particular is the speed at which resources can be developed once those technical hurdles have been met.
Senator Lang: This prolific source of fuel from shale gas is obviously replacing possibilities of other major investments and other sources of energy. It would seem to me that, first, Canada should be looking at the United States — the exports that we make there presently, and the financial implications on us as a country from the point of view of exports and what we will do as an alternative.
Perhaps you could comment on that. Are there any reports that you know of that give the implications to Canada and the provinces that export?
Second, what alternatives do we have from the point of view of selling that gas or utilizing that gas ourselves as our source of energy? Could you comment, as well, on the importance of being able to have a port on the West Coast for the purpose of export?
Mr. Heffernan: I am not aware of specific reports. It sounds like the sort of thing Natural Resources Canada would have given some consideration to, but I am not aware of any specific reports that address the economic implications of declining U.S. imports of Canadian natural gas.
I think it is extremely critical for us to understand that. To me, it is a missing piece of the energy literacy puzzle — 2 to 2.5 TCF of natural gas goes to the United States every year. Shrinking that by 90 per cent or 80 per cent or, assuming the EIA is really out to lunch, shrinking that by half will have a huge impact. Every province will feel that impact. That is my main comment, and that is why I put it into my material.
An export terminal for natural gas on the West Coast, to me, is a critical piece of the long-term future for natural gas in Western Canada in particular. I would like to see that go ahead. I would like to see support from wherever it can come to ensure that happens.
I realize there are lots of issues that still need to be addressed in terms of public consultation and cost-management issues, but the Kitimat LNG export terminal is very important to the industry, from my perspective.
There are a couple of other things happening from both a supply and a market perspective. I am comforted a little by the fact that some companies are now starting to look at gas-to-liquids feasibility in Western Canada. That would be a new market for natural gas. We know there is a market for the liquids and there will be for many decades.
Countering that is some work that is going on to look at natural gas from coal, in situ gasification, which would make more gas available in Western Canada. The pilot projects I am aware of are in coal seams in Alberta.
Technology never sleeps and, as an industry, we are looking at other options for markets. There are others who are looking at other options for supply. Does that help?
Senator Banks: Ordinarily, in resource development, if prices are really low and the market prospects are trending downward, exploration development and even R&D slows down. Why is that not happening with gas? Why are people putting huge amounts of capital into increasing the supply in the face of a lessening of demand?
Mr. Heffernan: That is a very good question and the answers are not especially obvious. I will give you a side issue and then answer your question.
Some shale gas development in the United States has been driven by a requirement to drill a well and put it on production or you lose your lease. That is a part of it. The other part is that, as long as the technology exists to develop gas profitably, even at low prices, gas will continue to be developed.
Senator Banks: What is the magic number?
Mr. Heffernan: There is no magic number. In Western Canada or in Canada, profitability will be a function of proximity to market; cost to get the gas out of the ground; the production rate that you are able to achieve; gas price; and the exchange rate. As long as you can bring those pieces into balance, you will be profitable.
The last piece that needs to be recognized is that a bunch of the cost pieces have been taken out of some resource development in Western Canada. The costs are sunk in areas that can continue to be developed because gas plants and pipelines are in place. In some cases, operators are able to go back to existing surface leases and drill additional wells from the same surface lease.
Those kinds of development programs have a different cost structure than what we typically think of as a supply cost. Production from development plays would be a lower cost than production from grassroots plays.
If I have a shale gas opportunity and I can achieve the sorts of things illustrated in the series of histograms shown, I might be able to make that play work, even at low prices. When I talk about supply robustness in one of these slides, that is something to keep in mind. We have seen in North America, not only in Alberta or British Columbia, but in particular in the United States what technology can do when gas prices rise. That is an important part of the natural gas message for this committee.
Senator Banks: That part of it is comforting in the long run, that we will not freeze in the dark.
You said that a very significant market could be increased and, in fact, made if we started to use heavy-duty natural gas, LNG, as a fuel in heavy-duty trucks. We met with a company in Montreal the day before yesterday that wants to do that, but it is the chicken and egg; if people want to buy an LNG car but there are not places they can put LNG if they drive from Calgary to Edmonton and cannot get back again, I know you are the upstream part of the industry, but is there a downstream part of the industry? Would it be in your interest to look at that kind of vertical integration and start thinking about that? Are you thinking about that?
Mr. Heffernan: Certain operators are. Encana comes to mind. They have been doing a lot of work on natural gas vehicles. We have seen some operators in Canada and a couple of others that have converted some of their field fleets to natural gas vehicles. I know that a couple of service companies that drive heavy-duty vehicles are looking at, or have looked at, compressed natural gas for part of their fleet. There are some challenges with that because usually that fleet is going into remote areas looking for natural gas, so it is a little more difficult to make it look like a sensible thing to do.
Senator Banks: The transport company we talked to, Robert Transport, wants to set up two blue channels, in effect, where their heavy-duty transport trucks in high traffic areas would have access to refuelling capacity, and they are talking about the Calgary-Edmonton-Vancouver triangle and, of course, the Montreal-Ottawa-Toronto-Quebec City corridor. Do you see that as a factor in the foreseeable future, the kind of infrastructure that will allow heavy-duty transport trucks? So much of our stuff in this country moves on trucks, it is incredible.
Mr. Heffernan: Kudos to Robert Transport. In Canada, to me they are a leader and are, in fact, setting an example for the heavy-duty vehicle industry.
I would also encourage this committee to meet with the Canadian Natural Gas Vehicle Alliance, if you have not already done so. If you like, I can provide you with contacts there.
The challenge, as you correctly pointed out, with natural gas trucking is refuelling, so returning to base fleets is where the focus is today. That could include buses, for example transit systems, or city systems such as municipal waste collection because it would be easy to put one filling station in and serve those fleets.
Corridors are trickier, in my mind. Highway 2 from Calgary to Edmonton is heavily travelled with trucks, and on both sides of the highway there are natural gas wells. To me, it would seem to be an ideal place to do a pilot. I know a lot less about the infrastructure in Quebec and Ontario and the Toronto-Ottawa-Montreal corridor. I think natural gas vehicles will happen.
Senator Banks: Who will do the refuelling thing? Will ATCO do that?
Mr. Heffernan: Perhaps ATCO, perhaps Encana Corporation, or perhaps a trucking company might decide it makes sense for them.
Senator Frum: For clarification, could you explain what the problem is with converting existing service stations into natural gas stations? Why can that not be done?
Mr. Heffernan: Sometimes it is space. You cannot make the liquid side of the business go away because, whatever it is, 99 per cent or more of the Canadian rubber fleet fuels up on gasoline or diesel. You cannot make that go away, so many service stations are dealing with the issue of space. Can you put in a refuelling facility for natural gas on the same lot? That is my understanding.
I would encourage you to ask that question of some other folks, including Natural Resources Canada, which has been doing quite a bit of work on the natural gas vehicle side of things over the past year or so.
Senator Dickson: I have a supplementary question. When it comes to a vehicle using natural gas, regarding the conversion to a source of energy for vehicles being natural gas, what could the federal government do to accelerate that process? I would imagine they have thousands of vehicles. What can they do?
Mr. Heffernan: Good point.
Senator Dickson: Has anyone talked to them? That is why we are here.
Mr. Heffernan: If anyone has, it likely would have been the Canadian Natural Gas Vehicle Alliance or folks from the Canadian Natural Gas Initiative.
As I mentioned, I encourage you to speak with these different organizations. To me, the questions you are asking are important questions that need to be directed at someone more intimately aware of the nuts and bolts of it, and that is the Canadian Natural Gas Vehicle Alliance. They would be happy to come and talk to you.
Senator Banks: Mr. Heffernan, I understand that you are representing the upstream, the guys who drill and extract the gas. Is it not in the specific interests of your members to do whatever they can to make that infrastructure happen so that you create a new market for what you make? Is anyone at your end looking at cajoling, investing in, making partnerships with whoever you need to, in order to have access to what would surely be a hugely growing market? If I could burn LNG in my car practically, my engine will last a lot longer.
Mr. Heffernan: The short answer to your question is yes. In fact, my understanding is there are one or two large upstream companies that are looking at that.
Senator Neufeld: Thank you for your presentation. Further to Senator Banks's question about the mode of use, the fuel of natural gas, I am a great proponent of that because of how much natural gas we have and because it is so much cleaner. We have heard different variations of that obviously in Quebec, but it is cleaner than what we use now with diesel fuel.
As I understand, the routes from Vancouver, Calgary and Edmonton are in place. There is not a prolific number of stations in place, but enough so that the heavy traffic uses them and has for a while. Westport Innovations from Vancouver are the ones who move forward with the technology to burn natural gas in heavy diesel trucks, and that is exactly what Robert is using. When Mr. Robert testified, he told us that. He said it is happening in Western Canada, but he said he cannot get through the maze of regulations that are taking place in Quebec with federal, provincial and municipal governments. That was the trouble.
It was amazing to me that he has already over 100 trucks on order to come in over the next three years and he is still having to fool around at the municipal, provincial and federal levels to get those LNG fuelling stations in place.
It is a bit more difficult than just siting a gas station. We have had those for a long time. People are accustomed to them. What they are not accustomed to is having LNG plants. They are very cold. They bring it down to 260 degrees Fahrenheit to create a liquid instead of a gas. All of those things have to be taken into account. He should be commended for what he is doing because I believe it is the right thing. We are doing it on the West Coast already and he is trying to do it over there. Over time those links will come, through some process. I think the federal government has a role to play in how we actually do that by regulation and making it easier for people to accomplish it.
In your presentation, I see two places. You mention Horn River Basin. The Horn River Basin and Montney banks I am very familiar with. Horn River Basin is the largest basin so far that is producing gas in Canada. It is estimated at 500 trillion cubic feet in the Horn and Cordova. The other day, the National Energy Board approved a $650-million, 36-inch pipeline, just to bring part of the gas out of the Horn. Not all, but about as much of it will go through Spectra's plant in Fort Nelson, doubling its size. There is a huge amount of that already happening. A consortium of companies, including Apache and Encana, has purchased the LNG facility in Kitimat, and actually has purchased pipeline from PNG from Prince George to Kitimat to move that gas.
I am very much a proponent of this. I know the statistics you have here should actually startle all of us, but there is a huge opportunity in the Asian market for LNG. Would you agree with me?
Is that something you follow? I just want to get your understanding of that.
Mr. Heffernan: I agree with you. I think West Coast export of natural gas can be a very critical piece of the future for the natural gas industry.
We follow what is happening with respect to Kitimat. We are not engaged in that dialogue, let us put it that way. Individual producers are and perhaps the Canadian Association of Petroleum Producers — CAPP — may be as well. Let us say we are observers and, at least philosophically, supporters of it. It is an important piece of the natural gas future.
Senator Neufeld: Also in your presentation you talk about expecting to see the potential grow, and you name Montney, Utica and Frederick Brook shales in Quebec and New Brunswick. We understand you see in Quebec 30 wells drilled and they are just to test and see what is there. They are not producing wells and will not be; they are just test wells. There is nothing yet in New Brunswick.
There is a lot of opposition, and I can understand that because I was there trying to get coal bed gas going in British Columbia. By the way, there are more than three wells being tested. There is a whole field commercial and has been for a number of years, and many others being tested. I would like to put that on the record. You would, I think, agree with me?
Mr. Heffernan: I do. One of those fields, the wells have been recently shut in.
Senator Neufeld: What you are doing with your organization? Are you involved at all in Quebec, bringing forth the message of what can be done, what should be done and how it should be done? You folks have a lot of technology and a lot of experience behind you, and what are you doing in New Brunswick? Are you involved in either one of those areas and should you be?
Mr. Heffernan: We think we should be. We have a small organization in terms of staff. None of us speak French. That places some constraints on us.
We do have some communications materials related to shale gas development that we have shared with the operators in Quebec and with the Quebec government. We maintain a fairly regular dialogue with the operators and with the government in Quebec. We have not become particularly active there. I can tell you that, around our board table, it is a discussion that we seem to have every time our board of directors gets together.
We have been considerably more active in New Brunswick. In fact, on January 29, I was in Sussex at an open house for the community — a very well-attended open house — responding to questions and providing assistance with information whenever I could. We made a bunch of our material available to the community at that session.
Senator Neufeld: Is Apache, who was actually active in New Brunswick, on your board, and is Questerre part of your board?
Mr. Heffernan: Apache is not on our board now but has been in the past. They have had a representative on our board. Questerre is not represented on our board, but both companies are members.
Senator Neufeld: Both companies are members. I think shale gas will be easier to get across to the public than coal bed gas. I know there are many wells in Alberta. I followed that closely. There has been lots of trouble, too, because they are shallow and you have to remove the water. That is a much bigger issue, although you use lots of water to get shale gas for the fracs, but it is two different things. Would you agree with me that shale gas is probably an easier sell than coal bed gas? If you were to go into Quebec into the St. Lawrence and there was coal there, which would you think would be easier to sell?
Mr. Heffernan: Hypothetically, probably shale; I think you are right.
Senator Neufeld: Thank you.
The Deputy Chair: We are averaging about 10 minutes a senator and we have enough senators to put us over our ten o'clock deadline at that rate.
Senator Peterson: I would like to comment on a couple of points that you brought up in your presentation. One is public acceptance. Everyone fears the unknown. Particularly, if we were in Quebec, as they said, six months ago they had not heard of shale gas and now they want to do it.
Who should be pushing that forward and how? Is it a combination of governments who own the resource and get many royalties from it and the producers who want to extract it? Who should be charged with the responsibility of sitting down with people involved, with town hall meetings or whatever, to advise them?
Second, you talked about meeting the 2020 greenhouse gas challenge, and transportation is a major part of that and to solving the problem as well. However, as Senator Banks and Senator Neufeld have said, we met with Robert Transport and they are literally one company fighting this whole thing all by themselves. Why do they not have champions? Would your organization be champion to them? Why would Environment Canada not be champion to those who have to deal with this?
Here they sit, all by themselves, one man trying to help save the planet. I do not understand. I would like your comments.
Mr. Heffernan: As I said, Robert Trucking is a leader in Canada. Frankly, we should all be pretty proud of what they are doing and the steps they are taking. Westport Innovations in B.C., on the technology side, is a global leader recognized around the world. They are having less success domestically than internationally, would be my perspective on it.
I do not think Robert Trucking is out there on their own, although I am equally certain that it feels to them that they are. On the upstream side, I have been in similar situations. The Canadian Natural Gas Vehicle Alliance has done a lot of analysis and work, and is trying to be the champion dealing with people here in Ottawa, in a number of the ministries, on a pretty regular basis.
In the fall, Natural Resources Canada, NRCan, completed the natural gas for transportation deployment roadmap. The Canadian Natural Gas Vehicle Alliance was involved with that, NRCan of course, a number of provinces were engaged in that process, and the Canadian Association of Petroleum Producers as well.
That work has been under way for quite a while. We would like to see it move forward and, in fact, hope to see some comments from the government in the coming weeks on that. I would encourage you to talk to those people at NRCan who were involved in that as well.
Those are good questions. Yes, more needs to happen. I think there is a place for leadership from the federal government, and some of that is happening.
Senator Peterson: Another example was, in buying his trucks, Transport Canada mandated that he has to buy them in the United States because they have to meet EPA, Environmental Protection Agency, standards. Is that not a wonderful start? It is no wonder we are struggling with this.
Mr. Heffernan: I can offer no comment on that.
Senator Seidman: Thank you for your interesting presentation this morning.
Given this eye-popping projection that you have put in front of us on the reduction in imports on the part of the U.S., have you asked the federal government to look at or study the economic impact of this?
Mr. Heffernan: We have not. I understand this report was out in December. It is only in the last week, in fact, that I came across it, and I thought this was really important. That is why I put it in here. Perhaps I am asking now.
Senator Seidman: Okay. You are saying it is recent?
Mr. Heffernan: It is the most recent U.S. Energy Information Administration outlook.
Senator Seidman: It is good that we have it before us.
Having just covered that quick question, I would like to go back, if I might, to your mission statement, and try and understand a bit more about what you do.
In your general introduction, you have said that you have focused on broadening the understanding of unconventional natural gas resources and the technology to development those resources. You go on and say with a strong focus on technology transfer between, or among, industry, government and public stakeholders. Your major role is to provide this information to enable resource development.
If you could just explain that a little bit more, I would appreciate it.
Mr. Heffernan: Of course. Our roots are upstream technology. When coal bed methane development began to occur in Alberta, we faced, as an industry and, in fact, as regulators and government in Alberta, some challenges around understanding what this would mean. These were public challenges related to comprehension of resource development and what it would mean in regulation and all of those things.
We were seeing very widespread, in the media in Alberta, reports of the devastation of the landscape, the devastation of communities that would occur from coal bed methane development, based on any number of things. We sat and looked at what we were reading in the papers, and we thought this was just wrong. This is just factually incorrect. These things that the public is being told are going to happen, in fact, cannot happen. They are virtually regulatory impossibilities.
That would have been about 2002 or 2003, and at that point we began to focus a lot more on trying to help the public understand the technology and the regulatory environment that exists. We had some success with that, and we have continued to do that in areas where we feel we can help government, regulators or the public understand.
From an industry technology perspective, the events that we put on that are important to us, from a funding perspective, tend to focus on state-of-the-art kind of technology development items.
Senator Seidman: If I might just stop there for a moment, because technology comes up a lot, of course, in these discussions. I would like to follow from a couple of my colleagues here who asked about Quebec specifically and the, perhaps, bad publicity recently over leaks. You have used words such as "risks," "fear" and "communication." Perhaps there are a lot of unfounded fears. It seems to me that was in the origins of your organization, as you describe it here.
We have heard a lot about research and development in technology that focuses on the exploration and the extraction of gas, shale gas specifically. We have heard the same thing from the oil industry, and we have seen things happen that are bad.
Do you play a role in encouraging research and development in technologies to deal with the crises that may happen, to project them, and to develop the technology that could deal with a potential crisis, for example?
Mr. Heffernan: Not directly, I would have to say. As an overriding comment on some of the things that are happening in Quebec, where the regulatory environment is less mature than Alberta and British Columbia, there tends to be a focus — and I guess it is human nature — on places where things went wrong. Somehow in the dialogue there must be a shift to also considering and commenting on places where things have gone right. Close to home, Alberta and British Columbia, the B.C. Oil and Gas Commission and the Energy Resources Conservation Board in Alberta do some real good work. They stay current with the technology trends in the industry, and they need to be reflected in the conversation. It does not all need to be about what happened in Pennsylvania three years ago.
The information that I have, which was presented in evidence at the BAPE, Bureau d'audiences publiques sur l'environnement, hearings in Quebec is that in Pennsylvania there were some gaps in oversight, perhaps some staffing issues — a bunch of those things — and some outdated construction regulations. Those have been addressed. I think even Pennsylvania now is well into the process of updating its regulations. However, what I think is really missing from the conversation is conversation about not only what we can learn from places where things went wrong, but also what we can learn from places where things have not gone wrong. That whole piece is missing from the regulatory dialogue about shale gas development.
Senator Seidman: Is it a communications issue? This has come up before in our conversations here with other members of the industry. There seems to be communication with the public and this general dialogue that you refer to seems to be a big missing piece.
Mr. Heffernan: It is in places. It takes a willing audience at some level as well, and I am not sure that we always have a willing audience, based on my own personal experience and discussions that I have had with people. I think the operators in Quebec have been trying to get to that point. The Quebec Oil and Gas Association — and, forgive me, I do not know the French name of the organization but we call it QOGA — has been making those efforts in French. That is part of the reason why we have not gotten heavily engaged. On my "to do" list is a conversation with Lucien Bouchard to see if there are some places where we can assist.
If you come from Calgary — and I think the operators have a fairly intimate experience of this — and you do not speak French, when you go into a community meeting in rural Quebec, it will be pretty hard to get anyone to take you seriously.
Senator Seidman: For sure. We look forward to some change in that, perhaps. Thank you.
Senator Frum: I wanted to pursue a similar line of questioning to that of Senator Seidman, so forgive me if I push you to keep discussing the Canadian-U.S. energy dynamic. On the one hand, while you have made a forceful presentation about the importance of natural gas for sustainability, self sufficiency and environmentally friendly fuel, it also has some worrying elements when we think about Canada as an energy super power and how we maintain our role as an energy provider to the world with this gas that is incredibly plentiful, not only in North America but also around the entire planet. It is possible that virtually everyone, including Asia, will be able to produce it domestically.
Regarding our whole economic identity as an energy provider to the world, how do we reconcile our desire to see growth for all the good reasons, but it may not lead to that?
Mr. Heffernan: That is a good question. I do not know if I have an answer for you. Part of the message I am trying to give today is what you said: Natural gas is prolific in the United States and Canada, and it is emerging in many other places. In total, the impact on natural gas supply will be that natural gas is an exceedingly robust energy source for Canada. That is the message that I want to give.
As you said, there are some rapidly growing markets, but they will also find their own similar opportunities. I would love to see China make their 700 coal-fired power plants, or whatever the number is, go away. We must be realistic. You may get a sense of my trying to say, "Let us be realistic about this as well." They will not make the hundreds of coal-fired power plants go away in a decade or in a generation. They will be there for a long time.
Industry is starting to think about all of these things. They are thinking about export terminals and they are starting to think about gas-to-liquids conversion facilities. We are not sleeping. We recognize that, perhaps over the last 50 years, we have become too reliant on the Canadian and United States' markets. I think we will try to fix that as an industry.
Senator Frum: Thank you.
Senator Dickson: Thank you very much for your excellent presentation. I got your message today; I am sure the other senators did as well. I hail from Atlantic Canada. As Senator Neufeld comes from the West, I have a tendency to think about Atlantic Canada.
Have you ever made a presentation to the Canadian eastern premiers and to the New England governors when they meet annually?
Mr. Heffernan: We have not, but we would be very pleased to do that.
Senator Dickson: That group will meet in Nova Scotia this coming summer. I suggest that you contact OTANS, Offshore/Onshore Technologies Association, in Nova Scotia. I am sure our premier would be interested in having you make a presentation there or to the Atlantic Provinces Economic Council. They could liaise with you to bring that about. As Western Canada looks to Asia, we look to the United States, especially if Lower Churchill goes ahead, to sell electricity there, and to Irving, as you know.
Have you had any discussions with the Irvings at all? They have massive truck fleets besides their refinery, et cetera.
Mr. Heffernan: We have not had those discussions and probably would not. I cannot speak for the Canadian Natural Gas Vehicle Alliance, but one of the areas that that industry association has looked at is various port authorities on both the East and West Coasts, because there is a lot of heavy vehicle traffic at those ports as well as within the actual port facilities.
My understanding is that they have looked at that. I keep saying that the interest seems to be here; I would really encourage you to talk to the Canadian Natural Gas Vehicle Alliance.
Senator Dickson: I have two other areas to ask questions on. One is in relation to regulation and uniformity of regulation across Canada and in the United States insofar as shale gas is concerned. Has any work been done at the state level and at the provincial level insofar as uniformity is concerned? What provinces in Canada have the most effective shale gas regulatory regime now?
Mr. Heffernan: I would say Alberta and British Columbia, through the work of the B.C. Oil and Gas Commission and the Energy Resources Conservation Board in Alberta.
With respect to uniformity, I think that uniformity comes at the principles level of regulation, which is good. That is probably where it needs to be. Different jurisdictions, so different provinces in Canada, have different relationships between ministries that regulate different parts of the industry. I am not sure that it makes sense to try to have a uniform set of regulations, just from an administrative perspective. At some level, I think every government likes to have the opportunity to sort out what will work best in its own jurisdiction.
There are probably 30 or more states in the U.S. that produce natural gas. They have regulatory environments that are at different levels of what I call maturity, and they all have their own. Layered on top of that is a federal regulatory framework, as well, on federal lands.
First, I do not know that uniformity makes sense. At the health, safety and environment levels, let us address those fundamental principles: Protect ground water, protect the health and safety of workers, and respect the landowners and communities where we operate. Let us get those principles right in all of the regulations and figure out how those various pieces fit together within a province. I think we need to respect the provincial jurisdictions.
In all cases, we would like to see simplification to the extent that it is possible, so that we are not trying to get permits from different ministries for the same thing. That is a bit of an extreme example. I am sure you have heard that from the Canadian Association of Petroleum Producers, CAPP, the Canadian Energy Pipeline Association, CEPA, and others as well.
Senator Dickson: I would like to follow on the same point for a moment. There is a piece of legislation, and regulations under the main body of legislation. Are you saying that there is no interest in having any degree of uniformity with the legislation, per se, if there is such to create the regulations — and I assume there is? Is there no push to have uniformity in Canada at the provincial level insofar as the legislation is concerned? That raises the profile of the subject.
Mr. Heffernan: I might be saying that. I will give you an obvious and classic example. In Alberta and British Columbia, produced water needs to be deep disposed in the subsurface. That is against the regulations in Eastern provinces. Therefore, the intention in both cases is protection of the environment, protection of surface water and appropriate management of produced salty water, but the approaches are very different and the legislation and the regulations are very different.
That is just one simple example. Getting from that to uniformity of regulations really challenges me intellectually.
Senator Dickson: It is good for the lawyers.
Let us stay with the regulations for a moment. In hydraulic fracturing, you inject water. What chemicals are used? You said nitrogen, but I did not get the rest.
Mr. Heffernan: A variety of chemicals are used. My reference to nitrogen and propane was as an alternative in some geological environments. Nitrogen fracs or propane fracs are used as an alternative to water-based fracs.
Senator Dickson: I understand that George Bush, when he was president, caused the regulations to be changed so that there was no longer a requirement to file with the EPA what chemicals were being injected in the United States. Is that the case?
Mr. Heffernan: I do not know what Mr. Bush did.
Senator Dickson: That is what some of the writings say.
Mr. Heffernan: I think that was within the domain of the EPA, the Environmental Protection Agency. As a result of the work they did, which has since been supported by work that the New York State Department of Environmental Conservation has done, the risk to groundwater from hydraulic fracturing is remote.
In terms of disclosure of what is in the hydraulic fracturing, different states have different regulations. There is a widespread belief that what is in the fracs is not publicly disclosed. In actual fact, a lot of operators do disclose that; you can find it on their websites. Several states in the United States now require disclosure, and the additives are posted on state websites.
It is a sort of mixed bag from a regulatory perspective.
Senator Dickson: In Canada, is it a legislative or regulation requirement out west for a company to file what chemicals they will use before they begin drilling?
Mr. Heffernan: No, it is not.
Senator Dickson: Would you be in favour of that, if it were to be?
Mr. Heffernan: I do not think it is necessary. Some of the additives that are used are contractually protected. The suppliers might be frac companies or chemical companies. The compositions for some of those additives are protected contractually.
You will find that the main concern is the mix that is being used. There are a large number of places where you can go and see the 12 or 15 most commonly used additives. They may be all used, but that would be rare. Typically between 6 and 12 would be used. You can Google them and find out what else they are used in. You will see they are used in things like makeup, water treatment plants and those sorts of things.
The frac companies do not like to talk about how much they are using of each because they believe that they have a competitive advantage in their composition, if they put a mix together. They are probably correct. After all, Coca-Cola does not say how much of the ingredients it puts into a can of Coke. Pepsi has tried to mimic it over the years. The ingredients list is the same but the taste is different, as the Pepsi Challenge shows over and over again.
The same is true with additives. I am being a little bit superficial about answering your question. However, the reality is that frac companies believe — probably correctly, at least in some places — that the mix they are using gives them a competitive advantage. Therefore, that is a part of what is behind the issue as well.
Over time, we will see governments, regulators, operators and frac companies figure out how to deal with that whole disclosure issue. It is an important one to the industry. However, it is not as simple as it might appear. Like many things in life, it is a little more complicated than in a newspaper headline.
Senator Dickson: I congratulate you for your very effective presentation. You sure have the party line down because that is exactly what they are saying in the States when it comes to not disclosing because of confidentiality and other reasons.
Senator Neufeld: Lawyers do not do that, though.
Senator Dickson: No, generally speaking, they do not, especially when we are being paid the high fees.
Mr. Heffernan: As a complement to your comment, there was a recent paper published by Blake, Cassels & Graydon, a national law firm. It is a sort of regulatory comparison across Canada. The last couple of pages talk about the trend or the direction that regulation is headed. They highlight the disclosure issue and some of the contractual complexities that need to be addressed. If regulations are to evolve to full disclosure, some back-stepping must be done to address some of those contractual issues.
Senator Lang: I would like to move on to another issue and it is the question that has come before our committee in quite a number of our hearings — namely, the question of the federal and provincial-territorial environmental assessment regulatory bodies in place, and the requirements that are made on proponents when they go forward to these various bodies.
Do you have any comments about the fact that, in most cases, there is a federal assessment regulatory body as well as a provincial regulatory requirement for hearings. Subsequently, we have heard from most of our witnesses that there is a lot of duplication between the two and it takes a lot of time and finances to meet all these obligations. In some cases, there is a lot of risk attached to projects that are put forward through these regulatory bodies.
If there was an arrangement made between the provinces and the federal government and the two jurisdictions could agree, would you think it would be better for the whole process if there was just one, as opposed to two?
Mr. Heffernan: Do you mean regulatory processes?
Senator Lang: Yes.
Mr. Heffernan: I expect at some level that agreement already exists.
Senator Lang: To some degree.
Mr. Heffernan: That is an area that I have not given a lot of thought to. I think there are others that could probably give you informed answers.
Philosophically, simplicity is good — at least from my perspective. Therefore, steps that improve simplicity or reduce complexity are good. I do not know how you get there from a federal-provincial jurisdiction perspective.
I am an observer, and aware of some of the duplication issues or repetitive issues, in some cases. However, that is the extent of my knowledge on it. I am aware but have no opinion.
Senator Neufeld: To talk about exporting natural gas and those kinds of things, I think it is worthwhile to put on the record that it was about three years ago when the LNG plant in Kitimat was going to import natural gas — the same as the plants on the East Coast that have already been built. They are to import natural gas; that is how fast this issue has changed.
Now the companies are even thinking about what they will do with the ones on East Coast because they should maybe be thinking about exporting. That is a huge problem, changing those plants around, but that is how quickly some of these things change.
Senator Seidman brought up an issue that I also heard in Quebec about leaks. It was interesting that the people talked about leaks. It is funny how we look at the oil and gas industry. If there is a catastrophe, which there was recently — or the one you spoke about in Pennsylvania — many people say that we should not use it because it leaks; look at what happened.
When we had the hydro outage in Eastern Canada that blacked out Ontario, Quebec, Eastern Canada and most of the Eastern United States, it caused untold billions of dollars of commercial havoc. Did we suddenly say we will not build any more hydroelectric plants or any more transmission lines?
I think that is a good analogy that we should really start thinking about getting into the lexicon when we talk to people. No, we have not; Quebec is building more and we are building more. They are talking about all kinds of hydroelectricity possibilities in transmission lines all over North America to transport that electricity.
Is everything perfect? No. Are there problems once in a while? Certainly there are, and no one gets up in the morning saying I think I am going to cause a problem. Everyone wants to be as safe and environmentally friendly as possible, regardless of the industry they represent.
Mr. Heffernan: I could not have said it better myself.
Senator Neufeld: The deputy chair will agree with the chair that I sometimes put too much on the record.
Mr. Heffernan: I agree completely with you. We lose perspective and we lose context when we have some of this dialogue.
The Deputy Chair: I have a few questions. I will start with a quick anecdote.
Years ago, I was the environment critic in Alberta and Ralph Klein was the environment minister. We were at a debate and afterwards I needed a ride so he offered me one back to the legislature. We got along quite well outside the legislature.
I think he had a hybrid — a gasoline-natural gas car hybrid. Is that possible, or would it have been propane? I think it was natural gas but, in any event, is it possible to have a hybrid of gasoline and natural gas, in which case it would relieve some of the pressure in the transition to LNG gas station networks?
Mr. Heffernan: I can give you my understanding. I would not call it a hybrid, but a dual fuel. My understanding is that dual fuel vehicles, natural gas and diesel or natural gas and gasoline, are available. I believe that is what some of the upstream operators are using in the field.
The Deputy Chair: That would make it easier to get from all gasoline and no LNG to a few LNG to enough LNG.
Mr. Heffernan: Again, those gas-light vehicle pickup truck kind of vehicles probably only make sense from a natural gas perspective when they are being used in a local area.
The Deputy Chair: We talk about trucks for that kind of conversion. Why is there no talk of trains, ships or airplanes, for example?
Mr. Heffernan: I have no idea. I do not know if airplanes could carry the necessary fuel.
The Deputy Chair: But trains and ships certainly could, you would think.
Mr. Heffernan: You would think.
The Deputy Chair: We have to pursue that.
There is concern — and I heard more of it last night — with tainting water when drilling for shale gas. There are two suggested ways in which that could occur. One is when you go through a water table, but we saw technology that seems to solve that problem; the pipe goes through and you pump in cement that goes up the side and seals it.
The other is that, when you start to fracture, the fracture lines could go up and things could leak into water tables. Is that a problem? Generally, are these shale gas reserves that close to water tables?
Second, even if this gas permeated the water, does it not just get released when you use water — which is a problem for greenhouse gases, but not really a tainting the water problem so much. How big a problem is fracturing to water tables?
Mr. Heffernan: Most of the shale gas development that is happening is deep. It is remote from groundwater. In Quebec, for example, I think most of the water wells are probably about 50 metres or 30 metres; and the shale gas development is occurring or would occur, for the most part, anywhere from 1,000 metres to a 2,500-metre depth, so it is very deep in comparison to groundwater.
In Alberta, we do fracture coal seams. We use nitrogen fractures and those are quite close to the surface. The Alberta Energy Resources Conservation Board has taken a look a couple of times at the risk of hydraulic fracturing damaging aquifers. They have done a couple of studies, and the conclusions they have reached is that when hydraulic fracturing is done at shallow depths, there is a risk. When it is done at deep depths, the risk is not there.
That is essentially the conclusion that the most comprehensive recent assessment has reached as well. That would be the New York State Department of Environmental Conservation work.
The Deputy Chair: You talk of climate change implications throughout your presentation in various ways. Certainly the reduction of greenhouse gas emissions in comparison to other fuels is promising in that respect. Would you or your organization or your industry, when it comes to dealing with climate change, argue we should price carbon? If so, would you recommend cap and trade or tax?
Senator Lang: Or nothing at all.
Mr. Heffernan: First, we do not have a position on that. However, my personal perspective is that, until there is a price on carbon in some form, it will be difficult to drive some of the changes that I think everyone would like to see happen.
It will be difficult to know from an oil and gas industry upstream what the cost will be. The absence of certainty and ability to quantify make it difficult in terms of both change and addressing the issue of cost.
The Deputy Chair: You talked about the reserves in Canada and provided us with some insight into the amount of production in the U.S. Perhaps I missed it, but what is the percentage of natural gas production in Canada from shale gas?
Mr. Heffernan: It would be very small. Including the Montney as shale, which many other people do but we do not, production is probably 300 million cubic feet per day from Horn River. Senator Neufeld, through his connections, might have a better number than I have, but I believe production is about 450 million cubic feet from the Montney. The total is approximately 750 million cubic feet per day or 13.5 BCF to 14 BCF per day in total gas production in Canada.
Senator Lang: I will follow up on this because I am not that familiar with the technology and where we are at. Senator Neufeld pointed out how this has changed so dramatically from where we were three years ago when we were going to import. Today, we are talking about exporting. It is quite a dramatic shift. With technology and where we are at going from the United States to Canada, do these numbers, the projections and the technology give us a firm understanding that we can develop this resource? Do we still have some economic unknowns in developing it? The United States has encountered environmental questions. In fact, in New York they have put a stop order on any further development until they have further questions answered.
I want some assurance that this is factual and that this is the direction we can go. Are we looking at a situation down the road when all of a sudden the picture will not be quite so rosy?
Mr. Heffernan: It is real. Companies have invested billions and billions and billions of dollars. They do not invest that kind of money unless their analysis indicates that it is real. Everybody has tolerances. ExxonMobil spent $40 billion acquiring XTO Energy, which is one of the U.S. shale gas operators. They probably do their homework from an economic and technical perspective. All of the technical work that I have seen looks at technology risks in shales. Yes, there are issues related to well construction and to the handling and management of fluids and additives, which might be solids, powders and others, on surface. The risk attributable to hydraulic fracturing at depth is negligible. Technically yes, it is real; economically yes, it is real.
The Deputy Chair: Mr. Heffernan, thank you for a very informative, interesting and stimulating presentation. I thank honourable senators for participating. I encourage the public to visit our websites and participate in this process.
(The committee adjourned.)