Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 13 - Evidence - Afternoon meeting
REGINA, Thursday, December 8, 2011
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 1:09 p.m. to study the current state and future of Canada's energy sector (including alternative energy).
Senator W. David Angus (Chair) in the chair.
[English]
The Chair: Good afternoon, everybody. The Standing Senate Committee on Energy, the Environment and Natural Resources is continuing our study on "Let's Talk Energy." Today we are in Regina, Saskatchewan.
We are continuing our consultation with Canadians on matters relating to the energy sector with a view to identifying a clear and productive way forward in a strategic framework that will produce an energy system for Canada that is cleaner and more sustainable and more efficient, and with energy sources that are not deleterious to the environment.
We have been at this for two and a half years. One of the things we have focused on during our travels has been the nuclear industry. One of our senators is actually a former director of Cameco.
We have a great interest in your company. We know of your holdings in Bruce Power and your associations in the nuclear field in Canada. We did see some of your great installations in and around Darlington and the production of fuel cells and where the uranium came into play. We have heard about the difference between the light water and the heavy water reactors. We are, perhaps one could say, illiterates with a little bit of knowledge. Some of us are more literate than others, but we are very focused on the study we are doing.
Today it is great to have two of you with us from Cameco.
Mr. Grant Isaac is Senior Vice-President and Chief Financial Officer, and Mr. James Miley is Director of Government Relations. I understand that you have a prepared text, which my colleagues and I have a copy of. We are looking forward to hearing from you and then perhaps slipping you a few softball questions afterwards.
Over to you, sir.
Grant Isaac, Senior Vice-President and Chief Financial Officer, Cameco Corporation: Thank you very much. We are delighted to be meeting with you here in our home province. We are, of course, headquartered in Saskatoon. We are a global company, but Saskatchewan is very much our home.
We do have some comments prepared, more as a leave-behind for you. Really, the key messages are that nuclear is a global growth story. There have been recent events that have had an impact on the pace of that growth, but the reality is it is a very robust global growth story, the likes of which we have not seen since the 1970s. Cameco and Canada are very well-positioned to play an important role in that global energy story.
We are delighted to be here to talk about the current state of Canada's energy sector and, in particular, the nuclear sector with you. I understand that the committee did hear from the Canadian Nuclear Association in 2010.
The Chair: Yes, several times.
Mr. Isaac: That is great. We are a member of the CNA, of course. I am the incoming chair of the CNA. That is an important organization for us and one we look to for a lot of leadership in our industry.
I will give a brief outline of Cameco, although you did a very good job, Mr. Chair. I will just touch on some of the things that Cameco is involved in, and then we will talk about the impact of nuclear in Canada in addition to the worldwide trends and challenges in the industry. My hope is to explain why the world continues to look towards nuclear energy as a clean, safe and reliable source of energy, and why Canada stands to benefit greatly from that.
Cameco is headquartered in Saskatoon, with world-class mining assets and milling operations in Northern Saskatchewan and other parts of the world as well. We are one of the world's largest producers of uranium, and that is with some debate internally because, depending on how you account for it, we are the largest producer. We tend to only count what we market, not just what we produce. If you simply counted what we produce, we are the largest producer in the world. We are also involved in, as you said, processing, refining and fuel fabrication through a number of facilities in Blind River and Port Hope, Ontario, and we have a one third share in the Bruce Power facility.
One of the things that we are very proud to talk about is that we are Canada's largest industrial employer of Aboriginal people. First Nations and Metis employees comprise nearly one quarter of our corporate workforce of 3,200 people. For us, that social responsibility commitment is a workforce pillar, but it involves business development, community investment, community engagement and capacity building. Those five pillars together really embrace how we look to develop the northern communities in Saskatchewan, make an impact and create a legacy that will provide business opportunities long after the mines are exhausted up there.
We are a private company in a highly-regulated nuclear industry dominated by massive integrative mining companies, for many of whom uranium does not even move the needle, as well as state-owned enterprise. It is a funny arena that we play in. We are the only publicly-traded company in that space, and we often find ourselves in a publicly- traded disclosure environment of which our competitors do not face the same disclosure requirements, and so that often creates interesting situations.
I will not neglect the obvious fact that we did have an incident in March of this year with certainly one of our important customers in Japan, which really amounts to the second worst nuclear power accident in history, and that is the events at Fukushima, the earthquake followed by the tsunami. Over the past eight months, every plant operator in the world has been carrying out nuclear safety assessments in the form of stress tests designed from a framework point of view to anticipate the risks that are unique to the region in which those plants operate as well as to look at multiple catastrophic events happening simultaneously, which is of course what occurred in Japan.
The decisions to suspend plans or close existing plants have garnered significant attention worldwide, and, in particular, Germany stands out. However, it appears, as we deal with our customers in a post-Fukushima environment, that we are looking at delays of those plans rather than outright cancellations, and delays that are actually very good. These are prudent delays based on precautionary reactions to make sure that the events and the learnings from Fukushima are built into the operations of all existing and to-be-built reactors.
We continue to predict a very robust growth strategy for nuclear. Before the events of Fukushima, our own numbers, supported by a number of different international organizations, would have suggested there would be 102 new reactors in the world — net new reactors — by 2020. The events in Japan have created a bit of demand destruction. The number is now 93, but 93 new reactors by 2020, as I said at the outset, is growth in the nuclear industry that we have not seen since the 1970s. In fact, most of the growth in our industry in the last 20 years has come from taking existing operations and running them at higher efficiency rates and higher capacity rates. The number that is often cited is that the 104 reactors in the United States, with the improvements in their operational reliability and their efficiency and their capacity, was the equivalent of adding 12 new reactors in the United States over the last 20 years from a demand point of view. Most of the growth had been taking existing assets and running them better. Now we have real net new growth out to 2020, and we have not seen that for a long time in our industry.
The Chair: How many of those now 93 projected new reactors in the next nine years will be in the U.S.?
Mr. Isaac: In the U.S., our estimates are four new reactors, and we are actually being very conservative on that one as a company. Two of them — the Bellefonte and the Watts Bar reactors — are reactors that were started as part of the build program in the late 1970s that were cancelled after Three Mile Island. Those are now licensed to finish construction and they are halfway complete. The other two southern companies have an NRC licence to construct two new reactors, and they are beginning the process of that. There are other announcements. We do not count that in our demand analysis. We have been in the industry long enough not to take every announcement as a demand point.
The Chair: So four in the U.S., which means 89 in the rest of the world in the next nine years?
Mr. Isaac: Yes.
The Chair: Where in the world?
Mr. Isaac: In the text, we do indicate where in the world.
China accounts for the largest single point of growth. China has 13 reactors in operation today. They have 27 under construction as we speak at the moment and another 20 on the drawing board. For many of those, they are putting one or two more reactors at a reactor site. It might mean putting in reactors seven and eight to build an eight-reactor fleet. Ground preparation has begun on many of those 20 additional reactors.
Outside of China, you have countries like South Korea, which has never really paused on its reactor build program. You have India in a very active reactor builder program. Our estimate is another 26 reactors by 2030 in Russia. Russia is also now in the business of taking their rather world-class reactor technology and exporting it around the world. They are building four of the new reactors in India and looking at other countries for which they can sell reactors.
The vast majority of the demand is coming from locations that are still in the business of putting in baseload power, still in the business of putting in that reliable baseload that becomes the foundation for a health care system and education system, transportation, not in jurisdictions where you are talking about incremental additions to a power grid, but where you are still talking about baseload and, in many cases, in highly-populated jurisdictions.
Page 3 highlights some of the trends we have been talking about. The one trend line that is up, and it is irrefutably up, is the growth in energy demand. Energy demand has tripled since 1980 and is set to double again out to 2030. There are a lot of commodities and a lot of industries where we are in uncertain economic times and there will be a lot of volatility, but that is one area where the trend line is certainly up. I am sure that is a message you have heard over and over again on your recent tour.
Most countries are, of course, pursuing a diversified approach to energy growth with an emphasis on security and clean energy. Of course, we have found that clean energy wanes with economic circumstances, but certainly the underpinnings of the decision frameworks around clean energy remain. Given these challenges, nuclear remains a key component of the planned energy mix for many countries.
As I say, since March, energy demand has continued to grow. Words like "reliable," "baseload" and "clean" continue to be used in global energy portfolios. Demand for nuclear energy and uranium is also expected to increase significantly, albeit at a slightly slower pace than pre-Fukushima.
While we have heard a lot about Japan, China and Switzerland, the reality is that most countries have stated their continuing commitment to nuclear and certain parts of the world are greatly expanding their nuclear programs. China is the most prominent example. Its emerging economy, concerns about air pollution and energy imports are driving this country to increase nuclear generation between 60 and 70 gigawatts by 2020 and likely to more than double that by 2030, up from the current 12 gigawatts.
The safety inspections that were implemented in China following the Fukushima accident are now complete, and work continues on their 27 reactor projects that were underway at the time.
Russia's nuclear program also continues to expand. It needs to replace its aging fleet and plans to construct 26 new reactors by 2030. Eleven of those are currently under construction and expected to start operations between now and 2016.
In India, electricity demand has been increasing rapidly due to continuing economic growth, and the government has ambitious plans for nuclear power to reach 20 gigawatts by 2020, 48 by 2030. They are at five gigawatts today.
South Korea, which currently relies heavily upon energy imports, also plans to grow its nuclear program. The country currently has five units under construction, with plans to reach at least 40 gigawatts by 2030.
The countries listed are where we see the most growth occurring, but they are by no means the only ones looking to nuclear power. Many others are also growing or maintaining their nuclear programs. We mention here the U.S., the U.K. and South Africa. I am happy to get into details on those if you would like.
Very interesting is the number of announcements of countries that want to bring nuclear energy into their portfolio, announcements which we do not take as demand yet because they are too far out, but they are illustrative as data points for us.
The United Arab Emirates has four reactors. They have plans for construction. In some cases, on two of them, the groundwork has already begun. They have chosen a vendor, and that is South Korea, which is an interesting dynamic. The United Arab Emirates is actually out in the long-term market for uranium right now, looking to secure the first cores for that reactor program.
Another interesting announcement was Saudi Arabia's announcement to build 16 reactors by 2030, which is really an attempt to move away from consuming their domestic oil for energy production and instead replace that with nuclear power.
Other countries that have made announcements — again, we do not factor that into demand yet — are Turkey, Egypt, and most recently Vietnam. Vietnam has plans to build 10 reactors to meet a soaring energy demand in that country.
Often the question is asked, why is the world continuing to look to nuclear to address our energy needs? In places like China where massive investments are being made into wind and solar power, there remains a significant energy gap challenge. Population growth in developing countries, along with continued rapid economic development, is posing new risks for sustained growth in these developing regions. Climate change is a threat facing the entire planet. Clean air is of growing worldwide concern and in many large developing cities already a serious problem today. Governments are looking for solutions for increasing energy demands at a time when their citizens are increasingly concerned about the environment, and it is clear that even post-Fukushima, the world is looking towards cleaner energy, including nuclear power. In many countries, nuclear is already the only option for the generation of sufficient new baseload power that is not CO2 emitting.
Because the nuclear industry has an impact on the environment, we understand the need to continually focus on environmental leadership and on being clean through the whole nuclear fuel cycle. That said, when you compare our footprint to other current forms of electricity generation, it is often stated that nuclear performs quite well.
In 2010, the nuclear power plants in Ontario, as an example, produced 58 per cent of the electricity used in that province. If the electricity produced by Canada's nuclear power plants were generated by coal, there would be an additional 90 million tonnes of carbon dioxide emitted into our atmosphere each year. Canada's emissions of nitrous oxides and sulphur dioxide would also increase by about 10 per cent, and of course those are elements that have been implicated in acid rain.
The footprint of energy installations is also an important aspect to consider. Bruce Power, a partnership that we are part of, currently has eight nuclear power plants in Ontario that, when all operating, have a total capacity of 6,300 megawatts. The reactors are capable of producing enough electricity to supply about 20 per cent of Ontario's needs on a footprint of 9.3 square kilometres. Some comparators are included in here. For example, if you took the standard 2.5 megawatt turbine in wind power generation and you said, what would be the space required to meet that 6,300 megawatts, you would need 2,520 turbines. If you were using a density average of acres per megawatt of 60, the land required to produce the equivalent 6,300 megawatts would be 1,530 square kilometres. We also have to remember that wind power is intermittent and only when the wind blows, and it tends not to be looked at as an overly reliable baseload option.
Similarly, assuming an average power output of 1 megawatt per 7.4 acres of photovoltaic solar panels, the land required to produce 6,300 megawatts through solar is 189 kilometres squared. Once again we should note that this is intermittent, only when the sun shines, and also poses challenges related to storage.
Our customers, which are the largest utilities around the world, often have energy mixes themselves in which they are looking at nuclear; they are looking at other sources of energy. So we hear how they make their analysis and they make their decisions with respect to energy, and we know that the issue of footprint matters to them.
One quickly sees why suggesting that cities with the growing population and energy demand of Beijing or New Delhi should be powered by wind and solar is impossible, if not a very significant challenge.
Nuclear energy creates a very small amount of waste. After half a century of using nuclear energy in Canada, the total amount of used nuclear fuel is about 40,000 tonnes and could be stacked to fill as little as one soccer field to the height of an average adult. In the future, most of this used fuel could be reprocessed to make new nuclear fuel, reducing the amount of final waste to a small fraction of the current used nuclear fuel.
The quantity of used fuel is so small precisely because nuclear fission is a very efficient source of energy. Thirty grams of pure natural uranium generates as much energy as 677 litres of oil, 807 kilograms of coal, or 476 cubic metres of natural gas.
Contrary to what many people assume, not one person died from radiation exposure following the terrible incidents and events at Fukushima. In Canada, no member of the public has been harmed as a result of radiation from nuclear power facilities or used nuclear fuel. I should probably add that nobody has been harmed from radiation in the high- grade ore deposits in Northern Saskatchewan as well, which we mine.
Even the environmental footprint from Canadian uranium mining itself is incredibly small. I do not know if any of you folks have had the opportunity to tour a uranium mine in Northern Saskatchewan, but one of the comments we often get is how stunningly small it is when you fly in. Our flagship McArthur River Mine produces enough annual output to meet 7 per cent of total U.S. energy demand, and we do this from a site that is less than one square mile in footprint.
Canada has long been a leader in the field of nuclear science and technology. Beyond clean energy, Canada has made important contributions to nuclear research that have had profound implications on agriculture, food safety, cancer treatments, medical supplies and a host of other industries. The Canadian government has a role to play in ensuring we maintain our leadership position in an industry that directly or indirectly supports over 71,000 jobs in Canada.
As the Keystone pipeline debate heated up this year, Canada was being referred to as a new energy superpower. While the Canadian oil sands drew all the attention, the reality is that Cameco uranium already powers 1 in every 16 households in the United States, the vast majority of it sourced from right here in Canada.
In uncertain economic times, Canada has also placed a priority on diversifying export markets, particularly in the face of ongoing struggles in the U.S. economic landscape. Increasingly, Canada is looking to emerging Asian markets such as China, India and Vietnam in order to offset losses in the struggling U.S. economic landscape while addressing a long-standing desire to reduce reliance on a single trading partner.
With our expertise, our safety record, our vast uranium reserves, Canada is uniquely positioned to supply new energy-thirsty markets with nuclear technology and fuel. The potential exists to help significantly reduce worldwide CO2 emissions at the same time, but it will require political commitment, given the federal government's responsibility for Canada's bilateral nuclear cooperation agreements with countries around the world.
In this industry, the number one priority is the completion of nuclear cooperation agreements that would enable us to deliver Canadian uranium to these rapidly growing energy consumers. This is the main obstacle holding back Canadian nuclear trade and exports from reaching even higher levels. The demand is there despite the global economic situation; Canada simply needs to seize it or others will and, in fact, already are.
Domestically, nuclear power has served Canadians well for many years, and going forward there is much to be gained by a renewed Canadian commitment to nuclear power. There are several Canadian communities that would benefit today from new nuclear power, but education remains the key to popular support.
Perhaps the most exciting development is the next generation of small reactor technology. The new technology holds the potential to deliver power to a whole new market of smaller, rural or remote regions, including communities and industries throughout Canada's North.
The nuclear industry operates within one of the most regulated environments on the planet, and when facts are presented and examined objectively, the industry's record stands for itself.
In conclusion, I would say that at Cameco, we believe in the future of the nuclear industry and we are preparing for sustained worldwide growth. However, we also believe that we must take all the lessons learned from Fukushima, apply them at our facilities, and make nuclear energy even safer, cleaner and more reliable than it is today.
Cameco looks forward to being a safe, clean and reliable supplier of nuclear fuel for many years to come. We feel Canada should continue to look to nuclear as an important part of our energy mix and support both the understanding of and the expansion of nuclear energy around the world.
Thank you for your time and your interest, and I do look forward to some questions.
The Chair: Thank you very much, Grant.
This came across as a strong endorsement of the nuclear industry, which I suppose indirectly is an endorsement of the production of uranium. On the ninth page, you finally reach the point where you said, "Perhaps the most exciting development, however, is the next generation of small reactor technology. This new technology holds the potential to deliver power to a whole new market of smaller, rural or remote regions, including communities and industries throughout Canada's North." We heard a bit about it this morning from SaskPower. In all our visits to Chalk River and all those places, OPG and Bruce, we did not hear much promotion of these small nuclear reactors, the mini- reactors. There is a name for them. Could you elaborate a bit on that? The North, as you say here, is key, and they are stuck on diesel. I understand these things could be encased in concrete, transported up there and put in the ground and they have got this power source. There must be a big cost to it and a lot of barriers. I would love to hear about it.
Mr. Isaac: Certainly.
It is an exciting opportunity because of the possibility to have a modular power unit. Conceptually, think of it as a big battery that you plant it close to the energy needs. When it runs its course, you replace it. You lift it right out of the ground, or wherever you have put it, and you replace it with a new one.
I do not want to be misleading because I said "new technology." In fact, I think globally, there are about 1,200 reactors around the world. There are the 430 that produce commercial power, and the remaining reactors are, in fact, small reactors. They are research reactors. You mentioned Chalk River. There is a research reactor here at the university campus, the SLOWPOKE reactor, and there are also reactors that power large naval vessels, submarines and aircraft carriers.
Small reactor technology is here. It is being used all over the planet. The idea is taking that technology and applying it on a power grid basis. A number of Japanese companies are interested in it, and I believe SaskPower is talking with companies like Toshiba and Babcock & Wilcox.
It is something we would be interested in as a major industrial customer in Northern Saskatchewan. Power lines have to travel a long way from the southeast of the province all the way to the north in order to power our sites, so we see it every day — the cost of hauling diesel up there, the cost of hauling propane, and all the indirect impacts of that. It is an exciting possibility, not just for industrial production or remote communities in Canada, but, quite frankly, globally.
Senator Sibbeston: I am from the Northwest Territories, so I know that communities in the North would benefit greatly from such a reactor that produces power. How many years would you say we are away from the possibility of that occurring?
Mr. Isaac: It would be important for me to say that I am absolutely not an expert on small reactor technology. I follow the industry obviously from an investment point of view and certainly from Cameco's point of view.
There are a number of barriers at the moment. The barriers are both technological, but there is also licensing. No jurisdiction has yet to license it. Licensing in the nuclear industry takes a very long time for very good reason. You could quickly find a huge degree of variance where some say we are within a couple of years from a licensed prototype to decades, and you have that kind of variance out there in the market right now.
Some very serious companies are interested. I named Toshiba, Babcock & Wilcox. These are companies that have a solid history of bringing new technology to the market and they do appear committed to it. More importantly, there seem to be pull factors. There seem to be jurisdictions interested in licensing small reactor technology. That is a nice combination and that is probably the condition for success, but I still think it is probably a decade proposition.
Senator Mitchell: You are very optimistic about the potential for and the existence of nuclear power. What percentage of the nuclear fuel in the world does Cameco produce or provide?
Mr. Isaac: Sixteen per cent of global uranium production.
Senator Mitchell: In addition to the market growing, do you see your market share growing as well?
Mr. Isaac: We do.
In the prepared text, we did talk about the demand reaction from Fukushima, and that was to go from an outlook of over 100 net new reactors by 2020 down to 93. Clearly the demand curve has shifted in a bit — there is no doubt about it — if only because of the condemned units at the Fukushima Daiichi site, but there will be a few more programs that we did not anticipate shutting down before that incident happened. There certainly has been a shift in the demand curve, but the other interesting piece is the shift in of the supply curve.
This is an industry where it takes a decade to develop a new uranium project. It takes a decade because the licensing requirements and the regulatory requirements are quite onerous, and prudently so, in many cases. There is a long lead, and decisions are being taken in today's economic environment to delay or actually suspend development projects. There was a time pre-Fukushima when we assumed a lot more supply was going to be in the market competing with us. It appears that that "shift in" with respect to the supply curve may be equal to, if not greater than, the "shift in" with respect to the demand curve.
In that circumstance, price pressure is up, not down, so it does create a very interesting opportunity for countries like Canada that have world-class reserves, have existing operations and are not bringing the high-cost demands to market like some other jurisdictions in the world. In fact, projects in those other jurisdictions are being, as I said, delayed or suspended outside the 2020 framework. We are optimistic because price is going to be set by demand and supply, and supply destruction is happening as well as demand destruction post-Fukushima.
Senator Mitchell: Of course, you compete with fossil fuels. With fossil fuels, there are externalities that are not priced. Clearly, a carbon price would at least work at solving that issue. Do you have an official position on carbon price, or are you agnostic?
Mr. Isaac: We are in an industry that I think has one of the fullest commitments to life-cycle management. The nuclear power industry can account for all of the material that has ever gone through a reactor. It is not the concept of taking energy out of the ground, using it and putting it in the atmosphere. The entire life cycle has been managed from the beginning of commercial power production. From that point of view, I think the nuclear industry has always said that if others managed the entire life cycle the same way, we would have a different energy policy outlook. Carbon pricing would be — I think the industry has said in the past — similar to us managing the waste. Conceptually, it would be the same principle.
The issue of the competition of fossil fuels really is impacting jurisdictions where there is not a lot of growth, where the growth in nuclear is incremental. For example, in the United States we talked about the four reactors under construction. The economics of "nuclear new build" in the United States is always going to be challenged by the presence of shale gas over the foreseeable future. However, in the jurisdictions where the big growth is happening, those fossil fuel opportunities simply are not there. It matters in jurisdictions in North America; it matters to some degree in Western Europe when we look at growth prospects; but in China, in South Korea, in India, it is not the same dynamics. It is a different calculus.
The Chair: I cannot help but notice that the day of the Fukushima tsunami, your stock was at about $32.50 and now it is at $18. Is that an accurate reflection of the market changes that you have described?
Mr. Isaac: I am going to put on my investor relations hat. We are in an industry where 90 per cent of the material is under long-term contract. Our production is heavily committed, if not sold out, to 2016. Our customers are lined up, the sales are lined up, and the production just has to come out of the ground. So, no, it does not accurately reflect the underlying fundamentals in the business.
The Chair: Okay. It is an intangible sort of thing —
Mr. Isaac: Yes, absolutely.
The Chair: — and a lack of confidence in the longer term, that your earnings and everything are all booked.
Mr. Isaac: Yes. We were very quick out the door to say that while it was a catastrophic event for the industry, please look very carefully at our disclosures because our outlook has not changed, precisely because of our long-term contract portfolio, which underpins our capital decisions. It underpins our growth and our revenue, so that has remained very solid. I would say we are an incredibly good value right now from an investor relations point of view.
The Chair: We have strayed a little bit off the mandate. That is my fault. Perhaps Senator Neufeld can get us back on track.
Senator Neufeld: This is an interesting conversation.
First off, what size are the four plants in the U.S.?
Mr. Isaac: The two plants that began construction in the late 1970s, the early 1980s, those are our 800 megawatt plants.
Southern Company is building two new plants at Plant Vogtle in Georgia. Those are 1,000 megawatt plants. As a rule of thumb, what we often use in our industry is 1,000 megawatts is a pretty typical new light-water plant design. When it begins life, the 1,000 megawatts require 1.5 million pounds of uranium as its first core of fuel. It burns through a third of that fuel the first year and so every year you change out a third. You need 1.5 million pounds of uranium in the first year and then you need 500,000 pounds of uranium every year after that. Right now, the world demands about 175 million pounds of uranium. By 2020, it will be 225 million pounds of uranium.
The interesting piece in our industry is that globally we only produce 140 million pounds of fresh uranium. That gap is being filled by secondary supplies right now, and the biggest chunk of those secondary supplies is the highly-enriched uranium that comes from the Megatons to Megawatts Program, the program to decommission nuclear weapons in Russia, which is turned into low-enriched uranium and sold into the U.S. market. In mining terms, that was a 400 million pound mine producing 24 million pounds a year. That has played a very significant role in filling the gap between primary production and demand over the last decade. That material leaves the market at the end of 2013.
Senator Neufeld: Further to that, you stated that shale gas is a competitor of yours in relationship to the U.S. Would it not be coal? I mean, the U.S. has probably the largest coal reserves in the world. We just heard from SaskPower that of the huge reserves of coal that Saskatchewan has — and I knew that — they did not say shale gas, but you said shale gas. I tell you, shale gas is pretty new.
Mr. Isaac: Yes.
Senator Neufeld: We are talking about something probably in the last 10 years.
Mr. Isaac: Yes.
There are 104 reactors in the American fleet. We deal with all of the utilities that have nuclear reactors. We sell to all of them and they are all part of our portfolio. When we talk to them about their long-term decisions, for many of them, they are not just nuclear power plants. They often operate coal plants, gas plants and, in some examples, hydro plants. We ask them always, "How do you make your energy policy decisions as a company?" What we have detected in the last couple of years is that shale gas has come to the lead in the calculus of U.S. utilities in making their decisions about new power. I would only infer difficulties with coal that they are not facing with shale gas. That becomes their line to us when they say, "When we are looking at the economics of new nuclear installations, the main competitor is shale gas."
Senator Neufeld: I appreciate that explanation, so that is good news for places that produce shale gas. I am interested in hearing that response.
The other thing you talked about was waste and your footprint on the land base. I have to apologize because I do not know how you mine uranium. Is it underground? It goes back to the question where you say that you only disturbed a couple of hectares of land. You can say that because it is belowground; is that correct?
Mr. Isaac: Yes
Senator Neufeld: Because belowground must be a lot larger than that?
Mr. Isaac: No, it actually is not. Our surface lease, if you drove that down to depths, we are still mining well within that.
Senator Neufeld: Is that nine square kilometres?
Mr. Isaac: It is one square kilometre. It is a very small footprint that we have in Northern Saskatchewan. These are high-grade deposits.
There are three ways to mine uranium. One is you get underground and you go after the high-grade deposits. Really, you do not have a lot of volume. Uranium is a commodity measured in pounds, not tonnes, which are pretty small volumes compared to a lot of mining operations.
The second way to mine uranium is in situ recovery. You find good sandstone-hosted uranium and you do not actually go underground. You inject a bicarbonate or a sulfuric acid into the ground. You dissolve the rock, bring up the slurry and precipitate out the uranium. That is not even really mining; that is more like plumbing than mining.
The third type is that there are some uranium deposits that are very low grade, very big resources, and you do open pit mining — truck and shovel.
Cameco does not do any of the latter. We have not done open pit mining since Key Lake was mined out 20 years ago. We are only in high-grade mining and in situ recovery mining. In both those mining types, the environmental impact is very, very small. In fact, if you visited one of our in situ recovery mines either in the United States or in Kazakhstan, there is no underground presence at all. You see a field that has a bunch of small boxes on it, some underground piping connecting the slurry to a main processing facility, and that is the extent of the disturbance.
Senator Neufeld: I have one last question and it is about waste. To be honest, the general public has a bit of fear, and you know that as well as I do, about nuclear issues, whether it is generation or ships or anything like that. I have heard it quoted before about of how much waste there is in Canada, but that is from using CANDU reactors. I do not know the term, so I am not very familiar with them. Much like fusion in the U.S., there is an awful lot more waste and it is a lot more volatile; is that correct?
Mr. Isaac: I do not know. That is not my understanding. The light water reactors in the U.S. fleet produce an equivalent amount as the heavy water reactors. Even with heavy water reactors, you do not use enriched uranium on the front end, but you do create fissile products coming out the back end. I have never actually heard that there is a difference in the nature of the spent fuel.
The broader issue around waste is the fact that so much of its energy remains after it has been through a reactor the first time. It is why you do not often hear industry calling it waste or looking at it as waste.
Our U.S. customers store their spent fuel in cooling pools or in dry casks around their utilities, around their licensed facilities. They tell us that they do not really look at that as waste. Ninety-five per cent of the energy is still in there. Today, you guys are mining Northern Saskatchewan. Tomorrow when the reprocessing technologies are economic, we are going to mine our parking lots, and that is why there is not a big rush to do anything with this material because it is still so energy rich.
Senator Neufeld: I appreciate that, but is that why they have been looking for decades for a place to store waste? Is that why they have been digging in Yucca Mountain and spent tens of millions of dollars to try and find a place? Is that why in Canada they are looking for deep, deep caverns to actually store waste? When you say that, it says, "Oh, well, it is really not waste because we are going to re-use it." I understand that, but there is still a tremendous amount of money being spent. The industry has to put away a fair amount to actually store that waste in the future. That is reality. That is what is happening. You are telling me in one sense that there is nothing to it and it is really not waste; in another sense, there is another group out there trying to figure out how to store it.
Mr. Isaac: Yes.
Senator Neufeld: I am having a little trouble hooking those two together.
Mr. Isaac: Certainly there is a strong energy equivalent in it, so the idea that it is absolutely a liability for industry I do not think is accurate.
On the other hand, you are right. There are attempts to say that it ought to be stored in a location that is controlled and that mitigates risks. Most of the models you look at in North America — Canada or the United States — or whether it is the model in Sweden where there actually is a successful depository, the view is not to put this material in a place where you will never be able to get to it again because of its energy content. No matter what model is being looked at, those deep geological reserves are being looked at in a context of some day you will want to recover that energy that is still in there. It is just that the economics of doing that is not comparable to the economics of fresh uranium at the moment. However, at some point, those cost curves will cross. Uranium reserves will be in locations where it just costs way too much to get to, and finally the cost of fresh production will rise and the technology of reprocessing will fall and eventually they will meet.
Senator Neufeld: Give me an idea of how long.
Mr. Isaac: I do not know. Some countries are doing some closed loop. Japan does it and France does it. They do it for social policy reasons. They do that to show they can close the fuel cycle, but they do not do it for economic reasons. They are our customers, and they are the first to tell us that if uranium is $50 a pound on the spot price, they are going to buy uranium. It is hundreds of dollars. The price of uranium would have to go up a long way before it started to make the economics of reprocessing today.
That is not to say there will not be technological investment in reprocessing and that cost of reprocessing will not fall. These two curves are going to go in different directions and eventually they will cross.
Senator Banks: We are used to the concept of proven reserves when it comes to gas and oil, and our place in the world has been overcome by Kazakhstan. We are no longer the largest producer in Canada — Kazakhstan is.
I do not know how you would express it. In terms of a time line, how long will your reserves last?
Mr. Isaac: Cameco has a billion pounds of reserves and resources on our books. That is our share acquired many years ago, and most of it adjacent to brownfield —
Senator Banks: You say pounds. You are talking about a refined product, because you sell it in pounds, right?
Mr. Isaac: Yes, we sell it in pounds.
Senator Banks: This is not tonnes of ore coming out.
Mr. Isaac: Yes. Our reserve and resource base equals a billion pounds. Right now we produce a little more than 20 million pounds a year, so we are harvesting 2 per cent of our portfolio. If you compare that to the oil and gas industry, we actually do not harvest at a very high rate. We are aiming, as a company, to move up to a higher level of harvesting, maybe 4 per cent, 40 million pounds a year of our reserves and resources.
Senator Banks: But that would reduce your length of time to 25 years.
Mr. Isaac: It will. That will force us to do more exploration. When we have assets like Cigar Lake and McArthur River, plus a lot of the land staked around those assets, we know there is a lot of mineralization left.
However, there comes a tipping point when you are spending on exploration. When you already have 400 million pounds on the books at McArthur River, you are not motivated to go and explore and prove more. We know there is more ore there. We just have not gone and put it on the books yet, done the necessary drilling, because it is diminishing marginal returns when you already have 400 million.
Senator Banks: If you move to 4 per cent, that means that your reserves are going to last 25 years.
Mr. Isaac: Yes.
Senator Banks: In terms of development of resources, that is tomorrow afternoon.
Mr. Isaac: Yes, absolutely.
Senator Banks: Is it not time to start looking?
Mr. Isaac: Absolutely, yes. We have what is called a Double U strategy right now at Cameco and that is to take our existing assets and to increase the production of them from 20 million to 40 million, plus a very ambitious exploration and acquisition strategy on the back end to make sure that those pounds are there once you start producing at that rate.
Senator Banks: Will you acquire in Kazakhstan?
Mr. Isaac: Kazakhstan is a country that we are an operator in. We are in the south Inkai corridor where the most prolific uranium mining properties are located. We have two blocks that we currently operate on. We have a third block that we are exploring on. However, outside of that corridor, not all ore is created the same in Kazakhstan. At the moment, we are not interested in any properties other than in the south Inkai corridor, and there are no properties for sale in the south Inkai corridor. Everybody wants in. We are not interested in investing outside of that right now.
Senator Banks: You are comfortable doing business in Kazakhstan.
Mr. Isaac: We are comfortable doing business in Kazakhstan. It accounts for a small piece of our portfolio. It is important for us as a company to be both geologically and geographically diverse. Our customers want that, and in order to secure premiums in the market, we have to be that way.
We have discovered Kazakhstan can be a tough negotiator, but we have always found that commercial negotiation is what is required. We have not encountered problems that we saw, for example, in Kyrgyzstan. We were a gold producer in Kyrgyzstan, and we exited that in 2009 because that was not a jurisdiction we could take our Cameco values and operate in.
Senator Banks: And it is very difficult to write that name on an envelope.
Mr. Isaac: Indeed. Kazakhstan is a much difference experience for us than Kyrgyzstan was.
Senator Banks: We have varying opinions about what we ought to do about emissions. Do you have any idea about what the effect on China's GHG emissions will be of their undertaking to build tens of new reactors? Is that going to have any significant, measurable, meaningful effect on their GHG emissions?
Mr. Isaac: No. Their plan to go to between 60 and 70 gigawatts of nuclear power will still only put them at 5 per cent of their total energy coming from nuclear power.
Senator Banks: All good businesses have to be hedging bets. Are you hedging a bet anywhere with respect to nuclear fusion?
Mr. Isaac: We are not. I understand that you had a riveting presentation on that in the last couple of days. There are a number of technologies on the fuel side that we spend a lot of time looking at. We are constantly looking at the thorium cycle relative to the uranium cycle. We look at fusion technology. We look at the role of laser technology and enrichment. In fact, that is a technology we are hedging our own bets on. That is one that I do not know that, to date, we share the same view as the presentation you heard earlier.
Senator Banks: Well, today I do not think many people do.
I have one last question. Reprocessing is known technology.
Mr. Isaac: Yes.
Senator Banks: It works.
Mr. Isaac: Yes.
Senator Banks: There are places in the world, and you mentioned a couple, in which it is being done for social reasons, not economic ones. On the basis of economy of scale, if nothing else, and in respect of research to make things more efficient, is there pressure to move the practicality of reprocessing closer to us? As you have said, the vast majority of nuclear power and energy is untouched by use in existing reactors of any kind: big, small, heavy water, light water — it does not make any difference. As you said, it is the easiest and most accessible source for new nuclear energy. When you are able to sell, as you said, fresh uranium at 50 bucks a pound, the other stuff is impractical. We are familiar with that because the oil sands have been in Alberta for a long time and did not make any sense until oil hit 40 bucks. The oil sands made no sense at all when oil was 10 bucks. Where are we with regard to the likelihood of reprocessing becoming a practical matter?
Mr. Isaac: The range that is out there is quite wide as well. One of our competitors and partners in many ways, Areva out of France, does reprocessing. They say that dollar value is $150. At $150 uranium, you start to get into an environment where reprocessing makes sense. We have customers in Japan who say the number is more like $300 before it starts to make sense, so the uranium price would have to run a long way.
We did see a tremendous run in the uranium price in 2007. You will recall that the spot price of uranium went up to $146 a pound. At that price, it was not incenting a lot of work in reprocessing, which we found very interesting. It did not last at that price for very long. The run-up did not encourage a lot of reprocessing, so we think that that number is fairly high. Given the global reserve and resource base for uranium, it is a fairly ubiquitous ore, 40 times more abundant than silver. We see price pressure going up, but not up that high.
Senator Brown: A year or so ago, my family and I had the privilege of walking through the Midway carrier. It is now a museum in San Diego. The most interesting thing about it was the model that they were building with the USS Carl Vinson. They said that when that carrier goes to sea could stay there for 20 years without refueling. Are they carrying a 20-year supply of fuel rods, or is it possible they have actually solved the problem of the multiplier reactor?
Mr. Isaac: I am sorry, but I do not know the answer to that. I do not know if that naval model requires refueling on the go or if you put the fuel in and that is the life frame for it.
James Miley, Director, Government Relations, Cameco Corporation: I am not sure I know exactly the answer, but we were discussing small modular reactors earlier. One of the benefits was that I have heard not having to replace them for 10 years, but I have never heard 20 years.
Interestingly, since the 1950s, the U.S. navy has had 440 some odd ships running nuclear power. They are absolutely the leading experts in terms of how to do this, so it would not surprise me.
Senator Brown: Could they actually store extra fuel rods that were not being used at the time and do it safely or would they have to redo them?
Mr. Miley: I do not know the answer to that. Fuel rods in and of themselves are not that dangerous in terms of being able to just have them there.
Senator Brown: Yes, that is what I thought.
The Chair: You have got to read The Hunt for Red October.
Mr. Isaac, Mr. Miley, that was a very interesting presentation. First of all, you have a great company and now we know that you have a full order book out there for quite a while. It is a serious issue. We are very interested in nuclear power. At the moment it is so expensive. As well, it is difficult to figure out what Japan has really done. Germany made a huge decision, as has Switzerland, and it is just hard to figure out why. Senator Banks has told us that it is the BANANA syndrome. Do you know what that is?
Mr. Miley: No, I do not.
Senator Banks: BANANA is the successor of NIMBY. NIMBY is "not in my back yard." BANANA is "build absolutely nothing anywhere near anybody."
Mr. Miley: That is good.
The Chair: On that note, I am going to thank you both very much and call on our next witness to come forward.
Senators, we now welcome Mr. Zenneth Faye, Executive Manager of Milligan Bio-Tech Inc. I do have a biography here, but before starting, we are the Standing Senate Committee on Energy, the Environment and Natural Resources. We are continuing today in Regina, Saskatchewan, our study on the energy sector. We have been at this for well over two and a half years. We are trying to get Canadians talking about energy, becoming more literate in energy sources and systems, and trying to develop a strategic framework so we can come up with a policy that our political masters might follow with a view to having a system for the future that takes into account the population explosion, the fact that there is going to be much greater demand for energy all over the globe going forward. There will be 9 billion people out there after 2040, and Canada will continue to be a major consumer.
We felt it was important to identify a way forward that would be more efficient in terms of the use of our energy, more sustainable, cleaner and greener. We feel that we are blessed in this country to such a point that in many ways Canadians take it for granted. We are trying to focus their attention on the importance of this subject matter.
Mr. Faye is from Milligan Bio-Tech Inc. He was raised on the family farm near West Bend, Saskatchewan, in the Parkland Region of the province. He received his Bachelor of Agricultural Engineering at the University of Saskatchewan in Saskatoon. Following his graduation, he was employed by John Deere Canada Limited as an agricultural engineer, working in the agricultural division across Canada and the United States. He and his wife Cindy returned to the family farm full time in 1978, where he started a small manufacturing business, designing and building cattle handling and feeding apparatus. The farming operation consists of direct-seeding crops such as spring wheat, winter wheat, oats, barley, flax, peas, triticale, canola and alfalfa for hay and occasionally experimenting with lentils, buckwheat, sunola, soybeans and corn. Aside from cropping, they also run a 100-cow commercial herd of beef cattle.
Having this extensive background of agriculture has been the main driving force to creating value-added production for producers and rural initiatives, like inland grain terminals and bio-based co-products.
Zenneth became a director of the Saskatchewan Canola Growers Association in the mid-1980s, during which time he worked on various committees, one of which was to establish the Saskatchewan Canola Development Commission that administers a check-off fund from canola producers in Saskatchewan.
Sir, you have had a very distinguished career in and around this background ever since, and I am sure you are going to help us understand a very important element in the energy picture in terms of biodiversity. Over to you.
Zenneth Faye, Executive Manager, Milligan Bio-Tech Inc.: Thank you very much, gentlemen. One of your colleagues, Senator Peterson, attended our grand opening back in 2009. I had a very informal conversation with him at the time of his visit. He mentioned your committee to me. Lo and behold I am sitting here now amongst you, trying to understand and to show you where our company, Milligan Bio-Tech, started from and tell you about some of the hurdles and growing pains of a company that had zero equity, zero evolution and zero profitability in 1996.
I have an engineering background. In the early 1970s when I was taking my engineering education, there was a field shortage. At the College of Engineering in Saskatoon, we took anything and everything, including water and canola oil, to burn it in an engine, and that sparked my interest. In fact, in 1988, I was seeding a crop and I remember very distinctly that on the news there was an article about the European Union developing biodiesel, specifically in Germany, and mandating it for their users in that country. I am a board member of the Canola Development Commission. It takes a small percentage of producers' dollars and puts it into research, not only agronomic, but for other uses and also for the development of marketing information concerning the — sustainability of the canola crop.
In 1992, we had a very severe frost in Saskatchewan and the crop was decimated. My father and I farmed together at that time. We harvested one field of 160 acres — and I am not metric. We got about 400 bushels of canola off that field. It was in severe distress. It was not suitable for the food industry, and the market at that time was offering somewhere between 25 and 75 cents per bushel. The going price for food canola at that time was in that range of $5 to $6. You can see that there was not a need or not an appetite for that kind of product.
At that same time, there was a group of us of a similar age in the community that formed what was called a Marketing Club, which is an ironic name because as producers we were there to learn about opportunities for marketing our products other than through a board. In canola's instance, it was a non-board crop. We were trying to achieve and understand better ways to market our crops and understand the open market system.
Through that, we also talked about opportunities. If you recall in Saskatchewan in the early 1990s, there was a herd of young people leaving the province. Our group consisted of about 15 to 18 members, and many of their children were leaving for Alberta. All of them wanted some way to try and attract business. Another goal amongst the group was to see if we could bring subsidiary businesses to small town Saskatchewan.
The population of Foam Lake is 1,250 people, nothing like any other small community in Saskatchewan of that same vintage. Stores were closing and the main street was getting to be pretty bleak. Because of my interest in renewable energy, I mentioned the opportunity of biodiesel, and in 1991 no one knew the term or even thought it was possible. I explained the situation and learned about the opportunities in Europe. Given my association with the commission, I organized to take one other individual, a researcher from Agriculture and Agri-Food Canada, with me on a fact-finding mission to Germany and Austria, the centre or the core of the development of renewable energy, specifically biodiesel. We made that jaunt over there and it was a huge eye-opener for me and this young researcher.
As we made our way around looking at various plant sizes and various kinds of development that was happening at universities and in the private sector, it very clearly made to me sense that, yes, it can happen. They take rapeseed over there, put it through the extraction process, take out the oil, feed the byproduct to cattle, and the oil goes into the biofuel market as a replacement for diesel fuel. They had a mandate in place.
We came back very knowledgeable in some sense, but yet when we looked at the price of fuel over there, it was $1.30 a litre. At that time over here it was like 43 cents or 37 cents. When we did the economics on paper, it showed very quickly that there was going to be a problem in taking our food grade oil and putting it into fuel.
That is when we also had the frost that I told you about, so we started experimenting with oil seeds that were not suitable for food, putting it in through the process. We tried to convince the multinational companies to extract some of this oil so we could make biodiesel out of it to do some demonstrations. We could not convince anybody because we only had small quantities at the time. Places like the major crushing industries would need 1,000 tonnes to even think about it, and we had less than a hundred to do a trial.
I went to the Proteins, Oil and Starch Pilot Plant at the University of Saskatchewan, which is where the agricultural researcher was situated. He started playing around with the extraction process to efficiently get that oil out. It was a huge challenge to extract that oil. People think that oil extraction is like making toast in the morning. You pop the piece of toast in the toaster and out comes the product. It is not quite that simple and to do it efficiently so as not to damage, as everyone thought would happen, the byproduct, which is protein, a meal product that could be used for the feed industry. We worked on that for a couple of years.
At the same time, we put an order in with Procter & Gamble, who had biodiesel supposedly being made as a byproduct of their process in Florida for the soap industry. We ordered some of that because we could not make it in Canada. We brought the product up and for about two years demonstrated it in agricultural equipment trade shows in the local area within 150 miles of our community and in the cities to show that biodiesel is a suitable alternative to diesel fuel, that it works in an engine.
That went very well and we got a lot of interest. The canola commission then funded more biodiesel developmental projects. This is back in the mid-nineties. We were trying to educate people on the virtues of biodiesel made from feedstock that is renewable and is a non-usable food product.
As this went on, we also used the services of Agriculture Canada to develop a technology that would make an efficient biodiesel production system. As we went through Europe and the U.S., we found that there were several technologies available, all of which were very expensive, but they were only suitable to one kind of feedstock, which was food grade canola oil. We did not want to go down that route because growers grow seed for a specific use. Nature causes distress in the form of frost and inseparable seeds and improper storage. There is a number of different things that we found was somewhere in the average range of 5 to 15 per cent of the crop. In the 1990s, canola production in Canada was about 7 million metric tonnes, and we calculated that that would be sufficient to do what we needed.
The goal was to make biodiesel out of a technology that was grown in either Europe or the U.S. By the way, that was developed on the premise that they have a subsidy. They also have a mandate. We did not have any of that in Canada. We are an exporter of energy, not an importer as the U.S. is and the same thing in Europe. We quickly came to the realization that we would have to do it on our own.
Through the work of Agricultural Canada, the University of Saskatchewan and ourselves, with the help of a pilot facility on the grounds of the University of Saskatchewan, we developed a technology with Ag Canada and have the sole licence for that technology in our company. That kicked off the effort of the group to form a company. Rather than coffee shop talk, it became a company in 1996 with a board of directors, shareholders, et cetera, and funded from the local community.
I mentioned earlier that the community was looking to attract big business to small town Saskatchewan. Through my eyes, it became apparent that big business is not going to come to a community of 1,250 people. Big business is going to go where there are resources and all the amenities for employees. In order for somebody to be attracted to small town Saskatchewan, you have to do it from the ground up. The community knew that they were going to have to have a long road to go down to get something that would eventually be right.
We started with two employees in 1996 with the developmental technology of Agriculture and Agri-Food Canada and our own small pilot facility that we built with the help of the chamber of commerce and the town council giving us vacant property and buildings to use. The extraction process trials continued.
In the year 2000, the first product was born, that being biodiesel, but we developed a co-product, a fuel conditioner, because we had no mandate in Canada to ensure that the fuel would be used. We went to petroleum companies. I have engineering friends in the petroleum industry. We always got the good pat on the back. We see some value in biodiesel as a lubricity agent. You will remember that the reduction of sulphur came into being in 1993 and onward, to what we have now at 15 parts per million. The petroleum industry is trying to put in new additives to compensate for the effect of sulphur.
Through that evolution, they saw that we had something, but in reality, my engineering friends said, "Why would we want to take 2 per cent of somebody else's product and take away 2 per cent of our sales"? That was very smart, and I had to agree. Why would you? You do not unless you have to.
We then started the process with the grower groups and the Canola Council of Canada, along with the Canadian Renewable Fuels Association, to lobby government to put in place a mandate like they have for ethanol. There was a bad taste in the mouth of the petroleum industry regarding the past ethanol introduction, and it was a very hard sell. It took an awful lot of time and effort. However, at the same time, we were not of the mindset that they wanted a subsidy. I wanted an industry to be built that would not have to be subsidized by taxpayers. A level playing field means that it has to happen across the board, including on the petroleum side. Obviously, you know that a lot of subsidies go into the petroleum industry today.
We also said, "Where is our competition?" Well, it was south of the border. The U.S. is an importer of fuel and, as a result, had a lot of incentives, as they called it, not subsidies. They are always incentives down there that then implicate the production of biodiesel to either feedstock, plant building, or a direct subsidy per litre or per gallon of production. And if the border is open and that product comes into Canada, there has to be some way to offset that, so the Renewable Fuels Association and the Canola Council of Canada were lobbying in that regard.
On our side, we were focusing on assisting with that, but we also wanted to try and prove value for the consumer. That is why our fuel conditioner took off and really worked well with good scientific background. There are a lot of fly-by-night additives out there. Consumers needed some lubricity in their engines because of the reduction of sulphur. We worked with the City of Saskatoon and a bus fleet over the course of four years to develop sound data showing that there was an increase in fuel economy and a reduction in engine wear. As a result, the City of Saskatoon found that instead of keeping their bus fleet engines for 13 years, they could extend it to 14 years with the fuel of that time because of reduced maintenance and also increase their fuel economy by about 3 per cent. That was encouraging to us, and we substantiated and proved that in the lab as well.
In 2001, our first product that came out was an additive — concentrated biodiesel. We still had biodiesel that we were trying to market to the petroleum companies. We had the Government of Saskatchewan with their provincial bus fleet committed enough to try the fuel as a substitute in a 2 per cent blend. They "instrumented" that process as well and found no negative effect.
Going back to our facility, we needed to expand. We were using the Bio Processing Centre at Saskatoon to help us evolve the technology and scale up the technology, but they became very busy with other projects. We were one of their first clients when they took over that centre. As their business book increased, we could not complete our project in a timely manner, so we started building our own bioprocessing centre to take the technology to full production. That started in 2007.
In 2008, we had our first full-production unit in operation and our extraction facility as well for the extraction of oil seeds, including canola and other kinds of crops. In 2009, 13 years after we incorporated, we had the grand opening of the facility.
Today we employ 47 people in our facility. We have gone through an expansion on the crush. We have gone from 35 metric tonnes per day to 200 metric tonnes per day, and we have just completed that addition. We are also "de- bottlenecking" some of the hiccups we found in our production facility for biodiesel. It should have been done about three weeks ago. By the weekend, we anticipate that we will be turning on the switch to commission that facility.
In total, we are spending somewhere in the neighbourhood of $10 million to $12 million. We have not completed the outside section of it, but in small town Saskatchewan, we went from 2 people to 47 people.
I looked at what we had for resources in the community. A lot of the equipment that we needed to have built for our pilot test facility was not commercially available because it was too small, and most of the crushing industry today is 2,500 to 3,000 tonnes and some even bigger. We are at 30 tonnes per day, so there was not any of that around. The resources of local welding shops and of local engineering personnel helped to create what we needed in the community.
At the same time, I looked at what we had for resources from people who could support our needs. A lot of the employment in the area is either agriculture based, commodity related or in the health sector. However, there are a lot of people that either married people that were in different fields who came back to Saskatchewan to raise their family. I drew from that resource body to help us through the next stages of growth.
For example, when the province went over to the Philippines to bring in nurses, some of their spouses are now coming here, some of whom have very good mechanical skills. We have them on our payroll. We have people who married local farmers. They met on a student exchange, married and came back to the farm. The spouse in one case was trained as a lab technician, so we brought her in. We used what we could to build the company, and today we have a CEO who comes from the petrochemical industry and who understands the bigger part of business. Our director of sales also comes from the petroleum industry. Those kinds of people have the networking to be able to make contacts.
Our product has been tested amongst all the major petroleum companies in Western Canada, and we have sold tanker loads. In fact, our first rail car just left yesterday to go to Vancouver to a major petroleum company. All of them would like to have our product because in the past they have been bringing product in from the U.S. that is made from another feedstock, mainly soybean.
I can allude to the problems with feedstocks. Biodiesel can be made from vegetable oil, animal fat, any rendered grease. The problem with these other families of feedstocks is that their characteristics change immensely. In other words, Canada, Northern Saskatchewan and Saskatchewan in general get cold in the winter and you need to have the product flow continuously. We need the petroleum companies to work with us, and we need the infrastructure that they have. We do not want a second infrastructure to have to put together some way of distributing it. We need the usefulness of the infrastructure the petroleum companies have, and as a result of that, they have all tried our product and are coming to our door asking for product in tankers and trucks.
The petroleum industry today is mandated federally and by province. In Western Canada we have Manitoba, Saskatchewan, Alberta and B.C. with different mandate percentages and different subsidies on top of the federal subsidy program to emulate, I guess, parity with the U.S. Personally, I do not like subsidies and do not want subsidies, but when we are in an international marketplace, then it becomes a necessity, not liking but needing.
I refer to quality as well. Every one of us could have a biodiesel plant, and you can find out on the Internet how to make it. However, you have to make the product of a consistent high quality and you have to have a safe environment for employees, which is our drive.
To make sure that we have supplies, our facility today will be 20 million litres per year. We are looking at expanding to a larger facility. As we speak, we are working on that and trying to increase that market share in Western Canada that we can do from a non-food crop.
We are ISO 9000 and 18000 certified. We are working on the 14000.
I really have to talk a little bit about the way we got here through our research. It was not all by investments from shareholders. We tapped into a number of federal and provincial programs, and that was a very key help for us to get through the research curve of developing the technology. Team NSERC, equal energy today, and the SDTC program have also been of great benefit to getting us to grow to that next level.
There is, though, one concern that I have had with researchers who go with these programs. We pick programs that fit our needs, not to sort of meet the program needs. If it meets our needs, we work with it. We have let a number of them go by. It is still a good business decision on our part to use what is going to help us grow our process.
The thing that irks me is that researchers are hired by universities to do research and teach, but there is a lot of paperwork that a researcher has to do that takes him away from the research role. I realize that there has to be accountability and we do not want to misuse of dollars. It does not matter whether you are applying for $1,000, $10,000, $100,000 or $10 million, because the same amount of paper is generated to track it from the accountability side of things. That causes issues for the researcher not being able to do what he is trained to do, which relates to research dollars. From that side, there is a concern on my part in looking back at where we have come from. We started with the $1,000 ones, which was good. We did our research building with the concept in mind that we would do it in stages. We would do it with T-bars and T-marks in the process so that we come to a certain point, have a time out, investigate what we have, and then develop where we are going to go. We do not just say, "Here is your pot of $3 million, Mr. Researcher, so come back to us." We could not afford that. We did it in stages, and I think it took us longer. We crawled and then walked. We are still not running effectively. We have got a bit of a hobble yet and we are trying to get through that.
With respect to the biorefinery concept, we have biodiesel being produced. In our instance, we buy the seed and extract the oil. The protein is a high-end protein for the feed market, and we attract a premium for that. A lot of people felt that we would not even be able to sell that product, and we have done enough research to know that it is very effective.
In terms of the byproduct on the biodiesel side, you take the oil and add an alcohol and a catalyst and to create a chemical reaction, and then the settling-out occurs. Our process is semi-continuous. We will take that glycerin and refine in order to sell it into several other opportunity markets, one of them which could be the feed industry as well. Right now it is a fuel in the burners in the U.S.
We are looking at other things. We have a road dust suppressant that is environmentally friendly. We have an asphalt release agent that is environmentally friendly. All of these things in our scheme of products are intended to be environmentally friendly, cost effective and get paid back to the consumer.
Going forward, we are working with Agricultural Canada on new varieties of seed that will have high oil but not affect the rotation or the food market. Those are the kinds of things that we want to look forward to in the future. I am going on and on here as to where we are, and I invite questions because I think that is a good way to take it from here.
The Chair: That was very interesting. It was a stream of consciousness.
Senator Mitchell: After all is said and done at this point, how much are you actually producing and selling? Maybe I missed that, but are you doing that commercially?
Mr. Faye: Yes.
Senator Mitchell: You said you were burning some in the U.S., and so on, but how much?
Mr. Faye: We will be at 20 million litres per year.
Senator Mitchell: That is what the plant is going to do.
Mr. Faye: Yes. Up until now, we have been somewhere between 1 million and 4 million litres and that is because the mandates have just came into place. The petroleum industry was using our product as a startup in their blending system because they have to have commissioning.
Senator Mitchell: How close is it to being economic and competitive with diesel fuel? You said you do get subsidies.
Mr. Faye: Yes, we get subsidies because what is happening in the U.S. with soybeans.
The economics are there today without the U.S. A year ago the U.S. did not have a subsidy; they had it taken away. In that time frame, they had the subsidy and they also had RIN credits. Once the subsidy was gone, the RIN credits went up. Then it made more economic sense for U.S. companies to keep their product in the U.S. we were then on a level playing field, which was excellent in my mind at that point.
Today, they have the subsidy back and apparently that may terminate at the end of this year again. I see the RIN credits starting to inch up again, so the level playing field will start to come.
When we are talking about cost and $1.30 a litre for diesel today because of shortages and the subsidies that are in the petroleum industry, we are very near that profitability margin right now.
Senator Banks: I never heard the phrase or the term RIN credits before. What is that? You said when the subsidy is gone, RIN credits kicked in. What is that?
Mr. Faye: Renewal identification number, I think, is what the U.S. calls it. It is a traded value that is determined on a number of fronts on the U.S. side, not in Canada. They get a credit back on carbon emissions.
Senator Banks: Money back?
Mr. Faye: Money can be traded.
Senator Banks: I know that.
Mr. Faye: But is it always traded? I do not know. It is a very convoluted system, but it is an open system in that you can visually see what happens every day.
Senator Banks: It is a virtual subsidy of some kind.
Mr. Faye: No, it is not. It has nothing to do with government. It is industry. They are no different than stock prices going up and down. Now you have diesel and biodiesel and renewable fuel playing for RIN credits for diesel, and they have the same kind of thing on the ethanol side.
Senator Banks: I am not a farmer. Tell me how an oilseed crop is grown that is not food appropriate?
Mr. Faye: Every farmer grows a crop for food, and that is the higher-end market. You have situations arise either with damage in the spring by poor environmental conditions, growing conditions throughout the year, hail, early frost causing the seed —
Senator Banks: Nobody plants with the intention of growing oilseeds that are not food quality.
Mr. Faye: Correct.
Senator Banks: Your feedstock is stuff that a guy cannot sell to make cooking oil.
Mr. Faye: Yes.
Senator Banks: What is concentrated biodiesel?
Mr. Faye: That was our fuel conditioner. We took biodiesel and made it more potent in the area of lubricity only. It was a process that we stumbled on while we were doing some technology development at the POS plant. We were able to take a litre of product and enhance the lubricity effect to combat the reduction in sulphur. That reduction in sulphur increased the lubricating factor of the fuel. A diesel engine is lubricated from the top and a gas engine is lubricated from the bottom. Through that increased lubrication, the fuel economy went up and the wear rate went down.
Senator Banks: Is your product something of which I would buy a bottle and throw it into my tank on top of normal diesel?
Mr. Faye: Yes, it would be a single dose until we get to the biodiesel. Once biodiesel is included at the 5 per cent level, then you do not really need to have that anymore.
Senator Banks: Have you retained the proprietorship of the results of the research that you undertook? Do you own it? Is it patentable? Do you have a proprietary right in the process?
Mr. Faye: With ourselves and Agriculture Canada.
Senator Banks: Split?
Mr. Faye: Yes.
Senator Banks: Half and half?
Mr. Faye: Yes, they own the technology and we have a sole right to license it on a royalty fee. It was our dollars and taxpayer's dollars that went together.
Senator Banks: I was very interested that you are okay with subsidies as long as they fit with your program and the road that you are on. One of the big dangers of subsidies is saying, "Oh, I can get some money, so I am going to go down this road instead," and be detracted from where they were going originally.
Mr. Faye: That is on the research side?
Senator Banks: Yes.
Mr. Faye: Correct, yes. We picked and chose what suited our needs, not what was being sold as a bill.
Senator Banks: Good for you.
Senator Brown: Rather than ask you questions, Mr. Faye, I would like to compliment you on your efforts and how you have stayed with them. I know a lot of Saskatchewan farmers that actually produced machinery and developed them themselves and became famous with John Deere and other companies.
One more comment would be that the prototype F-35 joint fighter actually flew a month ago on biofuel.
An Hon. Senator: Despite the cracks in it.
Senator Neufeld: I recall vividly when British Columbia said diesel fuel had to have a percentage of biodiesel in it. Every environmentalist that I thought I had heard of and a few more came out of the woodwork saying that we were going to starve the world because we were using food to run diesel engines. That lasted for quite a while and it was a heavy onslaught. Do you think that has subsided? I understand what you are saying when you talk about non-food- grade oilseeds. We had a fair amount of that in Northeastern British Columbia, too, that we could have fed a plant. Do you think we are over that? I still hear about it every once in a while. What your reaction to that and how do we combat that kind of thing?
Mr. Faye: There are a couple of fronts in that regard. First, if we take starch out of the corn or the wheat to produce ethanol, the rest of it still goes into the feed industry. As it goes into the feed industry, you have got protein, which is really what that grain is used for as well. We as the biofuels industry and myself as a producer have not done an adequate job educating. Everybody said that this was just a phase. It is not a phase. It is a reality.
My brother's kids and my cousin's kids come to the farm. In fact, my wife took them to the garden to get carrots for the table, and they got there and they said, "You get them from there? We get ours from Safeway." We are not our job as producers. The number of people that are actually farming today has gone way down and farm sizes have gone way up. As a result of that, we have to do a better job in making sure that our customer, the consumer, understands this.
The other aspect is that it is not going to be affordable. I am really glad you asked that question because I just came back from the Renewable Fuels Summit in Calgary last week. They listed some figures, one of which was that in 1980, 3.2 per cent of the earned dollar was going to food in Canada and the U.S.; in 1990, it was 11.4 per cent; today it is 9.4 per cent. The actual number of dollars going towards food has gone down in North America.
The other thing is, well, you are taking food away from somebody else in another country. If the subsidies go towards underprivileged countries, are we really doing our job in helping them become self-sustainable? We have to help them to be better producers. I have calls all the time about biodiesel because there are places in Africa that are paying $10 a litre for fuel by the time it gets there, yet they have this vegetable oil that they can take 10 per cent of and make into fuel. There is a circle of misunderstanding.
I think at the end of the day it is not only non-food. We use something that had no market. We are still getting product into our plant that farmers have saved from the frost of 2004. It just does not go into the dump. Some of it does and a lot of people took it to the dump. Then they found out about us. In fact, we ran an ad in 1996 because we did not know how much of this product was out there. We put it in the Western Producer paper, the farmers' gospel and Bible: "Wanted, canola not suitable for food." People still phone us and have that ad on their fridge. They say, "I kept your ad."
An Hon. Senator: Is the phone number still the same.
Mr. Faye: It is still the same.
Senator Neufeld: Does your organization have a plan on how to get out and advertise this or try to bust the myths?
Mr. Faye: The association is committed to making sure that consumers understand the impact and that it is not taking the whole crop and replacing it with nothing. The protein is still useable. Data and research has shown that it is more utilized by the animal system, whether it is hogs, turkeys, chickens or dairy. In fact, our product in the dairy industry increased milk production by one kilogram per cow per day, which is huge according to the dairy people.
Senator Neufeld: I would suggest also that a lot of land not growing crops right now could grow crops that might be marginal, that might be food grade and might not be. At the end of the day, they could supply this market also; is that not correct?
Mr. Faye: You are absolutely correct. Caranata, for example, is being developed. It can be grown in areas where there is less water. Canola likes a lot of water and cool temperatures. Crops on marginal land will not take away from the producer's food rotation.
The Chair: Thank you very much, Mr. Faye. That was very enlightening.
Senators, we are now pleased to welcome Mr.Lionel Kambeitz. He is a recognized energy industry innovator and entrepreneur. He has an established track record of environmental technology and development transitioning through to commercial deployment in global energy markets. He is Chairman and CEO of HTC Purenergy Inc. and Executive Chair of EHR, which is an Enhanced Hydrocarbon Recovery. I think they are related firms. Mr. Kambeitz has speaking notes, which we have.
We are very interested, sir, to hear what you have to say. You have been in the room, not all afternoon, but you heard our biodiversity man. We are covering the whole waterfront of energy and it is quite fascinating for us. We have been on this case for over two and a half years, and we are now trying to get a big picture of how it will all fit together for a more efficient, greener and sustainable energy system for Canada in the future. What you have to tell us I know will fit nicely into the mix, and we are very pleased to see you. Over to you, sir, and then we will try to question you later.
Lionel Kambeitz, Chairman and Chief Executive Officer, HTC Purenergy Inc.: Thank you very much, Honourable Chairman Angus and honourable members of the Senate committee. I am going to spend 30 seconds and talk about who I am.
My family settled here and homesteaded 30 miles from here in 1899 when we called this place the Northwest Territories. I heard for about 50 years, from the time I can remember, that Saskatchewan's time in the sun would come and that more people around the world would need our food and our energy and our minerals. I am pleased to say that the sun is shining on Saskatchewan. Today we have sparked a lot of innovation and entrepreneurship. Our re-elected premier personifies that optimism. He has a personality of optimism and it really personifies what we are feeling and thinking in Saskatchewan.
I can say that Regina has become the common meeting ground of the best business leaders. As of late, a lot of significant business leaders are coming through here and wanting to do business here, and now I see the best legislators as well.
The Chair: Thank you very much. You are very much in the focus out here, too, with the big potash case on the one hand and Cameco's issues on another hand and the great coming into being of a "have" province, which affects equalization payments. It is all very interesting. Anyway, we are all ears.
Mr. Kambeitz: Good. You are Canada's senators and thank you. You guard our rational legislation and our social justice and our democracy. I know your sacrifice of constant travel. I have offices in other spots around the world, so I know what it is like being on airplanes. Senator Peterson is not here, but I see him often on Sunday mornings or Sunday afternoons in airports when he is leaving, and I see him on Saturday mornings when he is coming home. I know you all live on those airplanes, and I applaud your sacrifice. Thanks for your work. I do appreciate it a lot.
The Chair: We do not hear it very often, but that is lovely to hear.
Mr. Kambeitz: HTC Purenergy is an energy technology and deployment company. We founded the company in 1997. We dabbled around the outer edges of this new CO2 world and climate change and the carbon mitigation role that was emerging. In earnest, we got in the business in 2001 in a significant way.
We are headquartered here in Regina. We have commercial offices in Sydney, Australia; Davenport, Iowa; and we have a commercial partner who owns 15 per cent of our firm out of Glasgow, Scotland, and London, and that is Doosan Power Systems. It is one of the top two or three energy infrastructure builders in the world. They are part of a new group of young Korean companies — Samsung, Doosan, Hyundai — that are emerging as global brands in their respective industries. They own 15 per cent of our company and sit on our board of directors. They are really emerging in the desalination business, which is another type of business that specializes refining and burning natural gas to desalinate water in many of the Arab countries in the world. They are emerging that way. They are our commercial partners moving forward.
Enhanced Hydrocarbon Recovery was founded in 2010. It is a wholly-owned subsidiary of HTC, and we founded the company to be able to produce oil using the secondary and tertiary production technologies that we had been promoting and developing. We wanted to produce oil using CO2, using polymers, and using other devices that would allow us, with in situ oil production, to use primarily CO2 as a catalyst for oil production. Those are the two companies that I represent here in front of you today.
I have targeted the word "success" there. I am going to try to make this as hard-hitting as I can, Mr. Chairman, and move through with some good points. Success is really the development of a made-in-Saskatchewan post-combustion CO2 technology. We are quite proud of that, and that technology was developed and acquired by HTC and also licensed from leading research institutions, such as the University of Regina.
Commercial applications in coal-fired power plant industries would be our first success. This was a novel experiment that many of Kyoto-concerned countries of the world went through to see if we could tame the beast called the coal- fired power plant and if we could tame it cost-effectively. We have developed one of the four recognized CO2 commercial capture technologies in the world. When we go into global competition in Italy, Norway, the U.K. and the United States, we regularly find ourselves competing with Mitsubishi Heavy Industries out of Japan, Alstom out of France, Fluor out of the U.K. and the United States. Ourselves and Doosan Power Systems are the players that are competing.
For those of you in Alberta, we are pleased that we are short-listed in competing today, one of one or two companies, I believe. Another is TransAlta and the Keephills project, which is a large coal-fired CO2 capture plant. We are bidding on that project now and hope to be successful. That certainly is one of our successes.
The second success I want to speak to is the commercial application of technology in natural gas combustion for the oil production industry. What I mean by that is all of these once-through steam generators are moving their way through Central and Northern Alberta, whether it is in the oil sands or whether it is in heavy oil. SAGD boilers, steam- assisted gravity drainage boilers, are being put up. They are one of the new emitters of CO2. The exhaust from those boilers is coming out at about an 8 per cent concentration, not as much as the 13 per cent concentration in the exhaust from a coal plant, but nevertheless significant. It is adding an additional CO2 footprint to the barrel of oil that is being produced by using that boiler.
We have had great success with two very progressive and innovative North American oil companies, Husky and Devon, on two projects we are working on right now in Alberta. We really hope to be the first to have tackled the giant of CO2 capture from SAGD boilers and other boilers that are being used for in situ oil production in heavy oil and in the oil sands. That certainly is a significant success for us.
Last and smaller, but still potentially significant, is that our technology is now being applied to the industrial food grade and small industrial markets. We are collaborating today with one of — and I hope there will be an announcement very shortly — with one of the largest food grade CO2 system suppliers in the world. They can take our technology, capture CO2, and use it more and more in what we call small industrial applications such as dry ice, sandblasting, carbonation, preserving foods and things of that nature. We believe that we have to learn to use CO2 as an industrial feedstock. That has been the approach of our company. Capturing is fine, but let us try to utilize it if we can.
Mr. Chairman, CO2 for enhanced oil recovery is the obvious opportunity. We are fortunate, being raised some 40 miles from Weyburn and hearing all of the good things that have come out of Weyburn, where a new tonne of CO2 is capable of producing four to eight barrels of new oil that would not have been produced had that CO2 not arrived. That is a global success story.
Of course, there are great learnings from that. We see the opportunity first in what we call CO2 miscible and immiscible flooding where you generally flood a field or reservoir with CO2 and then six months, nine months, a year later, start producing oil and recycle the CO2 within that value chain.
The next opportunity, as I spoke to, is steam-assisted gravity drainage, the thing that is really driving in situ oil sands and heavy oil production in Alberta and will eventually drive Saskatchewan's heavy oil production, as well in the northeast part of our province. These once-through steam generators are producing CO2, and the opportunity is there to capture CO2 in the field. Now you are capturing CO2 in the oil field where it is required. You are not capturing in a power plant 400 miles away and having to move it. You are there where you are producing oil. The utilization of that CO2, if it is captured within the oil field is a very seductive possibility. That is the reality that Devon, Husky and other progressive companies are looking at today.
The other opportunity that I want to hit home is the utilization of CO2 in an application called cyclic steam stimulation. Rather than flooding the entire field with CO2 and having a general reservoir production, you cyclically stimulate wells with CO2. You do it in a way where you apply CO2 for a period of time, leave the well, produce it, come back, apply CO2, and do it again.
Again, these are industrial uses of CO2 that can be captured in the field where they are needed. In the case of cyclic steam, we need to produce CO2 to produce the steam, so let us capture the CO2 and use it within the very same oil infrastructure. That is an opportunity that we are enthused about.
There is an emerging technology you will hear more and more about. The acronym is TADD, thermal-assisted dissolver drainage. It is an emerging technology that is being used on over 300 wells today. It uses steam, CO2, and some dissolver compounds. They are all put together to create a cocktail, really. You put that in the well and stimulate the well. That will produce more oil as well.
There are two new and emerging notes that I think the committee has to keep an eye on. One relates to the use of CO2, but more than anything relates to bringing a positive message back to the word "fracking." The processes and methods of fracking are holding up oil and gas development, as you are well aware, in many parts of North America and many parts of the world. CO2 as a fracking agent is a bona fide reality. Some of the largest oil service firms in the world today regularly use and truck in CO2. It is innocuous and there is no residual that would create some of the problems that we are now experiencing or reading about in the United States and other parts of the world in terms of the processes of fracking. I think we can be proactive on fracking and start using technologies and processes that are innocuous and will not be stopped by other interests in terms of our ability to use fracking as a way of producing more oil.
Last, I want to suggest the opportunity of CO2 being utilized for the food grade and industrial applications I spoke to earlier. While smaller, it has an impact because it "CO2-izes" the consumer. It makes the consumer aware of the fact that CO2 is a bona fide consumer product that is necessary in foods, in drinks, in energy production and in many things. It is not the devil incarnate that some would think it is. It is just an innocuous gas that we can use within the food chain and within the small industrial process chain.
Those are the opportunities. I have laid out about five of them, and I am enthusiastic about them.
The challenges, if I can lay those out, are in situ oil sands and heavy oil production emissions. The challenge there, of course, is to be able to cost effectively off-scale now. We are dealing with capturing CO2 not in scale, but in smaller systems. Can the costs be kept in line while we have smaller systems operating, which tend to give us higher costs per unit?
I would like to speak to the challenge in natural gas production and export. I think it is an emerging problem. Senator Mitchell and I just spoke for a minute about that. I have grave concerns about what 2020 will look like when right behind bitumen and heavy oil exports we are a significant global exporter of natural gas. We know that the easiest gas in the world that is clean has been found. The gas that remains is the dirty gas: 20 per cent CO2, 30 per cent CO2, other gases and other emissions.
The Chair: Not including shale gas.
Mr. Kambeitz: All sorts of new gases are laden with CO2, and exploration is going to find gas reservoirs that are heavily concentrated with CO2.
The trick to this is that the cost of taking CO2 out of natural gas is imbedded in the consumer price today. Before it is put in the pipeline, that CO2 is taken out. That tonne of CO2 is captured at no cost. It is already imbedded in the consumer price of a gigajoule of natural gas. What are we going to do with that CO2 in 2020 and how are we going to avoid trade tariffs and export barriers? The natural gas we are selling off the west coast of British Columbia has got a high CO2 footprint. What are we doing with that CO2 in Northeastern British Columbia and Northwest Alberta when we separate it out of the natural gas and prevent that from occurring back at the export terminal if and when global natural gas prices become competitive or if there are trade wars and trade tariffs set up around energy and the CO2 footprint? I think that is an opportunity and a challenge for us, and it is something we have to start looking at. As a government, where we are dedicating our CO2 investment? Perhaps first and foremost, let us protect tomorrow's industry, which may be the export of natural gas, and then let us look at today's industry, which of course is the challenge of exporting heavy oils and bitumen coming from the oil sands. I think that is important.
The challenge in respect of coal and natural gas-fired electricity is significant. We have never imbedded the cost of CO2 capture to the kilowatts that we use in our houses. Are we prepared to spend 20 per cent more on a kilowatt or 15 per cent more because it is a CO2-free kilowatt? That is a political and an economic question and it is difficult to answer. In the case of natural gas, we have already imbedded the cost of taking CO2 out of natural gas to make it consumer ready.
The challenge in relation to coal and natural gas just is that; how do we lower the price whereby there is not a 15 per cent penalty for a clean kilowatt or a 12 per cent penalty, but down to a 5 per cent and a 7 per cent penalty?
Large plants are being built, such as the TransAlta plant that is being bid. Our partners opened a plant on November 30, some eight or nine days ago, in Ferrybridge, U.K. It is the U.K.'s first plant. It is a 100-tonne-a-day CO2 capture plant built in the shadow of a 4,000 megawatt power plant, and it only captures 5 megawatts of CO2. However, countries such as Canada and the U.K. have dedicated certain facilities that are going to be running and we will be learning from those. We will learn how to lower the penalty of CO2 capture in electricity. We will have learned how to lower that to 15 per cent and 12 per cent and 10 per cent and finally hit an objective where the technology is applicable and the cost penalty is not that significant.
The other challenge that I would like to hit home is somehow related to the environment, but to me it is certainly related to energy security. We have a need to increase secondary and tertiary oil and gas production. Capital markets are seduced by the drill bit. We will drill because we can raise the capital to drill. We will hit early production because it comes on fast and it is a good return. However, the fact remains that less than 8 per cent of the original oil in place in our reservoirs is produced today. Of this 8 per cent, 90 per cent is from primary production. We have spun the drill bit and we have produced the well, and that accounts for 90 per cent of our conventional production. Over 90 per cent of the original oil remains in place and requires secondary or tertiary production. This will require optimized water flood, optimized polymer flood, CO2 flood, and other acronyms that I could go on and on about.
This is something I think we have to "incentivize." Once you have gone with primary production, the core environmental footprint has been laid. Within the context of that whole reservoir that has 100 producing oil wells, why would we not use that same infrastructure, with no additional environmental damage, for more secondary and tertiary production?
Secondary and tertiary production has an impact on the footprint of the pumpjacks and the LSDs for drilling pads and some of these things that we are all looking at today. Let us create incentives to produce secondary and tertiary oil. I think that is a challenge for us. With 90 per cent of the oil still in the ground waiting for us to take it, it is a prize.
What are the enablers? I am going to stop with that because when you tell somebody what you think the problems and the challenges are, you want to be able to offer them a solution of some sort. I will try to do that.
First, in the case of natural gas processing, I think we need assistance at every level of government in facilitating the CO2 pipeline infrastructure required to move low-cost or no-cost CO2 to the oil fields and the industrial markets. If it costs $60, $70, $80 or $90 a tonne to capture a tonne of CO2 from a coal-fired power plant and it costs nothing to capture a tonne of CO2 from a gigajoule of natural gas, and it only costs $10 or $14 a tonne to move that CO2 from the gas fields to where it can be used, where is the dollar per tonne best spent? The dollar per tonne is best spent on transporting the lowest cost or no cost CO2 to places where you can use it. We can imbed it in the oil fields or we can use it in industry, and if we cannot, we will have to find proper sequestration, which is still low cost compared to capturing it from coal-fired or natural gas-fired electricity production. We need assistance at every government level to be able to facilitate and promote that. The Alberta CO2 trunk line was one of those initiatives, and I think that needs to be developed and assisted through the entire energy sector.
Secondly, I think we need support for micro CO2 capture projects. We participate in the macro projects. We are going to learn from these great plants that are built around the world about how they integrate into big coal-fired power plants. However, we need support for these micro projects that capture CO2 from in situ heavy oil production and bitumen production, utilizing SAGD and cyclic steam and TADD technologies where we need CO2 and steam together. We need support at the micro level. This is a low-budget support because we are dealing with micro projects. We are not dealing with $200 million and $300 million capture plants anymore. We are dealing with $5 million and $10 million small projects and plants that could help us through that.
The third enabler that I consider to be important is the continued development and public acceptance of Canadian standards and protocols for geo-sequestration of CO2. The fact remains that if we cannot use it to produce oil and if we cannot use it industrially and if we can find low cost, no cost CO2, let us bury it. It is not that expensive. Let us have those public standards and protocols accepted and let us do a better job with the public in having them understand what geo-sequestration is and their acceptance of that. I think we need to invest some money as a government in that area as well.
Last in terms of the enablers, I would say it would be an injunctive royalty and tax relief of some sort at every level — provincial, federal, municipal — for secondary and tertiary oil production. Now, that relief, let us tie it to West Texas Intermediate oil pricing, which is fine. Later, when we get the great Northern Gateway pipeline, let us tie that relief to Brent North Sea oil pricing. Ultimately, if we are going into a secondary and tertiary application as a producer, let us create an incentive to do that as opposed to spinning a drill bit, running it for four or five years, and in eight years moving it out to a smaller producer because it is on the rapid decline. Why not spin that drill bit five or six or seven or eight years later, stop the decline, create an incline and move the other way. I think incentives at the royalty and taxation level are going to be required to create the catalyst for investment in secondary and tertiary production.
In closing, Mr. Chair, the benefits would be, first and foremost, a substantive lowering of the CO2 footprint associated with the production of Canada's two leading future exports — and that, in itself, is profound — resulting in Canada meeting its obligations and responsibilities as a global citizen that has been historically recognized and respected as an environmental leader; and last, of course, resulting in the mitigation of future export trade barriers that are today in front of us because of our CO2 footprint in oil and will be in front of us tomorrow because of our CO2 footprint in exporting global natural gas.
The Chair: Well, Purenergy has a very high-energy CEO and that is good to see.
I wanted to start with a couple of simple questions. Is it a public company?
Mr. Kambeitz: Yes, it is. HTC Purenergy is a publicly-traded company in Toronto.
The Chair: Is Doosan a public company?
Mr. Kambeitz: Yes. Doosan Heavy Industries is based in Seoul, Korea.
The Chair: But it is a Scottish —
Mr. Kambeitz: Well, they bought the Babcock boiler division out of Scotland many years ago and the Scoda turbine division out of Pilsen, Czechoslovakia. They run their European power business out of Glasgow and out of Pilsen, Czechoslovakia.
The Chair: My next question that probably shows my liberal arts bent as opposed to technical. Listening to you talk, I had the sense that you do not believe in peak oil. The reason I say that is that you went into some detail about only having scratched the surface in all of our conventional oil wells in Canada. Here we have been told that the fossil fuels are running out and therefore we have got to look at all these alternatives, and blah, blah, blah. Now you are saying most of the oil is down there and you are talking secondary and tertiary and quaternary and so forth. Help me, or maybe I have got it.
Mr. Kambeitz: Peak oil is an encyclopedia to itself, but the fact remains that the global population is expanding. The best example I can give is what I call the seduction of the electron.
The story is this. When we were first electrified in rural Saskatchewan, you spent a month's wages buying one thing to plug into the wall to use that electron. That is what a fridge cost. That is what a good wringer washer cost, a month's wages, to plug something in the wall to use the electron. Today you can spend a week's wages and fill up a small closet with 200 items that you can plug into the wall to use the electron.
When I go to China and India, and we spend a lot of time in Shanghai and Beijing, and we see cars on the drawing board at $1,900 and $2,500 and $900, the seduction of mobile fuel is going to be no different than the seduction of the electron years ago. There will be gadgets and devices using mobile fuel, oil and compressed natural gas that will be so inexpensive that right after feeding your families, right after having electricity in their homes, that will be the next thing they are going to buy. I am humbled by those 2 billion or 3 billion people that are going to discover mobile transportation. I think there is going to be immense growth on the demand side, and all of this secondary and tertiary production is going to be required.
The other thing that I have to be aware of is that the application of secondary and tertiary production offshore is not as simple, not as easy. It is risky; it is not as cost-effective; it has its own set of dangers. We are dealing with tertiary and secondary, initially primarily onshore production. We have to recognize that as well because the new big finds are offshore, and it may be difficult to apply some of these tertiary and secondary opportunities there as cost effectively as you can for onshore oil.
The Chair: To use a simple illustration, the image I have is that oil was discovered in Leduc, where they drilled down and the oil gushed out. Everybody got rich and Bob's your uncle. However, it stopped flowing and gushing. They capped it off, but 90 per cent of the oil is still down there. How do you get it?
Mr. Kambeitz: Well, first of all, "secondary" is a fancy word, generally speaking, for using water. A water pressure drive or gas pressure drive uses water or gas to pressure up the reservoir to allow more oil to be produced. Fundamentally, you are often disposing the very salt water that you are producing. Perhaps you have a 95 per cent brackish water cut in your oil — 5 per cent oil, 95 per cent water to begin with — so you are fundamentally using your brackish water to re-pressurize a reservoir. That is secondary. "Tertiary" would be going into the world of putting some polymers in, which do nothing more than unleash additional oil and allow you to produce another 8 per cent or 10 per cent of that reservoir.
Let us just use an example, Mr. Chair. After primary production at 10 per cent, now we have got 8 per cent more with water flood and 7 per cent more with polymers. Then, if the reservoir is suited, perhaps come in with CO2 flood from some of the oil sands emissions. Let us say we move that over to Leduc and we find that CO2 is capable of another 10 or 15 per cent or 8 per cent. We then get up to 25 and 30 per cent OOIP. That other oil then waits there for evolving and emerging technologies and perhaps higher oil prices to support emerging technologies. That would be the value chain that they would follow, I think.
Senator Mitchell: You mentioned that there are four prominent technologies for CCS and that you have one of them. What are those four and which one is yours?
Mr. Kambeitz: I have taken the liberty of suggesting that one, post-combustion amine scrubbing, has emerged as being commercial. There is very little or no technical risk; there is only a case of the economics. Fundamentally, it is an absorption technology. Really, it is a solvent-based technology where the exhaust moves through these absorption chambers and is absorbed into the solvent. The solvent is then heated up, which is the energy penalty, and the CO2 is released and recycled. That seems to have emerged as the one commercial technology where there is little or no technical risk, and it is really only a matter of the economic cost of it. We compete with four global competitors regularly in that arena now, and that would be MHI, Alstom and Fluor.
Senator Mitchell: Do you have some patents and intellectual property on it?
Mr. Kambeitz: We do.
Senator Mitchell: Is it yours?
Mr. Kambeitz: We have developed our own patents with our own team. We have intellectual property we have acquired, and we license technology from the best leading research institutions. Our collaborative partners in licence technology are the University of Regina. We have a very good technology relationship with the University of Texas, a university in Norway. We try to find technologies from the leading research institutions and bring them together for a deployment package, Senator Mitchell.
Senator Mitchell: It goes without saying you have a tremendous interest, as does SaskPower, in being able to export this technology all over the world to many thousands of coal-fired plants, for example, that might be eligible for this kind of technology. You have mentioned that we need incentives at the royalty and the tax levels.
Mr. Kambeitz: Yes.
Senator Mitchell: If those were in Canada and elsewhere, they would undoubtedly be an incentive to your ability to sell this technology because there would be an economic driver for people to want to buy it. What kind of royalty or tax incentive are you talking about? Are you talking about tax write-offs, or are you talking about a carbon tax?
Mr. Kambeitz: No, I am not. I am fully appreciative of your question.
On the issue of post-combustion, I think we are in a very good space. I like the fact that we have got some large commercial plants being built and we get to watch them. We are at a watching period now. The political environment for climate change is not quite as much of an imperative, and it is a good time to be able to watch what we have invested in and is being built now and will be completed. Let us see if we can drive the cost of post-combustion capture down for electricity.
Where I think less money could be spent in greater frequency is working in the transportation of carbon dioxide that already has to be captured for our new emerging industry.
Where I want relief from royalties and taxes is directly related to any tertiary and secondary oil and gas production because it is an environmental issue. It is cost effective environmentally to be able to stay on site and keep producing oil from that same reservoir. You have done the damage and paid the price, so why would we not do it?
Senator Brown: I was a little lost on some of your things on CO2 utilized in thermal-assisted dissolver drainage. TADD is what you said. I wanted to know a little bit more about this dissolver. Is it patented?
Mr. Kambeitz: No. The TADD technology is an oil cocktail. It is a case of injecting steam, CO2 and a dissolver chemical that creates a better lubricity in the oil. You inject those together and you do it cyclically. It is called thermal- assisted dissolver drainage. You inject it, produce it for 90 days, inject for two days, go back, produce it for 90 days, You move on a mobile basis around the your oil fields, doing that to stimulate the wells.
Senator Brown: It makes the oil thinner.
Mr. Kambeitz: It improves the viscosity of the oil and allows it to be produced.
Senator Brown: That is all I wanted to know.
Senator McCoy: This is a very interesting presentation and very — "optimistic" is not the right word. It is just that I love the "bon vivance" about getting out there in the world, doing what we can do and let us do it well. I appreciate having the opportunity to speak with you.
With respect to natural gas production and export, you say that the cost of CO2 capture is already imbedded in the cost of consumer-ready natural gas. I was trying to imagine what you meant. By the time we get down to putting natural gas in our furnaces for space heating, it is just methane, right?
Mr. Kambeitz: Yes.
Senator McCoy: Which is, of course, is another greenhouse gas.
I know that we have straddle extraction plants in Alberta that strip out some methane and one other substance used as feedstock for our chemical industry. However, I have never encountered stripping CO2 out of natural gas. Could go through one of your brilliantly illuminating thumbnail sketches of that process?
Mr. Kambeitz: Natural gas, of course, is processed to be consumer ready, and CO2 and other nasties are taken out of the natural gas. Many of the new finds of natural gas in the world are high CO2 content natural gas. For example, the Sleipner field in Norway is the first field to have a bona fide sequestration in the North Sea. They are bringing up natural gas, stripping CO2 out of the natural gas right on the platform, and they are re-injecting the CO2 at a different strata level and putting it back into geo-sequestration. They are producing a unit of natural gas, stripping the gas out because it has to be stripped out to be consumer ready, and they are putting it right back down on geo-sequestration. That is the value chain that they are using for North Sea gas.
Senator McCoy: When I looked at that process a couple of years ago for CCS, I understood that to be CO2 taken out of one of their processing facilities. They were bringing the natural gas in and treating it. It is not refining; it is gas processing equipment because it is burning fossil fuels and therefore creating CO2, not the CO2 imbedded in the natural gas.
Mr. Kambeitz: I am not referring to a combustion CO2, but the CO2 imbedded in the natural gas.
When and if we start exporting natural gas, as some of the long-term plans would suggest we will, then there is a need to even strip the last micro amounts of CO2 out of that natural gas prior to it going into the LNG process. The LNG-ready gas is even cleaner in terms of being stripped of CO2 than is consumer gas. My concern is that we are exporting one of the cleanest fossil fuels to a spot in Asia, which is a good thing, and we have a CO2 footprint here in Northwestern Alberta or Northeastern British Columbia for that clean fossil fuel we have just exported to Asia. I think the repercussions of that have to be looked at if we look out 10 years from now.
Senator McCoy: Thank you. I will go and delve into that some more.
Senator Neufeld: To that point and just to further the discussion, I know about the gas plant in Fort Nelson and they strip the CO2. About 1 million tonnes a year are vented to the atmosphere at the present time, but Spectra Energy is looking, as is the Government of British Columbia, at deep saline injection of that because it is a long ways from a market where it could be used. I am familiar with that process.
I know of four plants in B.C. that strip. We have one that does send it down below already with acid gas. Some of those things are happening as we speak, but not to the extent that they should.
The only thing I do not like — and it was a great presentation — is dirty natural gas. I am from British Columbia and Northeastern British Columbia, to be exact, and that just adds to an environmentalist's repertoire of saying that this stuff is terrible. That is all it does.
Mr. Kambeitz: Thank you, senator. That is so true. Of course it is the cleanest fossil fuel in that regard and, but, nevertheless, some of the new finds there seem to be coming up with higher and higher concentrations of CO2.
Senator Neufeld: More in shale gas than in tight gas. That is what we are finding.
Mr. Kambeitz: You are right.
I think Spectra Energy is doing a fabulous job of trying to find a home for that million tonnes a year that are effectively captured. It is no-cost, low-cost CO2. We know that our industry may multiply by a multiple of 30 or 40 times our present volume if we read some of the projections in terms of where natural gas production could go. It would be interesting to see the penalty.
Senator Banks: Well, there used to be dirty natural gas and there is not anymore. It used to have lots of sulphur in it, which went up and made sulfuric acid. It fell down and killed everything. That has been long since fixed because it is stripped out, too, despite the objections of the industry at the time.
I hope that when you go to Davenport, you sometimes make a point of going there when the Beiderbecke Jazz Festival is on because it is one of the best jazz festivals in North America.
An Hon. Senator: Have you played there?
Senator Banks: Oh, yes, I have.
I am also very glad to hear you talk about markets for CO2. We do not hear enough about that. We hear about sequestration and the occasional use for enhanced oil recovery, but we do not hear about those other markets. You are right that we have to take the boogeyman out of CO2 because there are situations in which we do not want it, but there are lots of situations in which we need it, including living. We will not do very well in the world if we do not have CO2.
What do you mean by injunctive relief? On what?
Mr. Kambeitz: It is just a term that I —
Senator Banks: It usually has to do with a court ordering something.
Mr. Kambeitz: To me, it is vacillating relief. It is a way of suggesting it is a variable royalty relief that is somehow tied to a world price of oil.
Senator Banks: And to a success rate and removal of CO2?
Mr. Kambeitz: Exactly, a success rate in using tertiary and secondary processes to produce oil. We have to incentify our oil producers to spend that extra dollar on secondary and tertiary.
Senator Banks: Right.
Mr. Kambeitz: That is what I believe we have to do.
Senator Banks: We have been at this for a while and we have heard many different opinions about the effectiveness, success rate, completeness, efficiency of scrubbing. What is your view of the effectiveness of post-combustion solvent absorption out of the stack? How much is still getting away from us?
Mr. Kambeitz: Typically an optimum scrub rate for this amine technology would be in and around 80 per cent, and 85 per cent is is a good number.
Senator Banks: That is very high.
Mr. Kambeitz: That is an optimum scrub rate.
Technical uncertainty is never entirely eliminated, but it certainly has been eliminated because the gas processing industry that we just spoke to pioneered solvent absorption and solvent stripping using solvents and amines. It was pioneered in the gas processing industry, over 30,000 plants around the world. What we have really done is adapted that to a post-combustion environment. The technical certainty is I think been looked after and it meets industry standards — but it really is price.
The penalty, Senator Banks, is the steam that is required, the heat that is required to regenerate the solvent and release the CO2. And if it is a 12 per cent or a 15 per cent energy penalty, whatever that number is, depending on what plant you are in, that is the penalty that we have to drive down. Investments have been made in many countries and there will be learnings in terms of how to drive that investment down.
We will learn more from small SAGD boilers because we will put up many little CO2 capture plants all over these post- combustion SAGD boilers. Rather than having a plant in the middle of America that has taken up $400 million or $500 million of a federal budget, what about small modular CO2 capture units that are through all these SAGD plants in Northern Alberta? Suddenly we have the learnings of 10 smaller plants being commissioned every year — newer technologies and learnings every year. I think that is the pathway to greater learnings. That is the one I would look to see us direct towards, and not requiring necessarily any — perhaps even less funding than the path we were on with the macro plants that we were looking at and discussing.
Senator Banks: It is many years ago now that Encana bought a spent oil field in Weyburn, Saskatchewan, that was long past its best-before date. A lot of people in the oil patch thought they were crazy because the concept of EOR had not happened yet. You referred to the efficiency of that process and the usefulness of secondary recovery. Are you involved in that play?
Mr. Kambeitz: No, we are not. When I say that, many in the Regina team were involved at the time. It was a wonderful collaboration between government, academia, associations and industry. Many people residing here in Regina were involved and are involved. Our company was not at the time, but we are lucky in that it is the largest living laboratory in the world.
Senator Banks: Unfortunately, it uses imported CO2.
Mr. Kambeitz: It does.
One of our disappointments this year is that we were the selected technology for the very company that supplies that CO2, Basin Electric, a Dakota gasification supplier of the CO2. They were looking for additional CO2 to be able to sell into North Dakota and potentially more into Saskatchewan. They selected a technology that they wanted to move ahead to design, so we designed a very efficient, cost-effective plant with Doosan Power Systems for Basin Electric to go to gasification. We were very pleased to be their selected technology vendor at the time.
Two things happened there. I think some funding never came through that should have come through at the government level. As well, they were looking for take-or-pay contracts for the CO2 that would help fund this new system that was to capture 1,000 extra tonnes of CO2 per year. That project has been put on permanent postponement. Being the suppliers to Weyburn, we thought they were the pre-eminent CO2 capturers and sellers in the world. It would have been a very good project for future branding, but that project has been indefinitely postponed at this point.
Senator Banks: Maybe it will come back.
Mr. Kambeitz: It may. We hope it will.
Senator Banks: Out of curiosity, because we are always curious about acronyms, what does HTC stand for?
Mr. Kambeitz: We started out liking CO2, and we were producing hydrogen. Senator Banks, when you were chairing the committee about six years ago, we spoke about using CO2 for the production, the dry reforming for hydrogen, as a matter of fact. Hydrogen Technologies was the original acronym. That is how it was established.
Senator Banks: Thank you very much. Good to see you again.
Senator Sibbeston: Since transportation emits a lot of CO2, is there any development or research going on to capture the CO2 emitted by vehicles? My idea is that after trucks have made a trip, they just take out a little box and dump the carbon out. Is anything like that being worked on?
Mr. Kambeitz: There is some early stage work being done in some of the nano-technologies, where they are trying to produce a physical medium that would absorb many, many times its own volume and weight in CO2. The transportation industry tends to say that the answer to CO2 is in fuel conservation and efficiency, and it is. That probably is one of the answers for us as well when it comes to electricity production, and we thought of that. Maybe one of the core answers is just using less of it.
Senator Sibbeston: Is it not as simple as just putting a cloth or a screen or a solution through which the exhaust goes and then captures all the carbon? Maybe it is simpler than we think.
Mr. Kambeitz: Well, one ingenious farmer in Saskatchewan many years ago took the exhaust of his tractor and ran a pipe back. He put a tube down every shank of his air seeder cultivator. While he was tilling, cultivating and seeding the soil, he would then feed the soil the exhaust from that tractor. I am not sure what the outcome of that was.
An Hon. Senator: He asphyxiated himself.
Mr. Kambeitz: There is a lot of individual innovation that you read about.
The Chair: When you were describing these other uses for CO2, especially respect to oil, I thought, "He is not only against peak oil, but he is also against CCS." I was thinking why sequestrate. That was your third volley, the sequestration part. Do I understand that you would not be advocating spending gazillions of dollars that the feds are spending with Alberta on CCS? We know what we already know.
Mr. Kambeitz: I am an advocate of geo-sequestration, but first and foremost I am an advocate of no-cost, low-cost CO2. Where is our next X of billions of dollars, as you would say, Mr. Chairman? Where are we spending those dollars? We should spend them on the low-hanging fruit.
The Chair: Correct.
Mr. Kambeitz: If the side benefit happens to be emitting some export tariff issues on global natural gas 10 years down the road or reducing our footprint on oil sands oil, which would be a wonderful side benefit, let us find the lowest cost CO2 and manage it. The transportation of CO2 in pipelines is a fraction of the cost of capturing a tonne of CO2 from post-combustion — a fraction. It may be $10, $12 or $14 a tonne, when we have numbers being floated around Canada and the United States at $70, $80, $90 or $100 a tonne to capture the CO2. Why would we not focus on that low cost, no cost first? That is where I think the dollar should be spent first.
The Chair: The other point you made in passing was in respect to fracking. We had quite an elaborate bunch of witnesses in B.C. telling us about how the fracking process would work with high-pressure water, the whole issue of water being popular with the naysayers. Was this to be in lieu of water?
Mr. Kambeitz: In addition to.
The Chair: In addition to?
Mr. Kambeitz: Yes, in lieu of some of the other —
The Chair: The sand and all that stuff?
Mr. Kambeitz: — fluids that are being used. There are many uses for CO2 because, of course, it liquefies under pressure. If you need a medium that is liquid but ultimately, when it is not under pressure, re-gasifies and removes itself from the process, you can do very interesting things with it as a medium.
Two of the largest energy service companies in the world are — this is an experiment — actively CO2-fracking today. They are taking delivery of CO2 via tanker — and you will see CO2 tankers at every fracking site — and using it as a medium for fracking, which I think takes the boogeyman out of CO2 a little bit and makes it an industrial product for us. What we are hoping to see that happen.
However, we are supporters of geo-sequestration. First, we will use it industrially to produce energy or use it industrially for other applications; and, secondly, we will geo-sequester it, and that is where the dollars should be spent. Every tonne of low cost, no cost should be used or sequestered, and then we will see if we can bring the costs down of post-combustion capture with the emergence of our technologies and others.
The Chair: I am glad I asked the question.
Senator Banks: You probably know the answer to this and we could have asked you earlier. A couple of years ago, we heard that the use of liquid CO2 in the fracking process had a double use; that is to say, it was used as the liquid instead of water just for the pure pressure, but it also functions as a solvent at the same time. It is even more useful in the fracking process in releasing whatever it is that you are after, which is oil in most cases; is that correct?
Mr. Kambeitz: Well, anytime we put CO2 in the presence of medium to light oil there is a miscibility effect. CO2 and oil like each other, and it improves the viscosity of oil by virtue of being in association with one another. To a secondary degree, I believe that is correct.
We are not fracking experts, Senator Banks, but to a secondary degree, I think that would be a benefit.
Senator Brown: We were at ENMAX a few days ago in Calgary, and Direct Energy. They are using natural gas to super-heat steam and send it through thermal pipes to warm the municipal government, for want of a better word. They took over something like eight old boilers. You said that if it is under high pressure it can become liquid. If we are recycling this stuff through thermal pipes, why could we not drain off the CO2 as a liquid, as Senator Sibbeston has said? They are going to recycle this heat all the time to keep that energy going.
Mr. Kambeitz: It is possible. One of the emerging technologies being looked in the high CO2 gas fields of Indonesia, off the coast of Australia, is cryogenic technology. Where the CO2 is moved through under pressure and liquefied. Ultimately under enough pressure, the CO2 falls out of the gas stream.
We have had some experience with that emerging technology. One of my vice presidents testified to the committee about a year and a half ago in Ottawa and spoke just briefly to the cryogenic removal of CO2. That may emerge as a technology, Senator Brown. It is futuristic at this point, though.
The Chair: I think that covers it, colleagues.
As I said earlier, Mr. Kambeitz, your presentation has been full of energy and very engaging. It has been wonderful to have you with us. I think I was there when we did that study on hydrogen. It is good to see you again, sir, and all the best.
Mr. Kambeitz: Thank you.
Colleagues, we have one last set of witnesses. We are delighted to have two representatives here from the Ministry of Energy and Resources of the Government of Saskatchewan. Mr. Floyd Wist is Executive Director of Energy Policy, and with him is his Mr. Michael Balfour, Director of Energy Economics.
Welcome and we look forward to hearing from you both.
Floyd Wist, Executive Director, Energy Policy, Ministry of Energy and Resources, Government of Saskatchewan: Thank you, Mr. Chair. I apologize for appearing in front of you late in the day. I will do what I can to make the presentation as short and as interesting as possible.
The Chair: Good. We have a deck, gentlemen, and a fairly substantial one at that.
Mr. Wist: I would like to emphasize three things in my presentation. The first is the importance of the energy sector to Saskatchewan and to Canada and, hence, the need to carefully consider any major changes to the energy sector.
Secondly, I would like to emphasize the pervasive scope of the energy sector. Energy is embedded in nearly every product every Canadian consumes and is in nearly every activity undertaken by every Canadian every day. At the same time, it is easy to take low-cost renewable energy for granted, and the sector is not well understood by many Canadians.
The final thing I would like to emphasize is the crucially important role of technology in the energy sector to permit a smooth, orderly transition to future low-carbon energy sources that will have a reduced environmental impact while keeping energy costs low and maintaining the high reliability required by modern industrial society.
If you look at the bottom of the page, you can see an outline of the province of Saskatchewan. We have a diversity of energy resources which is unmatched by any other Canadian jurisdiction: uranium, natural gas, oil and coal. We have oil sands potential as well.
Energy is a cornerstone of our provincial economy. It accounts for approximately 9 per cent of provincial gross domestic product. The industry invests nearly $5 billion a year into the provincial economy and maintains over 30,500 direct and indirect jobs. The industry generates approximately $2.5 billion each year in revenues for the provincial government. Saskatchewan is the largest and the only producer of uranium in Canada. We are the second largest producer of oil in Canada and the third largest producer of natural gas and coal.
During your meetings across the country, you will have noticed that the energy sector in Canada is very different from one jurisdiction to another. This slide shows each jurisdiction's share of commercially-traded primary energy fuels. One of the major distinctions between jurisdictions is whether the jurisdiction produces more energy than it consumes. Only four jurisdictions in Canada produce more energy than they consume: Alberta, Saskatchewan, British Columbia, and Newfoundland and Labrador.
Saskatchewan produces over one third of all primary energy in Canada, behind only Alberta. This fundamental distinction creates a major divide in the Canadian energy sector. For example, on one side of the divide, a high oil price is seen as a good thing. It stimulates economic development, industry investment, job creation and contributes to increased provincial revenues. On the other side of the divide, a high oil price rightly is seen as a big thing. It increases household and industrial costs, slows the economy and reduces jobs. The existence of this major divide greatly complicates the task of developing one national energy policy that meets the needs and aspirations of the entire country.
At The bottom of the page, you will see that uranium is by far the dominant commercial energy resource produced in Saskatchewan.
With respect to electrical energy, all the electricity produced in Saskatchewan amounts to less than one third of 1 per cent of Saskatchewan's total energy production because the production of our other energy supplies is so large. Of all the electricity produced in Saskatchewan, that one third of 1 per cent, the renewable portion is about 20 per cent. You heard earlier from SaskPower about the hydro and about the wind power that we produce. Renewable energy in Saskatchewan amounts to one fifth of one third of 1 per cent of all the energy produced in Saskatchewan.
If you turn the page, you will see that Saskatchewan produces a huge surplus of energy relative to our consumption. Even if we excluded uranium, Saskatchewan's energy exports are more than twice as large as what the province consumes itself.
I will now discuss, at the bottom of the page, specific energy sectors, starting with uranium. We have been mining uranium since the 1950s. Currently we are the only uranium-producing jurisdiction in Canada. Our mines have made Saskatchewan the largest uranium producer in the world for most of the past two decades. Kazakhstan recently became the world's largest producer, but Saskatchewan — by which I mean Canada — hopes to regain the title as the world's largest uranium producer when new mine developments come on stream in the next year or two.
We have been a leader in developing medical isotope technology in the past, and we plan to return to leadership in nuclear research and development with respect to the usage of isotopes and other value-added opportunities using Saskatchewan uranium. Mining in Saskatchewan tends to be a technology-driven industry involving state-of-the-art practices and technologies. Highly-concentrated ores in our uranium mines are produced with remote mining technology.
You can see that Saskatchewan has only two producing uranium mines at present: McArthur River and Rabbit Lake. We expect to have additional mines come on stream soon. These mines will be some of the red stars that are shown on the map, which indicate many recent uranium deposits that have been discovered. Some of those deposits will proceed to become the next uranium mines in Saskatchewan.
At the bottom of the page, you will see an outline of our coal resource in Saskatchewan. SaskPower earlier this morning gave you an indication that Saskatchewan has 300 years' worth of lignite resources, so I will just skip over that page, except to indicate that coal in Saskatchewan supplies about 50 to 60 per cent of Saskatchewan's electricity, and 20 to 30 per cent comes from hydropower, depending upon flow rates from rivers sourced in the mountains.
Turning the page, renewable energy will be making a growing contribution to Saskatchewan's energy mix in the future. This is because Saskatchewan contains 45 per cent of all of Canada's farmland, so that bodes well for Saskatchewan's potential to produce biofuels in the future. I believe you had a presentation earlier today from Saskatchewan Enterprise, which talked about ethanol and biodiesel, so I just wanted to touch on that. I do not mean to say it is unimportant, but I will just not repeat what you have heard earlier.
I will mention wind power. We have 198 megawatts of wind power in Saskatchewan, which represents about 5 per cent of our generating capacity. These facilities perform very well for wind power facilities. They produce at about over 40 per cent of capacity. Other wind farms elsewhere in the world typically are 20 to 30 per cent performance in terms of the capacity factor. We plan on doubling our wind capacity to 400 megawatts in the near term. Another 200 megawatts of biomass hydro and wind power would also be added over a longer time period.
At the bottom of the page, there are various energy efficiency initiatives available in the province of Saskatchewan. These are offered by our two provincially owned Crown corporation utilities. You heard from SaskPower this morning. They are our electricity distribution utility. We also have SaskEnergy, which is our natural gas distribution utility. The most significant of these programs, the Energy Efficient Rebate for New Homes, provides $1,000 for newly constructed energy efficient homes and $1,000 for solar domestic hot water heating. The EnerGuide for Houses Program complements the federal program and offers up to $5,000 in provincial grants to cover a portion of retrofit costs. Other energy efficiency initiatives are available down there. SaskPower, a couple of days ago, was giving away block heater timers in various Home Depot parking lots across the province.
If you turn the page, I will move to Saskatchewan's petroleum sector. We have got a long history of oil and gas exploration in Saskatchewan. Natural gas production commenced in the 1930s and oil production in the 1940s. We are the second largest producer of crude in Canada after Alberta. We produce about 17 per cent of total Canadian production. Interestingly, if you ignore Alberta's oil sands production, Saskatchewan's production of conventional oil is nearly as high as Alberta's. Conventional oil production has been declining in Alberta for decades, and conventional oil production in Saskatchewan, in contrast, has been increasing. It increased and now it is relatively stable. We are the third largest producer of natural gas. There is Alberta and then there is British Columbia.
At the bottom of the page, this table discusses our crude oil and natural gas reserves. The top line indicates the geological estimate of the resource that is initially in place. The second line lists the assessment of the portion of those reserves that can be produced given current technology and prices. Note that while Saskatchewan is thought to have more than 45 billion barrels of oil in place, only about 13 per cent of this oil is thought to be commercially recoverable at this time, leaving 39 billion barrels unrecoverable with current technology. This is the issue that the previous speaker, Lionel Kambeitz, was talking about in terms of the oil that remains in the reservoir. This represents a significant economic opportunity if even a small portion of that unrecoverable resource were to become accessible. Although there may be more oil to be discovered somewhere in the province, improving the recovery rate from existing oil reservoirs is our best opportunity to sustain oil production.
On the next page, the table at the top breaks out light, medium and heavy crude oil production in Saskatchewan. Moving from left to right on that chart, you can see that we have increased production. We set a record of production in 2008. We have had a slight decline since then.
The second thing to note on this chart is that the yellow portion, the light oil portion of the graph, is increasing recently because of the development of our Bakken production from our shale oil, using hydraulic fracking technology of horizontal wells. Saskatchewan believes that heavy oil will continue to play an important role in the future. It is about 50 per cent of our production, but we are going to require the successful application of new technology in order to increase current recovery rates.
The pie chart at the bottom of this page shows this in more detail. This is our heavy oil resource base only. The green oil we believe cannot be recovered with the current technology and prices. The yellow has already been produced. The brown remains to be produced. Our objective is the 90 per cent of the oil resource, which is in the green portion of the pie. If we can develop new technologies to move 5 per cent — move that 90 down to 85 — into the brown wedge, we will more than double the size of the wedge. All we need is a relatively small incremental improvement in our technology of 5 per cent, the ability to access 5 per cent more of our oil, and we will more than double our remaining producible reserves. We have a very heavy emphasis on new technology in Saskatchewan.
Turning the page, you can see where the Bakken is located. The Bakken has also been the beneficiary of new oil technology. I have mentioned hydraulic fracturing of horizontal wells and that has enabled us to develop the Bakken as one of the hottest oil plays in North America at the present time. It has also been of considerable benefit to North Dakota, south of the border.
If you look at the bottom of the page, you will see our oil production from Southeast Saskatchewan. You can see how the light oil, yellow portion of the Bakken oil, has shown up very abruptly and how it is producing one third of the light oil production from our southeast area within a very short period of time.
Turning the page, at the top you can see an illustration of how an oil shale field is developed with hydraulic fracturing of paired horizontal wells. This technology illustrates the oil industry's reliance on new technology to increase oil production just as the development of horizontal wells, downhole screw pumps, have had dramatic impacts in the past on the industry. We have a history in Saskatchewan of successfully applying new technology to unlock more of our problematic oil resources, and the further development of new and innovative technologies is crucial to Saskatchewan achieving its full energy potential.
Another reason for new energy technology is because currently there is a strong link between economic activity, energy consumption and greenhouse gas emissions. This link is even stronger in Saskatchewan because our economy is dominated by energy intensive industries such as energy and mineral production. Unless we are able to break the links between economic activity, energy consumption and emissions, essentially reducing emissions will mean that we are reducing economic growth. Saskatchewan believes that one of the best ways of breaking the links is to develop and use energy technology, in particular carbon dioxide capture and storage technology. Again, that is something that Lionel was talking about with you earlier.
Carbon dioxide capture and storage technology is critical. The International Energy Agency predicts that carbon- based fuels will still account for 75 per cent of global energy consumption in 2035. Because of this continued reliance on carbon-based fuels, the Intergovernmental Panel on Climate Change has estimated that carbon dioxide capture and storage might provide up to half of all emission reductions necessary to stabilize greenhouse gas levels in the atmosphere.
In Saskatchewan, our lignite can be a secure, low-cost resource for the generation of electricity for many decades if we can address the environmental challenges through the use of carbon dioxide capture and storage. We are a world leader in carbon dioxide capture and storage technology and we have played a major role in demonstrating the safety and practicality of this technology. Saskatchewan has large sources of carbon dioxide, such as coal-fired electricity generating stations and refiners and upgraders located near producing oil reservoirs and reservoirs containing salt water. This provides Saskatchewan with two options for disposal of carbon dioxide underground.
In the short term, we will capture carbon dioxide from these facilities and inject it into an oil reservoir to simultaneously dispose of carbon dioxide and increase oil production, an economic and environmental win-win situation, and those are difficult to find sometimes. In the longer term, captured carbon dioxide can be stored in various extensive, deeply buried saline aquifers that underlie the entire southern half of the province.
Sales of carbon dioxide to oil producers will offset a portion of the current high costs of capturing carbon dioxide and then carbon dioxide capture costs should decline in future years, enabling Saskatchewan to later proceed with disposal of carbon dioxide in saline aquifers.
Mr. Kambeitz, the earlier presenter, discussed the Weyburn project. This is my last slide and it talks about the Weyburn project.
You can see that carbon dioxide enhanced oil recovery presents a significant resource development opportunity in Saskatchewan. I should emphasize that carbon dioxide enhanced oil recovery is not a new technology. There have been carbon dioxide enhanced oil recovery floods in the Permian Basin in Texas since the 1970s, and the first carbon dioxide enhanced oil recovery injection in Saskatchewan began in 1984 as a pilot project. Currently, we have two commercial scale — not pilot — carbon dioxide enhanced oil recovery projects. One is by Cenovus, which is the successor to Encana, and it is in the Weyburn oil pool, and Apache Canada in the nearby Midale oil pool. These projects purchase carbon dioxide that would otherwise be emitted by a coal gasification facility in North Dakota.
In the insert at the bottom of the page, you can see the location of the source of the carbon dioxide in North Dakota and you can see the pipeline. It is a 325-kilometre pipeline that crosses the Canada-U.S. border and is regulated by the National Energy Board.
The Weyburn EOR Project has been injecting carbon dioxide since the year 2000 and has seen a 60 per cent increase in oil production as a result of the carbon dioxide that has been introduced. That is 60 per cent over where the oil production otherwise would have been. If you look at the top part of this particular slide, on the right-hand side you can see the amount of oil production that is expected as a result of carbon dioxide injection. I would note that the amount of oil currently being produced in the reservoir matches a level that has not been seen since the 1960s, 1970s, so it is a very mature oil field and has been rejuvenated through the use of enhanced oil recovery.
I would like also to point out that the carbon dioxide that is being injected by both Cenovus and Apache each year is equivalent to the total amount of the emissions from all the homes in Saskatchewan and Manitoba combined. This amount of emission offset, if you will, is being achieved each and every year at absolutely no cost to the federal government because this is an economic project; it is making money for the producers that are operating it.
We have been operating a research project which piggybacks upon the enhanced oil recovery projects, which has been able to provide strong scientific evidence of the safety of long-term geological storage of carbon dioxide. That information is available to assist other projects to get established elsewhere in the world. More widespread use of enhanced oil recovery will provide a market for carbon dioxide that will be captured from future Saskatchewan clean coal facilities, such as the Boundary Dam project that SaskPower talked to you about this morning, and it will create important economic and environmental win-win opportunities in the future for Saskatchewan.
In closing, I hope I have demonstrated the importance of the energy sector to Canada and Saskatchewan and the need to carefully consider proposed changes, especially since the energy sector is commonly taken for granted and is not well understood. I hope I have adequately conveyed the crucial role of new technology in the future of Canada's energy sector and the achievement of our environmental objectives.
The Chair: Thank you, sir, very much. The last few slides are for —
Mr. Wist: They are for reference purposes. If you find them of any interest, I can speak to them. I thought that if you asked questions, I might use them as aids in providing a response.
The Chair: Very well.
Senator Mitchell: We have not heard a lot about oil sands production in our hearings. Could you give us a synopsis of where that is and where you think it is going?
Mr. Wist: In Saskatchewan or in Alberta?
Senator Mitchell: Yes, in Saskatchewan.
Mr. Wist: In Saskatchewan, we need to await the development of new technology. It is something we are working on with our research centres in Saskatchewan, but we also know that research centres in Alberta are working on the issue as well.
In Saskatchewan, the oil sands are too deep to strip mine, but they are too shallow to use high pressure steam to recover, and this is a common circumstance in Alberta as well. In the Alberta oil sands, only about 20 per cent of the oil sands can be strip mined and probably another 20 per cent are deep enough and buried under a good enough cap rock that you can use high pressure steam. The rest of the Alberta oil sands, although they are there as a resource, need another technology in order to become commercially viable. Alberta is quite interested in developing that technology, and when they develop for the Alberta side, no doubt we will be able to use it on the Saskatchewan side as well.
Senator Mitchell: You have 5 per cent wind, I think you said?
Mr. Wist: Yes.
Senator Mitchell: Is the largest percentage in the country?
Michael Balfour, Director, Energy Policy, Ministry of Energy and Resources, Government of Saskatchewan: No, it is among the largest.
Senator Mitchell: Why do you do that? With all these other resources, what is the incentive to do wind? I am happy about it.
Mr. Wist: Some of those Alberta chinooks do reach Western Saskatchewan. We have a very good wind regime, and that is why. We wanted to determine how good our wind regime is.
There are problems with integrating wind into our electricity system. It is a relatively small system, and there are limitations to the tie lines that we have to other jurisdictions. We are limited in terms of accessing Alberta's system, for example, because it operates on different frequencies than does the Saskatchewan system. Things need to go through ACDC conversion and that sort of thing. We are not ideally placed to have inter-ties with other jurisdictions, but we do have a very good wind regime in the southern part of the province. It tends to deteriorate in the northern part of the province, but the reputation of the Prairies as being quite windy is well justified.
Senator Mitchell: I think you said you had 40 per cent utilization of capacity, which is very high. What are the economics? What is the cost?
Mr. Wist: Wind is probably equal in price to our highest form of generation, which is peaking natural gas. If you could predict that it was going to be there for peaking, it would be useful. When it is there, SaskPower uses it, but the problem is that it comes and goes and you are not quite sure when it is going to be there.
SaskPower talked about their experience on the coldest day of the year when we have got an Arctic high and there is no air moving, thank goodness, so there is no wind power available, but that is your peak day in the winter. Then you have the summer peak during the hot months. You have got a hot, stable air mass that sits there for a length of time and not very much wind is associated with it. It is not there to sustain or to assist in meeting your peak, unfortunately, and so you need to provide for backup.
The backup needs to be available almost instantaneously. What SaskPower tends to do is they have a spinning reserve of natural gas turbines that are kept ticking over, and when the wind goes away, they just give it the extra juice and it will continue spinning. That is why our wind power does have a carbon footprint associated with it.
Senator Banks: You said that Saskatchewan is the second largest ethanol producer in the country, and we have heard that before today as well. What is the base feedstock for that? Is it cellulosic or is it vegetables?
Mr. Wist: It would be grain.
Mr. Balfour: Wheat in particular.
Senator Banks: Ethanol in Saskatchewan is produced mainly from wheat.
Mr. Balfour: That is correct. We import some corn from time to time. It is an economic decision on the part of the ethanol producers, but the native feedstock that is used is wheat. That is the primary feedstock used by our ethanol producers.
Senator Banks: Who produces it? Is it commercial production?
Mr. Wist: Yes. Husky Energy, for example, operates the largest ethanol plant in Saskatchewan. The economics are enhanced by creating a feedlot right next door, so they take the grain coming out of the ethanol plant and they provide it to the feedlot next door.
Mr. Balfour: Then they have some excess heat from the operation of their industrial facilities, which reduces the cost of ethanol production.
Senator Banks: It is not wasted wheat in terms of its food value; it is used again after processing to feed livestock.
Mr. Balfour: That is correct, the mash that is left over is used for livestock feed.
Mr. Wist: The ethanol plants would prefer to use relatively low-quality feed wheat because it is just cheaper to purchase. Usually it is available in relatively large quantity because of frost or a certain amount of damage because it has been left in the swath too long because the grain was too tough to combine in a proper fashion.
Mr. Balfour: In particular, the ethanol plant at Husky Lloydminster has excess heat from their industrial facilities, so they can dry the mash that is left over. They ship the dried mash all over North America, into Alberta primarily.
Senator Banks: I would like you to expand because I did not quite understand what you were getting at when you said that we need to break the link between economic activity and energy production. I do not understand how you can possibly break that link. Is it not an unbreakable link?
Mr. Wist: If we do not succeed in breaking the link, it will be very difficult for industrialized countries to reduce greenhouse gas emissions. You will break the link by developing energy sources that have a low carbon footprint. You will break the link by using your fossil fuels in a different fashion by capturing the carbon dioxide from them. You can continue to use the resource and still have the economic activity. In fact, you can generate new economic activity through carbon dioxide enhanced oil recovery and still reduce your emissions.
Senator Banks: Breaking the link, to put it another way, would be to take the curse off it.
Mr. Wist: Yes, clean coal.
Senator Banks: To remove it from being a bad thing to do.
Mr. Wist: Yes.
Senator Banks: As you said, the use of CO2 and other kinds of solvents for secondary oil production from mature oil fields is not new, but it is new in Canada because ironically we did not capture any CO2. That is the only possible reason that we did not use it before. The plant in North Dakota that does capture the CO2 was not put up for that purpose; it was put up for an entirely different purpose. Is it not ironic and, in the long run, a little embarrassing that on the one hand we are wringing our hands about all this CO2, this bad stuff that we are supposedly putting into the air, and importing it on the other hand for a good purpose? Should we not be using our own CO2 long ago to do this for this purpose? I mean, we could use this in Turner Valley if we could get CO2 to it. Turner Valley is the perfect example of a mature, long-past-its-best-before-date oil field. It has still got a lot of oil sitting down there, but we have not got any CO2 near enough to it to justify secondary recovery.
Mr. Wist: That is an excellent series of points, Senator Banks.
In 1984 when Shell started the first pilot injection of carbon dioxide in the Midale Reservoir, they did use a Canadian source of carbon dioxide. It came from a fertilizer plant near Medicine Hat, Alberta. They picked it up by truck, drove along the TransCanada highway and injected it into the reservoir. They only had limited quantities.
Senator Banks: That would be, by definition, a pilot project.
Mr. Wist: Yes, that was a pilot project to see if the reservoir liked the carbon dioxide, how it would respond and whether it would be economic. PanCanadian was a partner in Shell's Midale project. Shell did the experimentation and PanCanadian was looking over their shoulder, taking careful notes. PanCanadian decided that if this technology worked in the Midale Reservoir, it would perform even better in their Weyburn Reservoir.
They talked to us about carbon dioxide and carbon dioxide sources. This was in the mid-1990s. We examined a number of sources of carbon dioxide in Canada. We looked at natural sources of carbon dioxide in British Columbia. We looked at potential sources for natural carbon dioxide in Saskatchewan, and there are some. We looked at large natural sources of carbon dioxide in the United States for much of the CO2 injection that is going on in Texas in the Permian Basin. We thought about SaskPower's coal plants and the new technology that the University of Regina was just developing then to capture carbon dioxide and what the university researchers thought their costs would be, and we decided that it was probably going to be expensive and risky to rely on that infant a technology. We looked at the Dakota coal gasification facility. It was built by Jimmy Carter back in the days of the Arab oil embargo. He wanted to gasify lignite coal so that they would not be dependent upon foreign sources of energy. That apparently is not quite as much of a concern these days, but back in those days they were worried about being dependent upon foreign sources of oil, so they constructed a lignite gasification facility. They were provided with some nice contracts for sale of the synthetic natural gas that the plant produced and the carbon dioxide that was vented into the atmosphere.
Subsequent to that, the plant went bankrupt and was taken over by somebody else. They went bankrupt and the plant got taken over again. Then along came the United States Environmental Protection Agency and said, "You need to clean up your emissions." When they were in the process of cleaning up their emissions, they wound up with a surprisingly pure source of CO2, which they were again planning on venting, but along came PanCanadian. They say, "How about you put that stuff in a pipeline and we will buy it from you?" They said, "Hooray."
In looking at all the other sources of CO2 available in the United States that we could identify, it is very tough to compete against U.S. federal government capital that has been written down a couple of times as a result of bankruptcies. It was just the cheapest source of CO2 available.
Senator Banks: In the long run, the sense, which was widely criticized, of an Alberta proposal for a RIN pipeline to collect CO2 might not be such a bad idea.
Mr. Wist: It will depend upon identifying a demand for that carbon dioxide in places like Turner Valley. The difference between some of the Alberta reservoirs and the Saskatchewan reservoirs is the Saskatchewan reservoirs have only seen water flood until this point in time, and now they are seeing a solvent. Carbon dioxide is a valuable industrial solvent being used in this application, and they are only seeing a solvent flood for the first time.
The reservoirs in Alberta, which are much better in quality and are amenable to carbon dioxide injection have already been solvent flooded once before. What happened there was that Alberta had a surplus of propanes, butanes, liquid petrochemicals, and they essentially told the producers to inject those into the reservoir. They were quite successful in terms of generating incremental production. The question now is this: If you now do a carbon dioxide flood, a second solvent flood in the reservoir, will you have economic performance?
I also believe that Alberta oil producers are intrigued by the potential to go into those old, played-out reservoirs and use horizontal wells and hydraulic fracking. Will that open up portions of the reservoir that have been bypassed by these industrial solvent floods? Is that perhaps a more technically superior and a more economically superior way of going back into those reservoirs? I think that is one of the reasons why Alberta oil producers have not been quite as enthusiastic about carbon dioxide enhanced oil recovery as some of the early promoters of the main trunk CO2 pipelines had hoped.
Senator Neufeld: It is interesting to listen to that discussion. That was one of my questions. You did a very good job of explaining that.
You say there has already been one flood. They do not usually do two, I understand. Is one flood a time period? What kind of a time period would one flood with CO2 mean? Does it pass through once quickly or does it take years to get through? What takes place?
Mr. Wist: The flood would occur over an extended period of time. PanCanadian began an injection in Weyburn in 2000, and they have been injecting carbon dioxide ever since on a continuous basis. The quantity that they have currently injected is something like 16 million tonnes to date. They eventually hope to store 26 million tonnes of carbon dioxide in that reservoir. Over a period of years, you essentially start in one part of the reservoir and you inject through pairs of wells to create a moving bank of carbon dioxide that pushes oil ahead of it to the producing wells. You try to sweep that particular area. Then you move on and, as you get additional carbon dioxide, you do additional portions of the reservoir because you only have a limited amount of carbon dioxide to work with.
Senator Neufeld: That explains it.
With respect to Bakken oil, help me a little bit with the geography. Is Bakken oil in the U.S. also?
Mr. Wist: Very much so.
Senator Neufeld: The circle here, that is Saskatchewan portion of the Bakken.
Mr. Wist: The north end of the Bakken, yes.
Senator Neufeld: It goes a long way south, does it?
Mr. Wist: Yes, it is part of the Williston Basin, which is separate from the Alberta Sedimentary Basin. The Williston Basin is partly in Saskatchewan, a little bit in Manitoba, a little bit in Montana, primarily in North Dakota, and a little bit in South Dakota.
Senator Neufeld: Does North Dakota get any CO2 from the plant that you are getting it from?
Mr. Wist: No.
Senator Neufeld: Do they get it from other sources?
Mr. Wist: They are not using carbon dioxide flood to recover. It is all primary production at the moment. The reservoirs are so tight that you cannot do water flood because the water essentially will not move anywhere if you tried to put it into the reservoir, which is why they fracture the reservoir to create additional low-porosity permeability streaks inside the reservoir that allow the oil to move along those streaks to the well and then get moved to surface.
Senator Banks: Aside from which 100 per cent of the output of that lignite gasification plant is put into that pipe to go to Weyburn; is that not right?
Mr. Wist: I believe 100 per cent of the available carbon dioxide is currently coming up to Saskatchewan. There may be a portion of the plant which does not produce pure carbon dioxide and that carbon dioxide may still be vented.
Senator Neufeld: Yes, it would be natural. When the Boundary Dam project is done, the oil and gas industry will be using that CO2 someplace in Southern Saskatchewan?
Mr. Wist: That is the plan.
Senator Neufeld: That is the grand plan right now.
Mr. Wist: Yes.
Senator Neufeld: That is very good.
I have one other question. Do you know how much wheat is used to produce ethanol?
Mr. Balfour: I cannot remember the exact number, but approximately 10 per cent of Saskatchewan wheat production is now moving towards the production of ethanol in Saskatchewan.
Senator Neufeld: Ten per cent of the wheat?
Mr. Balfour: Yes.
Senator Neufeld: You probably do not know this, but is that all purchased through the Wheat Board?
Mr. Balfour: None of it.
Senator Neufeld: None of it?
Mr. Balfour: Because it would be feed grains.
Senator Neufeld: It would be outside of the Wheat Board?
Mr. Balfour: Yes.
Senator Massicotte: Thank you for being with us today. It is very insightful.
We heard earlier today, and I think you heard the same testimony, that from a Saskatchewan strategy point of view, the issue of climate change and a control of consequences are very much dependent upon CCS and the success of the project that is being attempted. In fact, when you look at coal plants, that is the ultimate solution for your problems. Can you associate a probability of success? We have discovered that in talking to some of the witnesses, there have been some surprises with that experiment. They sometimes had a different outcome. In your mind, is there a 95 per cent degree of success, 100 per cent, 50 per cent? Give us a sense technically of the probability of success of that project.
Mr. Wist: There are two technologies associated with carbon dioxide capture and storage. One is to capture the carbon dioxide and one is the sequestration.
Sequestration of carbon dioxide in the province of Saskatchewan is dead easy. We have done it since 1984. We have 60,000 oil and gas wells in the province of Saskatchewan. Alberta probably has, I would guess, in excess of 100,000 oil and gas wells. We know an awful lot about the subsurface in the province of Saskatchewan and in the province of Alberta. We have experienced regulators. We have been regulating the oil and the natural gas industry since the 1930s, and we have good, robust technologies. We understand the surface and we have mature industries that know what they are doing, so sequestration is not problematic in any way, shape or form.
There is a significant risk associated with the capture of carbon dioxide. SaskPower is taking a significant economic risk in using a technology, admittedly an amine technology that is a mature technology previously used in the oil and gas industry, but they are now using it in a different application and at a different scale on a coal plant. They are taking a risk as to how well that particular technology will perform with a flue-gas stream that they will be using. That is where the risk is associated with the project. It is not associated with the sequestration.
We know perfectly well what we are going to be doing with the carbon dioxide. We already inject significant quantities of liquid into that very same formation elsewhere in the province of Saskatchewan as a result of salt water production associated with a potash mine. Admittedly, the formation can vary from one site to another, but we do not anticipate any difficulties.
Our oil industry, as Mr.Kambeitz talked about earlier, often will produce 5 per cent oil and 95 per cent salt water. We take that salt water and re-inject it into the subsurface. On a daily basis, our oil and gas industry produces and re- injects very large quantities of liquids from the subsurface. We are going to be re-injecting a relatively limited quantity of an additional liquid. This liquid happens to be carbon dioxide as opposed to salt water, but it is an industrial process and it is an industry with which we are very familiar.
Senator Massicotte: If you combine both risks together, would you care to give a percentage of probability of success?
Mr. Wist: It is difficult. There is no risk associated with the sequestration side of things.
With respect to the risk associated with the carbon dioxide capture, I would expect SaskPower's estimates will be within 25 per cent of the ultimate performance of that particular plant. Hopefully, SaskPower is estimating here and the cost will actually come there, or hopefully SaskPower's performance estimate is here and it actually performs better. It may or may not work out that way.
Senator Massicotte: What happens if that risk comes to play whereby, in a performance sense, it is deemed to be not successful? Is there a plan B?
Mr. Wist: I think plan B would be to see what other carbon dioxide capture technologies have been demonstrated elsewhere in the world and then try to use the best technology that has been developed. We are not going to be the only organizations doing this particular type of project; we are just one of the earliest.
Right now that SaskPower plant is one of only two projects on a commercial scale that is under construction anywhere in the world. The other one is the gasification project in Mississippi that was mentioned earlier. Those are the only two commercial scale coal-fired thermal plants that are going to be capturing carbon dioxide.
Mr. Balfour: Ours is the only post-combustion one.
Senator Massicotte: What you are really saying is that there is really no plan B and that we will just have to make it work. A failure, if you wish, is a plan that costs more or is less productive performance-wise than what you would hope for. Is that really the consequence of your plan not working?
Mr. Balfour: Thank you for that question, senator.
I think it will be characterized more as the technology is going to work. The question is whether the degree to which it will work will be close to our aspirations. Then there is the degree of financial penalty which arises, because there is one in comparison with a conventional coal plant. We hope to offset some of that financial penalty with the sale of the CO2 to oil producers. We have yet to sign a final contract, but there is great deal of interest.
The question of success can be measured in different ways. There is always going to be a certainty of the success of the storage aspect. We know that. It is going to work. It has been done before. It is not even a point of discussion from our perspective. What is open to discussion will be the level of technical performance and then the degree of financial penalty ascribed to that degree of technical performance. When you have the first of its kind of that scale anywhere in the world, you know for a certainty that the next plant will have incorporated the learnings from that, and we recognize that as a government. That is why we chose to go ahead. This is important for Saskatchewan. We rely on coal for about 50 per cent or 60 per cent of our electricity each and every year. That is the same in other parts of Canada. It is the same for the world as a whole. About 50 to 60 per cent of the world's electricity comes from coal. That is why CCS is an important technology, because if the world is going to move ahead, it is going to only move ahead with the incorporation of CCS.
Senator Massicotte: Of your total funding costs, including the refurbishment of the coal plant, what are the total funding needs and who is paying what share?
Mr. Wist: The total cost of the refurbishment of the Boundary Dam 3 project is about $1.2 billion. The federal government is providing $240 million of that; SaskPower will put up the other billion. Then there will be additional costs incurred by the oil producer in the field where he has to install pipelines and flow lines and compression facilities and extra tankage.
Senator Massicotte: To get the CO2 to your mine.
Mr. Wist: I would like to expand further on your point about plan B, what is going to happen and what will be the impact and the risk. As Mike has pointed out, the technology should work at some level. The question is this: How expensive does this plant become for SaskPower to operate on an ongoing basis? Is it cheaper than they hoped, is it about what they planned, or is it more expensive than they feared? That is really the risk they are incurring. Then it is a question of the need to incorporate these higher-than-expected costs into the rate base. They will need to recover them from Saskatchewan ratepayers over a 45- or a 50-year period over the life of the plant. I believe the plant will continue to operate, so there is no sense of a plan B.
The other thing is that there will be opportunities to modify that existing plan, switch amines, switch packing materials and do something different with the infrastructure that they will have created so that they can benefit from subsequent projects being conducted elsewhere. It is really a question of cost.
Senator Massicotte: Plan B is more expensive than plan A, effectively.
Mr. Balfour: Or perhaps a less expensive plan. We can be optimistic.
Senator McCoy: You are saying that you are the only commercial scale CCS project on a coal-fired electricity generator. How does the Keephills EPCOR project in Alberta compare?
Mr. Balfour: It has not been built yet, which is why we make that distinction.
Senator McCoy: I forget which unit number it is. Is it Keephills 1?
Mr. Wist: Number 4, I think.
Senator McCoy: It will be of scale, too.
Mr. Balfour: Yes, absolutely.
Senator McCoy: They just have not put the first —
Mr. Balfour: That is correct; they have not put steel in the ground yet.
Senator McCoy: Secondly, we were talking to SaskPower earlier and asked them off the record how old was Boundary 3. He said 45 years. In fact, part of the decision-making process was that you had to build a new generator on that site because it had come to the end of its useful life; you were replacing the turbines or something.
Mr. Wist: Yes.
Senator McCoy: Could you just elaborate on that a little bit? How much of the project cost is associated with rebuilding Boundary 3?
Mr. Balfour: In terms of the project cost for the turbine replacement, I believe that contract value was about a third of a billion dollars. It is a specialized turbine, the first of its kind in the world that is going to be facing the issues that it faces. It is a one-off design. Subsequent turbines of that same design will be less expensive. That is a higher-than- normal cost for a 150-megawatt turbine in a coal-fired steam generation facility. It is the price of being the first.
I think you were asking was how much the turbine cost of that $1.24 billion. I believe the turbine cost is a third of a billion.
Senator McCoy: I appreciate the great strides you are taking, and we have been following it for some time. However, some part of the cost of putting Boundary 3 back into production has nothing to do with CCS.
Mr. Balfour: Absolutely.
Senator McCoy: Can you put a cost on that?
Mr. Balfour: The difficulty with giving a direct response that is precise to that question is that Environment Canada, following its mandate from cabinet, is pursuing new regulations for the regulation of greenhouse gas emissions from a coal-fired power plant. You have to give an answer in the context of the rules which will be in place.
Senator McCoy: I will not press you on it.
Mr. Balfour: We cannot rebuild a plant as it once would have been, in that narrow sense of the word. I do not think it would be highly constructive of me to speculate what that cost would be.
Senator McCoy: I will not press you for it if you are not willing to give the number, but that was the initial impetus. We are all waiting with bated breath to see one of these things operating on home territory, so thank you very much.
Mr. Wist: If committee members are interested in eventually touring the SaskPower site after it is constructed, and it should be starting operation in late 2014, I am sure SaskPower would be very pleased to entertain the committee.
Mr. Balfour: They take people on industrial tours as it is being constructed now, if you have that desire as well and wish to communicate with SaskPower.
Senator McCoy: We will likely take you up on your offer on their behalf.
Mr. Balfour: They routinely do this, and I am sure they will be happy to host you even as they are constructing.
The Chair: Thank you very much.
This concludes our hearings here in Regina. I want to thank all the senators for their attention. I want to thank you, gentlemen, from Energy Saskatchewan. Your testimony has been very helpful to us. I want to thank our stenographers, interpreters and all of our staff for another wonderful, productive session.
(The committee adjourned.)