Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 13 - Evidence - Morning meeting
REGINA, Thursday, December 8, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 9:03 a.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good morning. This is a session of the Standing Senate Committee on Energy, the Environment and Natural Resources as we continue our study of the energy sector, talking energy with people across the country and trying to get the dialogue out there with all Canadians, especially younger Canadians. We have been at this for two and a half years, and we are now in Regina, Saskatchewan. We have had two days in Winnipeg, two days in Vancouver, a day in Edmonton and two days in Calgary. We are starting to feel like we maybe should buy a fur coat and get on with life.
It is a great pleasure to be in Regina and particularly nice to see that you folks from SaskPower are ready to talk to us about carbon capture and storage. I am told that you have been following our study a little bit and at least know what we are about. We have been trying really to — and we are not the only ones, but we are doing this from more the independence of the Senate. We do not have any axe to grind, except to try to make some — or help lead to some decent public policy for an energy system in Canada for the future that might be a little more efficient, a little more sustainable, and a little more clean and green. This is sort of the bigger picture.
We have had lots of details on specific things. We are trying to now focus on broader policy direction. As we get ready to write our report, that is the space we find ourselves in now.
My name is David Angus. I am a senator from Quebec, and I am the chair of this committee. To my right is our deputy chair, Senator Grant Mitchell Alberta. To his right is Mark LeBlanc and Sam Banks of the Library of Parliament; Senator Tommy Banks, from Alberta, my predecessor as chair; Senator Elaine McCoy, also from Alberta; and Senator Richard Neufeld from British Columbia, a former minister in this particular field. To my immediate left is Lynn Gordon, our clerk. To her left, from Montreal, Quebec, via Manitoba, is Senator Paul Massicotte. To his left from Calgary, Alberta, is Senator Bert Brown. Last but not least, from the Northwest Territories, the former Premier of the Northwest Territories, we have with us Senator Nick Sibbeston.
If I can turn to our witnesses, we have with us this morning Mr. Robert Watson, President and CEO of SaskPower.
It is great to have you with us, sir.
To his left is Guy Bruce, Vice-President, Planning, Environment, and Regulatory Affairs, and President and CEO of NorthPoint Energy Solutions Inc. To Robert's right is Michael Monea, President of Carbon Capture and Storage Initiatives.
Colleagues, we do have biographies of the witnesses in our binders, but I wanted to just say a few words about Robert Watson. Before joining SaskPower, he served as President and CEO of SaskTel beginning in 2004 and before that appointment held several senior executive positions including: President of Shaw FiberLink Limited, Shaw Mobile Communications, and WIC Connexus (divisions of Shaw Communications); President and CEO or COO of STN; President and CEO, ACC; Executive VP, Country Manager of Cable and Wireless; Executive VP, Carrier Services; and Vice-President of Business Development, 36O Networks, Engineering, Operations, Customer Service, and Chief Quality Officer at Group Telecom.
He is a graduate in Electrical Technologies from Ryerson University and has attended the International Executive Development Program at INSEAD, which is a great spot, Centre in Fountainbleau, France, as well as the Executive Management Program at Ashridge College in the U.K. He also holds an ICD.D designation from the Institute of Corporate Directors. He is a very prominent man with a very diverse career.
Over to you, sir.
Robert Watson, President and Chief Executive Officer, SaskPower: Thank you very much, senators, and welcome to Regina. It is finally getting to be winter here. We have had a great fall.
The Chair: Excuse me, sir. There is some photographing going on, which is fine, but we need, for the record, a motion that we are agree to have photos taken.
Senator Banks: I so move.
The Chair: Moved and seconded. All in favour? It is unanimous. Thank you very much.
Sorry, sir.
Mr. Watson: Thank you. I will have to shorten that bio for sure. I really can hold down a job, right?
I will give you a bit of information about SaskPower. We are the power company, and the full services power company. We do all the way from power production to delivery of the distribution side and commercial in the province. We have started, recently, to do some private power production facilities in the province, so we look forward to developing that in the future.
With respect to Saskatchewan, right now approximately 20 per cent of our power comes from hydro facilities in the province, approximately 20 per cent from gas facilities, 55 per cent from coal facilities, and then 5 per cent from wind and a bit of biomass.
The Chair: No nuclear?
Mr. Watson: No nuclear, no, although the province, as you are aware, has started a research centre at the University of Saskatchewan for nuclear research, so we will be keeping close track of that.
The Chair: We heard that there was an initiative a few years back, but what was it? The BANANA principle applied. How does that go?
Senator Banks: Well, everybody knows what NIMBY is. BANANA is "build absolutely nothing anywhere near anybody."
Mr. Watson: I have never heard that one before. I like that.
The Chair: We have been hearing it the last few days. It is getting popular.
Mr. Watson: While you are on that, it is interesting with nuclear facilities here that a technology is being quickly developed call small nukes, mini nukes, stackable nukes. They can start as small as 50 megawatts, and then you can build them up from there. That would be more of our line. We are just not built or sized for big nuclear.
The Chair: We have heard that that would be ideal, if it can be developed properly, for the Far North to replace diesel.
Mr. Watson: Yes, self-contained units up there. It could be as simple as you deliver them in a concrete vault, put them in the ground, and let them produce power for 50 years.
The Chair: It sounds great.
Mr. Watson: It sounds really good, yes.
The Chair: They could maybe even produce some isotopes. You never know.
Mr. Watson: Yes. So we do that.
Particularly, our topic today is on coal. As I mentioned, in Saskatchewan 55 per cent of our power production comes from coal-burning plants, and we sit, in the south, on approximately about a 300-year supply of coal. We know exactly how to get the coal. We can get it safely. We can return the ground to arguably a better state than it was before. It is important for the future of Saskatchewan to consider coal.
We are fully in agreement with the federal regulation of trying to get 17 per cent reduction by 2020 from 2005 levels, and that is particularly what we are on about now.
Saskatchewan is a bit of an island. We have had lots of discussions and will continue to have discussions with Alberta and Manitoba, and even to the south of us, about joint power production or purchasing power from these areas. Our growth in the next 10 years to 20 years is going to be absolutely dramatic in this province for requirements for power.
Alberta has its own issues about developing power. As you are aware, they have got their own hands full in developing power for themselves.
Manitoba, they probably told you, if they develop a unit, they usually sell it to the south.
The Chair: Well, the premier and the head of Manitoba Power told us yesterday that they are all ready to sign with you on an east-west grid.
Mr. Watson: Yes, that is —
The Chair: I am exaggerating.
Mr. Watson: I appreciate that. We have had serious discussions with them, and they have said to us that they could sell us hydro, but it will probably be about 2037 when they could consider doing that because they just pre-sold all of their facilities. We are talking with them seriously about building up the grid east-west so that we can at least sell peak power back and forth.
The Chair: Great.
Mr. Watson: Yes, that is definitely a plan, but with respect to any excess baseload production, which is what we need, they would not be able to help us out until at least 2037, so that is a bit of a problem for us. Therefore, we have to look after ourselves. SaskPower has to look after itself in power production for the future because there is not too much south of us either. That is essentially our strategy for the future. We are quite willing to talk with people about purchasing power, if it is, of course, a good business decision.
With that, I will let Mr. Bruce Guy talk about carbon capture facilities.
Guy Bruce, Vice-President, Planning, Environment and Regulatory Affairs, and President and Chief Executive Offers of NorthPoint Energy Solutions Inc., SaskPower: Good morning. I will just go through two or three slides that illustrate in numbers and graphs what Robert was just saying.
Slide 2 is an illustration of the growth that Saskatchewan is seeing. I think everyone has heard that Saskatchewan's economy is growing, and a growing economy means growing demand for electricity. This just shows you what the numbers look like.
We have started to work on a 40-year outlook, and this is the early stages of that work. Looking out to 2050, in 2020 we are expecting a 50 per cent increase in the requirement for electricity in Saskatchewan. By 2050, we expect to see that double. These are very preliminary forecasts. No one really knows for sure what is going to happen in 2050, but indications are that the province is growing. The majority of this increased demand for electricity is coming from what we call extractive industries such as mining and oil and gas, primarily. The big contributor to electricity consumption looks like the potash industry. Almost half of the growth, looking out over 40 years, is from the potash industry, so we are really keeping an eye on that.
As Robert said, we do want to be self-sufficient. We do not want to rely on Alberta, Manitoba or the U.S. for electricity.
The next slide is meant to illustrate two things. It shows, first of all, in 2010, where our electricity came from. In 2010, 58 per cent of the electricity came from coal, about 24 per cent from natural gas, and the other 24 per cent from other sources. The other is primarily hydro, but, as Robert mentioned, there is some wind and other sources in there.
In 2050 the pie is twice as big, and our forecast or our plan right now, our hope, is that a quarter of that pie would still be coal, and that would be clean coal.
Mike Monea is going to take you through a presentation on our carbon capture project.
About 25 per cent, somewhere in that neighbourhood, would likely be natural gas. We cannot get away from natural gas. The thing to know about the two quarters of the pie is that if our vision comes true, clean coal would be about 90 per cent less CO2 from than the emissions that we currently see.
Natural gas is about half of the emissions of coal. We are trying to keep coal in the mix. We are trying to keep that as an option for the future. If the coal goes away, the only other choice that we see right now is natural grass, so half the pie becomes natural gas. Our overall emissions could actually be higher in the future if we are not successful in getting a clean coal program going.
I will not spend too much time on the fourth slide. That is really an introduction of Mike's presentation. It speaks to the three objectives on why we are really interested in looking at carbon capture and storage technology. It helps us keep costs down for the future and helps us maintain our self-sufficiency.
Coal is in abundance in Saskatchewan, and our energy system was built on coal as the foundation because we have it here.
Slide 5 is a high-level summary of the proposed greenhouse gas regulations that have been published in the Canada Gazette Part I by Environment Canada. The draft regulations were published in August of this year. We have just gone through a 60-day comment period, and all the stakeholders have submitted their comments on the regulation. The regulation calls for units that operate past 45 years to meet an emissions performance standard of 375 tonnes per gigawatt hour. That would require about a 70 per cent reduction in emissions from our existing fleet.
The Chair: We had fairly frank testimony in Alberta about being taken a bit by surprise by the feds with these regulations, which actually surprised us in terms of consultation. When the regulations did come out from Environment Canada, they seemed at odds from what you were hearing from NRCan, and we kind of got a negative spin, if you will.
Mr. Watson: We do not want to put a negative spin on it, but we worked with the Ministry of Environment up to when the regulation in the Canada Gazette notice came out. A couple of things surprised us, quite frankly. The 375 tonnes per gigawatt hour did surprise us. All along, the Canadian Electrical Association and everybody were talking that it should not be any more than 420 tonnes per gigawatt hour. Really, the one place in North America that has that regulated right now is California at 500 tonnes. We wondered why 375? I do not want to speak for the Ministry of the Environment, but 375 tonnes is a large gas unit. I mean, a 400 or 500, even larger, gas unit, at optimum running level, 375 tonnes — in our present fleet we have one small unit that we could get to 375. All our other gas units are not at 375, so it does cause us an issue to get to the 375. The 420, quite frankly, seemed to be a bit of a compromise. We can get to the 420, so if that is important for 17 per cent emissions, we said that.
The other thing, the practical point, is that we have started the full-blown carbon capture for Unit 3 at Boundary Dam, which is the first in the world. This is the first full-production facility in the world that we are doing at Boundary Dam. It is a $1.2 billion project, and the federal government has contributed $240 million towards it. We will not have that in operation until early 2014.
I need at least two years to run that facility to make sure it works — not only works with capturing carbon at those levels, storing it, because we have got to prove it can be stored. Well, the Weyburn facility has already proven it can be stored safely, but we are going to be getting full production storage, then sell it to the off-takers for injection for heavy oil, and make sure the economics work. I need at least two years, so I am talking at least 2017 before I can realize whether I have a thing I can carry on with the rest of my fleet. We firmly believe it will work.
The way the existing regulations sit, though, we would have to either have unequivocal board approval to have carbon capture for our Unit 4 by 2015 or shut it down. The timing is impossible the way it sits with the existing regulations.
We are talking with the Ministry of the Environment in the consultation period. We have committed to Boundary Dam 3, and we committed to it to prove clean coal because we think that is the innovative thing to do and the right thing to do. That means we really need to get to 2020 before we have to do anything with our other units.
We are still saying to the Ministry of the Environment that we can give them better numbers by 2020 the way we are going than can their Canada Gazette notice.
The Chair: The bottom line is $240 million would be wasted if you had to shut down.
Mr. Watson: Yes. We firmly do not believe it is wasted. We firmly believe that we have got something here that is good and it is world leading. I mean, you can burn coal and capture the CO2 and, quite frankly, store it safely. We have proven that with Weyburn for 10 years running. We think, firmly, that we have got a product here that is very innovative, world leading, and we need time to develop it.
Mike will talk about the facility now.
The Chair: Should we go to page 6?
Michael Monea, President, Carbon Capture and Storage Initiatives, SaskPower: Yes, please.
Senator Angus, I think you summed it up pretty well with your synopsis of energy systems, and I think our conclusion is that the energy system needs every bit of energy we have, not excluding energy. This BANANA principle cannot work; it will not work.
We took the initiative at SaskPower in Saskatchewan to answer the following question: Can coal remain as an energy source for a coal plant? That was not independent of regulations, but we had to make that decision some time ago because we were spending $240 million on feed studies. We had to allocate capital to build this large facility. We had to answer the question ourselves. Can coal remain as a fuel for future supply of energy for Saskatchewan? As Robert said, we have 55 per cent — actually, the number, I think, was almost 60 per cent using coal.
Here is the neat thing. Canada, right now, with the initiatives that we have in Saskatchewan, which I will tell you a little bit more about later, and with the initiatives in Alberta, is leading the world. Nobody else is leading the world in carbon capture and storage like Canada is.
The U.S. DOE has been a partner of the Saskatchewan projects and also in Alberta for years. Even though the politicians are moving away from regulations, the science group is studying what we are doing up here in Canada, so we are the leader. I think that it is going to be a great story the future.
Not only do we have to answer the question about whether coal can remain in our fuel source, but what are the economics? What sold it to our government is that if we had to shut down Boundary Dam 3, it is 139 megawatts. What do you replace it with? We cannot build a nuclear plant real quick. Senator Angus was asking about these big nukes, but our infrastructure can only handle 300 megawatts. You have to start putting in new infrastructure, and, when you do that, your costs start multiplying.
It is all about what works, and what works for us is cleaning up coal. In our analysis, we looked at what we would replace that 140 megawatts with, and it would be natural gas. Our life cycle costs, which mean the whole 35, 40 years of this plant, have the same economics as natural gas, and we are two or three times cleaner than natural gas for CO2 emissions.
Even though a lot of folks do not like the word "clean coal," we are clean. We have emissions that will be below the regulations, but we need time to understand the economics, how to build this plant and how to integrate all this complex equipment, because it is not simple. However, good engineering and innovation actually will solve this issue, and we can use this huge energy source that we have to provide power for certainly SaskPower. We will also demonstrate around the world that you can use coal effectively and cleanly. Ninety per cent of the power plants that use coal around the world are in existence and need the technology we are using right now, which is called post-combustion. You add on your system after you are generating power.
China is building a new coal plant every week, and they are knocking on our door every two weeks to find out what we are using for technology and whether they can join the research group that we are working with at SaskPower.
Unfortunately, we do not have much time to talk about the project, but our deliverables are to show that we can have the economics of cleaning up coal, and it is comparable to natural gas. This is huge, very important.
With respect to Guy's point, if the regulations are so strict and if we do not have enough time to evaluate this very important process we are going through, we just build natural gas, but our carbon footprint goes up. If we put in more wind power, our carbon footprint goes up because we have to have peaker stations in order to back up that wind power. Every energy source has an issue, and we are taking the biggest issue, that people think coal cannot be clean, and we are going to solve that problem.
I will wrap up with two other things that we are doing. The economics works. We are not going to be having a significant rate increase comparable to any other energy source. Our byproduct, which is CO2, is going to be used in the oil and gas industry, and that, in itself, is a more efficient and effective way of extracting oil instead of importing oil from the Middle East or wherever.
We have virtually every country knocking on our door to learn about our enhanced oil recovery expertise that is developing on the capture side of the process.
The last thing is that we are also are drilling a disposal well near our plant. That is a deep saline reservoir where we can dispose of the CO2 that may not be used for enhanced oil recovery, EOR. There is a lot of CO2 that we could actually bury.
That program is also in conjunction with the federal government with some research money, but we will show that it can be safely stored in saline reservoirs that will never come back for thousands of years. That will also help other governments build good regulations so that we can collect all these big point sources of CO2 and bury them in these deep saline reservoirs.
It is important for us to use CO2 for EOR. The rest of the world has to look at what is happening in Canada and in Saskatchewan to see the safety of it. Our population is low. We are an oil and gas community, so we do things safely, and we have done things that way for 10 years. As Robert said, we have 17 million tonnes stored at Weyburn, so we can demonstrate to the world that we can do all this capturing and storage safely.
The Chair: All of you have used the phrase "unique in the world" in one aspect or another. We have been told, like everyone, how many coal-fired plants there are in the U.S. I know that 17 or 18 states are totally coal dependent.
Mr. Bruce: The country is 50 per cent dependent on coal now.
The Chair: Exactly. Given the American bent for technological advancement, and so on, they are behind and are coming up here to see what you are doing.
Mr. Bruce: Yes.
Mr. Watson: Yes. There have been some test facilities around the world for carbon capture, but, again, this is full production. We take the full production unit and take all the CO2 from it, and then we sell it to off-takers who put it into the ground. I did not know until I came here, but as soon as CO2 hits heavy oil, it expands it, and it just comes squirting up out of that hole.
These saline aquifers that Mike talks are deep. It is way down and can never be used as potable water. It is something that will never impact water tables.
The Chair: All right.
Mr. Monea: Senator, one other project in the United States is on a similar timeline as us for capturing carbon, but it is using a gasification process. We are thrilled about that because we need to see other technologies and processes much like what Alberta is doing, potentially, with TransAlta. However, gasification is a pre-combustion process. We are talking about a post-combustion process where 90 per cent of the coal plants around the world are in existence, and you are putting in a system to clean up the coal on the back end.
The Chair: Where is that U.S. project?
Mr. Monea: It is in Kemper. I can get information on the location. The only other plant that was getting ready to come on stream was called Mongstad in Norway. SaskPower just presented in Norway, and the Norwegian government was thinking seriously of joining the initiatives in Canada and maybe winding down Mongstad.
Mr. Watson: For the future, SaskPower plans on adding more hydro facilities. There are several places in the province that can have a hydro facility. In particular, there are a couple of good sites in the Far North that we are really excited about. We are quite interested in working with the potash companies for cogeneration facilities. That, again, is very good for us.
We will be adding wind power to the fleet, but we are going to be modest with our wind power. In Saskatchewan, although the wind blows all the time, either it blows or it does not blow, and it usually blows too fast, right? I liken it to last year. There was no wind on the coldest day of the year in Regina, and during the hottest week in this province there was no wind. In fact, Alberta got itself in a bit of trouble. There was no wind and they had one of their major coal units go down, so they had to buy power at almost a thousand dollars a megawatt. The problem with wind is —
The Chair: You never know.
Mr. Watson: — that you need to back it up. Baseload is one of the main problems with wind. However, you should put some wind in your fleet. Do not get me wrong; we should have wind in our fleet. We are going to try to do a bit more with solar up here, but, technically, I am told we are just a bit too far north on the curvature on the earth to make it as efficient as you would even in Southern Ontario, which is as far south as California is north. We are going to give it a try just to make sure.
The concept going forward is a balanced approach. As you see, we take coal down to 25 per cent of the total. That pretty well still protects our coal units that are in place now.
We know that the Japanese, in particular, are working on what they call super burner coal units that get the emissions down as low as gas. It would not be inconceivable even to propose a new coal unit in the south if they get that technology correct.
Boundary Dam is the one we want. We are in partnership with SNC-Lavalin, Stantec, Shell, and Hitachi. Hitachi is building the first carbon-capture-ready turbine in the world for us for that unit.
There are some pretty heady people on this project that we are involved with, and we are also looking into a business plan to put together an independent test facility where people from around the world can come and test their technology. I mean, the province and the company are committed. We are stepping out in front, and we just need to move forward.
We are working with the federal ministry of the environment. With the Gazette notice, this is a consultation period. We are not asking for anything but time for our units to prove it out on the innovation side.
The Chair: In its simplest form, just to make sure we understand, the Boundary Dam project is a conversion?
Mr. Watson: Yes. We take the unit apart and actually rebuild it from scratch. We are almost building a brand new unit.
The Chair: Its production in its old form was pure, dirty coal being converted with CCS and some gas?
Mr. Watson: No gas.
The Chair: So converting it to a clean coal facility with CCS, and the production will be the same, but it will be of much higher quality.
Mr. Watson: Yes. Technically, a coal unit like that gives out about 1,000 tonnes per gigawatt hour. We plan on getting 90 per cent of the CO2 out of there, so down to 100, maybe 150 tonnes. A good gas unit is usually around 500. As Mike says, economically speaking, we think we can do it, all in, as cheap as building a gas unit. That is what the economics is proving. Quite frankly, our government wanted to see the economics to make sure that this is a good business prospect, first and foremost, and that is what we are going to prove out.
The Chair: All of these top-notch, leading-edge partners obviously have an interest as well because this will be a model, a standard for the world?
Mr. Watson: They have a specific interest. However, I can tell you that we have been very, very focused on making sure that we are going to control the intellectual property rights as much as we can.
W have got some independent advice to try and make sure we capture as much as we can of the intellectual property rights so that SaskPower, Saskatchewan and even Canada can take this around the world.
The chart on page 9 actually shows the cost generation side.
We have reserves in the south of Saskatchewan. I would say a 300-year supply of coal reserves. Technically, we have about a good 45, maybe 50-year supply of reserves in the Estevan area. Down near Willow Bunch, which is in the centre of the south, there is the other 300 years. We have very good reserves down there.
Saskatchewan is not the best place to get gas out of the ground.
The Chair: No shale?
Mr. Monea: Well, Robert is right. Shale gas is not quite as good as you get close to the Wood Mountain area. However, 300 years of coal is significant because if we have to remove coal out of the picture and go to natural gas, we actually become a gas importer, importing from Alberta or the United States, and that would not be preferable.
The Chair: So you are going with coal and for the reasons you have said?
Mr. Monea: And cleaning it up.
The Chair: I would think the Americans would love to see that themselves.
Senator Mitchell: You have hit on some areas of testimony that we really have not had detail or this level of sophistication on, so it opens up new possibilities for us in our report.
I would like to pursue the issue of clean coal. To this point, we have heard and I think people have understood that clean coal is something you do before you capture carbon — you gasify it, or whatever. When you said 90 per cent, that would include the carbon capture and storage component.
Mr. Watson: Correct. We do not gasify. Our technology is post-combustion.
Arguably, in the future, if you are going to build a new coal plant, you should build one of these super burners and gasify it before you put it in. Our technology is protecting our fleet of units that we think has a long life ahead of it. The beauty of it is that all those units, thousands of units around the world, can use this technology to clean it up. If they find a way to store the CO2 locally or sell it locally, then it solves their problem. If they cannot, then even if they have to ship it somewhere to have it stored, the economics will be there in the future.
Senator Mitchell: I would like to come back to the economics of it. The Japanese technology that you talked about would get emissions to a very low level, but it would not require carbon capture and storage, or are you saying it would as well? It is super heated.
Mr. Bruce: Robert is referring to what they call super-critical burning. They are operating at higher pressures and temperatures.
The efficiency of Unit 3 at Boundary Dam 3 is going to improve by about 10 to 15 per cent. That technology is available today, and that is continuing to evolve.
Senator Mitchell: I agree that it is absolutely fantastic that you have this technology that applies to thousands of units all over the world. Do you see this Japanese technology or technologies like it or a trajectory towards a new technology that would not require carbon capture and storage at all, that you could actually just burn this stuff in such a way that it would not emit?
Mr. Watson: I do not want to speak for the manufacturers, but we do know that manufacturers are looking at this super-critical burning to get the level of emissions down to equal to gas. I believe that is their target. The issue is, as Guy says, that they are super-pressure heaters, so the metal in the piping that they have to perfect in order for this to happen.
Senator Mitchell: You mentioned that it might even be economic at some point in the future to actually transport this stuff somewhere to store it. Do you think we need to price carbon, and, if so, how?
Mr. Watson: No, I am going to comment on that business-wise. Personally, I do not think we should add another tax anywhere where we should not have to.
Senator Mitchell: That is about the first time we have heard that, actually. You are a brave man. That is great.
Senator Banks: Mr. Watson, could you please say that again?
Mr. Watson: Well, whether there is a carbon tax or not, I do not think SaskPower is in a position to comment on that here today. I just said, personally, as Robert Watson, I do not believe there should be a tax added on to carbon. In my personal view, it makes goofy, funny money. That is all it does. I do not know why you would do that because you have got people who do not regulate it, get it cleaned up and get it done. I do not agree with people who get to buy their way out of cleaning it up.
Senator Mitchell: Those are carbon credits. That is not even a tax.
Eric Newell, the former CEO of Syncrude, actually said to us this week that he does not know how you would ever get carbon capture and storage if you do not price carbon. You are just saying flat-out regulation — and I do not want to put you on the spot because you have made the distinction that it is personal.
The Chair: You just do not like what he is saying.
Senator Mitchell: No, I am discussing it.
Mr. Monea: I would like to add a comment to your question about where the technologies are going, because it is a great question. Is there one out there that could replace what we are doing right now? I have been, unfortunately, on the rubber chicken circuit of conferences around the world to find out who is doing what.
The super-critical process reduces emission levels, but what we are doing is significantly extracting 90 per cent of the CO2 to 120 tonnes and 100 per cent of the sulfur dioxide, reducing mercury, low-NOx burners — all of that is very significant.
If you are going to build a new plant, there has to be a newer technology. SaskPower is constructing a test facility that will advance the current technologies which are aiming based. It is like an anti-freeze that absorbs the CO2. We will do that at SaskPower.
We are working right now with Natural Resources Canada — and we have an excellent relationship with them — on new technologies that will be at the front-end of combustion. They are hybrids. We think that we will fix these older units, rebuild and retrofit them and clean them up, but there has to be some great innovation on front-end burning. We are also looking to be participating on the leading edge of that.
Senator Mitchell: That is good. It is very impressive, yes.
You can use CO2 for heavy oil production. You just pump it down. You are saying that it is a diluent, and it gets the stuff flowing?
Mr. Monea: The application in Southeast Saskatchewan is for medium crude. If I can give you a two-second EOR 101course on CO2, you have to liquefy the CO2 so that it is in a liquid form. It has got this great property name, which is "super critical," meaning that it acts like a fluid and a gas.
You take CO2 and pump it into a reservoir, and it changes its properties. It is no longer CO2 and it is no longer oil. You get this different fluid. The fluid swells up, which creates pressure. In these old 50-year reservoirs, you need pressure. Not only does it increase the pressure, but it makes it flow easier. They call it "reducing viscosity." It lightens up the oil, swells it up, creates more pressure, but the neatest thing is that it acts like a solvent. It is like Varsol. It just sweeps like crazy. There is nothing else that you can put in a reservoir for EOR like CO2.
Here we have this crazy product that people are trying to get rid of and the oil companies are trying to get in order to extract more oil. It is not very often that you can have this kind of a relationship.
Senator Mitchell: A perfect balance, yes.
Mr. Monea: Yes.
Senator Neufeld: Well, thank you, gentlemen, for a very interesting presentation.
On slide 3, the big bubble in 2050 is divided into thirds. There is clean coal, natural gas, and what is "Other?" Did I hear you say that is natural gas too?
Mr. Bruce: Well, we are working on what the "other" would be. We are looking at all of the options for the future. When we look out 20, 30, or 40 years, we are looking at potentially more hydro. We know there will be more hydro. We know there will be more wind and possibly solar. Maybe there will be new coal if we can get the technology worked out so that we can build a new coal plant to today's standards to meet the regulations. The small modular nuclear reactor technology that is being developed might fit into the mix as well, but there is no definite plan. That is why we are not showing how that pie is divided up yet.
Senator Neufeld: That helps me.
Mr. Watson: We are going to work around trying to get most of that to be renewable.
Mr. Watson: We need to do something serious by about 2030. If the nuclear file moves along, that could be a good option to look at.
Senator Neufeld: Good.
Secondly, with respect to the Boundary Dam Power Station, once you are done, what is your estimated cost per kilowatt hour? What do you think it will cost you to generate electricity with that new technology, just that unit?
Mr. Watson: The economics have proven the same as gas. It is supposed to come in at around $130 per megawatt hour, so we are very encouraged. We have got some leeway there, quite frankly. We put some leeway in the business plan. If it comes anywhere near 130 by the time the project is out and running, then that will be very good.
Senator Neufeld: Does it cost you 130 now to build gas-fired?
Mr. Watson: All in? It is about 120 now, all in, delivery and everything. You might get different numbers from other power companies because some power companies do not talk about delivery and everything. We talk about it all in, delivery and everything.
Senator Neufeld: I was going to ask that. That has to be all of it, the transmission and all of those things.
Mr. Watson: Yes.
Senator Neufeld: Is distribution figured into that cost?
Mr. Watson: Yes.
Mr. Monea: Senator, if you take a point source in time, it is difficult to compare energy sources like gas to coal. You have to look at the life cycle costs.
Let me put it this way. Our project is 1.2 billion. If you had a billion dollars, what do you want to do with it? Do you want to rebuild a coal plant, or do you want to put in natural gas?
Here is how it works. If you have a billion dollars and you build a gas plant, one third of your cost is capital and the rest is fuel. It is the opposite for coal. It is two thirds for capital, one third for fuel. We know exactly what our fuel price is going to be for coal for the next 35 years. The problem with natural gas is we do not know what that price will be over the 30-year period. When you plug in the volatility, that is when natural gas starts showing that it has some issues.
Senator Neufeld: Yes, and I appreciate that. I am aware of those kinds of things.
I would like to go to your last page. I appreciate what you are saying, the changes you need for the regulations, and I can understand that too. However, you say, "Unless changed, it would eliminate the innovation and development of CCS, carbon capture and storage." Why is that? I am having some trouble. I get what you are saying about the time when your plants come on, and I commend you for the work you are doing.
B.C. is looking at CCS seriously out of some of our gas plants. From my point of view, if you say it is going to affect the CCS technology, why?
Mr. Watson: It is a practical thing. First of all, you need time for the technology to prove out, at least until 2018, but 2020 would be better. The way the regulations are set now, the penalties are under CEPA, the criminal part of CEPA. As a board member, as a minister, as a CEO, you cannot knowingly be outside the Criminal Code and carry on down a path and not capture by a certain date? It gives you a different perspective in your forward planning. I cannot sit back and say I need at least nine years or so to develop this technology and then decide what my options are going to be. Potentially, we would have to shut down two of our units over the next nine years. It does not allow us to get the technology in place.
With regard to innovation, we have started, but we need time. It is just a matter of time. We do not disagree with regulating things. We are just saying that we need time. In fact, our proposal is, tell us what your target is, and if it is 17 per cent, that is fine; we will get there. Let us get there how we can, whether we are testing the thing, whether we even have to reduce the production out of our coal plants for a while just so we hit that target, just so we can prove things out and plan properly. That is our prospective.
Senator Neufeld: What is the per-tonne difference in cost for CCS compared to EOR? You are going to store it and that is all you do with it.
Mr. Watson: Oh, I see your point.
Senator Neufeld: With CCS, you are putting it down in saline solutions. With EOR, you are actually using another technology. I mean, you are advancing your oil production, so it must be cheaper in relation to EOR than it is for CCS because CCS just goes down and it is gone. For EOR, you are using it probably a number of times, running it through the system, to enhance oil recovery. There must be a difference in the cost per tonne. You have a commercial aspect with one and the other is just a straight cost.
Mr. Watson: Yes, there is a difference. We do not want to say what we think we hope to get for the CO2 right now because we are in a competitive environment.
Senator Neufeld: That is fair.
Let me ask you this: would it be significant?
Mr. Watson: Is it significant? It does not take coal beyond building a biomass facility, or something like that. It keeps it within reason. Let us put it that way.
Senator Massicotte: Some of us are more informed or educated on these matters, and I am not, so I want to go through some of the stuff Senator Neufeld asked in order to understand the facts.
First of all, in regard to GHG, I understand that your coal plant will be 80 per cent more efficient than the natural gas plant.
Mr. Watson: Well, technically, the plant is not as efficient as it was before because we have to power the capture unit. It goes from 135 megawatt production plant to about 115. Technically, you lose some of the production out of it.
Senator Massicotte: And how about GHG?
Mr. Watson: With respect to greenhouse gas, we go from 100 per cent, which is about a thousand tonnes per gigawatt hour, down to about 150 tonnes.
Senator Massicotte: Natural gas is 500, I think you said.
Mr. Watson: On average, a natural gas unit is about 500.
Senator Massicotte: It is around 85 per cent cleaner than natural gas; is that right?
Mr. Watson: Right.
Senator Massicotte: Senator Neufeld asked you about construction costs, and then you admitted that there is a difference in capital costs and operating costs. To the user, to the consumer, what will be the cost per kilowatt hour with CCS, coal-fired, than what it currently is in your province? What would that number be?
Mr. Watson: We have said that we are going to bring the carbon capture facility in, when it is done, at about $140 per megawatt hour? Most of our new deals right now are in around that range for biomass, for hydro facilities. As you know, even nuclear is in around that range. For the future, we do not believe it is going to be a burn to the consumer.
Senator Massicotte: That is what they are paying today, approximately, in your province?
Mr. Watson: 140? That is blended. We give some for some large users and some for small users.
Senator Massicotte: So what you are seeing today is close to the average.
Mr. Watson: Yes. I think the average is about 11 cents or $110 per megawatt hour.
Senator Massicotte: When you say 13 cents, is that "all in" costing, including CCS and no subsidy from any government at all? If you had to start from scratch, you would say that is fully costed?
Mr. Watson: That is a very good question. The project itself sits with a $240 million subsidy from the federal government. That answers our economics. Yes, that helps us get to our number, to be quite frank. However, we feel that going forward three years or four years from now, if we had to build another facility, our lessons learned will easily make up that money. In fact, if you are going to capture, you would look at seriously capturing the three remaining units at Boundary Dam at once, like pre-capture ahead of time. Again, this is part of the regulation.
We would then look at it as a business deal and say that if it is working for Boundary Dam 3, the economically, rather than spend a billion dollars per units 4, 5, and 6, if you spent 2 billion instead of three to capture them all at once, it is a better business decision. We are saying that you should get credits for that, for being ahead of the game.
We are working with the ministry of the environment. We are trying to put a good business slant to the regulations. Again, we agree that we have got to get there, but we are trying to put a good business slant to it.
Senator Massicotte: We see all kinds of graphs and tables of what the cost of energy is for different forms of production. You are saying, therefore, if you had CCS, coal-fired, all-in cost, no subsidy, you would be probably at 130 today?
Mr. Watson: All-in costs with the current 240 subsidy, we would probably be closer to 150.
Senator Massicotte: I agree, but knowing what you know today, from the experience you gained, you will be back to 130, 140?
Mr. Watson: Yes. Our plan is to prove out the economics. To bring it in and around that range, you would have to add new production.
Senator Massicotte: We have heard from experts on CCS. In fact, one industry expert was funded by the industry. His opinion was that for the equivalent costs, carbon would have to be priced at least $85 to maybe $100 a tonne to allow CCS to be feasible or to be profitable or to justify it. In fact, he came to the conclusion that that will never occur because when you get up that high, people find alternate solutions. In theory CCS makes sense, but he says it is not going to get done because people will find other ways to be more efficient. Obviously, if you reduce consumption, efficiency is even a better way. He was saying we are never going to get there.
Many experts said to us that CCS is very good. You have an example here. However, very few places in the world will permit that to occur. In other words, it is not a real solution to the world. It is rarely applicable. The geology rarely permits that kind of facility. What is your comment to those two experts?
Mr. Watson: Well, first of all, our economics in regard to selling the CO2 are nowhere near $85 a tonne. We are far below that to prove out our economics. Mike has actually publicly disagreed with some people at conferences about this concept.
Again, I prefer not to comment on what we think we are going to get because we are in negotiations for the CO2 now.
As for others' jurisdictions, that usually becomes the will of the local people and what they want to do? Quite frankly, this is a responsible way of going at it, selling it to help out.
As a technical thing, and Michael can correct me, but once the stuff comes back out again, the enhanced oil recovery guys re-use that CO2. They can cycle it around. They lose some through the process, but they can re-use most of it and just keep cycling it through until it deteriorates.
As for other jurisdictions, sure, there are other places in the world that do not have the same geology as we do in Saskatchewan. However, facilities farther north than Regina are actually talking about using CO2 gas to put through their stuff, and they think they can get more oil out of the ground just using the gas rather than it being liquefied.
I do not want to speak about other jurisdictions. That is up to them. We are just being very pragmatic and practical in saying that we have a fuel source here. It is something we know how to get safely. Environmentally, we are pretty darn good, quite frankly, at getting it out. It is right there. All transport costs and all transport facilities are not part of our — we do not have to pay for that. In fact, we do not even enter that into our equation, which we should. What would it take it transport whatever fuel source we needed here? It is here, and I think we are being quite pragmatic and practical in having it in our fleet for the long term.
Senator Massicotte: Some newspaper articles around the world say that CCS is still experimental. Hopefully it will work because it is a neat solution. I gather from your presentation that you are very sure it will work. Are you 99 per cent sure this thing will work at your 130 number and, therefore, be feasible as a solution to coal in the world?
Mr. Watson: I saw a presentation last night about Albert Einstein. He was not even sure of things going forward.
Are we sure? I mean, we have had independent people, consultants from outside the province, look at not only our technical model, but our financial model as well. SNC, Stantec, Hitachi and Shell are participating. We have got all the ducks lined up here in a row. However, can I say that it is going to be exactly what I want it to be the end? I do not know.
Senator Massicotte: But very close?
Mr. Watson: We have lots of leeway in there, quite frankly. If we do not capture 90 per cent, we already have it built in if we only capture 80 per cent? What if we only capture 70 per cent? It is still better than what it is, but what are the models and what is the economics?
Senator Massicotte: On the issue of federal regulation, I am hearing from you loud and clear that they are too tight. What I also hear from you is, "Look, guys, you have got no choice. I mean, that is what we have got. We cannot flip a switch and do something else. It takes many years of planning. Mr. Federal government, you are unreasonable with your timing, so take it or leave it. You are not going to have any choice anyway. We are going to be sympathetic and we will tell you our story, but this is our plan and we do not think you have much choice." Am I hearing you correctly?
Mr. Watson: We work very closely with the Saskatchewan environment ministry. We are essentially saying, "We are not here to pick a fight with you guys. We are just telling you that we are marching along here, but we need time." That is all we are saying to them. Yes, we need time.
Senator Brown: Gentlemen, I think you are a breath of fresh air. I have thought for some time that the greenies, I guess you would call them, are moving a little bit faster than the world is.
You said that the Americans are watching what you are doing and hoping that it will work for them because coal is largest energy source in the United States. Are they acting as cheerleaders, or are they investing in helping you put your project together?
Mr. Watson: I will answer what I think. I mean, first of all, it is complicated to answer a question about any sort of political will in the United States right now.
I am only saying what I read in the papers. Right now the U.S. is pulling back on initiatives that may impact their economy, and I think almost any economy in the world was doing that for a while.
Mr. Watson: We are technically involved with the U.S. in all aspects of the U.S., such as with the carbon capture facility out of Atlanta. However, as I mentioned earlier on, we are no longer going to provide information "free willy." We are going to be pretty protective of what we learn here because we think we have got something pretty darn good.
We also firmly believe that we are going to get to a better green environment this way than having to close the plants down and come at it another way. We firmly believe we are getting to a better green environment this way than the other way.
Senator Brown: Yes, I agree with you 100 per cent. I really loved your comment when you said that a tax is more like funny money than anything else. I firmly believe that as well. I think we have got to have time to change the world. We do not just jump off a cliff and try something brand new. Thank you.
Mr. Watson: Okay.
Senator Banks: I think most of us are in favour of setting goals, but not goals that are unreachable. Looking far into the future, if your technology works perfectly and everybody says they are going to do that, and 70, 80 years from now it is all done, we are going to have a whole lot of CO2 sitting some place. Putting aside the possibility that there might be enough deep saline aquifers or other holes in the ground into which we can put the stuff and hope that it stays there, aside from enhanced oil recovery, is there a market that we know of now or is anybody looking at another market or at another use or at placing some other kind of real value on CO2 that we do not know about?
Mr. Watson: Mike can answer in detail, but I will start.
With respect to CO2 capture, I think it is quite reasonable for firms to look at a 60 or maybe 75-year horizon. That is pretty heady stuff because 20 years or 30 years from now science is going to come up with something we do not even know about now. What is a reasonable horizon for coal-burning plants? Is it 60, 75 years? If you can do that, then you certainly have easily enough storage. I have been told that you can store as much as a 500-year supply of CO2 in these aquifers. Again, they do not impact any drinkable water. They do not impact it at all.
You can get yourself anywhere from a fifty to maybe a hundred year grace period to get new technologies for the future, and it is there. It is easily gettable. It is not going to be cheap as it is today, but no future energy is going to be as cheap as it is today. You can keep it within range, I think, would be my general answer.
Mr. Monea: Senator Banks, a research institute in Paris is studying and wants to join SaskPower in figuring out what other forms of products you can make from this massive amount of CO2 that is coming out. We will join in a research program with them to explore that.
I think it gets back to what is practical. It will not work everywhere. There are some places that you import coal into, and your coal plant is on a rock, so there is no way you are going to put CO2 in the ground under a rock. The neat thing about coal plants is geologically they are usually in a sedimentary basin. If your coal is there, that usually means there is a saline reservoir underneath that coal. If you are really lucky, you have oil also, which is what we have in Southeast Saskatchewan.
The bigger problem that I see is public perception and acceptance of these processes. We are very concerned about that, and that is why we want to do this project right. We want to make sure that it is done safely. We want to make sure our storage is done safely because we need to demonstrate to other places in the world that do have sedimentary conditions such that you can store this near a city, for example, that it is not going to bubble up and hurt somebody or that a pipeline is not going to explode and hurt somebody. That is the huge thing that we will be able to show the rest of the world. Where you have these conditions, it can be done safely, and that is going to take a lot of work.
What Robert is talking about is building a knowledge-sharing group. We would charge fees to countries to learn about the success of Boundary Dam. We will take that money and plug it into research here in Canada and also, globally, into how we can make sure that public acceptance is on the side of what we are trying to do, which is to clean up an energy source.
Senator Banks: Senator Mitchell mentioned making clean coal — which at the moment is a bit of an oxymoron — at the combustion level rather than cleaning up the emissions after the fact. You have been to the Genesee Plant of EPCOR. I think I recall correctly that they have used the term "super critical" in terms of that facility. Do I recall correctly? In your view, is it properly referred to as super-critical burning at the combustion stage?
Mr. Watson: Yes, in today's definition. We are also noting that companies like Hitachi are building even more "super critical."
Senator Banks: So the Japanese take it one step further?
Mr. Watson: Yes, that is right.
Senator Banks: You have mentioned but have not talked very much about the conversion of biomass. Saskatchewan, like Alberta, has a lot of biomass. Is that a prominent part of your future 50 per cent, on page 3, in that future pie?
Mr. Watson: It is not a prominent thing, but we recently signed two agreements to do biomass facilities in the province. You are hearing later from Ben Voss, who represents the Meadow Lake Tribal Council. We are very excited to see that unit and test it out.
SaskPower has signed a memorandum of understanding with the First Nations here for the First Nations Power Authority. This is a central body that is supposed to help coordinate the development of power facilities in First Nations areas. We are quite excited about working with them on that. In Canada, this is the first deal of that type to develop more power facilities in the North and have Aboriginal communities participate.
Senator Banks: That is good.
Senator McCoy: Congratulations, gentlemen, not the least of which is for the initiative you just mentioned.
I am looking at slide 9, the cost of electricity. What you do not show there is hydro. You say that you have some hydro sites scanned for the future, but they are in the North, which means that they have a long way to come in terms of transmission. Where would it fit on that scale?
Mr. Watson: There are a couple of possibilities for a hydro facility on the Saskatchewan River east of Prince Albert. There are a couple of good sites there. There are also a couple of sites in what I call the mid-North, Churchill River. As well, there are a couple of sites in the Far North, smaller 50-megawatt units. We have a main transmission line that goes up to the Far North, and we are actually going to double that line for mines use. It would great to have power units like that up in the North.
Hydro is the same as nuclear; it is the same as coal pretty well. They are good baseload units. There is lots of capital upfront and then the running costs not so much. We are looking at the hydro units to come in at around $140, $150 a megawatt.
Senator Banks: Are a couple of those big reservoirs as opposed to run of river?
Mr. Watson: No.
Senator Banks: Are they going to be flooding a whole lot of area, or are they going to be run of river?
Mr. Watson: No, we basically look at run of the river now. Even the ones on the Saskatchewan River, they will fill the river up a bit, yes, but we are not looking for large reservoirs.
With the ones on the Saskatchewan River, you actually run them during the day and fill them up at night.
The Chair: Gentlemen, that brings this session to a close. I want to thank you very much for your presentation. In terms of what is set forth here on page 13, if there is anything we can do, I am sure you have got everything bringing to bear with the environment people to change these regulations. We are hearing from lots of places that they need to be changed, so if we can help, let us know.
Mr. Watson: Thank you very much for your time today.
The Chair: Our next witness, senators, is Mr. Ben Voss, CEO of MLTC Resource Development Inc. I am sure he will tell us what MLTC stands for. Mr. Voss is a graduate of agricultural and bio-resource engineering from the University of Saskatchewan in 1999. He was previously CEO of the Entrepreneurial Foundation of Saskatchewan Inc. from 2005 to 2008 and started several businesses from 1998 to 2005.
Mr. Voss has a passion for business technology in the industries which represent the cornerstone of Saskatchewan's economy. In his current role with MLTC, he is working to grow the investment portfolio and create wealth for the nine First Nation shareholders.
Sir, it is delightful to have you with us. I think you were in the room, and you heard who we are, so I will not eat into your time. We understand that you have circulated a deck to us all, so you have the floor.
Ben Voss, President and Chief Executive Officer, MLTC Resource Development Inc.: Thank you, senators and guests. I appreciate the opportunity to present to you today.
It is my assumption that you are looking for information today, so I am coming in with a broad base of information, assuming this is what you are looking for. At any point in my presentation if you want to redirect me, please feel free to do so.
I thought it would be useful if I provided you some context for who I am and why we bring some unique perspective on energy and the environment and those policies, so I thought I would start out with a little background on who I work for. Before I do, I would just say that I appreciate the introduction. The Internet is a wonderful place. Everybody can find out who you are these days.
Yes, I am an engineer, one of the only engineers working for a First Nations' organization, so it is kind of interesting that way. I grew up on a farm, so I am a farm kid from the prairies, and I have managed to maintain my career here. I am still involved in agriculture. My roots go back to the Meadow Lake area, so I have always had a personal interest in trying to be involved in that community. I work out of Saskatoon, but I do spend quite a bit of time in the North. You end up living two lives, one on Bay Street and one in rural Saskatchewan. It is a lot of fun.
We are a unique organization. Not many people know about the Meadow Lake Tribal Council. I think most people are familiar with First Nations and what tribal councils are. They are an alliance of First Nations that were structured under the direction of Indian and Northern Affairs back about 25 years ago.
MLTC is one of those success stories out there that is seldom heard about in light of a lot of the negative publicity around First Nations, especially recently, as you are all aware. MLTC has had a very significant focus on its own business development activities and has been doing that for a long time. That has resulted in a very substantial presence in our economy.
We are a group of nine First Nations from two cultural groups, Dene and Cree, and we cover a very large territory in Northwest Saskatchewan, all the way from Lake Athabasca down to the middle part of Saskatchewan and about halfway in on the east-west boundary. We cover about a quarter of Saskatchewan's geography. It covers a vast territory of natural resources where a large part of the development is happening now. We are a very active partner in that development in many ways.
About 12,000 people are members of our First Nations, a very young population. As you are probably aware, more than 50 per cent are under 25 years old. In terms of some of our communities, over 50 per cent of the population is in school, K to 12, so there are very young and emerging demographic changes happening in the North.
I am going to spend most of my time speaking about the business side. Our organizational structure is divided into two categories. I work on the for-profit business arm of the tribal council where we are structured as a limited partnership.
I would direct you to slide 3. A limited partnership, as many of you know, is just a common corporate structure. We classify ourselves as a private equity investment company where we hold equity investments in various companies and manage those investments. Together with that strategy, we also develop a number of industrial projects.
We have a portfolio of about 10 different companies, several of them wholly owned, several asset divisions, and we employ about 2,500 people in Saskatchewan across all of those companies.
Our total revenues across the entire group of companies would be in excess of $150 million a year. All of those profits stay in Saskatchewan, and we work hard to provide revenue back to our communities so that it supports their wealth creation goals.
My mandate is to manage our portfolio. Like any other investment portfolio, we look to make profits. We put sustainability of those profits first. Second to that are other broader corporate and social responsibility objectives, like employment and other things.
We are very involved in the energy sector. I will speak to that a little bit later on. The natural resources sector is right in our backyard, so we play a very active role in all of the development.
I have seen on your agenda that you are going to hear from many speakers today, and we work with most of them — Cameco, et cetera.
As Robert Watson mentioned, the First Nations Power Authority is a new initiative that we spearheaded. We were very involved in founding that partnership with SaskPower, and I will speak a little bit to that. It is a very unique opportunity.
On slide 4, you will see more about our activities. We started out — and it is really a nice romantic story — very entrepreneurial in the late 1980s and became a minority partner in a sawmill. That was our first venture. We did not put very much money up front, just a few thousand dollars. We were only a small organization of a dozen people or so at that point. We basically partnered up with the employees and bought a mill that was in bankruptcy, and we turned it around. In the 1990s there was a huge hurricane in the U.S. and lumber prices skyrocketed, and we made a lot of money. We then negotiated to buy the entire mill from the rest of the owners in 1998, which was a $40 million transaction, so the original founders did very well.
Since that time, that mill has distributed tens of millions of dollars of profits, which we have reinvested into several other businesses and helped to support improvement of the infrastructure in our communities.
We have one of the best education systems in the country for First Nations, some of the best community facilities. Our communities have taken some of those profits and reinvested them into other businesses. While we manage a portfolio of eight companies, our communities manage their own portfolios of many more companies. The combined activity, the cascading effect, is in the hundreds of millions of dollars to the economy. Most people do not know that story, and we are happy to tell it to you today.
One of the things that I was asked to do when I joined MLTC about three years ago was to look at bigger projects and try to be more active in the front-end development of those. We looked at our assets and saw a lot of opportunity with biomass. We recently announced with SaskPower the successful conclusion of a contract with them on a 36- megawatt baseload power plant that we are building in Meadow Lake next to our sawmill. We are the first biomass facility in the province.
By most accounts, we are the largest First Nations-owned forestry company in the country, and we are the first power plant to be developed by a First Nations group. We developed the project, and now we are bringing in the corporate partners to subcontract underneath us, as opposed to the usual way where large industry develops a project and then invites First Nations in after the project is developed.
As I mentioned, we spend a lot of time on Bay Street now, and they all kind of step back and wonder what is going on because it is very different to have First Nations in the front end of a project. It is very different to have professional management running a company.
That ability to separate politics and business has been the number one secret sauce for MLTC. I work closely with the chiefs, but they leave it up to management to run the business.
I will not spend a lot of time on this, but on slide 5 I thought I would give you a bit of a flavour for the number of businesses we run. We are a very diverse group of companies — softwood lumber, fertilizer, hotels, and transportation, both in aviation and in trucking. We are involved in a petroleum distribution business. I will speak more specifically to how these all relate to the energy sector. There is also real estate and now, of course, our biomass project.
Where are we involved in the energy sector? We touch on a lot things. First of all, we are involved in an underground gas storage cavern, a joint venture with SaskEnergy, which is the utility here in Saskatchewan. It is a unique partnership.
We are involved in power generation. We are involved in bioenergy, fundamentally, because we control a very large tract of timber, and that timber resource, in our opinion, is a perpetual energy reserve. That is the way it has to be looked at.
We manage it on a sustainable basis, which means that we can harvest from that licence forever? It is constantly regenerated. We have a very large tract of land that we can harvest, close to 3 million hectares. It covers a large area. It is diverse, and unlike a lot of other jurisdictions like B.C., which is having big struggles with the pine beetle, we are not faced with those challenges.
Even though most people think Saskatchewan is a wheat province, and half of it is, the other half is trees, and we are very much in the middle of that.
On the renewable energy side, we are the first company to build a wood pellet production facility. It is small, but we are developing a local market for that. There is a large export market. Canada is one of the largest wood pellet producers in the world, accounting for about 10 per cent of global production, and probably could eventually grow as global markets expand. We are not in a transportation-advantaged province for exporting pellets, but we are in a jurisdiction that could use a lot of pellets to replace fossil fuels or other structures.
I will comment a little bit about the opportunity to replace coal with biomass. I differ a little bit with SaskPower on this. We have a very good relationship with SaskPower, but we have a different perspective on the economics. I think there is a strong case for using biomass to replace coal, and I think we have the resource to do it in Saskatchewan.
The uranium business is a unique business. We are predominantly mining in Saskatchewan. We are a strong supporter of Cameco and Areva that run all the mining facilities in Saskatchewan today.
Many of our companies are service companies on long-term contracts to those mines, so we are thankful for their activity, and we support ongoing activity in uranium.
We also feel we need a play a more direct role in the development, instead of a passive service role. We would like to be more involved in the large-scale development. In the past, we may not have been capable of doing that because we did not have the financial or management resources, and today we think we do.
Oil sands in Saskatchewan are not yet developed, but everyone knows there are vast reserves in Saskatchewan that are equivalent to the Alberta reserves. They are just deeper. As technology permits, we think those are going to be developed, and it is all in our backyard.
Conventional oil is another major resource in Saskatchewan. You heard about Southeast Saskatchewan and conventional oil production in the Bakken formation. You are probably familiar with that. It is a huge opportunity. Some of our communities have used their treaty land entitlement settlements to acquire properties in that region and get into oil production. Many of our communities in the western part of Saskatchewan, north of Lloydminster, the heavy oil production zone, are very active in that space as well. There is a lot of gas production in that part of the province.
The SaskPower folks commented that gas production is not as easy as the shale gas production, say, in Northwest B.C. or Northeastern B.C., but, honestly, there are large gas reserves in Saskatchewan as well. They are just deeper and they are sour gas. Until gas prices get closer to $8, it is just not as economic. In the 1960s, they built a 36-inch pipeline through Meadow Lake, and it is only being used at about 20 per cent capacity. It was designed to take all that gas out of that area eventually. We know it is there; it is just a question of when it gets developed.
I mention this because a lot of people are now looking at fertilizer as an energy product because of its strong relationship to the ethanol industry. Potash is obviously a key resource in Saskatchewan right now. It is getting very closely indexed to agriculture and agriculture's energy production, so ethanol and other energy products.
We are in a partnership that sells fertilizer in Saskatchewan. It is a small deal, but it is something we really think has a lot of long-term potential. As all of us know, agriculture is an interesting and growing business right now.
In terms of the environment, we do not have a lot of the documentation to support this, but I think it is irrefutable that First Nations, fundamentally, are strong advocates for the environment, yet they are very strong advocates for development.
We usually tell people that First Nations live in the development zone and that they are not leaving, so they have got to live with the consequences of development. They have got to live with their elders telling them not to screw up the environment. I do not mean to use too much lay language, but it is that simple. You cannot go home at night and then talk about how you have destroyed the environment. You are there.
Any development we do is done in a sustainable way. All of our projects and activities have a social licence associated with them, a licence that permits us to do the development in a responsible way. When we are involved with industry, it is a perfect match in terms of maintaining that environmental accountability without a lot of extra regulation. It is a nice fit. When we work with Cameco, we expect them not to pollute the rivers and the lakes because we want to fish there. However, at the same time, we want to see them make money, expand and grow, so it is that perfect balance.
If you look at a lot of our activities now, especially with biomass, it is clearly aligned with environmental objectives.
I want to explain how we were very involved in the First Nations Power Authority. When we approached this power generation opportunity, SaskPower had not been in the business of contracting out generation for very long. It has only really been a new policy that they have had in the last couple of years. Traditionally, it is all built, managed and run by SaskPower. With some coaxing, they have been encouraged to look at partnerships with private developers who can build the generation and sell it back to them. You see it happen across the country in other jurisdictions — BC Hydro, Ontario, but not so much Manitoba. There is a little bit in Quebec, but Alberta is very much deregulated. We know that to be the case there. To move that forward here, as they like to call themselves, they are a giant ship. It takes a long time to steer it, and they have slowly started to turn that ship.
We have been very involved in assisting the government and SaskPower to structure something that works. We bring a unique perspective, balancing both the commercial interests and the political interests of First Nations.
In terms of our history, we have a track record of innovatively coming up with good policies. If you look at education and health, MLTC has been at the forefront of many innovative things that deliver good results. The federal government liked it and the provincial government liked it, so it was logical for us to be a leader in this area.
In discussions with the provincial government, they encouraged and invited us to develop a plan that would facilitate an arrangement between SaskPower and First Nations to bridge the gap. Many First Nations are being courted by industry and a lot of developers. You name it — TransCanada Pipelines, EPCOR. Everybody is looking at Saskatchewan as a development opportunity. They think clearly they have got to have a First Nations' relationship to facilitate development.
A lot of First Nations were unprepared for this, and a lot of unsolicited proposals started coming into SaskPower when the word got out that they were interested in this, and they were not sure how to deal with that. They wanted to organize that, and they wanted to make it broad.
The government really wanted to engage First Nations in the economy, and it is a touchy issue. Economic development is the path forward, but the demands of First Nations often are not realistic. It became a really interesting opportunity to match building big utility infrastructure with First Nations' ownership and achieving some of these issues that SaskPower has got on the growth and the replacement of their feet.
At the end of day, we signed a deal back in March. The premier was behind it 100 per cent, and we are now in the midst of implementation of that agreement. It will mean that SaskPower will allocate a certain portion of its development to First Nations on a preferential basis. First Nations can then develop those projects and have independent utilities selling back to the main utility. We are the first project under that framework agreement. We are coming out of the gate with a win early on, and we expect many more to come from hydro, wind, biomass and conventional generation.
There are many opportunities for First Nations to partner with industry and for this to be a path to facilitate development in a relatively seamless process. If the potash mines want to build cogeneration, a First Nations' partner in that is a great idea because then the potash mine is also going to have a good partnership with First Nations as well. It is achieving many of those objectives.
That is a summary of the First Nations Power Authority, FNPA. I can speak more about it if you have any questions. I have tried to keep it concise, but I can provide much more detail and information if you are interested.
I made the assumption that you would be looking for recommendations today, and I thought I would try to speak to those in conclusion.
Clearly, whatever energy policies are developed, "energy policy" is a very broad term. You can speak to uranium or oil and gas or electricity generation. It encompasses all of those things. I think it all needs to align with First Nations and Aboriginal rights and obligations under treaty. That is an important thing that everybody recognizes today.
At the same time, we need to be able to participate in the economy in a way that ensures we have equal economic and wealth positions with the rest of society.
No one in Canada likes to see First Nations peoples living in poverty. The best way to move them out of that is to engage them in industry and facilitate job creation and the movement of revenue to them. That is the only way they are going to get out of this.
We are a great case study for that. The vast majority of our development has been entrepreneurial. It has not been on the backs of subsidies or government support. It has been because we went into business, took a risk and it has paid off.
Now, there are many cases where it has not for other groups. I appreciate that. We were lucky; a lot of that is luck. At the same time, the government has to have policies that align with that. If there is an energy policy being developed, Aboriginal policy cannot be left off the table. Everywhere in Canada now we see that duty to consult. Involving First Nations in any development is becoming a fundamental component. They have the ability, if they are not included, to delay development. However real or not real that delay is, it is a cost, and it is not necessary. Why not facilitate a positive outcome rather than seeing things get delayed. That is how we view it.
First Nations are a good conscience for development. They offer social and environmental balance to any development. They are a great regulator, without having regulation. That is a nice way to position our development.
From the perspective of being a partner with the federal government, I would like you to know that MLTC is already prepared to be that partner, to develop new policy, to be assisting in that, to offer its resources and experience wherever it can. Our wide range of business interests in this sector make us uniquely positioned to be a strong partner in the economy going forward.
The Chair: Thank you very much, Mr. Voss.
First of all, I am beginning to understand that MLTC stands for Meadow Lake Tribal Council?
Mr. Voss: That is correct.
The Chair: You are the president and CEO. I am trying to decipher the map on page 2 of your deck. Is that the whole province, that slice there?
Mr. Voss: No. The little map to the right is Saskatchewan.
The Chair: Yes, and that is the cutout there, the little map on the right, and Meadow Lake is in the lower left-hand corner; is that right?
Mr. Voss: The lightly outlined rectangle within the map of Saskatchewan represents the territory of Meadow Lake Tribal Council, and the City of Meadow Lake is located in the south of that rectangle on the big map.
The Chair: Yes, I see it there.
Mr. Voss: Sorry. The graphic is not very clear on this copy.
The Chair: That is okay. It is helpful. You grew up there, and, as you say, you are a farm boy in a First Nation community.
Mr. Voss: I am not Aboriginal. I grew up in a rural community near Meadow Lake, and I, like most farm kids, went off to university and then started my career.
The Chair: You got your professional engineering degree.
Mr. Voss: Yes.
The Chair: You are a professional manager for them, basically.
Mr. Voss: Yes.
The Chair: Do you have other officers and directors on your executive?
Mr. Voss: Yes.
The Chair: Are they Aboriginals, or it is a management team that you put together?
Mr. Voss: The management team of our company is based upon a history of development. We have grown that team over time, and we have a board of directors that is comprised of representatives of our shareholders, as well as independent business people from Saskatchewan's economy. For example, one of our independent directors is Rita Mirwald, a retired Senior Vice President of Cameco. She retired last year and now sits on boards, and she sits on ours.
Our management team is predominantly not Aboriginal people, but we have a large workforce of Aboriginal people in our companies. We work to try to move these people up. As soon as we get people up into any kind of management level, they are cherry-picked. We lose them to bigger companies and other industries because Aboriginal talent is in high demand right now, yes.
The Chair: Well, you have made a very positive pro-Aboriginal-First Nations case. One of the myths out there that we are happy to be part of dispelling is that Aboriginals are all against any form of development. You are saying the opposite is true.
Mr. Voss: Correct.
The Chair: You have given some examples.
Senator Mitchell: Mr. Voss, this is a very impressive, compelling story.
I am interested in a number of things, one of which is the economics of the biomass. You have indicated that is the first biomass project, I think, or First Nations' project under this new structure of SaskPower buying from other people. We were told today that a newly configured coal plant will produce at about $130 per megawatt. What would this biomass plant produce at?
Mr. Voss: We are cheaper than that. I cannot give you the actual number because it is confidential. To give you a few stats, there is enough fuel in Saskatchewan to produce about 1,000 megawatts, which would be about a quarter of our supply, and we could probably do that between $110 and $120 a megawatt. You could take the existing coal fleet, and instead of burning coal you could burn biomass. Dozens of plants in the U.S. are converting. Almost all the coal plants in mainland Europe have converted from coal to biomass. They are importing their pellets from Canada to burn them. The reason is that their market has a much higher cost of electricity, so the consumer is paying $250 for power. We are paying $100 in Saskatchewan. There is a market driver there that allows them to afford the cost of the fuel and the transportation.
We have our own fuel and the transportation distance is not that big. As well, the technology is not complicated; it is the same basic combustion technology in a burner. It is internationally recognized that biomass is CO2 neutral. We do not have to capture the CO2 in order to determine and measure the benefit from a greenhouse gas point of view. The reason for that is we have a sustainable force practice. If we were clear-cutting and not replacing the forest, then we would not qualify for that, but we do because of the way we do it.
The volume of what I would call un-merchantable timber that is not suitable for sawmills and pulp mills is very significant in Saskatchewan. Economies of scale start to apply, and the industry is capable of doing this.
There is a conservative engineering perspective in the power industry that does not like a lot of new change and risk. It is actually remarkable that they are doing the CCS project because that is a very risky technology, in my opinion. The timing is right and the political arrangement is right for that, but clearly we would be in a great position to supply fuel or be directly involved in coal retrofits. It makes a lot of sense.
Ontario is doing it already. They import their coal from Saskatchewan and burn it in coal plants in Ontario. They are sister plants to Saskatchewan, and they are trying to build a domestic supply chain in Ontario to supply pellets to burn in these coal plants. This is not a new idea. We are advocating for that, but we are going to start with our plant and see what happens.
Senator Mitchell: Yes, to prove it.
Mr. Voss: Yes.
Senator Mitchell: I think you mentioned that you are also looking at wind and other power sources. How would wind compare economically?
Mr. Voss: MLTC is not looking at wind specifically, but rather the First Nations Power Authority, of which I actually chair the board. I am involved in it. Other First Nations groups in the southern part of Saskatchewan have great a wind resource in their communities and have extensive studies to prove that. The idea is that as SaskPower continues to incrementally add wind, we would advocate for some of that to be done in First Nations-owned projects. Those studies are more than adequate to support it. They have been procuring some wind over the last few years. They have limited it for the reasons they mentioned, more specifically because they have got to keep adding gas to back it up, which I do not disagree with. They have to do that.
Senator Mitchell: They could add pellets to back it up.
Mr. Voss: Yes, that would be great, of course.
The other thing to consider, just as another side bar, is that we did a lot of work combining natural gas and biomass into a common fueled facility. The economics of that are closer to $90, including gas price risk. I am not as convinced the gas price risk is quite where everybody is saying it is going to be. If you look at the shale gas projections, it is not looking like we are running out of gas for the next 20 to 30 years.
I am more of an advocate for gas, perhaps, than others, and I am an advocate for hybrids where you blend fuels rather than just saying it is only this or only that. I think you can get some very creative low-risk technologies using that approach.
Senator Mitchell: I would like to raise the issue of training for Aboriginal peoples. One of the sections of our report, I expect, will be labour strategy. There is lots of testimony about this huge labour force, young and ready.
Mr. Voss: Yes.
Senator Mitchell: What steps are you taking to prepare these people? How are you getting the training? What should we do?
Mr. Voss: Yes, it is a huge challenge. It is a topic in and of itself that I am passionate about and would love to speak to. There are more jobs than there are candidates right now. There is a training gap, an education gap and a lifestyle gap. It is funny how you can get people through all the education, and then there are some fundamental things that they need to be capable of maintaining, like coming to work on time and all that stuff that usually is the issue that does not sustain that.
We have a great history of lots of employment amongst our companies and within our own group. Those success stories are role models for the next generation, which we are really trying to put out there right now. However, there will be a lot of what I call migration from the communities, especially remote communities to the urban areas, as they go to seek education. They are likely to develop roots there, and that is where they will end up becoming a workforce, which is also very good because it is needed there, too.
Many people will stay in the remote communities. Right now if we look at the development in the North, the mining activity, there is a huge demand for a workforce there. There are all of the accommodating factors — transportation, accommodation — to ensure these people have a very productive work environment to be able to move from their community, to commute into those mines and to work.
I think that you just have to keep focusing on more education. You hear that everywhere. The supports that go with that cannot be ignored. You can offer somebody a school, but they have still got to attend, and they have still got to get science and math, and they have still got to go on to post-secondary education, and they need somebody to help coach them through that. We take it for granted in the rest of society that we have stable families and good structures that do that for the rest of us. It does not necessarily exist on the reserve, and that is another big factor. You can pour lots of money into infrastructure, but if you do not have that family unit, it gets tough.
Senator Sibbeston: It is interesting to see someone like you. A number of years ago, the Standing Senate Committee on Aboriginal Peoples did an economic study on First Nations. We were in the Meadow Lake area. We went to Lac La Ronge and met with people there, the chiefs.
In this day and age there is a lot of discussion about First Nations in our country. Attawapiskat is a community that it is not doing too well. The question always arises, why is it that some First Nations communities do well and others do not?
I note that in your area you have a lot of mining and forestry operations. I appreciate that you have not been on the corporate scene of the Meadow Lake First Nations for a long time, but in the time that you have been there, do you see that an attitude of entrepreneurship has set in with the First Nations people and that it will likely continue into the future? I would be interested to hear your comment on that.
Mr. Voss: The topic about why one First Nations community succeeds versus another is an enigma that has been studied before. In fact, Harvard University has one of the best programs studying this issue. They have done a lot of research. You can have a First Nations community beside a gold mine, for an example, and you would think, wow, they must be wealthy and everybody must be employed, but yet that community has 90 per cent unemployment. I am not picking on anybody; I am just saying that we know these situations exist.
Then you have a community that has no treaty and no natural resources and the worst land, and yet they have put enormous opportunities together. Why is that?
I have had the opportunity to study the history of Meadow Lake Tribal Council. While we do tout our successes, I can honestly say that there is still a lot of room for improvement, especially at our community level.
As a working unit, as a tribal council, we are one of the best, but at a community level, we have got a range. We have very successful communities with paved roads and beautiful community facilities, and we have communities that do not have that. It is difficult to wrangle with that issue and ask why we cannot get everybody up to the same standard.
It comes down to leadership and the ability to trust people that you can put in charge to get the job done. If the leadership is not prepared to relinquish some of the responsibility to professionals and make sure it is done right, a chief is a chief. They are not an executive. They are elected and they are elected on two-year cycles. If the chief changes every two years, there is no continuity. There are different skill sets. Many times that is a big issue. The chief is the one in charge, the one signing off on everything and the one making all the business decisions. If that is the case, then that is almost a recipe for disaster, as opposed to bringing in a professional manager who is on contract and who is continuous throughout political change.
Look at the non-First Nations government structures. Our government has a professional bureaucracy. Politicians are elected and we have professionals running government. When you get elected as an MLA, it does not mean that now you are the deputy minister, because you are not an expert. You may not be trained in those areas. First Nations have to do the same thing. Until they do that consistently, they are never going to get out of that continuous cycle. However, you cannot force it onto them. They have to welcome it and put it forward themselves. That is my opinion.
Senator Sibbeston: A number of other factors were deemed to be important in the success of First Nations, such as governance and also culturally appropriate corporate structures. Those helped in the success.
I was curious to know your involvement in the power area. Do you see a great future for the involvement of First Nations in the areas of power? Do you see the possibility of hydro a big thing? Many provinces like Manitoba have a lot of hydro potential in the northern part of country. I do not know what the situation is, whether there is hydro potential in your area. Is that something that looms up as a possibility?
Mr. Voss: Absolutely. The direction SaskPower is headed in is that there will be some new hydro development, and they will not pursue it unless a First Nation is involved. A big part of the reason why the First Nations Power Authority was developed was to help facilitate that. The role of a First Nation in that project is hopefully going to be as an owner and as part of the development, not just a passive beneficiary. The hope is that it will lead to a multitude of economic opportunity for them, whether it is in construction or operations or jobs.
There is hydro potential. It is almost all in Northern Saskatchewan, and we are not quite as good as Manitoba, that is for sure. There are sensitive issues around hydro. It takes a very long time to develop. The federal regulatory process is very burdensome. First Nations are concerned about environmental impacts, but there are lots of low-impact technologies that are now available, such as run-of-the-river hydro. Those are helping a lot. I am aware of two projects in particular that are at advanced stages of development. They are not huge projects, but there are some very large projects on the horizon.
Will it solve Saskatchewan's problems? Unfortunately not. It will help in that other 50 per cent of the pie that Robert Watson talked about. It is going to be a bit of that, but it is not going to dominate.
Hydro is not perfect. Every 10 years or so there is a drought, and it is a challenge.
Senator McCoy: It is a wonderful story that you are sharing with us, and I am so glad that we heard it.
The MOU that FNPA has signed with SaskPower — all these acronyms — is that publicly available?
Mr. Voss: I would have to check, actually. I think it is, but I am not 100 per cent sure. I could provide you with a cope; I think that would be permissible.
Senator McCoy: It strikes me that that is something that could be held up as a beacon, and so it would be interesting to feature it as an example of working together that others might take some inspiration from. If it were, I think that might be something that you could consider. On the other hand, even if not, at least if we could see a copy, we could talk about the framework that you have put together.
Mr. Voss: Sure. Do you want me to follow up?
Senator McCoy: Yes, please follow up with Ms. Gordon, our clerk.
You are saying that First Nations must be the co-creators of the future. It is no longer enough just to go along and say, "Here is $50 million because we are taking a pipeline across your traditional lands. Here is a pen, and we are going to actually sit at the table together." Is that a fair impression to be taken from what you have said?
Mr. Voss: Absolutely, senator. I would use forestry as the best example of that.
As you know, maybe 20 years ago there was a lot of concern about clear cutting, and forestry was a challenging environmental and publicly contentious issue. The best way to move that all forward was to make us the owners, and now we 100 per cent own it and we run it. We are not passively involved; we are 100 per cent involved. It is completely sustainable and it is profitable — the model works.
If we were just given some associated settlements and allowed another private company to come in and develop it, it does not solve any problems and it does not provide stability to that industry.
If you look at what is going on in other provinces, such as the pipeline to Prince Rupert that Enbridge is doing, I believe they recently signed a deal to make the First Nations group a small minority shareholder.
Senator McCoy: They made an offer, yes.
Mr. Voss: Yes, or an offer to them. I do not know if that is done, but one of the challenges is that First Nations often come to the table with very little equity investment. They do not have capital pools to draw from to make an investment. They usually look to the federal government to lend them the money to go into these deals, and I think that needs to be done for a period of time because there are very few options. The companies are not that interested in just bankrolling these partners. It is too expensive, or they do not like the precedent that it sets. There ends up being a bit of a poker game between the developer and the First Nations, which is not that productive.
I think as these projects start to evolve and as the First Nations groups form proper corporate structures and sophisticated management comes in, they can then start to play a much more value-added role. If you have not got resources to contribute, human resources or financial, what are you bringing to the table with that partnership?
At the same time, they have to start with something. For us especially, we have something to start with, so we have momentum. Our neighbours or other groups that do not, we hope they are going to get organized and be prepared to come with a positive message to that development. If they do not have a lot of resources to bring, then give them something small and they will build on that.
The neat thing about First Nations is they are not looking for an exit strategy, typically. They come into a venture for a hundred years or more. They are looking at it as a permanent project. They want it long-term because they are not leaving town and cannot pull out in the middle of the night. If a foreign company comes in and does a resource development and they do not like it or they are losing money, they just leave, which is a challenge for our economy, whereas First Nations are going to stick with it through thick and thin.
Through all these softwood lumber market issues, all the downturn in the lumber industry in the last four years, we are the only mill that stayed operational in Saskatchewan. Our mill accounts for 86 per cent of Saskatchewan's lumber exports. We are the largest sawmill in Saskatchewan. We are tiny in the Canadian landscape. There are lots of bigger companies than us in B.C. and Alberta, but because of our values and our commitment, we stuck with it. We lost money, but we are in it, and that track record is going to be the same track record in every project we do.
I am very passionate, and I think that that is the way forward.
Senator McCoy: Thank you.
Senator Massicotte: I want to pursue that discussion a little bit. You get unsolicited bids to participate, but I gather the motivation for those companies — could be SaskPower — is the treaty rights of the Aboriginal communities in those areas. Is that the basic legal right? I know you provide certainty and responsible management of those resources, but is that the starting point. The treaty says you have certain rights, or your communities have certain rights. Therefore, are they approached on that basis?
Mr. Voss: I often get accused of being too honest sometimes, so I am going stick my neck out a little bit here in response to your question.
Industry generally in Canada has decided that if they want to get ahead, they have got to have the involvement of First Nations because it is becoming a necessary component on anything you do. I am not saying if you build a tower in downtown Toronto you need the involvement of First Nations. I am talking about natural resource development and anything that is outside of urban development.
Pipelines, oil and gas, forestry, mining, anything you look at now, there is some kind of component of Aboriginal involvement, whether it is with respect to the approval process or the development itself.
When it comes to SaskPower, the view is that for any of those new power projects that are developed, having a First Nations partner at the table is going to help you move it forward. Nobody actually defines to what extent that is helpful, but they look at it.
If you are talking to TransCanada Pipelines who likes to build power plants and is trying to build power plants in Saskatchewan, one of their strategies is to find a First Nations group to cuddle up with that can help them market the project to the powers that be. That strategy is prominent and is developed extensively in corporate Canada, especially Western Canada in the last five years.
Senator Massicotte: You make it such that it seems to be a PR exercise, a branding exercise.
Mr. Voss: Yes, it is.
Senator Massicotte: You are saying, "I am more responsible, socially conscious." Do you not think, though, that it is originally based upon real rights of the Aboriginal communities to those resources?
Mr. Voss: It is a little bit, but it is ambiguous because duty to consult is still a developing policy of the federal government and provincial government. It is based upon a Supreme Court ruling that said any development that impacts the traditional rights of First Nations requires a duty of the Crown to consult with First Nations on the impacts and accommodate them for any detrimental impacts. The ambiguity is this: What do you call a traditional right, and what is an impact, and what is accommodating?
Corporate groups have, to a certain extent said, "Well, we are good corporate citizens and we want to embrace First Nations on our strategies," and that is good. I think they have got good, legitimate reasons for it, but a lot of it has to do with how they are viewed by others, just like when we had affirmative action, hiring practices and all those other policies that were developed. Companies embraced them because they needed to appease their customers and stakeholders.
When it comes to specific developments in Saskatchewan, like hydro especially, if you do not have a First Nations partner, you are never going to get it done. The regulatory environment will not permit you to do it without the involvement of First Nations because of the impact. If it directly impacts a river that is right in the middle of a traditional territory of a First Nation, and they can clearly define the impacts, they could stop the development if they are not involved. That is why anybody doing hydro is looking for the involvement of First Nations.
Wind is a question mark, but if you look at almost every wind development, most of the developers have approached a First Nations group to see if it helps them get in the door on an unsolicited basis.
That door knocking and that approach was part of the reason that the government and SaskPower said, "This is getting difficult and we need some organization and a process." We want the maximum opportunity economically for First Nations out of this, not just side deals cut here and there and everybody trying to race for table scraps. It is really about trying to move to something more substantial in the long term.
I hope this answers your question.
Senator Massicotte: Yes.
The federal minister was in front of our committee probably a month ago. His interpretation of the law in Canada is that they have the obligation to consult the Aboriginal community. That in fact is a recent law. There was a higher ruling in the B.C. Superior Court, I think, which said you must also accommodate, without defining what that means.
You talked about the pipeline company that one tribe recently did a deal with, but the other said they did not agree. The federal government said, "We will consult, treat them responsibly, but at the end of the line we have a responsibility to all Canadians to decide." Would you agree? How do your communities feel about that?
Mr. Voss: My boundaries would be that any of these major political discussions are handled by the leadership, by the elected chiefs. Their job is to negotiate these deals with the feds. However, my observation is that the federal government views the duty to consult as a negotiation with First Nations. First Nations are looking for the duty to consult to be some leverage right now to get an advantage in that negotiation because they need something to be able to negotiate with. I work for them, and I think they do need that. They need something to come to the table with in regard to industry. They have nothing. They are looking for that leverage, and the duty to consult is one of those tools for them. The interpretation from the federal government and the minister is going to be on one side of that issue because the First Nations are on the other side of that issue.
Senator Massicotte: Both groups position themselves to maximize their own benefits.
Mr. Voss: Yes. If I was the minister, I would be looking at it and saying, "Look, I have got a bit problem with economic disparity and poverty and economic development at the community level. The solution is more involvement in industry, so let us create a structure that facilitates development and moves it all forward, is not going to impede it, but is proper and protects Canadians and the things that are needed, but is going to give First Nations a piece of the action." What is wrong with that?
Senator Massicotte: In Manitoba and Saskatchewan, that argument has significant merits. I forget the numbers, but I think within 10 years, 40 per cent of all new entrants into the workforce will be Aboriginals because they have large families, and that is the nature of Manitoba and Saskatchewan. You have got to do so to be responsible economically. However, that is not necessarily the case in other provinces whereby the Aboriginal communities have either more progress or have less take from it. Then it becomes a commercial negotiation of what your rights are.
In these two provinces, it is fundamental that Aboriginal communities get engaged and contribute to the workforce. In fact, I note that today the Standing Senate Committee on Aboriginal Peoples issued a report containing recommendations on how to deal with this issue of getting them engaged.
The Chair: Colleagues, we are again running over our allotted time. I have three questioners left. They can have one question each.
Senator Banks: Well, first of all, I have a compliment to extend. Good for you for everything that you are doing and for the wisdom of the chiefs to get it done. It is one thing for a First Nation or a group of First Nations to come to the table and say, "We want a piece, so lend us the money"; it is quite another thing for a First Nation to come to the table and say, "Here is our money and we want a piece." That is a very different place. Good for you.
I want to go a little further with regard to what Senator Massicotte asked because I do not quite understand. I am hopeful that all sorts of stuff is going to happen in the area that is defined in this map that you described so accurately. It is a very clear boundary. The map has straight lines and is very neat. What is it based on? Is that Crown land to which the First Nations have access by virtue of treaty rights? Do those treaty rights in respect of reaping the forest override — is there a different set of rules, notwithstanding the righteousness of the way Aboriginal people treat the land? Are they susceptible to other regulations with respect to forestry, for example? Where do their rights begin and end? What is the definition of those nice, straight lines on that boundary?
Mr. Voss: I am not going to answer this in the means that you want because it would take me a half an hour. I will be very succinct. Hopefully it helps address your question.
The boundary on that map represents the traditional territory, which is really where the original groups, before they signed treaties, were hunters and gatherers and sought their living. That has been documented through the original treaties that were signed a hundred years ago, as well as the history.
The actual land controlled by the reserves is very tiny. It is just the reserves, which is actually federal governmentally controlled under a trust arrangement to the bands. That is complicated.
The forestry lands that we operate are commercial, so they are licences of Crown land granted to us as if we were any other company. It has nothing to do with our traditional territory.
Senator Neufeld: I notice on page 4 there is a picture of a sawmill, and there is a beehive burner. Are beehive burners still allowed in Saskatchewan?
With respect to the 36 megawatts of biomass power, I would assume instead of burning it in your burners, you are going to generate electricity. Will you sell all that electricity to SaskPower at over $100, and you will continue to buy the power from SaskPower at about 2 cents your, or do you have to first look after your own needs and then sell the excess?
Mr. Voss: Yes, we still operate a beehive burner; we do not want to, but we do.
Senator Neufeld: They were outlawed in B.C. a long time ago.
Mr. Voss: I know. We still are able to in Saskatchewan, but we are the only sawmill that does that. We will burn our waste material from our sawmill as the feedstock for the power plant.
All of the net production from the power plant — when I say "net," that means everything that comes out of that generator is sold to the grid under the power purchase agreement. We then buy back our electricity at commercial rates, which is not 2 cents. It is closer to 8 cents. The formulas are complicated.
We do not get a subsidized power rate at our sawmill, so we are a fairly large power customer.
Senator Neufeld: You are on the industrial rate, as anybody else would be.
Mr. Voss: No. There are only about five users in Saskatchewan that get that rate — the big pulp mills, the steel mill, and that is about it. However, they also account for about 30 per cent of the demand. We do not get any kind of preferential rate.
Senator Neufeld: Okay.
Mr. Voss: We are subject to the 8 per cent increases that are going to come down.
Senator Neufeld: Do you clear cut?
Mr. Voss: Technically, we do, but it is that "fire-mimicked" clear-cutting.
Senator Neufeld: It is still the same —
Mr. Voss: The same practices, yes.
Senator Brown: Thank you, Mr. Voss, for your edification of everything that Natives can have. I wanted to ask just one question about the significant forest that you said was not good for lumber and, therefore, for biomass. How long is the cycle for regrowth of the forest that you are using for biomass? Some of it you are exporting, I guess, and some of it you are using. You also said that a 10-year drought would make hydro significantly different than it would if there was not a drought. Would not that apply also to the forest and the regrowth?
Mr. Voss: The regeneration cycle is different for each species of tree. There are about five or six species of trees in the boreal forest. There are hardwood and softwood trees. That is the main differentiator, poplar trees and spruce trees.
Softwood takes about twice as long, about 80 years, and hardwood, 50, 60 years. We are a softwood user. A large part of the forest is hardwood and is not utilized, so it is a much shorter regeneration cycle.
Droughts affect hydro because it is an instantaneous effect. It is mainly a drought in Alberta or B.C. that affects things here because of the amount of snow melt from the mountains that flows through our rivers. It may be a drought in B.C. and not a drought here, and that is where you can get the impact. Droughts do affect forestry generation, but because it is 50 years, we are talking about a moderate impact, not an annual impact.
Senator Brown: I thought it was quite a bit less in terms of the number of years for a cycle, like 30 or 40 years, and I am surprised it is that long. Thank you.
The Chair: Sir, this was a fascinating presentation. We are very impressed by what you have been able to accomplish. Working as you do with the First Nations as a professional manager, you are achieving amazing results. We wish you good luck, and we will certainly be mentioning what you are doing in our report.
Colleagues, I am going to move right away to our next witness, who is Rick Musleh from Enterprise Saskatchewan, real growth, real opportunity.
Rick, perhaps you could tell us a bit about yourself.
Rick Musleh, Sector Manager, Energy, Enterprise Saskatchewan: Good morning, or I guess good afternoon everybody, and welcome to Regina. It is cold, but it is nice.
As the chair said, I am Rick Musleh. I am the Sector Manager, Energy, with Enterprise Saskatchewan here in Regina. I will give you an overview of Enterprise Saskatchewan.
I am going to talk today, mostly, about the value added side of the energy basis. I have some colleagues coming in from our Ministry of Energy and Resources, I believe, later on in the day, and they are going to give you a little more detail on the resources. W thought rather than duplicate efforts, I will talk about the value-added side, and they will give you all the resource information.
Enterprise Saskatchewan is a relatively new agency. We were established in 2008. We are a special coordinating agency and the key development agency for the Government of Saskatchewan.
Enterprise Saskatchewan is quite a new innovative approach to economic development. While we are still an agency of the Crown, we are run by a board of directors, which is chaired by the Minister of Enterprise Saskatchewan, and it is comprised of members from the key sectors in our province. We have people from the resource sector, from agriculture, from rural municipalities and from Aboriginal communities. Essentially, what we have been trying to do is to overcome barriers to growth and create opportunities for economic development.
I work closely with business. Within Enterprise Saskatchewan, actually, we are also organized into what we call sector teams. There are eight sector teams within Enterprise Saskatchewan, again, comprised of members from the private sector.
I am obviously in the energy sector. We have people who represent the pipeline companies, the service companies, some producers, and their job, essentially, is to look at barriers and look for opportunities that actually would enhance the energy sector within the province.
If there is a policy change or a recommendation that needs to be changed, it actually moves up to our board of directors. They look at it, and from there it goes to cabinet. It just goes through the normal cabinet process if it becomes policy.
I work closely with industry also in terms of project development. With Enterprise Saskatchewan, we created what is called a project expeditor. A project expeditor is another name, I guess, for the project manager or lead.
There are two types of projects where a company would come to people like me and say, "Can you help guide us through the bureaucracy?" We work with them closely, and we help them meet the environment people, the finance people, the tax people, everything they need. We are the one-stop shop for these people to come to the province.
The other way we work with industry is where we come up with an opportunity, which is what I will be talking to you about today. Then we take it to industry and see if there is actually any interest from industry to work closely with that. If there is, we work closely together with them to get to know the province and maybe create a partnership. A lot of times when you work with industry, there are opportunities for different partners to work together on different aspects of a project.
Saskatchewan's energy sector is quite broad. It includes things like the prime energy resources. It includes things like renewables. It includes things like electricity. It includes things like value-added energy. I will talk about these in a few minutes.
The one thing about our province, we are quite wealthy when it comes to natural resources. We are one of the most diversified provinces in the country. About 36 per cent of Canada's primary energy comes from Saskatchewan in terms of uranium, natural gas, crude oil and coal.
When it comes to uranium, we used to be the top producer in the world. In 2009, we slipped a bit behind Kazakhstan.
As far as natural gas is concerned, we are the third largest natural gas producer in the country, after Alberta and B.C. We are the second crude oil producer in Canada, after Alberta, of course, and we are the third producer of coal in the province.
We also have other resources, such as potash. We have diamond exploration and gold exploration. We have got some oil sands going into the exploration stage. I will leave the resource side to my colleagues. They will give you quite a bit more detail on that one, just to avoid duplication.
In terms of upgrading and refinery, we have about 140,000 barrels of upgrading capacity in Saskatchewan and about 114,000 barrels per day of refining capacity.
The Consumers' Co-operative Upgrader in Regina has a capacity of about 60,000 barrels, and Husky in Lloydminster has got about 82,000 barrels per day.
The refinery capacity is about 100,000 barrels right now within Consumers' Co-op, and there is a small one around Moose Jaw that is run by Gibson Energy. That is about 14,000.
As you may know, currently the Consumers' Co-op in Regina is going through an expansion. They are going from 100,000 barrels per day up to 130,000 barrels per day. They will be operational in 2012.
In terms of renewable energy, it also adds to our energy mix and makes quite an important contribution. We have a 7.5 per cent ethanol mandate in the province. We are the second largest ethanol producer in Canada, after Ontario.
In March 2011 we introduced the Renewable Diesel Program, which allowed for a 13 cents per litre grant to eligible renewal producers. We also introduced a renewable diesel mandate of 2 per cent, which will come into effect on July 1, 2012.
You heard from my colleagues from SaskPower this morning, and you know that 5 per cent of our electricity comes from wind power, which is pretty well one of the largest across Canada.
I will stick to the value-added side from now on. Resources typically come out of the ground. Value added, to me, is processing and converting all our natural resources or our primary resources into products and services that can be sold commercially to world markets.
There are opportunities for each of our primary resources, such as coal, crude oil and gas. Included in this are things like upgrading, refining, gasification, cogeneration or things like enhanced oil recovery. Each of these things could be integrated into one complex, or we could actually do them separately.
Uranium goes into things like the nuclear fuel cycle. It goes from mining and milling, into conversion, enrichment, fuel fabrication and storage.
I will give you a snapshot of what we have been trying to do in the province in terms of adding value to our coal, oil and gas. The way I look at it is we start off with the resources we have, and we use those as an anchor. We know we have a lot of oil, a lot of coal and a lot of gas. The question is this: How can we add value and get more value up the chain?
One of the things you need when you are doing industrial developments is a location. For any industrial development, things like rail, water, pipelines and highways are quite crucial because you need them to make things happen.
We started looking within the province to find the best location that would actually have all of those things together. The one location that seemed to make sense is a town called Belle Plaine, which is just 50 kilometres west of Regina, between Regina and Moose Jaw. This little town had all the infrastructure that you need for all kinds of development just sitting there. We did not have to add anything; it was all there. It was all there.
I have a map of Belle Plaine in the next slide, and I apologize because it is kind of hard to see. I have a larger map, and that gives you a better perspective of what is there.
If you take a closer look at the map, you will see that you are right between Regina and Moose Jaw, on the TransCanada Highway. You are between two cities, Regina and Moose Jaw, so labour and houses are there. You are adjacent to the Canadian Pacific and the Canadian National Railways. You are about 15 kilometres from Buffalo Pound for water access. You have got natural gas and electricity connections. One of the pipelines is the Plains Midstream pipeline. The Enbridge pipeline is 15 kilometres, and the TransCanada Keystone pipeline also runs through Belle Plaine.
Also just outside of Regina is the Global Transportation Hub, which is a new development of a major transportation logistics centre in Western Canada. It provides access to markets through rail and trucking and can get to places like Chicago and Mexico.
Building on the anchor we have by finding the location, now what? We looked at things upgrading, gasification and cogeneration. What makes sense for these technologies and what makes sense for Saskatchewan? All of them are quite capital intensive, but the neat thing about these things is they all add value to these products, and, also, all of them provide some sort of option for carbon capture and storage down the road.
We looked at it closer and we decided to do a high-level business case analysis to figure out what makes sense and how we can look at this a little further. We established an RFP process and hired a group called Purvin & Gertz out of Calgary . They are well known in the petroleum sector. They came in conjunction with a group out of Houston called Chemical Market Associates.
I showed them what I wanted to do and asked them to develop a business case where we can actually take a high- level look at this and see if this makes sense. For example, is this something we should be looking at? This is an example where rather than a company coming to us with a project, we were quite proactive. We said, "Here is what we have, so are you interested in developing some of these plants in partnership?"
We looked at things like heavy crude refining, cogeneration, gasification and diesel. The next slide is a high-level snapshot. We were told it made sense to develop a heavy crude refinery that would produce byproducts that could be used as feedstock for a nearby gasifier. The gasifier could actually produce a product that could be used in the refinery. Now we had a synergy between the two plants. One produces one product, another one produces another product, and the plants can share between one another.
They also said it also makes sense to have a renewable diesel plant, whether it is based on canola, animal fats or whatever, because there are synergies between products coming out of the gasification unit.
The challenge in terms of upgrading is the excess capacity in the U.S. They are not easy to build, so we decided to focus on products that the market needs, not just producing things like synthetic crude oil. What does the market need today? If you look at what is happening in Western Canada, we need diesel, but it has to be a low sulfur diesel for fewer emissions. The oil sector in Western Canada, especially in Alberta, while they forecast an increased production in bitumen, it needs what is called diluent.
Diluent is like a thinner that allows product to move into the pipeline. Given what industry is saying right now, there is a big shortage of diluent in Western Canada. They are actually bringing it all the way from Chicago to Western Canada. If there is a need, those two products seem to be in demand. That is why they are calling it a heavy crude refinery because there is just one machine that produces the two products to help grow Western Canada's production.
In terms of renewable diesel, there is a shortage in diesel, but there is a demand for diesel. As I mentioned earlier, we introduced a mandate of 2 per cent by 2012. B.C. has a mandate of I think 5 per cent by 2012, and California is the same. With all that is happening there, there seems to be a shortage.
We also looked at a cogeneration plant for that area. As you probably heard from my colleagues at SaskPower, with renewed infrastructure, there is going to be a new power base for the province. Natural gas seemed to make sense. What makes sense for that location is actually that you have got a host. You have got Mosaic, which is potash solution mine there. The biggest thing that the potash solution mine needs is steam for its mining and drying operations. It seemed to fit for that location. There was not enough product coming from the other plants, so we said, well, keep it on natural gas for now, and then if there is any interest, then that gets integrated in the future.
It is a very large project, but the idea was does it make sense collectively, or does it make sense separately? Both. It does not mean you have to go up and build these all at one time. You can start with one plant at a time.
Industry is the group that builds these things. The government's role is just to bring it to their attention, talk to them about opportunities, and see if there is any interest from them to proceed any further.
Over the past few years, the province has done a few things on uranium. In 2009, they put together a group called the Uranium Development Partnership, which was comprised of leaders from the nuclear sector, the President of Cameco, Areva, Bruce Power, and others around the table. We asked them to do is look at value-added opportunities in the province and see what makes sense for Saskatchewan.
IIn the spring of 2009, the UDP submitted a report to government with its recommendations; about 20 recommendations were submitted to the government. There was The Future of Uranium in Saskatchewan public consultation process, led by former senior civil servant Dan Perrins. His role was actually to go out to the Saskatchewan public and ask them what they thought about the UDP's recommendations. He reported back to government. Then the government responded with its view on the strategic value of uranium in Saskatchewan.
We have been involved in nuclear research. MOUs have been signed with Hitachi on nuclear research, nuclear medicine and nuclear sciences. Also, early in the year, the province put in about $30 million for a nuclear science centre of excellence. It will look at nuclear research, science, production of medical isotopes, and things like that.
Value-added energy is all about moving up the value chain. The primary side, of course, has its tax benefits. The value added component is the incremental side that adds to this thing. One of the benefits it brings to our province is tax revenues to the government.
When you got into value added, there are new economic development opportunities, the spinoffs, because it starts with one industry and then spins off to separate industries across the province.
It also creates diversity within the province, as it allows us to create new industries, new jobs, and also gives us access to new global markets. It also allows us to move up the value chain. Rather than just produce it and ship it south, we can produce it and go up the value chain and see how else we can add to that. It allows us not to be dependent on the price of oil. It gives us more opportunities.
In terms of the global scene, looking at new technologies, innovation, and research and development adds to our reputation. When it comes to jobs, a lot of young people in Saskatchewan, as they go into engineering, they start looking for more opportunities. These kinds of opportunities give them new jobs that pay quite well. These new technologies are quite interesting and appeal to them.
When we are building things like this, for us, as a province, you get new public and private investment in the province, which allows us to move up the value chain.
Industry is also going to benefit with something like this. When you are talking about synergies, it is always new business and partnership opportunities.
The integration of synergies brings various economic things. For example, as I was mentioning, if you have two plants beside one another, they are going to share. One produces one product and another one can take the other product. It is going to be as simple as this guy sells it to this guy, and it is close. You are not going across the country to sell it, just basically down the street. They share water; they share resources. Labour goes from one to the other. When you get into something like this, you get new feedstock that can be used for different applications that add new industries to the province.
The key to success in something like this is you need strong partnership and coordination between industry and the three levels of government — municipal, provincial and federal. These are not small projects. These are very capital- intensive projects. Everybody has to work together to make it happen.
No doubt there are going to be challenges with something like this, but look at the opportunities and see how you can actually overcome the challenges.
The other thing is to think strategic and think long term. The markets are what they are today. There is excess capacity, but if you do not start thinking long term, it takes a long time to plan these things. Think of a view five years from now and how things will change; think about how you can actually get a plan down the road to make something like this happen, rather than sit and wait for five years and go, "Oh, okay, the market changed, so let's build a refinery in Western Canada." Be a little more proactive.
With respect to next steps, my role is that I talk to different industries and we have had a lot of different interest on different topics. The diagram I showed you is one example, just one concept. If you talk to Kemper Energy, they will spin off 50 concepts that look different than this one. This one seemed to make sense.
We are looking at other opportunities right now. For example, one that is not in that study is natural gas to liquids. You have got the cheap gas prices and you have got a demand for diesel, so you can produce it that way.
In Saskatchewan, we are looking at creating new markets and customers beyond primary energy. Once we get people here, our role is not to investment anything. Basically, our role is to facilitate their advancement, get them together and see how we can work with them.
Also, within government, we actually got a small group together from different Crowns and me from Enterprise Saskatchewan. My question was, "Okay, here is what we find today, so what else are we missing; what other things can we actually produce from our coal?"
When you talk to the science types, the challenge from the business development side is which product does it make sense to commercially sell, which product does the market need and what is the price? It is not just a matter of what this can produce from the chemistry side of things; it is a matter of how industry reacts to it.
The next step is that we would more than welcome the opportunity to work with the federal side to explore these things. I think something like this would not just help Saskatchewan; I think it would help Western Canada and Canada as a whole because I think they have a lot of opportunities on the value-added side. I know Alberta is doing great work on exploring the value-added side of their resources. I think it is something that, collectively, we would love to work with you on.
I think that is about it. Thank you for the opportunity.
The Chair: Thank you very much, Mr. Musleh.
Senator Mitchell: I am interested in a couple of things. Maybe I missed it, but the Belle Plaine idea was quite an insightful breakthrough. Are you actually doing any of those projects? What stage of negotiations are you in? I am interested in all of them, but the one that is really intriguing is this idea of actually refining oil here in Canada because we keep hearing comments like "never been built for 25 years"; "cannot be done"; "got to send it to the States."
Mr. Musleh: As you know, the Keystone pipeline has been postponed and there is a lot service talk about whether we should create more upgrading capacity in Western Canada now? That is an opportunity for us. There is excess capacity in the States right now, but it has got to change at some point. I mean, those plants are at the end of their life, so there is going to be an opportunity.
In terms of refining, I have talked to a few companies. They looked at that opportunity and there have been conversations, but there are also conversations, which obviously I cannot get into right now, looking at different types of plants for that location.
I will be happy to show you the bigger map because it does show you a little more than this little guy here. The fact that Bell Plaine does have all of the infrastructure and it allows us to access Eastern Canada and the U.S. and Western Canada is quite intriguing to them. We have the resources — not a company interested in refining today. That does not mean it will not change next week, but there are groups that are interested in different aspects of developing something around Belle Plaine.
Senator Mitchell: You said you needed all levels of government. What role do you see the federal government playing? Where could they help you that they are not?
I think you also alluded earlier to the process of evaluating projects. You said that you worked with groups trying to speed that up.
Mr. Musleh: Yes. On the federal side there has been a lot of talk on a national energy strategy. I think something like this would fit bang on. We always talk energy, and there is always reference to value added, but bring value added up a little more, kind of thing, and let us look at this seriously at a national level.
The groups right now are within Saskatchewan. People on the federal side who are actually involved with this are saying, "Okay, we have got Alberta and Saskatchewan in the West and B.C. right there and the natural resources are there. Maybe we get somebody looking at this through the newest partnership." That could actually benefit everybody.
When we talk about upgrading, we are talking in the billions here. It is not something that one company is going to take on. Given what is happening with the Keystone pipeline, maybe that is our opportunity to actually take on something like this.
In Western Canada, there is one upgrading project happening in Alberta, and that is North West Upgrading. That is happening today. There is nothing else happening. There is also our refinery here in Regina, but aside from that, there is nothing.
We talk about the Canadian Association of Petroleum Producers saying that in the next 20-some years, our 1.8 billion barrels per day from Fort McMurray is going to go up quite a bit. I mean, that is the feedstock, so why not do the value added right here?
Senator McCoy: Congratulations and thank you for coming. I like the way you are thinking. One of the things that appeals to me is the fact that your analysis, I believe, started with a market analysis. We hear so very little about that. We have heard a lot of detail about the source of fuel and resources, but we do not hear that market analysis piece.
Is it possible to see it? Do you have the data analysis by Purvin & Gertz and Chemical Market Associates?
Mr. Musleh: Yes. I can get that to you. It is no problem.
Senator McCoy: Excellent.
Mr. Musleh: I would be happy to.
Senator McCoy: I would love to read it.
Mr. Musleh: The way I looked at it is we started with this high-level idea, and I needed more information. We started with things like petrochemicals and chemicals. They said, no, it did not make sense for that. That is when I went back to them and asked them what makes sense. What does the market need? If you just go to those two products from the heavy crude refinery, that is why it is called the heavy crude refinery rather than an upgrader/refinery. Those two products are products that we actually need and use. That is why we went back to industry back.
Senator McCoy: That is how the real world works, right?
Mr. Musleh: Pardon me?
Mr. Musleh: Of course. You can daydream about these things, but it is all about what makes sense.
Senator McCoy: Apart from pointing out that those are the two products that you can sell for a reasonably long time, presumably low sulfur diesel and diluent, I do have a couple of questions.
One of the indicators here on the gasifier indicates that one of the outputs is CO2 and it is leading to nothing. I wondered what you were thinking about in that connection.
Mr. Musleh: You could use CO2 for a couple of things. We are about 200 kilometres from Weyburn for enhanced oil recovery. You could use it for that. The other thing is that a fertilizer production plant is right next door. It produces ammonia and urea. When you produce ammonia, it is a combination of nitrogen and hydrogen. When you produce urea, you need ammonia plus CO2. The market is right there if you could sell it to them.
Senator McCoy: It would go to the fertilizer plant.
Mr. Musleh: Yes, but the main reason is for CO2. CO2 comes from the gasification plant, so you either sell it to market, use it for enhanced oil recovery, or you can put it in the ground for an aquifer. That is your source. There was a reason to do it, actually.
Senator McCoy: It just is not shown here. It would also be integrated, then?
Mr. Musleh: Absolutely.
Senator McCoy: It would become like Singapore or Rotterdam or what we want to happen in the Alberta industrial heartland, which is an industrial ecological integration.
Mr. Musleh: Exactly. Carbon capture was not built into part of the study, but it is always part of it. My colleagues earlier this morning were talking about the Boundary Dam, and this is the same idea.
Senator McCoy: Did I understand you correctly to say this cogen plant — I think it is on the map as a polygen plant. I presume that means you have got more than just two sources or two outputs. It does not appear to be linked into anything either.
Mr. Musleh: Right.
Senator McCoy: Is that just for ease of graphical representation? It seems odd to be hanging out there.
Mr. Musleh: The map says polygeneration. Polygeneration is a combination of cogeneration and gasification. That makes up polygeneration.
The reason the cogeneration plant is sitting on the side is when you look at the balance of the products coming out of this plant, there was not enough hydrogen coming out of the plants to actually fuel the cogeneration unit. We sampled 100,000 barrels for the upgrader, but there was enough hydrogen coming out of the gas fire to fuel the refinery and to fuel the renewable diesel plant. We said, "Okay, keep that, and we will fuel it on natural gas for now." If they want to integrate it, this is where the industry techies come in. All they have got to do is increase the capacity. However, based on the numbers, it just was not balanced, so we that is why we just put it aside. We still can do it on natural gas.
Senator McCoy: It could be tied into the gasifier if your gasifier were scaled sufficiently?
Mr. Musleh: Exactly. In the past there was a concept of a polygeneration plant going up there, and the idea was to tie it in so that the hydrogen or the synthetic gas coming out of the gasification unit could fuel the cogeneration unit. It all depends also on the price of natural gas, like what makes sense. That is why these things, at this level, look simple, but once you get into them, it gets quite complicated.
Senator McCoy: Yes. It is wonderful that you have worked your way through it all.
Did you ever get to the point of putting a price tag on the whole thing?
Mr. Musleh: The number in their report is anywhere from $3 billion to $7 billion. It depends on what bits and pieces you want to choose. You have got to keep in mind that that is a very loose number.
Senator McCoy: Fair enough. It is sort of the back of the envelope.
Mr. Musleh: I just wanted an idea of whether it would make sense.
Senator McCoy: But that would be first. The $7 billion would be for everything.
Mr. Musleh: Everything, that is, if you built the whole thing. Honestly, to be realistic, you will never build the whole thing in one day. You need one to start it and then attract it.
Senator McCoy: We hear numbers like that. I do not think it is extraordinary.
Senator Banks: I think we are finding that all numbers are loose.
In the map on which you show the resources that are in Saskatchewan, there is an absence, because right below the yellow bit about uranium there are huge oil sands deposits.
Mr. Musleh: You are correct, yes.
Senator Banks: What exactly would you and your organization do if I were the proprietor of an oil sands extraction facility and I came and said, "We are going to dig it up and send it to Texas to refine." What exactly would you do next?
Mr. Musleh: Well, we have about 27,000 square kilometres for exploration in that part of the woods. It is missing. Right under the yellow is where the oil sands are, as you will know. It is small compared to Alberta. One company has been doing exploration in that area. It is no secret that Oilsands Quest has been doing exploration. There has been no proven production yet — at least the Ministry of Energy and Resources does not have any number. There has not been any production yet.
The neat thing is that if something happened, there would be an opportunity to produce it and use it for refining. One area we could look at is getting the infrastructure to actually pipe the crude oil away from the oil sands once it is produced in, say, a location like Belle Plaine. It is something we could get involved with and see.
Senator Banks: What would your attitude be? What would your organization do if I said that I have a licence to extract this and that I am not going to upgrade it? I might buy some emulsifier from you to make it flow through a pipe more easily, but I am not going to do value added; I am going to extract it and send it to Texas in a pipeline. What would your actions be?
Mr. Musleh: Honestly, we would have to look at what it would take to actually make sure the upgrading stays in Saskatchewan. Like, what is missing? What would the company need?
Senator Banks: Money.
Mr. Musleh: If it is money, I know we do not provide any kind of grant, but maybe there is some sort of incentive we can do. It has to be dealt with case by case to see what is going on. I do not have a direct answer, but it is looking at it on a case-by-case basis to see what Saskatchewan would need to do to make sure that happens in Saskatchewan versus shipping south.
Senator Banks: In asking this question before, I have given the example of Voisey Bay in Newfoundland. The premier said, "You need to not only extract the nickel here, but you need to refine it here." The company said, "Well, we cannot do that because it is going to be costly, and we want to ship it away and refine it where we have already got refineries." The premier said, "Thanks very much, goodbye." It was a game of chicken. Eventually, because that is where the nickel is, the company said, "Okay, we will build a refinery." Is that a good game plan?
Mr. Musleh: No. I think you have got to be honest and upfront with industry. If there is an opportunity to upgrade in Saskatchewan and there is the right business environment that would actually keep them in Saskatchewan, I think that is the way to go. It is a question of working with industry to find out what their needs are so that we can keep them without having them turn around and go south.
Senator Banks: I am sorry to press you on this point, but in the poker game that happened in Newfoundland, the industry said, "We are not going to extract it and you are not going to get any money because we are not going to build a refining plant here. We are taking it away. If it is not that, then we will just leave it in the ground." Mr. Williams said, "Okay, leave it in the ground, see you later." The poker game was won by the guy that had the stuff in the ground that people needed, who eventually said, "Notwithstanding all of the costs of the capital investment that needs to be made to make this extraction and refining take place in your province, we are going to do that." That is what happened. Is that a good game plan?
Mr. Musleh: Again, no. I would go back and work with the company to see exactly what the province can do to make sure it happens. I do not think the chicken-and-egg scenario is the way to go. Without going back and forth, you have to find out what they want and whether the province can provide what is needed.
Senator Brown: It says here in one of your blogs that you are going to increase capacity in Regina to 130,000 barrels from 100,000. I forgot exactly what the Keystone pipeline capacity is. Is it 80,000?
Mr. Musleh: Something like that.
Senator Brown: Yes, I thought it was 80,000 per day.
Mr. Musleh: That sounds about right, yes.
Senator Brown: Would you be able to or would Saskatchewan be able to actually boost that upgrader that far? I cannot imagine why the Americans would want to buy part of the crude oil running through the land and then try to get the refined stuff as well. It would be an all-or-nothing game, would it not?
Mr. Musleh: I would think so, yes.
Senator Brown: That capacity would take quite a few years, would it not, 10 years, 12 years?
Mr. Musleh: Roughly, I would say so, yes.
Senator Brown: That is what I thought.
The Chair: That concludes the morning session. Rick, thank you very much for being here. It is a terrific initiative of the Saskatchewan government to set up this agency that you and your colleagues run. We wish you well. Thank you for sharing your information with us today.
Mr. Musleh: Thank you.
(The committee adjourned.)