Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 21 - Evidence - March 8, 2011
OTTAWA, Tuesday, March 8, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 6:17 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: I am calling to order this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
Tonight, we continue our ongoing study of the energy sector. We have been hearing witnesses for almost two years and we are near the point of producing a second report.
We have been studying the energy sector to identify a strategic way forward for a more efficient, sustainable, cleaner energy future in a country that is blessed with great sources of traditional and alternate energy. We have been studying the energy sector with a view to possibly determining a national energy policy for a country that does not have one.
We are delighted this evening to welcome two men from the Canadian Propane Association. Jim Facette is with us, the president and CEO. With him is Guy Marchand, who is a new member of the board of directors.
I want to note that our colleague, Senator Elaine McCoy, celebrated her birthday yesterday. We were all thinking about you and wishing you many happy returns of the day.
Senator McCoy: Thank you.
The Chair: I want to note for the record, and for the viewers on the World Wide Web, visitors to our dedicated website, www.canadianenergyfuture.ca, and on our Twitter feed, that our trip to Atlantic Canada last week included visits to Nova Scotia, New Brunswick, Prince Edward Island, Newfoundland and Labrador. They were busy days in which I think every member learned a great deal.
I want to congratulate both Senator Dickson and Senator Lang for their statements in the Senate today where they were able to share with our colleagues in the Senate how successful we found the fact-finding mission to Atlantic Canada.
As recommended in our June 2010, report Attention Canada! we feel it is essential that all Canadians participate in the discussions about an energy future and ask important questions, such as: What do you want in the way of energy and from where do you want get this energy?
We came back from Atlantic Canada with a sense that the dialogue is taking place. It is not taking place superficially, but rather quite profoundly, and right across the board of traditional energy sources through to energy alternatives. There is a lot of new, innovative technology out there. This is what this committee believes needs to happen in this country.
We believe that the environment, energy and the economy are inextricably involved with each other. Our study brings all three of these Es together.
My name is David Angus and I am the chair of the committee. I am from Quebec. Senator Grant Mitchell, the deputy chair, is from Edmonton, Alberta. Marc LeBlanc and Sam Banks are from the Library of Parliament. They do yeoman service for us. Senator Burt Brown is from Alberta and is the only elected senator. He is proud of it, and we are proud of him. Senator Judith Seidman, from Montreal, is another of our Quebec senators.
Senator Daniel Lang is the former legislator and cabinet minister of the great territory of Yukon. Senator Richard Neufeld has a distinguished career as a member of the Government of British Columbia, having held for eight years the portfolio dealing with things like energy, mining and natural resources.
Our clerk is Lynn Gordon. Senator Elaine McCoy, the birthday girl, was a distinguished minister in the Alberta government for many years. Senator McCoy held at least four portfolios in that government and brings much wisdom to our committee.
Senator Robert Peterson is a businessman and very distinguished former director of Cameco and a member of that board in Saskatchewan. He brings an important dimension to us of the critical natural resource in the mining sector and Saskatchewan's vast resources. Senator Tommy Banks, from Alberta, is my predecessor and a national icon in the entertainment business. He has a deep and abiding interest in and knowledge about all matters concerning energy, environment and natural resources.
[Translation]
From the belle province of Quebec, Senator Paul Massicotte. At one time, he lived in Manitoba, but he is now a real Quebecker.
[English]
Last but not least, Senator Linda Frum is from the province of Ontario.
That is your audience tonight, plus the World Wide Web and the electronic CPAC network, which is televising our meeting. You will be on more than once — right in the third period of the final game in the Stanley Cup playoffs. We are there. We have a time slot from 7 p.m. to 10 p.m. on Saturday nights.
Jim Facette, President and CEO, Canadian Propane Association: Mr. Chairman and committee members, thank you for that kind introduction.
You will hear no argument from us on the need to bring together energy, economics and natural resources. The propane industry has believed in that for a long time. Our presentation will tell you about the new industry association and the propane industry in Canada. It will contribute to your discussions, deliberations and goal of bringing out a strategic plan going forward for this sector.
Mr. Guy Marchand, a board member at the CPA, will also assist in this presentation.
I congratulate this committee on this important initiative. The work the committee has already completed, its first report, is very thorough. We are delighted to be here to offer you the Canadian propane industry's perspective on the issues you have raised.
Propane was not specifically mentioned in the committee's first report. However, we have reviewed the committee's mandate and tailored our presentation to address areas including the current state of the energy sector, federal and provincial roles, current domestic and international trends, a national vision and the recommendation of measures by which the federal government could help bring that vision to fruition.
The Chair: You emphasize "could.'' Do you mean, "Could if it would?''
Mr. Facette: You have the opportunity. It is all in the way in which you stress words.
[Translation]
By the end of our presentation, we hope you will agree that propane is a partner in a Canadian sustainable energy strategy.
I will present first to offer you some quick background on the Canadian Propane Association and the industry it represents. I will then hand it over to Mr. Marchand who will convey some of the current applications for propane and future opportunities.
Our theme today is the availability, the affordability and the versatility of propane. We believe that our presentation will offer you a good understanding of propane's many benefits and how it can be part of a Canadian sustainable energy strategy.
Let me begin by offering you a quick overview of the Canadian Propane Association, or CPA. As a new industry association, the CPA was publicly launched on January 1, 2011.
The Chair: It is very new.
Mr. Facette: As such, this is the association's first official presentation to parliamentarians. Now headquartered in Ottawa, the CPA is the national voice for Canada's propane industry, with strong regional representation in western, central and eastern Canada.
The association's Calgary office houses two important services we provide to association members, the first of which is training through the Propane Training Institute, and the second is emergency response through the Liquefied Petroleum Gas Emergency Response Corporation.
The new association's vision is to facilitate the growth and performance of the propane industry in Canada. Our mission is to be the voice of and destination for the industry. With over 400 members across the country, the association represents the full spectrum of the Canadian propane industry including petroleum producers, wholesalers, retailers, transporters and manufacturers.
[English]
The questions we often hear are what is propane and where does it come from. Like natural gas, which is methane, propane is a hydrocarbon. It is sometimes referred to as "liquid petroleum gas,'' "LP gas'' or "LPG.'' Outside of North America, when propane is used in vehicles, it is commonly referred to as "autogas,'' a term that is becoming more and more common in the United States and here in Canada.
Propane is non-toxic, colourless and virtually odourless. An identifying odour is added so that the gas can be easily detected. Nearly 100 per cent of the propane consumed in Canada is produced domestically. In Canada, approximately 85 per cent of propane is produced from natural gas processing and the remaining 15 per cent from crude oil refining.
Alberta dominates the gas plant production with small amounts of natural gas liquids are produced in British Columbia, Saskatchewan, and Nova Scotia. Sixteen refineries across the country, located in every province except Manitoba and Prince Edward Island, produce propane or LPG mix. The supply is moved by truck, rail and pipeline across Canada and to the United States.
Your committee is looking at the current state of the energy sector in Canada. The Canadian propane industry is a healthy one today; however, it has a tremendous amount of untapped potential. In 2009, Canada produced approximately 11 billion litres of propane, 5.8 billion litres of which were exported to the United States. The other 5.2 billion litres was consumed within every region of Canada, across many sectors and for a broad range of applications.
With a $10 billion impact on the country's economy each year, Canada's propane industry supports the livelihood of over 20,000 Canadians, while contributing over $900 million in annual taxes and royalties.
Propane is not only clean burning and safe, but unlike most alternative energy sources, it is also widely available today. Propane can be part of the solution to address some of the challenges and issues this committee has already discussed.
It might not surprise the committee to hear that the propane industry would welcome greater harmonization and reduced duplication between the provincial and federal governments. As an example, the storage of large quantities of propane is regulated, but is regulated by both provincial and federal bodies. Under the Canadian Environmental Protection Act, Environment Canada's environmental emergency regulations require companies to prepare and implement environmental emergency plans. In Ontario, provincial regulations also require the preparation of a risk and safety management plan. While some elements are different, many are similar.
We have been working to address this and other concerns with Environment Canada and are pleased that the department recently agreed to set up a joint working group with our industry to discuss this matter among others.
With regard to current domestic and international trends and usage patterns, propane is such a clean energy source it has environmental advantages over conventional energy supplies in every application, from heating and transportation, to cooking, power generation and thousands more uses. In fact, propane is such a clean burning fuel that is often used for vehicles that operate indoors.
The chair spoke of Hockey night on Saturday nights. I am sure many of you have seen the most visible indoor vehicle that runs on propane: the Zamboni. In the industrial sector, forklifts use propane fuel not only for vehicle propulsion but also for load lifting work.
Many proposals for fighting climate change and reducing the environmental impact of energy use will have to wait for new technologies to be perfected, which is okay. However, propane produced right here in Canada can make a major and immediate contribution right now using today's technology. Propane is not only widely available in Canada at over 2,000 retail locations, but Canada's supply is also secure and abundant.
In fact, over the last five years, Canadian propane exports to the United States have accounted for roughly 60 per cent of total Canadian propane production, and 70 per cent of all propane imported to the United States comes from Canada, of which over 50 per cent is transported by truck or rail.
[Translation]
I will now ask Mr. Marchand to speak to you about the availability, the affordability and the versatility of propane.
Guy Marchand, Member, Board of Directors, Canadian Propane Association: Mr. Chair, I would like to thank the committee for inviting us to appear this evening to speak about propane.
As Mr. Facette indicated earlier, I am the president and owner of Budget Propane in Salaberry-de-Valleyfield, Quebec. I have also previously served as chair of the Association québécoise du propane and as chair of the Propane Gas Association of Canada. Today, I am proud to serve on the first elected Board of Directors of the Canadian Propane Association.
The Chair: Would you be able to tell us about the composition of your board of directors so that we have an idea of the membership? How many members do you have? Do they all come from other companies? And what is your association's annual budget?
Mr. Marchand: The CPA has 400 members, from all parts of the industry:
[English]
There are producers, retailers, wholesalers, the Manufacturers of Appliances, Cylinders and Equipment, the MACE Group, the manufacturing group, the service group, and then finally the emergency response and training.
The board of directors is comprised of 12 members who represent all segments of the industry and provinces in Canada. We have board members that sit on each province's provincial committees.
The Chair: Of the 400 members, would that be 400 businesses basically in the business of producing and distributing propane?
Mr. Marchand: Yes.
Mr. Facette: Our membership is made up of companies from the size of Shell, right down to the local dispenser, and everything in between. We cover the entire value chain of the industry.
The Chair: As you say, some local dépanneur can go through a couple of cylinders of propane.
Mr. Facette: Members will have as little as 1,000 U.S. water gallons on site, right up to 100,000 U.S. water gallons on site. We cover the full, broad aspect of the industry.
[Translation]
Mr. Marchand: I will continue where Mr. Facette left off in describing the mandate of the committee. The second area that the committee is concerned with is the role of federal and provincial governments in the energy sector.
You asked us to provide you with a vision and to recommend some specific measures by which the federal government could help bring that vision to fruition.
I would like to spend some time telling you about our vision of the propane transportation sector, as it is an excellent example that speaks to propane's availability, affordability and versatility, especially in an environmental context.
In the transportation sector, many of you will remember how many vehicles were converted from gasoline to propane in the 1980s and 1990s. Over 13 million vehicles worldwide are powered by propane.
In Canada, those numbers are more modest but today, due to both environmental and economic concerns, the propane-powered vehicle segment is seeing renewed interest. As many fleets, including the federal government's fleet, seek out opportunities to reduce both their expenses and their greenhouse gas emissions, we believe that Canada's propane industry can offer strong contributions towards achieving these goals.
Compared to conventional energy supplies, propane produces lower greenhouse gas emissions and air toxins in virtually every application where it is used. In the case of propane-powered vehicle fleets, greenhouse gas emissions are as much as 27 per cent lower than gasoline-powered vehicles, or one less kilogram of greenhouse gases for every 36 km traveled, and emit about 50 per cent fewer toxins and other smog-producing emissions than regular gasoline engines. A major private fleet that has endorsed propane is United Parcel Service, better known as UPS. UPS currently has over 600 propane vehicles in their feet in Canada, a number of which are used here in the nation's capital. When you see them, look on any of the four sides. You will see that the company indicates that the vehicles work on propane, and they are very proud of the fact.
Two examples of public agencies using propane and experiencing savings as well as environmental benefits include the Region of Peel Trans-Help and London police services, both in Ontario. Peel Region's Trans-Help's primary motivation was to protect the environment while idling in sensitive areas such as hospital loading zones; a necessary requirement to maintaining the vehicles' temperature for its special-needs passengers. London police, with virtually all of their 60 patrol vehicles operating on propane, have enjoyed considerable savings over the years in the millions of dollars, as well as accumulating an impressive safety record.
Though gasoline prices have fluctuated tremendously over the last several years, propane continues to offer a significant economic and environmental advantage. A recent case study prepared by the Richard Ivey School of Business found that the London police department saved an average of $11,000 per vehicle over the life of each vehicle converted to run on propane, and that the use of propane enabled a vehicle driven 65,000 kilometres a year to emit four tonnes less of greenhouse gases than the same vehicle operating on gasoline.
[English]
Just recently, Budget Propane joined a demonstration project in Quebec that saw the conversion of 40 vehicles from the Montreal Trudeau Airport, from the City of Salaberry-de-Valleyfield and from Réfrigération Frigo-Pro Inc. Working with the École de technologie supérieure de Montréal and the Quebec Ministry of Natural Resources and Wildlife, this demonstration project will evaluate these three fleets for their ability to reduce green gas emissions.
We believe that there are tremendous opportunities for many more fleets to adopt the use of propane, which would not only help to combat climate change but would reduce operating expenses.
Mr. Facette: In terms of specific recommendations for the federal government, for many years the federal government has been promoting the use of alternative fuels. The rationale for promoting the use of such alternative fuels ranges from energy security issues to environmental concerns.
Canada's federal government faces a number of challenges that should favour their adoption of alternative fuels such as propane. These challenges include the federal emission reduction target of 17 per cent from 2005 levels by 2020. The use of propane-powered vehicles can achieve reduction of greater than 20 per cent. Budgetary pressures could be reduced through the application of energy alternatives that yield significant operating cost reductions. Over the last decade, propane has sold at an average 36 per cent less cost than gasoline.
The public is looking to the federal government to lead by example, with initiatives that address both budgetary concerns and improved environmental performance. With a fleet of over 32,000 vehicles, the federal government has a unique opportunity to save money and reduce its environmental impact by using propane in their fleets.
The federal Alternative Fuels Act is aimed at achieving these goals by directing the federal government to buy vehicles or convert existing vehicles to operate on alternative fuels, such as ethanol, natural gas and propane. When the legislation passed in 1995, its aim was to have the federal government's fleet switch 75 per cent of its vehicle fleet to alternative fuels over five years; yet more than a decade later, approximately only 10 per cent of federal vehicles can run those fuels. Only two vehicles — yes, two — can run on propane. The reasons stated for this include lack of availability, reliability, access to fuel, and increased costs for alternative fuel vehicles.
Please allow us to dispel these myths as they pertain to the use of propane as a transportation fuel. With regard to availability and reliability, most gasoline-powered vehicles, including a number of Canadian-built vehicles, can be converted to propane.
Modern conversion kits are readily available; typically, EPA approved for emissions, CSA, or UL certified for safety, fully compliant with modern engines and vehicles and meet the operational requirements of today's fleet users.
In terms of access to propane, not only are there well over 2,000 refuelling stations across Canada, fleets can be fuelled easily at fleet headquarters through a tank and card lock system, just as both UPS, referred to earlier, and the London Police Service does today. Further, Canada's propane resources are underutilized at present and can be deployed to mitigate some of the pressure created by the refinery utilization situation and ease consumption of crude oil.
Concerning cost, there is a significant opportunity for the federal government and its agencies to reduce their annual fuel costs for high-consumption, light-duty and medium-duty fleet vehicles with a positive impact on operations and a reduced environmental impact. The federal government and its agencies have numerous high-consumption vehicles in its fleets that would qualify for conversion, such as law enforcement, inspection services, correction services, parks and recreation, service and maintenance pick-ups and road maintenance vans.
Another potential benefit from increased propane use as a fleet transportation fuel for the federal government is that a number of technology companies that have developed the software, hardware and components to convert vehicles to propane are located here in Canada. In addition, there are a number of small businesses located throughout the country that install and service the conversion technology, that manufacture components, manufacture and maintain propane- dispensing equipment, and distribute propane to end users. These small businesses create new economic development opportunities, new employment, and increase the tax base.
[Translation]
Honourable senators, we told you that propane is widely available, and it is, at over 2,000 outlets across the country. Our country currently produces considerably more propane than it uses domestically and we know that there is ample supply available in the future.
We told you that propane is affordable, and it is. Farmers use propane for pest management and grain drying. And fleets like UPS, the London Police Service and the Montreal Trudeau Airport are proven cases that have shown the financial advantages of propane time and time again.
And we told you that propane is versatile. From agricultural applications to fuelling engines to heating homes, propane can be found in these and many more applications.
We hope that you will agree that propane can be an important part of a Canadian sustainable energy strategy.
[English]
The chair: It was an excellent presentation. This is a new source for us.
Senator Mitchell: It is a revelation. We have been talking about all kinds of alternative fuels. The idea of propane being an alternative fuel, although it is obvious now to all of us as you present it, was not as clear to me as we have been proceeding. Thank you for your presentation.
It struck me, as you were presenting, that the one thing that propane has that, for example, natural gas does not have is lots of places where you can fuel automobiles and trucks.
You said there are 2,000 fuelling stations. Are they up to fuelling on a large scale, let us say, massive truck transport systems?
Mr. Marchand: The current system is available across Canada. You will have refuelling stations in the Maritimes right on down to British Columbia, as far north as Red Deer to all the way down to the forty-ninth parallel. Propane can fill fleets and cars.
Today's technology is not available to fill the larger vehicles, the trucks that we all operate. Unfortunately, diesel has taken over all of that market, but the industry is working to use the diesel engine to convert the propane. We are currently running field tests, making sure it can operate in all geographic areas of the country. It would enlarge our businesses also.
You can get your propane filled in Gaspé. You can fill your car in Toronto or in Red Deer or in Manitoba. There is propane everywhere.
Senator Mitchell: It is quite widespread for use in cars but there is not a technology for it to be used in trucks or is it just that you cannot convert diesel easily to it.
Mr. Marchand: At this time, we cannot convert diesel. We are working on it. There is technology right now that uses both propane and diesel. We are going to shift that environment to go 100 per cent propane rather than use diesel and get away from the cancer related particles. Replacing diesel fuel would be our biggest impact on the environment.
Senator Mitchell: I am interested in the comparison between natural gas and propane. You mentioned your reduction in GHGs is about 27 per cent. That is probably comparable. Can you tell me what the comparison would be in the reduction in other pollutants? You said it is 36 cents on average cheaper than gasoline. How would it compare in per unit of distance to natural gas? Can someone purchase a truck that uses propane?
Mr. Marchand: There are a number of items in your question.
As far as emissions are concerned, we are close to our cousin, natural gas. We do not believe that this office should favour or support only one type of fuel. We believe that we should offer the consumer the choice of alternative fuels. There are opportunities attached to electric, natural gas or ethanol. Let the consumer determine his or her own choice among the different options. We want to make sure that propane is included in the opportunities offered to the consumer.
As to the environment, we are nearly the same as the natural gas, but in terms of the autonomy, that is where we are a big leap ahead. We can store propane. Propane is like a glass of water. If I could hold propane in that state there, that is how it is, but it offers the opportunity to have a lot of energy in that glass of water. Natural gas has to be compressed to hold that same energy. The more you compress it, you are compressing to 2,700 pounds. That tank will be so heavy you will have no autonomy to go around.
In terms of savings, yes, savings have been there. Even though propane has gone up in price, we have kept that differential between gasoline over the years.
Yes, we have come up with the price of gasoline, but we have always kept that 36 per cent to 40 per cent differential between the prices of the two.
Mr. Facette: You asked if you could buy a propane vehicle off the production line. That is probably more prevalent in Europe than in North America. The big opportunity for the use of propane or the big attraction is when it comes to fleets and the fleet opportunities.
The London Police Service has taken advantage of that opportunity, as have other fleets. Fleet managers are looking at propane as an alternative especially today due to rising gasoline prices. Cars can be filled up at the refuelling station and sent out. The big opportunity for growth at the moment is in the fleet side. Regular consumers would find it difficult to purchase a propane vehicle off the production line here in North America. Much more prevalent is the autogas in Europe, which I referred to in our presentation. You can buy a BMW, a Ford, or whatever you like, and fill up at an autogas station in Europe.
Senator Mitchell: Is all the propane that is utilized in Canada refined in Canada? Do we import propane?
Mr. Marchand: There are no imports. Everything is refined in Canada or produced from the well.
Senator Banks: I am learning about the the difference between LNG and propane, which never occurred to me before. I get them mixed up.
Like Senator Mitchell, I am surprised to hear you refer to propane as an alternative energy source, since it comes from petroleum. I have not thought of things that come from petroleum as being alternative energy sources. They are, however, because there are fewer emissions.
You said that propane is non-toxic. Can I breathe propane and be okay?
The Chair: To underline that for the viewers, as Senator Banks pointed out, you said that propane is non-toxic, colourless and virtually odourless.
Mr. Marchand: Propane is non-toxic. It will displace air, but it is non-toxic. You will have a terrible smell. You will have a terrible headache. In the worst case, if it fills all of this room, it will displace the air and you will suffocate. However, you will not die from breathing propane from your barbecue when you light it up.
Senator Banks: Does it go up in the air?
Mr. Marchand: No. Propane is heavier. It is at the other end of the spectrum. Natural gas is lighter.
Senator Banks: That is the reason why some parking facilities do not allow propane vehicles to park in them because if propane escapes, it settles. That is the case in Alberta, at least; I do not know about elsewhere. There are signs outside parking garages in Alberta that say that propane vehicles are forbidden.
Mr. Marchand: This is true. In the 1980s, the technology was not there. With the automatic stop valves on all cars now, you cannot overfill a car. In the 1980s, that technology did not exist. It is an OPD, overfill protective device. It prevents overfilling and, therefore, the leakage that is of concern to an underground parking lot. Propane expands as the temperature rises. As you know, we never fill above 80 per cent of its capacity to allow for that expansion. However, if you were to fill the tank at 100 per cent when there was no overfill protection device, you would have that situation.
Senator Banks: You are not running into safety issues in terms of domestic vehicles anywhere across the country?
Mr. Marchand: No, sir.
Senator Banks: In the 1980s and 1990s, many people converted to propane. We used to have a switch so that you could go from propane to gasoline. Many taxi companies used propane because of the obvious efficiencies and relative cleanliness in comparison to gasoline. They stopped using propane because the tank takes up so much room in the trunk. Is there any way around that these days? I guess it would have to be a purpose-built car, as you referred to it, for propane. Otherwise, you cannot just put it in your gas tank, right?
Mr. Marchand: Over the years, we learned that, yes, that market itself is not directed to everyone. It is specifically targeted to high-end users or to municipalities that do a lot of idling. In the case of a car, it has the disadvantage of taking up that room in the trunk. We are working with tank manufacturers to replace the spare tire and put the tank in that spot. We are getting there. It is like the chicken and the egg. You get the consumer first and then you get the tank. We learned from the first experience that it does affect that room.
Senator Banks: The Alternative Fuels Act that you referred to was written by Senator Kenny, who was a member of this committee at that time. This committee has expressed disappointment in the past with the extent to which the federal government, the Liberal federal government and the Conservative federal government, have observed its requirements. We have run up against the kind of objections to which you referred.
You were circumspect when you were talking about the reasons that were given. You were being kind. We have been less kind sometimes in our comments in that regard.
If I had a propane vehicle in Ottawa, how far would I have to go to get refilled?
Mr. Marchand: Senator Banks, there are five or six refuelling sites within 10 kilometres of Parliament Hill.
Mr. Facette: It depends. If you are a fleet buyer and you want to have 20 or 30 of your vehicles put on propane that is a commercial exercise. You could probably negotiate something with your provider. They would install the station for you within the RFP. It would add little cost to you, as the fleet manager. You could come up with a way to develop a fleet fuelling facility for your own fleet that is targeted just for you without having to go to a commercial site if you have 25 or 30 cars. The economics may be there for everyone and you get a win-win situation.
When you are looking at fleets, you have the advantage of taking advantage of economies of scale. You can negotiate something where you can create your own space. It is not just existing space. These people are entrepreneurial. They are good business people. They want the business. He will not deny it, which is good. It is a great thing.
Senator Banks: What is the conversion cost?
Mr. Marchand: The conversion cost is on average about $5,000. That is labour and material, turnkey. Depending on the size and model of the storage tank, the price will fluctuate.
Senator Banks: Will the untapped potential to which you refer be affected by the emergence of shale gas, which is showing up in ever-increasing amounts?
Mr. Facette: When you discuss shale gas, you are discussion the availability of supply. The untapped potential we are referring to is on the usage side and the growth of the usage. Propane is used in the exploration of shale gas.
Senator Banks: Can you manufacture propane from shale gas?
Mr. Facette: I believe you can.
Mr. Marchand: Yes, you can. A lot less, though.
Mr. Facette: Yes, not as much natural gas exploration. That is correct.
Senator Banks: It is less productive, or it would be a lower return on a tonne?
Mr. Facette: Potentially, yes. You will use propane as a fuel source to do your exploration. It is six of one and half dozen of another, as the old expression goes.
Senator Frum: To continue with this general line of questioning, and to help us understand the potential of this as a transportation fuel, because I hear there is some limitation, you said that you want the consumer to decide how much growth this should have. I am always for that.
I am interested to know what you want the government to provide. You mentioned greater harmonization of provincial and federal standards for vehicles. What else are you looking for in terms of changes to any federal regulation?
Mr. Facette: The government could meet the targets in the Alternative Fuels Act. As well, the government could consider propane as an alternative to other fuel sources, which is the purpose of our presentation today. Two senators said tonight that they were surprised that propane was considered an alternative, with a lower case "a'' in that case. Propane needs to be talked about as an alternative fuel source for other areas, not only what is talked about traditionally. Certainly, we could look at that.
Another area would be the harmonization of environmental standards that we refer to as E2 regulations. It is not the first time you have heard about environmental assessment harmonization between jurisdictions. At the end of the day, our memberships are business people and the extent to which they can have some degree of certainty between jurisdictions goes a long way. Harmonization and recognition of those standards would be extremely helpful in terms of the required environmental plans. Our industry is all about safety. It is not compromised. It wants to be a partner in those areas, but it looks for some degree of certainty on those fronts.
Senator Frum: On another safety angle, I share the theme of the previous questions. As a mother who has two 16- year-olds on the verge of getting their G2 licence, I am trying to come to terms with how I feel about them driving propane-powered vehicles.
You might want to address the psychological barrier about the combustion factor that has been a potential problem with these vehicles in the past.
Mr. Facette: My colleague addressed the technical side, but the perception side may have been driven by some faulty installations in the early days of use. Propane is no different from any other fuel used to power a vehicle. When someone invests in the right technologies to do the job and the job is done right, it is done safely. Safety is not compromised. It is perfectly safe, so there is no issue. When safety is compromised because people cut corners on installation or they are not trained properly, then safety is compromised, as with anything else. Mr. Marchand knows more about the technology side.
Mr. Marchand: Propane enjoyed a wonderful world in the 1980s when we had carburetors in engines. It was easy to work with the butterfly valve to adjust the air mixture for the fuel to the carburetor. Propane was used in the same way as gasoline. Car manufactures started to change the mechanics because EPA standards for carbon emissions were lowered. We went from our ideal technology to the fuel injection system.
It took about 15 years of the original equipment manufacturers, OEMs, to bring us to today's technology. We had to adapt to it. We are always the last body to find out what GM, Ford or Chrysler has developed. They will not tell us their trade secrets. Obviously, we have to wait for the car to come on to the market to convert one and then find out the new secrets of the market. Today with the new technology we are very close. The world of fuel injection is so wonderful; the engine will start on regular gasoline and do its own checkups. It has certain probes to determine the right air mixture and temperature of the fuel coming in. Once the car is at the magic temperature of 1000F, it switches instantaneously and transparently to propane. There is no more switch on the dash. The driver will not notice the difference, all thanks to injector technology. Once the tank is empty, it can revert to regular gasoline. A vehicle can have a full tank of propane plus a full tank of gasoline. There are no more switches, no stopping and restarting.
Senator Frum: In a collision, is the possibility of combustion the same as it is for a gasoline powered car?
Mr. Marchand: A couple of features have been added. I mentioned the overfill protection devices and an electric switch that is activated as soon as you turn off the ignition, which shuts of the supply of propane. The steel tank is five times more resistant to impact than a regular gasoline tank, which is mostly composite because of the solvents and odorants added to gasoline.
Senator Frum: Would you put your teenagers in such a car?
Mr. Marchand: Do you want to drive my car tonight? I drive a propane car.
Senator Frum: I do not know if you like me. Are you a Conservative or a Liberal?
Mr. Marchand: My wife drives a propane car, and my kids are very comfortable in it.
Senator Brown: Is propane higher on the fracking tower than diesel in the refining process?
Mr. Marchand: There are two ways of getting propane. You get it from the barrel of crude or from the extraction of gases out West. A barrel of crude will have about 4 per cent propane. Propane sits almost at the highest end of the tower. After that, there are paraffin's, lipsticks, et cetera. About 85 per cent of Canadian production comes from our wells out West in a combination of mixes of natural gas, propane and butane, or strictly propane gases. They call them "dry wells'' or "wet wells'' because of the difference in the quantity of natural gas and propane.
Senator Brown: Is the cost of making propane from liquid natural gas or from the fracking process of crude oil the drawback that keeps it a little less expensive than natural gas?
Mr. Marchand: Yes, it is. Shale gas gives us the opportunity to have a Canadian source at a very reasonable price. Surplus product coming in from the West from shale and oil refineries will allow Canadians to benefit from propane for a long period of time at a very reasonable price.
Senator Brown: The advantage is that you do not need as much pressure to store propane, as you need to liquefy natural gas.
Mr. Marchand: Propane can be stored, on a summer day at 150 pounds, whereas natural gas must be refrigerated, otherwise the pressure will be too high.
Senator Lang: I will ask about supply. It states in my notes that the National Energy Board says the exports of propane will decline as a result of the shifts toward unconventional natural gas production and increasing domestic demand.
If we converted all the fleets across the country and set a target, what guarantee of supply do we have that the fuel will be there as we decline our conventional natural gas production?
Mr. Facette: In 2010, the United States was a net exporter of propane for the first time. Typically, the United States has been a net importer of Canadian propane. There is a theory going around that there will be an excess supply; that which is not going south of the border can be used elsewhere in Canada. There will be a supply of propane to meet the demand.
I have always found that where there is a demand for a product, there will be supply. If there is sufficient demand for propane, then the producers will produce propane. It is contingent on the price of extraction, as well. Many factors go into the extraction of the propane from the natural gas sector, and many of those factors are out of our control. If there is enough demand to warrant the investment, we are confident to say that the demand will be met.
Senator Lang: Do we have an estimate that tells us how much propane is available through conventional methods and the knowledge we have today? If the Government of Canada and the provinces commit to having all of their fleets converted to propane fuel, could they be certain of 100 years' supply?
Mr. Facette: We have a forecast that we can supply to the committee. The forecast shows that the supply of propane on the market place would pretty much stay steady. We can give you projections on the supply of propane.
Senator Lang: We talked about price and that propane is 36 per cent less on average than gas. Are your taxes the same? Are you taxed the same as we tax the provinces and the federal government taxes?
Mr. Marchand: We have provincial taxes, GST and HST.
Senator Lang: There is road tax, sales tax and GST. Then I think the federal government gets in there again. I want to compare apples with apples: Are you taxed the same as they tax gas on the road.
Mr. Facette: Yes, I believe we are.
Senator Lang: The provinces have the lion's share to say about energy policy because that is their constitutional responsibility. You recognize the federal government's responsibility. You have said that one of the things you would like us to do is look at our fleets across the country and then convert them to propane. That is one real thing to do.
Is there any other role you see the federal government playing in developing a national energy framework or strategy? We are trying to search this out. If you were sitting on this side of the desk, what would be the first thing you would do?
Mr. Facette: The first thing I would do is ensure that you have all the information about all the available alternatives. Being somewhat selfish and for which we will take some of the responsibility, one of the things we noticed was the idea that propane can be a partner in achieving overall environmental and business objectives was not talked about in any way. We are here tonight to tell you that we can do that and that propane as a resource is part of the solution.
I do not think that your objective is to find the silver bullet that will solve all the economic problems in world when it comes to economics, sustainability and energy policy. Rather, your objective it is to present a strategy of alternatives going forward. We say that propane is part of that strategy and that it is part of the alternatives.
If you want to reduce your carbon footprint and you are running an airport, you can do it with propane. I know the airport world extremely well and they measure their footprint. The Montreal airport has done just that with the conversion of many of their vehicles to propane. They have done just that. They have looked to propane to help them achieve those objectives.
We would like you to say that propane is part of the solution to achieve objectives when it comes to trying to find the right mix of economics and environmental policy.
Senator Lang: If this is a valid alternative, why is the auto industry, at least in part, not producing vehicles that can provide propane fueled vehicles as an option? Is the auto industry planning to do that type of production?
Mr. Facette: We do not speak for the auto sector. Perhaps, you can ask them. That is the best answer I can give you.
Senator Banks: Does your organization lobby that the auto industry ought to do that?
Mr. Facette: The Canadian Propane Association has not done so because we are new to the industry.
Senator Banks: What about your predecessors?
Mr. Marchand: We made some concerted efforts with some of the manufacturers, but at the end of the day, it is a lot simpler for Chrysler, GM or Ford to produce one engine that is gas operated than to produce a number of different engines and not know which one to carry in their inventory. In this economic situation, just after a recession in which the auto industry suffered, they are looking to save costs. It is a lot simpler for them to have one production line of gas engines.
You will have to ask the car manufacturers.
Senator Brown: I should have asked this question when you told me about higher pressure for storage for LNG. If an engine is set up to run on propane, can it run on LNG, with the only difference being the factor of the higher pressure?
Mr. Marchand: Unfortunately, not, it is one or the other. You cannot run the two together.
Senator Neufeld: In Northern British Columbia, the part of the world I come from, we are familiar with propane- powered vehicles. There are stations farther north than Red Deer. I think you can go to Whitehorse and fuel up.
You said 60 per cent is exported to the United States. People have told us they like propane because they like the price, cleanliness, the engines last longer and there is less maintenance and so on. However, they also tell me that it is hard to find refuelling stations in the United States. Canadians travel to the United States and this is a concern; if they cannot fuel up, they are in trouble.
Mr. Marchand: In the 1980s and 1990s, the number of stations rose from 2,000 to about 5,000. It has a lot to do with the disenchantment of the consumer and the loss of grants and tax benefits.
At the same time, whereas the U.S. had no auto gas market, in the last five years they almost have about 3,000 refuelling stations across the United States. That market is picking up because the industry is finding that there are opportunities on dollars and the environment, not to mention the savings regarding the health of future generations.
Senator Neufeld: Sixty per cent of our propane goes to the United States. Do you know what they use most of it for? Three thousand refuelling stations seems to be a small number for a population of 350 million people. What do they use it for?
Mr. Marchand: They use propane for basic residential applications, commercial applications, heating, hot water, and agricultural applications.
Mr. Facette: The United States enjoys very sophisticated residential applications in terms of developing networks, the grids. They have advanced grids for residential areas, unlike many areas in Canada. There are many residential applications in the United States.
Senator Neufeld: We have propane grids in British Columbia.
Another fear is parking your car in a heated garage that is attached to your home. I have heard people say that is the only reason they will not use propane. I know you are promoting it. However, please tell me what you hear.
I think propane is part of the solution. It is not the silver bullet; however, it certainly is part of the solution.
Mr. Marchand: Ideally, you would not want a car inside. You are dealing with a gas that expands. Therefore, you are waiting for something to happen. I would not recommend that you park underground. Although the industry has put a lot of safety features into the tanks themselves and the applications on the service side of it, I would not recommend that you park inside. Park it outside and start it up in the morning. It will start on regular gasoline.
Senator Neufeld: Where I live, when it is 30 below, it is nice to be parked inside. It makes the drive to work a lot better.
Mr. Marchand: That is why you need a remote starting engine.
Senator Neufeld: Then you are putting greenhouse gases into the air. Propane is a great source. It comes from natural gas in Western Canada. Where is your propane supplied from?
Mr. Marchand: There are two extraction centres, one in Edmonton and one in Sarnia. Sarnia supplies much of the Eastern region.
The Chair: In terms of the inconsistencies of regulatory regimes between the provinces, are there any issues between trade barriers in moving propane from Sarnia into Quebec or to Atlantic Canada?
Mr. Marchand: There are no issues other than getting permits.
The propane must be in a special pressurized vessel. You cannot play with it like gasoline or diesel. Therefore, no. There are no issues.
Senator Massicotte: References in your presentation show that you can save a lot of money for users. However, I now understand your handicaps.
Are there no pollution, contaminants or health risks at all after propane burns?
Mr. Marchand: All carbon products that are burned will emit CO2. Natural gas or propane appliances must evacuate their combustible gases. Propane is clean; therefore, you have the advantage of using it indoors with your cooking. I would not recommend that you heat the house with your cooking stove if there were power outage. Then, you are still emitting carbon dioxide.
Senator Massicotte: Is it 100 per cent clean?
Mr. Marchand: No. It is not 100 per cent clean.
Senator Massicotte: Therefore, it is relatively clean.
Mr. Marchand: It is clean relative to gasoline or diesel.
Mr. Facette: In the same way that natural gas appliances are vented, one must vent propane.
Senator Massicotte: How do you ventilate propane inside of a home?
Mr. Marchand: You ventilate in the same way.
Mr. Facette: It can be a downdraft or a draft up. There is no noticeable difference in the appliance whatsoever.
Mr. Marchand: A clothing drier is the same. Cooking will be through a regular exhaust fan or a central air system will be evacuated the same as natural gas.
Senator Massicotte: If you have that system in place, are there no health concerns at all?
Mr. Marchand: There are none.
Senator Massicotte: Why do you have to add something to it to give it odour?
Mr. Marchand: Propane is the same as natural gas. When it is extracted, it is odourless. You have to add ethyl mercaptan to detect if there is a leak in the house.
Senator Dickson: Home heating is not as prevalent use in the United States. Are there are disadvantages, price-wise, to natural gas?
Mr. Marchand: No, there are not. Due to fewer natural gas resources in the United States, oil is prevalent and propane comes in second. Electricity is the third more expensive compared to propane. Oil is the cheapest in the United States. Residential applications are one segment. Propane is used in restaurants, outdoor pools, fire pits and other commercial applications such as infrared radiants in spas. There are an enormous number of technologies that can use propane.
Senator Dickson: In terms of transportation and fleets, is there much receptivity as far as provinces are concerned?
Mr. Marchand: Provinces have been open to conversions and have offered grants or tax rebates, whereas other provinces have not gone this way for alternative fuels, be it electricity or natural gas. Yes, there are differences. The Western provinces are strong on propane. Ontario is also strong. Quebec has never been open to alternative fuels. We are now testing with the Ministry of Resources in Quebec. Hopefully, that will be a part of their offering. The Maritimes have limited applications because there is less commercial activity there.
Senator Dickson: I am from the Maritimes. Would Irving Oil be interested in promoting propane?
Mr. Marchand: Irving Oil produces gasoline and diesel and sells propane. Over the years, Irving has decided to focus on the retail side.
Senator Dickson: Is there any possibility of influencing them to partner with you in some way?
Mr. Marchand: We do have a board member who represents the Maritimes and we will mention the opportunity.
The Chair: We have heard evidence from people producing and developing natural gas from Sable Island and the Deep Panuke offshore facilities. Is there propane by-product in those facilities and if so, has it been harvested?
Mr. Marchand: Most of the current propane production at Aux Sable goes to the Chicago market. The refinery in New Brunswick sends some propane back west, although it services the local market more than any other market. There is a substantial amount of propane use on the traditional side of the industry in the Maritimes. Irving Oil sells most of its propane to the eastern United States.
Senator Banks: Out of a barrel of crude, 4 per cent is propane. What is the proportion out of natural gas extraction? Is it higher, lower or the same?
Mr. Marchand: It depends on the mixes in the ground. There might be a well that is 100 per cent dedicated to propane or mixes.
Senator Banks: What is the least you would get out of a gas well?
Mr. Marchand: There is always propane in a gas well.
Senator Neufeld: Did you answer that federal tax, federal excise tax, provincial tax, HST, and GST apply to propane in every jurisdiction?
Mr. Facette: Propane is exempt from federal fuel tax.
Senator McCoy: That excise tax would make up for the 36 per cent difference.
Senator Neufeld: What is that amount?
Mr. Facette: I do not have that number; however, I can get it for you.
Senator Neufeld: Is that the only tax from which propane is exempt in any jurisdiction?
Mr. Marchand: That is the only exemption of which I am aware, yes.
Senator Neufeld: Please double check and send that information to the clerk.
Mr. Marchand: Yes, Senator Neufeld.
Senator Banks: Is it, by any chance, 36 per cent?
Mr. Facette: I do not think it is that high.
Senator Banks: I was just checking.
The Chair: Gentlemen, thank you much for your presentation. It was extremely interesting and we will take everything your into consideration for our report.
(The committee adjourned.)