Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 34 - Evidence - December 6, 2012
OTTAWA, Thursday, December 6, 2012
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the current state of the safety elements of the bulk transport of hydrocarbon products in Canada.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to the meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia in the Senate, and I am chair of the committee. I would like to welcome honourable senators, any members of the public with us in the room and viewers all across the country who are watching on television.
I will ask the senators to introduce themselves, but I will introduce my deputy chair, Senator Grant Mitchell from Alberta. We have Sam Banks, from the Library of Parliament and Lynn Gordon, our clerk. I will start on this side with Senator Ringuette.
[Translation]
Senator Ringuette: Pierrette Ringuette, from New Brunswick.
Senator Seidman: Judith Seidman, from Montreal, Quebec.
[English]
Senator Wallace: John Wallace, from New Brunswick.
Senator Patterson: Dennis Patterson, from Nunavut.
Senator Brown: Bert Brown, from Alberta.
The Chair: On November 28, 2012, our committee was authorized by the Senate to initiate a study on the safe transportation of hydrocarbons in Canada. The study will examine and compare domestic and international regulatory regimes, standards and best practices relating to the safe transport of hydrocarbons by transmission pipeline, marine tanker vessels and rail cars. The first portion of the study will focus on safety elements relating to transmission pipelines, defined generally as long haul, larger diameter, high-pressure pipelines. The study will examine the roles of the regulators and industry in advancing the safety performance throughout the life cycle of transmission pipelines in Canada.
I am pleased to welcome our witnesses, all coming to us by videoconference from Calgary.
From the National Energy Board, we have Iain Colquhoun, Chief Engineer; and Patrick Smyth, Business Unit Leader, Operations. From the Canadian Association of Petroleum Producers, we have Greg Stringham, Vice- President, Markets and Oil Sands; and Dave Pryce, Vice-President, Operations.
Thank you to each of you as considerable adjustments were required to accommodate both groups today. I think it was mostly our fault on this end, given that we had to cancel a meeting on Tuesday evening, when the National Energy Board was originally scheduled, due to the Senate's sitting longer than expected that day.
We will be relatively tight on time today, gentlemen, so please keep your remarks as succinct as possible. We have and appreciate the documentation that you sent us in advance. I would invite the National Energy Board to commence and provide their presentation, followed by the Canadian Association of Petroleum Producers. Then we will go to a question and answer session.
Go ahead, gentlemen.
Iain Colquhoun, Chief Engineer, National Energy Board: Good morning, honourable senators. Thank you for the opportunity to speak to you today on how the National Energy Board regulates the safety of Canada's pipeline infrastructure. The National Energy Board is the federal Canadian agency responsible for, amongst other things, regulating the construction and operation of international and interprovincial pipelines. The NEB regulates approximately 71,000 kilometres of pipeline. In 2011, these pipelines shipped over $100 billion worth of crude oil and other hydrocarbons to Canadians and to export customers.
Canada's oil and gas resources, including their safe development and transmission, have come under increased scrutiny. We believe that Canadians have the right to know and to question what the NEB is doing to require the companies we regulate to operate safely throughout the entire life cycle of the pipeline, from design to construction and operation through to eventual abandonment. The board believes that the best way to achieve this is through robust management systems and a strong culture of safety in each of the companies we regulate.
Through every stage of pipeline development and operation, we oversee the companies we regulate through activities such as rigorous inspections and audits and, when required, strong enforcement actions. If, at any point in the life cycle of the pipeline, the board is of the opinion that the company is not operating safely, the NEB may revoke authorizations, impose safety orders that restrict operations or issue stop-work orders. As well, we can pursue criminal prosecutions. The NEB uses all the powers granted to it by Parliament in order to protect Canadians and the environment.
With respect to a regulatory framework and oversight, in order to deliver on its mandate, the NEB has a regulatory framework in place to promote safety and security, environmental protection and efficient energy infrastructure and markets in the Canadian public interest. The expectations for those we regulate can be found in the following places: requirements outlined in statutes and regulations; commitments by regulated companies, including those made during an application process; terms and conditions of approval or other direction provided by the NEB from time to time.
In designing regulations, we start by defining the safety and security, environmental protection and economic efficiency outcomes to be achieved. For the most part, this approach provides regulated companies with the flexibility to determine the means to achieve the outcomes. This approach also encourages innovation and the use of the most appropriate technology. Companies must demonstrate to us that they have selected the appropriate means to achieve the safety, security and economic outcomes.
The board expects NEB-regulated companies to develop and implement management systems that set out policies, processes and procedures related to managing the safety of people and the protection of the environment. The NEB is of the view that well-designed and fully implemented management systems comprise the fundamental method to be used by industry to keep people safe and to protect the environment. A management system is a set of interrelated or interacting processes and procedures that organizations use to implement policy and achieve objectives. These systems are the means by which regulated companies identify what can go wrong, build systems that will take measures to ensure this does not happen and then measure the effectiveness of those systems to promote continual improvement. The board holds companies accountable for their performance and effectiveness of their management systems.
With respect to pipeline design and project assessment, in the design and application assessment phase of a pipeline project, the NEB evaluates whether the project is in the Canadian public interest and whether it can be built and operated safely. Pipeline design, materials, construction and operations are governed by requirements set out by the NEB's Onshore Pipeline Regulations, 1999, and by the Canadian Standards Association.
Companies applying for a certificate to build and operate a pipeline must clearly identify any potential hazards to the integrity of the pipeline. In Canada we always consider the nature of the product being transported in the design and approval of pipelines. The properties of the liquids and gases going through the pipelines are also taken into account when operating the facilities.
The NEB requires pipeline companies to anticipate, prevent, manage and mitigate potentially dangerous conditions associated with their pipelines before they ever break ground on a project. Pipeline companies under the NEB's jurisdiction are required to have comprehensive and well-implemented plans that address all elements of safety, environmental protection and how they would respond to an emergency situation.
The NEB will never approve a pipeline unless it is satisfied that it can be operated safely, and it will hold companies accountable for commitments made during the application process. If a project is approved, the NEB will typically impose terms and conditions on its approval to proactively mitigate potential risks and effects posed by the project.
With respect to pipeline construction, in the construction phase of a pipeline, the NEB monitors and verifies compliance with construction-related requirements. This includes a meticulous review of key company program manuals as well as on-site inspections by specialized NEB staff at key points in the construction. This assessment is often done before a facility is permitted to begin operation. Manuals are also routinely reviewed as part of annual compliance verification activities.
On-site inspections serve as the NEB's "boots on the ground" and comprise a methodical examination and assessment of regulated activities or operations against NEB requirements and CSA standards. Inspections conducted during construction focus primarily on pipeline integrity, worker safety and environmental protection. If at any point during the construction of a pipeline an inspector detects a problem, they have the power to take immediate actions in order to bring the company back into compliance.
With respect to pipeline operation, once a pipeline has been built and is in operation, the NEB monitors and verifies compliance with operation-related requirements. Companies are required to report to the board on all of their activities, and NEB staff routinely conducts compliance verification activities, all with prevention and the ultimate goal of zero incidents in mind.
The NEB requires pipelines to be monitored by companies that own and operate them. The NEB holds those companies accountable for results in the public interest using a rigorous compliance monitoring and enforcement program. The pipeline right-of-way is monitored through frequent inspection. Pipeline operators fly over, drive alongside where possible and conduct investigative digs around the lines to evaluate the conditions.
We also require companies to actively monitor the integrity of pipelines. The most comprehensive way to achieve this is by in-line inspection of the pipe, which is generally carried out by high-resolution inspection tools known as intelligent pigs. These can detect corrosion, cracks, dents and pipe movement and identify the location and position of these defects within the pipe.
With respect to emergency management and spill response, in the event of an emergency the NEB's top priority is to make sure that people are safe and secure and that property and the environment are protected. The NEB requires that all reasonable actions be taken to do so. The NEB holds companies it regulates responsible for anticipating, preventing, mitigating and managing incidents of any size or duration. Should an incident occur, the NEB has an emergency management program in place and is ready to respond to any emergency. Any time there is a serious incident NEB staff may also be deployed on site to oversee the company's immediate response.
We also have working agreements with other government departments and agencies in order to coordinate responses and communicate effectively in times of crisis. The NEB is the lead federal regulatory agency for all incidents that occur on NEB-regulated pipelines or facilities. The Transportation Safety Board may also investigate an incident that occurs on an NEB-regulated pipeline. During a multi-agency or multi-jurisdictional emergency, the NEB provides an integrated approach both during and after the emergency phase. Ultimately, the NEB will verify that regulated companies conduct an adequate and appropriate cleanup and remediation of any environmental effects resulting from the incident.
With respect to pipeline abandonment, the abandonment phase of a pipeline life cycle begins when the pipeline company decides that it will permanently stop providing service on a pipeline route and applies to the NEB for leave to abandon the pipeline or connected facilities. In all applications for abandonment of a pipeline, the board holds a public hearing to allow directly affected individuals or those with information the board deems relevant to provide said information and thereby inform the board's final decision.
Using the information it gathers through the hearing process, the NEB assesses whether the applied-for abandonment can be conducted safely. If the NEB allows the abandonment, it may impose conditions that must be met before abandonment is considered complete. After all NEB-ordered conditions are met, the risk to public safety, property and the environment must be at an acceptable level. The NEB has been very clear that the abandonment process must return the pipeline right-of-way to a state comparable with the surrounding environment.
The NEB also requires the pipeline companies it regulates to fund any activities related to the abandonment of their pipelines. The abandonment cost estimates hearing that is currently under way is a step towards ensuring that appropriate funds are set aside by companies to cover the cost of abandoning pipelines in the future.
In closing, the National Energy Board remains committed to continual improvement and is always looking for new and innovative ways to improve safety and environmental protection while meeting the energy needs of Canadians.
I would like to thank you for this opportunity to participate in this important conversation around how Canada's pipeline system contributes to the safe and efficient transport of oil and gas resources in this country. My colleague Mr. Smyth and I will be happy to address any questions. However, I understand that the Canadian Association of Petroleum Producers will first make some opening remarks. Thank you, Mr. Chairman.
The Chair: Thank you, Mr. Colquhoun. Next is Mr. Stringham.
Greg Stringham, Vice-President, Markets and Oil Sands, Canadian Association of Petroleum Producers: Good morning and thank you very much both for the invitation to join you this morning and for the accommodation of allowing us to appear by video conference from Calgary. That has been very helpful for us. With me today is Dave Pryce, Vice-President, Operations.
I will provide some information on the broader views of pipeline and marine transportation issues from our industry perspective, and then I will ask Mr. Pryce to provide an overview of some of the safety and integrity dimensions of the pipelines owned and operated by our producing companies. We will then conclude with a few wrap-up comments.
I want to make sure you understand that we had provided, under a separate cover, a reference set of slides on market access and transportation that is important for our industry. I believe that has been provided to all of you. I will not go through that in detail today, but it contains information on the production forecast for oil and gas, maps with the pipelines and transportation systems on it, and some of the market information and economic information on the price drivers. They include information that will be helpful for background that we can refer to if you would like. I thought it was important to have that.
To summarize where we are at as the industry, it is important for us to know that the industry generates about $100 billion for the Canadian economy each and every year. This includes the capital investment that we make across the country, the purchased goods and services that we get from almost all provinces and territories, and also the government revenues through royalties and taxes that are generated.
The key for your consideration today is that every molecule of energy that generates all this revenue and jobs across Canada must be transported from source to the end market.
Thus, the safe, sufficient, reliable and, for us, timely transportation capacity is critical to our industry and to the Canadian economy. As you said in your opening comments, Mr. Chair, for our industry this includes the pipeline systems, rail, marine and even some truck transportation that is important to that whole aspect.
As background, it is important context to understand that our industry produces about 3 million barrels per day of oil and over 14 billion cubic feet per day of natural gas, all of which serve Canadian customers and our export markets, which today, as you know, are almost entirely to the United States.
In addition, in Canada, however, consumers in Ontario, Quebec and the Atlantic provinces also import 680,000 barrels per day of oil from offshore suppliers, all of which comes into Canada via tankers to major ports in these regions.
In looking at the questions of safe transportation of hydrocarbons before this committee, we will focus on the key elements of the safe practices and the roles of our industry, that of governments and of the regulators, in incident prevention, response and recovery.
As you know, both the federal and provincial governments are involved in setting the standards and policy for oil and gas production and transportation, including departments federally such as Transport Canada and the Coast Guard. In addition, as you have just heard, there are government regulators such as the National Energy Board, and provincial regulators like the Energy Resources Conservation Board in Alberta and the Oil and Gas Commission in British Columbia, and others across the country that are all involved in the approval and operations of all these transportation systems.
The industry's role is one of creating and distributing best practices across the industry and ensuring that the pipelines and other transportation systems we build and operate are done in accordance with these government standards and regulations. In addition, industry is involved in incident prevention, response and recovery organizations, both on the land and marine. These include organizations such as the Western Canadian Spill Services for land, and the Eastern Canada Response Corporation and Western Canada Marine Response Corporation for marine transport. These latter two organizations are owned by private industry, including several major oil and gas companies, and are certified by Transport Canada to provide the marine oil spill response services, including training, expertise, tools and equipment inventories in key locations.
As producers of oil and gas across Canada, we build and operate some of this transportation network ourselves, mostly near the source of production, and rely on transportation companies such as the mainline pipelines to deliver our products to market. As such, we are pleased to provide our perspective and understand you will be hearing from our colleagues at the Canadian Energy Pipeline Association next week, who represent these main pipelines, as part of your overall committee process.
I will now turn to the discussion over to our vice-president of operations, Dave Pryce, to provide some perspectives on the pipeline safety and integrity in the context of the producer-owned and -operated pipelines.
Dave Pryce, Vice-President, Operations, Canadian Association of Petroleum Producers: Thank you, Mr. Chair, and thank you to the committee members. Since the vast majority of our provincially regulated energy pipelines are concentrated in the Western producing provinces, primarily Alberta, British Columbia and Saskatchewan, we will being focusing our comments and observations in the context of producer-operated pipelines within these three jurisdictions.
The Energy Resources Conservation Board, or ERCB, and the BC Oil and Gas Commission, OGC, are the provincial pipeline regulatory authorities in Alberta and British Columbia respectively. The Ministry of Economy is the regulatory authority in Saskatchewan. They are responsible for applying the specific technical requirements as laid out in regulation, that being the Pipeline Regulation in Alberta, the Pipeline and Liquefied Natural Gas Facility Regulation in British Columbia, and the Pipelines Regulations in Saskatchewan.
For technical requirements applicable to the design, construction and operation of oil and gas pipelines, these regulations adopt the most current edition of the Canadian Standards Association, CSA Z662: Oil and Gas Pipeline Systems. Annex N of this CSA standard has been designed specifically to address pipeline integrity. I believe it is important at this stage to highlight the strong and critical role that the Canadian Standards Association plays in pipeline safety and integrity. It has been widely adopted by provincial and federal regulators within Canada and serves as a definitive and unifying code for pipelines in Canada.
Finally, and from a compliance assurance standpoint, the regulator must oversee the activities throughout the pipeline's regulatory life cycle from design and construction to operations and abandonment, to ensure the compliance and regulatory requirements.
With respect to industry's role, pipeline operators must have programs and management systems in place that establish the processes, procedures, methods and accountabilities needed to ensure pipeline system integrity and to achieve regulatory compliance.
Pipeline operators must also have inspection, corrosion and test programs in place to support their pipeline integrity management systems. A main component of a pipeline integrity management program is the development of risk assessments to ensure that pipelines are operating and are maintained at an acceptable risk level. The results of these risk assessments play an integral role in prioritizing maintenance, inspection and repair activities. In the event of an incident, pipeline operators recognize that spill prevention and response measures are important dimensions of the social licence to operate.
Further, pipeline operators are required through regulation to take immediate steps to stop the source of any release and contain and clean up the spill. They must also report incidents to regulators who are responsible for ensuring the cleanup and who will also assess the cause to determine if corrective action is required.
As Mr. Stringham noted earlier, oil spill cooperatives such as the Western Canadian Spill Services have been developed to provide training and spill preparedness and response in accordance with provincial regulations for licensees of wells and pipelines. Operators are required to participate in these cooperatives or to maintain their own spill response equipment.
Prevention, response and recovery form the cornerstones of producer pipeline safety and integrity management.
With respect to continuous improvement, given the critical role that pipeline safety and integrity plays in our social licence to operate, pipeline operators and regulatory authorities must always be looking for ways to continuously improve.
In that vein, in 2010, the BC Oil and Gas Commission rolled out a new program that is designed to determine pipeline integrity management program compliance. This assurance program is supported through field verifications and documentation reviews.
Further, the ERCB recently announced the Alberta pipeline review, which will examine the adequacy of the regulatory requirements with respect to pipelines under the jurisdiction of the ERCB. The review will focus on regulatory oversight with respect to key areas of concern, including pipeline integrity management, process and planning, the safety of pipeline crossing waterways, and responses to pipeline incidents.
In Saskatchewan, in an effort to ensure legislative requirements remain up to date and relevant, the Ministry of Economy has announced that they will be operating up the Pipelines Act for review and consultation in 2013.
Finally, British Columbia's Ministry of Environment released a policy intentions paper this week describing the process the government plans to undertake to review and enhance land-based spill preparedness and response in the province.
The upstream industry is supportive of all these initiatives as a means to assure the performance of both industry and the regulators.
Pipeline operators also have a role in continuous improvement, and through CAPP technical committees, pipeline incident data that is publicly available is analyzed to identify pipeline safety and integrity areas that may be enhanced through the development of new industry best practices and guidance documents.
As new issues are identified, CAPP provides resources to resulting work teams to review the merits of developing additional industry-recommended practices and guidelines. To date, CAPP has participated in the production of 13 industry-recommended practices for pipeline energy infrastructure.
With respect to going forward, as this review proceeds, we suggest the committee focus on opportunities to enhance in the following areas.
First is public assurance and education. This committee's report will facilitate a current-state understanding of the safety elements of the bulk transport of hydrocarbons in Canada. As noted, pipelines are a critical element in the achievement of industry growth and, by extension, contribute to economic prosperity and jobs. The safety and integrity of these pipelines are critical determinants of our social licence to operate. Within this context, CAPP encourages the committee to consider how this report can be used as a tool to improve public understanding of pipeline safety and integrity and, more broadly, how pipeline energy infrastructure fits within the broader policy and regulatory framework for responsible development of natural resources in Canada.
The regulatory framework governing pipeline safety and integrity will need to strike an appropriate balance between a prescriptive and a risk-based regulatory approach. It is important to note that a risk-based approach does not mean less oversight; rather, it is intended to optimize the allocation of regulatory oversight. This approach enables operators to apply innovative solutions to the achievement of regulatory outcomes and requirements.
Regarding the role for industry-wide standards, the Canadian Standards Association has linkages to other standards bodies, which enables them to attain inter-jurisdictional and/or international harmonization. Moreover, the CSA process provides a stable platform for continuous improvement. To this end, the CSA standards have a regular review schedule enabling adaptations and updates where appropriate. With these positive attributes in mind, CAPP encourages the committee to consider what role, if any, industry-wide standards should play in meeting jurisdictional and operational needs.
To conclude with a few summary comments, CAPP recognizes that stakeholders and the public are demanding more relevant, timely and transparent information regarding the safety and integrity of pipeline systems. We consider this an issue for regulators and industry across the country and an opportunity to apply findings to further enhance regulatory oversight and efficiency. Safe and responsible production and transport of oil and natural gas is the foundation for our economic well-being in Alberta and, indeed, in Canada, and its importance cannot be overstated.
Finally, this report will facilitate the drive towards performance improvement and demonstrate that oil and gas can be safely developed and moved to markets where it is needed.
The Chair: Thank you, gentlemen. I will ask a couple of questions before going to the other senators.
You have correctly observed, Mr. Stringham, that what we want is to bring to light a little bit more about what Canada does with respect to safety and transportation of oil and gas, mainly through main transmission lines and those kinds of things. We embarked on our first study that took us three years to complete to try to get more information to people because they are asking for more.
In that vein, I want to thank CAPP for the work they have done through advertisements on television. I think you have done a marvellous job of bringing to Canadians' homes the things that you do and how you do them. I think it is a remarkable way that you and your member companies have gone about getting that message out. I think you could encourage the other one, CEPA, to do much the same thing. I think it is well worth it.
I appreciate your comments. That is what we want to try to do, and we want to work with you as much as we possibly can. I encourage you not to be shy to pick up the phone. I have never known you to be shy before, so I cannot imagine you or Mr. Pryce would be shy in the future about letting us know what we can do to help. Together we need to do this because it is to the benefit of all of us, regardless of where we live in this great country.
I would like to ask a couple of questions of the NEB. At the beginning, you said that if a company is not adhering to what they should, the NEB can revoke authorizations. Can you perhaps explain that a bit more? Does that mean shutting down our pipelines? Does that mean some monetary thing? Maybe you could explain that a bit more. Are there fines? What happens?
Mr. Colquhoun: It can comprise a whole suite of possible actions. For example, if an inspector goes on site and discovers an unsafe practice or a practice that looks like it might compromise the integrity of the line, safety or the environment or damage, the inspector has the full authority of the board to stop work at that point. That would certainly be one.
I would like to leave it to my colleague Mr. Smyth to explain some of the other ones, including the one you referred to, the administrative monetary penalties.
Patrick Smyth, Business Unit Leader, Operations, National Energy Board: Thank you, Mr. Colquhoun. As Mr. Colquhoun has indicated, there is an enforcement ladder that the NEB has available. It starts simply with our inspectors in the field. If they observe an issue of non-compliance, there is a discussion that would take place between the inspector and the company. If it can be corrected there in the field, it is done so, and it is observed in our documentation.
Depending on the nature of the non-compliance, it can progress all the way up to the board imposing restrictions on the operation of the pipeline — in other words, a pressure reduction order; or, for the extreme occurrences, they could suspend the company's authority to operate the pipeline. In other words, they could shut it down.
With our current regulatory framework, we could go as far as recommending to the courts that there be a criminal prosecution. Looking into the future, coming out of the Jobs, Growth and Long-term Prosperity Act, the NEB will have the ability to issue administrative monetary penalties, or AMPs, and the intent is to have those in place by July 2013. With those powers, we will have the ability to issue a penalty of up to $25,000 for an individual and up to $100,000 for a company. That is per infraction per day, and there is no limit.
The Chair: Has there ever been a pipeline shut in by the NEB for lack of compliance?
Mr. Colquhoun: It is certainly not very common, and it has not happened recently, but I think I recall anecdotally that a sulphur line at one time had to be shut in for an infraction. If you think about the Keystone situation, it was not shut in. It was during construction, of course, but it was delayed for some two months for an infraction for non- compliance.
The Chair: If you could send to our clerk information about whether a pipeline has ever been shut in for non- compliance, we would appreciate that.
Referring to the change of product that I think people are talking about or maybe will even do for the pipeline TransCanada from Western Canada to Eastern Canada, to change it from natural gas to crude, are there different standards for building a pipeline for transport of just oil than there are for natural gas? If so, what would those differences be?
Mr. Colquhoun: Both fluids that you mention, oil and natural gas, would be covered by the CSA — Canadian Standards Association — Z662, current edition thereof. It addresses all of the common fluids that go through our pipelines.
However, there are distinctions between the physical properties of the two fluids. One would require all companies to be particularly careful changing from gas service to oil service. The reason for that, of course, is that gas is a compressible liquid. Small changes in volume do not result in changes in pressure and attendant changes in stress, whereas oil is incompressible, and small changes in volume do result in fluctuations and stress. Therefore, if there were benign defects in a gas pipeline, we would want assurance that under the new operating regime with the oil, where there may be pressure fluctuations, that these anomalies would remain benign.
The Chair: Does CAPP have any response to that question?
Mr. Pryce: Yes. Whether it is this particular pipeline we are talking about or not, any change in the state of a pipeline, in the product or in the circumstance, one would expect the operator would re-evaluate its integrity management system and adjust its maintenance and inspection programs to consider any difference in the risks that might be associated with one product versus another. Not only would you change the pipeline, but you would change your integrity management system to accommodate any different risks that might be associated.
Mr. Stringham: I would add that we do have experience with that, as you know. When we took the natural gas system that was operating on the main line of TransCanada, for the first base system of Keystone — not XL but the Keystone system — it was transferred from natural gas service to oil service. There is a history of the protocols and the assessment that must be done during that process that could be used here as well.
Mr. Colquhoun: If I could add a small remark, certainly in support of Mr. Pryce's comment about not just physical requirements but requirements that might necessitate adjustment to the management system and the risk assessment. The NEB would look for a specific assessment to be done to ensure that the new pipeline, or the pipeline using the changed product, was fit for service.
Senator Mitchell: Thank you, gentlemen. I would like to follow up on the question of the west-to-east pipeline. Any oil we would pump east in that pipeline would replace, if I am not mistaken, oil that is being shipped to the East now, which, as an aside, would perhaps be deemed as unethical and insecure oil, which would be worth replacing with Alberta oil, which of course is neither of those two things. Maybe this is not a fair or easy question to answer, but straight-up safety, how does it compare, pumping it through a pipeline or delivering it by ship? Everything else being equal, can you make an assessment in that regard, or is it just sort of a configuration of probabilities?
Mr. Colquhoun: That is an extremely good question. You are right; it is not an easy one to answer, senator.
A number of scientific studies have conclusively proven that the pipeline for long-haul bulk transport of hydrocarbons is the safest and most economical method of transportation. These studies are supported by Transportation Safety Board reports, which are available for review.
Senator Mitchell: My next question is again maybe not fair or easy. A lot of the interest around pipeline safety, at an issue level, arose because of Michigan and Kalamazoo, I expect. I am not sure that when my colleague Senator Lang proposed this idea, at least to me, it was not in that context and that we would want to look into pipeline safety.
One of your presentations was about inspection techniques, flyovers, drive-bys and walk-downs. However, Kalamazoo led me to believe that there actually were — and I am sure there are — systems that monitor pressure, and you have central places with lots of technical dials and screens and so on.
Could you comment on the state of that kind of technology, where it is, and — I am not being pejorative about this — how it would be that a company might be looking at these kinds of monitors for 17 hours and was not able to respond? How does that happen? Can you see that that kind of technology can be improved, or is it taking a bigger place in pipeline safety?
Mr. Colquhoun: There have been phenomenal improvements in monitoring technology, and these will continue to take place. The board is committed to continual improvement, and we would like to see that in the management system of the companies we regulate.
There are specific elements in the management systems around training, around competence of personnel, and around emergency management response. The common theme we have seen has not been so much with the technology but with how the technology is used, how to deal with false positive and false negative alarms, for example. We would like to work with the regulated companies to bring about some improvements.
Mr. Pryce: If I could follow up on that. I cannot comment on the specific incident — CAPP would not be privy to the details of that — but I think, as Mr. Colquhoun suggested, the two things that need to work together are the technical competency of the design and the personnel that are involved in this. I would suggest that the industry is probably looking at what happened there and looking at their own internal management systems with respect to personnel and training and those sorts of operational procedures that they have in place to make sure they do have a quick response and decision process around those kinds of things. I would expect there would be some strong lessons around internal procedures as a result of those incidents.
The Chair: Just a supplement to that. We also want to look at how things have improved in the industry. Both CAPP and the NEB, when you say there have been lots of improvements in the last while, could you send to us in paper form what those improvements have been over the last decade, or even a shorter time period, so that we have some sense of what those changes and improvements are? That is just a request before we forget about it. Thank you.
Senator Mitchell: I have one more question. The U.S. National Academy of Sciences has been requested by the Department of Transportation to do a study of the safety of transporting oil sands bitumen through pipelines. Depending on how you look at these issues, that could be ominous or encouraging. I am wondering whether the NEB is aware of what has been going on with that. Have you been contacted in that regard? Do you have any idea where that is going?
Mr. Colquhoun: Yes, we are plugged into that. I was just talking to Mr. Stringham. Both CAPP and the NEB have attended these hearings. We have conducted our own internal assessment. Dilbit is really what you are talking about, diluted bitumen. Bitumen itself is very difficult to put through pipelines at normal temperatures. Commonly, it is diluted by condensate. You know that.
We are aware of that, and we have done our own investigations into the properties of dilbit. We have also looked at our own operating experience. Dilbit has been transported since the mid-1980s, I would say, through pipelines, especially in Alberta, so there is our own experience and the experience of the local regulator. We have come to the conclusion thus far that there is no significant difference between so-called conventional crude and dilbit as far as corrosivity is concerned. The expectation, then, would be that it would be encouraging news that we would get from the National Academy of Sciences study.
Mr. Stringham: I would add to that, senator, that there have been three public hearings on this. As you mentioned early on, transparency is an important part of getting this understood. We believe that an organization like the National Academy of Sciences in the U.S. will help ensure that this is transparent. The NEB has done work on this; the Alberta government, through Alberta Innovates, has done some scientific work on this; and other parties have looked at this. We are quite confident that this will actually help get the understanding out broadly in the U.S. that diluted bitumen is just like any other heavy oil that has moved through the system for many years. We have been participating to make sure the information is there; however, all of the evidence we have seen presented to them so far has been relatively positive.
Senator Seidman: I might just pursue this a little further because this was my concern, being from Quebec. In the last couple of weeks, there has been a lot in the news about the reversal of Line 9 and the implications of that because that line would transport oil directly to Montreal, I believe. The issue was indeed over this diluted bitumen and the interpretation by the Quebec environment minister that this was more corrosive and, as a result, would increase the environmental risk of a spill or some major issue. You have just spoken to that. Could you perhaps elaborate a bit? There has been a report very recently of a particular study that demonstrated that this particular bitumen was among the least corrosive oils, I believe. If you could expand on that a little further, I would appreciate it.
Mr. Colquhoun: As Mr. Stringham mentioned, there were probably two recent studies. One was Alberta Innovates, which did an extensive study of the corrosivity of diluted bitumen, and then more recently, NRCAN using the ASTM protocol came to the same conclusion that there is no difference in corrosivity between the two of them.
The confusion, and I am pretty sure of this because I have seen it written, relates to the Total Acid Number. The Total Acid Number, whereas it has some definite implications for refineries that operate above 200 degrees Celsius, has absolutely no effect on pipelines. We still maintain that diluted bitumen is no more corrosive than any other crude oil.
Senator Seidman: As a result, you are saying that, based on this evidence, there likely is not a higher probability of spills as a result of the bitumen?
Mr. Colquhoun: Yes, that is correct, senator. Based on this study, based on our own investigation and based on a couple of decades of operating with diluted bitumen, that is correct.
Mr. Stringham: With respect to Line 9, when we started looking at that opportunity for replacing oil that is being imported right now, the thing that came to our mind is that there is a current price differential, as I provided in the information, that provides an economic incentive. We have looked at the safety side of this and said that, at least for the Line 9 that you mentioned, and potentially for others, it is an existing pipeline. It was built back in the 1970s to flow in that direction. It has been reversed, and now they are looking at just re-reversing it. The third element of that quite clearly is that, at least for now, the refineries in Montreal and Quebec, as you may know, actually process light oil. It is not taking the diluted bitumen yet. They may expand, so I do not want to preclude that, but currently the 300,000 barrels a day that is currently in that capacity in those refineries is set to process light oil that would come from Saskatchewan or Alberta or Manitoba, or even some of the synthetic crudes. It is not the diluted bitumen side at the beginning of that. It is important to look at all aspects of that, but it is important to understand those three aspects of it as well.
Senator Seidman: Thank you. I appreciate that. You referred a lot, Mr. Pryce and Mr. Stringham, to social licence. I would like to ask you about something that came up in a study that we did after a big spill of oil in the gulf some time ago. I am sure you remember it. We talked about ensuring the safety and integrity of pipelines and the importance of social licence and communicating with Canadians. I would just like to ask a question about R & D budgets, if I might. Could you tell me, either the regulators here or the two of you who represent industry, what proportion of R & D budgets are spent on response measures, that is, the means to contain and clean up a spill, spill response or protocol development? How does that work? Is there some requirement for industry to spend a certain amount of their R & D in this area?
Mr. Stringham: I will start on that side of things looking at the R & D. When it comes to prevention, a lot of research and development is being done. You have probably talked to the pipeline companies themselves, and that will be a proportion of their budget. As you know, the producers pay the tolls on those pipelines. When those costs go to the regulator, we appear to make sure that those costs are prudent. On those types of elements for prevention, spill response and safety elements, we are always very supportive of that. I do not know the percentage. You could ask them next week what their budgets are. As far as our toll that goes in to that pay that, we have always been supportive to ensure that it is world class and has sufficient resources to do what is necessary.
On other areas, on our own perspective, when it comes to that side of it, research and development is broader than that because it is the resources on the ground. As we mentioned with the cooperatives or the Western Canada Marine Response Corporation, those are funded by industry, including oil and gas, to make sure that the personnel are trained and to make sure that adequate resources are there in case of an incident. Even though our goal is zero incidents, we want to be adequately prepared for that so there would be resources and people in the right place to do that. That is all funded by industry, and it is what is necessary as deemed to be appropriate for the risk. It is not really R & D, but it is a proportion of what goes into ensuring that there is appropriate recovery and response in case there is an incident.
Senator Patterson: Supplementary, if I may: That was a question I was going to ask about the industry role in best practices, as has just been discussed. I think you mentioned 13 practice areas that you are working on, as well as important areas like the marine oil spill response services. Is that legislated? Is that voluntary? How did it come about that industry is playing this significant role?
Mr. Pryce: I will start with that, and our regulators may want to jump in.
Our member companies have pipeline technology experts, and every year they look at the public statistics and data around pipeline performance, pipeline spills and those sorts of things. As they do that analysis, they regard those as prudent activities in terms of managing risk. If they see areas where there is need for improvement, through CAPP, they recommend the development of best practices.
You mentioned our 13 best practices that we have developed over the years. We do that in a voluntary sense on the basis that we want to ensure that we are improving. We want to improve because we do not want to incur the costs of incidents. That is a very fiscal reason for that, but we are also cognizant of the fact that the public would have serious concern if we had a number of incidents.
For example, our best practices speak to corrosion management practices. My expectation is that as we develop and deploy best practices, those do not go unnoticed by the regulators, and we would expect that regulators would look to the utilization of those practices, if they deem them acceptable, and look to companies to deploy or utilize the practices.
Mr. Colquhoun: That is a very good response to a very good question. In our management systems, we require companies to incorporate best practices as they become aware of them. We do not conduct our own research and development explicitly, but we certainly encourage research and development in the areas that Mr. Pryce mentioned.
The fundamental part of the management system is continual improvement. We would look for continual improvement in many of the areas that Mr. Pryce mentioned. Our position is that a pipeline that is properly designed, properly manufactured, properly constructed and properly operated is perfectly safe. We would look for R & D activities in all of those four areas — design, manufacture, construction and operation. Also, as I said in my opening remarks, we believe that our regulatory framework, by specifying the outcomes required, gives the operating companies the flexibility to be innovative.
Mr. Smyth: I will drill down a bit. Mr. Colquhoun spoke about management systems, and we give the companies the flexibility to define the management system appropriate to the system that they are operating. As they define it, they could choose to adopt or recognize best practices. From a regulatory perspective, when we go out and conduct compliance verification activities, such as an audit, if the company is telling us, through their management system, that they have adopted the best practice, we will ensure that it meets regulatory requirements. Then we will audit them to ensure that they are meeting the essence of that best practice.
Mr. Pryce: To clarify, the best practices that we identify a need for and bring forward are intended to be supplemental to the rigorous regulatory requirements and standards that exist.
Senator Ringuette: I have a series of questions for both of you. Mr. Colquhoun, on page 2 the document that you have here, you stated "companies must demonstrate to us that they have selected the appropriate means to achieve the safety, security, environmental and economic outcomes.'' I would like you to expand on the economic outcomes and the way that they are ranked in the assessment that you have to provide for approval or non-approval.
What are your costs in regard to all of the regulations of the design, construction, operation, management and abandonment of pipelines? Do you have a fee for the promoter of that?
How do you establish and secure the cost of abandonment of a pipeline?
Chair, do you want me to go on with my other questions?
The Chair: Just let them answer those, and then you can pose your other ones.
Mr. Colquhoun: Thank you, senator. I believe Mr. Smyth and I, between us, will attempt to respond to the senator's questions. With respect to the first one around financials, it is certainly no one's mandate to squander Canadian resources, so we look to efficient transportation. However, the National Energy Board's number one priority is safety. I think the question that we heard was about ranking. The senator can be assured that safety would be number one, closely followed by protection of the environment and protection of property.
With respect to costs and fees, perhaps Mr. Smyth can give more clarity than I could on that.
Mr. Smyth: The NEB, for activities under the National Energy Board Act, operates on a cost-recovery basis. The way that works is that we will come and, as part of the government's annual budget, will be provided with funds to operate for the year. Based on the nature of our activities, industry will actually reimburse government for a portion of the work that the NEB does. I think that, for the most part, if I recall my numbers correctly, around 90 per cent of our costs are recovered on an annual basis.
Going on to the question about the cost associated with the abandonment of a pipeline, the NEB is firm that the cost associated with the abandonment of a pipeline will be entirely borne by the company. A company will be required to make an application to the board to abandon a pipeline, and the board will conduct a hearing. Through that hearing, we will hear evidence from all of the parties impacted by the abandonment of the pipeline, and the board may choose to set conditions that the company would be required to meet. They have to demonstrate that they meet those conditions before the company is absolved of the area of that pipeline, that right of way. Then, it would revert back to traditionally or conventionally owned property.
Senator Ringuette: To clarify two things, in regard to the economic outcome, Mr. Colquhoun, I think that we would appreciate more explanation in regard to what you are looking for and how you assess the economic outcome in proportion to the requirements of safety, security and the environment.
Has there ever been a case where a promoter of a pipeline makes an application, and the requirement is to set aside a fund for future abandonment?
Mr. Colquhoun: Thank you, senator. To reiterate my answer to the first part, the NEB will never permit the construction or operation of a pipeline that is unsafe or that presents a danger to the environment, irrespective of the financial implications of the transportation. Safety is always number one. In our management systems, we craft the elements in such a way as to encourage a very strong safety culture in the companies that we operate.
Of all of the considerations, including the financial ones, we rank the safety of people as number one. That would never be compromised by any financial consideration.
Perhaps Mr. Smyth could take the second part of the question.
Mr. Smyth: In 2007-08, the NEB conducted a Land Matters Consultation Initiative, LMCI. Out of that work was identified the need to provide some clarity on how the NEB would manage the abandonment of pipelines. It is through that work that we have been working with industry and land owners to define the need for an abandonment fund. Part of that is working with industry and figuring out the appropriate cost to cover abandonment of pipelines. A fair bit of work has been going on at the board to figure out what set-aside dollars would be required to fully fund the abandonment of pipelines.
There is a fair bit of work that we have, and we certainly would be pleased to provide this committee with a summary of that work.
Senator Ringuette: I appreciate your answer.
The Chair: Could I put you on second round?
Senator Ringuette: Sure.
The Chair: I am sure we will have lots of time; it is just so everybody gets a chance.
Senator Massicotte: Thank you for being with us today. When reading and hearing your presentation about all the measures you are taking, one would say "wow.'' Unfortunately, in spite of all that good talk and demonstration, there are still incidents every year, roughly 75 incidents a year on average. I want to get a sense of this.
I presume the National Energy Board or someone must have a comparison of safety records, maybe by 1,000 miles or by a mile, of pipelines across the world or major countries and also in comparison to other carriers. Is that possible? That must be available from someone saying what is the safety record, what is the damage done or leaks or spills, per mile or thousand miles. Is that available? Is there a comparison with other major countries and a comparison among carriers?
Mr. Colquhoun: Yes, these comparisons are available. I recently read one conducted by the ERCB in Alberta where they did precisely what the senator asked here. For a particular threat, they reported the number of incidents per kilometre in Canada and the U.S. I do not know explicitly that we have it for other jurisdictions like Europe or South America or Southeast Asia, for example, but we can certainly look to see whether there are comparisons beyond these very good comparisons that we saw with the ERCB.
Senator Massicotte: That would be very useful if that could be sent to us. In that case we are talking about some measure of safety risk compared to kilometre. That is for pipelines only. Can we have the same relative to other carriers? Earlier you referenced the fact that pipelines are the safest carrier, but do we have a similar measure for other forms of cargo or transportation modes?
Mr. Colquhoun: I mentioned a little earlier very good statistics available to you through the Transportation Safety Board. It is somewhat difficult to do an exact comparison, but you can certainly look at the number of accidents with the different modes of transport. Of course, you would have to look at Transport Canada as well for those not covered by the Transportation Safety Board. These data are available, yes.
Senator Massicotte: Could that be sent to us also?
Mr. Colquhoun: We can get those data to you, yes.
Mr. Smyth: The NEB has a memorandum of understanding with the Transportation Safety Board. We work very closely with them on pipeline incidents. They also investigate railway as well as marine and aircraft. We will contact the Transportation Safety Board and figure out what documentation they have that would meet your needs.
Senator Massicotte: Thank you. That deals with the safety issue, and it is important. In your presentation you talk about balance. Obviously we have to balance safety and regulatory burdens as well as cost. How about on the cost side? Would that also be available? I am referring to the cost per kilometre or whatever to transport those materials through pipelines, say us compared to the Americans, compared against ships or railroads. Is that available?
Mr. Colquhoun: I know of only one study. It is some nine years old but still seems to be current, and we could certainly pass that on to the senator. That is the only one that seems to address this question directly that comes to mind.
Senator Massicotte: If could you send us that, we would appreciate it.
Mr. Colquhoun: We will undertake to do that, senator. Thank you.
Senator Massicotte: You are the expert, and when you compare all that information, which is very relevant because safety is a relative measure, how do we compare against the world? How does our safety of pipelines compare against the Americans, Europe and Russia? What is the verdict? What is the conclusion? When compared to other carriers, is it a minor difference or a major difference? Are we really world leaders? Do we have something to learn from other countries?
Mr. Colquhoun: That is a very good question. If we are not the best we are certainly amongst the best. I have worked in many parts of the world and I can testify to that. The regulator can never rest in learning from other jurisdictions, nor can industry, as I am sure my colleagues to my right here would agree. For example, in improving our risk assessment we can look at what is done in Europe.
Yes, there are things we can learn from other countries, but an overall statement would be that Canadian pipelines are certainly amongst the safest in the world.
Senator Massicotte: How does that compare against ships and railroads? I know we will get the statistics but I want to know your impressions.
Mr. Colquhoun: We have come across a number of people in those industries who have made statements to support the fact that as far as bulk transportation over long distance, pipelines are clearly the winner. They are more economical by several factors and they are safer by several factors. There are places where other modes of transport have advantages, and they will continue to exist. My friends from the Canadian Association of Petroleum Producers perhaps could elaborate on this, but we will continue to look for continuous improvement on safety.
The broad answer to your question is that undoubtedly pipelines, for the large, bulk transportation of hydrocarbons, are ahead on safety and cost.
Senator Massicotte: In spite of all that, we do have some incidents or spills or whatever. If you were to generalize, why do they occur? In a radio presentation it sounds perfect but obviously it is not. Things happen. Why the spills? Why the incidents? What goes wrong?
Mr. Colquhoun: The honourable senator robbed me of my answer. You have to look at the individual causes. There are underlying themes. Pipeline engineering is a mature industry, and most of the mechanisms by which a pipeline can fail are recognized, and controls are available to avoid that. A common theme we see when we look at the failures is that there is perhaps not yet the same intensity of safety culture that we would like to see in companies. There is always good safety culture specified, and it varies at different levels throughout the company, but what we would like to see is that implemented more uniformly. I believe if I were to take one thing that would improve pipeline safety, it would be the application of a comprehensive management system that supports a very healthy safety culture. That would somewhat address your question.
The other aspect to your question of course is that pipeline failures do not happen in a uniform fashion. We tend very much to react to a recent highly publicized spill, as we should. However, it is important to take a long-term look at failure statistics. If we were to look over the last say five, six, seven years specifically at oil spills, we would see a weak tendency for the number and intensity to drop. Coincidentally, that is about the time over which management systems have been introduced. It is early days yet to attribute any proportion of that to management systems, but the trend is very encouraging.
The Chair: Thank you. I will put you on second round, Senator Massicotte. You pushed the envelope in more ways than one.
Senator Patterson: I will ask a very short question to make up for some of my colleagues.
This is to CAPP. I have a specific question about the proposed regulations amending the Onshore Pipeline Regulations, 1999, which were recently pre-published in the Canada Gazette, Part I, on October 27, 2012. Was CAPP or any of its member companies consulted in the drafting of these proposed amendments? What will be the effect of these amendments on CAPP member companies, and does CAPP support these amendments?
Mr. Pryce: I will have to get back to you on that. I know CAPP was aware of them. I am not sure to what extent we were involved in the discussions. I will have to commit to get back to this committee.
Senator Lang: I would like to go to the question of the engineering of the manufacturing of pipe. First, has there been a substantial change in the composition of pipe that was manufactured in 1970 versus today in 2012? If so, do the changes that have taken place further diminish the risk factor in respect to the longevity of the pipe and its corrosiveness?
Mr. Colquhoun: I would like to thank the senator for the question. Yes, indeed, there have been changes and improvements. I mentioned in my earlier remark the pipeline industry is a mature industry. We have learned as we have gone through the last 30, 40, 50 years or so better ways to make pipe, better ways to specify materials, better ways to manufacture and construct.
If, coincidentally, you chose 1970, that is about a break point. Pipes tend to respond to the elements that I mentioned there in eras. Pre-1970 pipe would be substantially different from post-1970 pipe. The industry has learned to incorporate these improvements to provide the benefits that you talk about, higher liability and therefore lower risk.
At the same time, in putting those improvements together and recognizing that it is a mature industry, industry, regulators, research environments and consultants have a good indication of any shortcoming that might take place in, let us for the sake of this discussion, pre-1970 pipe, and the industry knows the appropriate controls that can be put in place in terms of monitoring, in terms of risk assessment, in terms of the strength of anomaly assessment and in terms of appropriate remediation.
Mr. Pryce: If I could reinforce that point, industry would not, I think, take the view that age is the issue. It is whether or not we have the appropriate management systems in place that acknowledge the nature of the pipe, the nature of the product, the nature of the environment that the pipe is enclosed in, and design our monitoring systems, whether it is using the smart pigs or whether it is daylighting the pipe on a periodic basis to confirm the quality of the pipe. Industry is aware of the different aspects of pipe and needs to make sure and does make sure that it sets its maintenance systems, its integrity management systems in place aligned with that.
Senator Lang: It appears that the pipeline maintenance is ongoing, and then there seems to be crisis management when there is a break. The reason I asked that initial question was to find out whether or not there was program of replacement of older manufactured pipe so that on an ongoing basis we could mitigate these various incidents from happening, primarily — and I want to emphasize this — around waterways. We, as Canadians, become very alarmed when our waterways are affected and the long-term implications of that. Quite frankly, it does not make your industry look very good. It becomes very unsettling to the public. Could you tell me if there is any thought, if there has ever been a call for a replacement program to the industry by the NEB? If not, is there some consideration being given to it because of what you call the maturity of the industry or maturity of the pipe?
Mr. Stringham: I will start with that and I will refer the NEB question to Mr. Colquhoun.
Clearly, there is, as the systems that are in place highlight any anomalies or any risk associated with pipe regardless of age, so age is not the only determining factor. In fact, some of the older pipes we have are some of the ones in the best shape right now, as long as they are operated within the pressures they have been established for.
In particular, on some of the mainline systems, as you can talk with the pipeline proponents next week about theirs, we are as industry supportive of some major replacement of pipeline systems on the Enbridge system under way right now. It is in the cost of several billions of dollars, but as incidents were identified through their monitoring program, through the extensive dig program and the use of the intelligent monitoring pig systems that they have, we are now in the process of funding through them the replacement of several long sections of pipe that have been identified as potential risks. That happens on a regular basis as we go through that.
In particular, you identified the waterways, and that is clearly the high-risk area. That is where additional monitoring and additional safety have been put in place so that they are looking at those more frequently, and any type of anomaly that they identify there can either be pipe replacement, or sometimes in those cases it is actually a pipe within a pipe, and they will put a coating, another pipe around the outside of that to ensure that safety is maintained on those waterway areas.
Those are some examples of the types of things that are happening today as we speak. It is not a future thing; it is ongoing.
Mr. Colquhoun: With respect to the NEB's position on requirements, I think as mentioned earlier the NEB has a strong requirement for companies to develop a comprehensive and effective management system, one very important component of which is to identify all hazards and all risks associated with the pipeline. They must identify them and put in place programs to control them. If I were to take, for example, one possible hazard, which might be external corrosion, the suite of possible remediation measures available to industry could be to recoat the pipe; it could be to enhance the protection, the so-called cathodic protection of the pipe; but it might also mean in certain cases that the pipe has indeed to be replaced.
Senator Mitchell: Earlier in testimony today, maybe it was said several times that money is required to be set aside by companies in anticipation of liability for abandonment or upgrading in the future for accidents. Mr. Stringham, you just said that "we'' are either funding or contemplating funding literally billions of dollars of replacement pipe through Enbridge. That suggests to me that "we'' as CAPP, which manages these funds, are using that money, or are you requiring companies to come up with new money right now? How is that being financed? Is it Enbridge pipeline or is Enbridge the pipeline company that is being used to do it?
Mr. Stringham: Thank you for the question, senator. The example that I provided was Enbridge. That happens consistently across the number of pipelines. That is the one that I just wanted to mention as an example that is under way right now.
When I mentioned "we,'' it is really the industry through the tolls that they pay to the pipeline companies. The costs go into a rate-based system regulated by the National Energy Board, and then those costs are spread over the shippers on that pipeline through a toll system. That is how it is paid. It is by the shippers on those pipelines that have paid for the additional costs that go into doing that. That is part of the regular ongoing toll discussions that happen under the regulatory umbrella of the National Energy Board.
Senator Mitchell: Is there actually a liability fund set aside, or is it funded as it goes? Because it is almost a utility, you do not worry about not having a stream of money in the future to pay it?
Mr. Stringham: From the tolling perspective, it is for the ongoing replacement. That is part of the regular cost of the pipeline that is put into the rate base that goes on an ongoing basis. They look at the eventual life and the depreciation associated with that. That is not the liability side; that is the replacement and ongoing operations. Safety and security are built into those tolls as part of that regulatory toll process.
The Chair: You talked about river crossings. Senator Lang mentioned it. Maybe you could help us here a bit. I am referring to the northern gateway. There are a lot of river crossings that have to take place and some significant rivers. I assume that most of those, or maybe all, are directionally drilled under the river. Is that correct or not? Are there some rules around that from the NEB that would cover that kind of thing? When you talked about a pipe within a pipe to further enhance the safety factors in an environment with those river crossings, would that be something done when you cross rivers?
Mr. Colquhoun: Mr. Chair, I guess first we have to make it clear that we cannot discuss a case that is before the board. We cannot speak directly to northern gateway.
The Chair: I am sorry.
Mr. Colquhoun: Your question is an excellent one, and we will try to answer it, between us all, in a general way. Again, CAPP can clarify this for you, but not necessarily are all pipelines horizontally and directionally drilled. It is the preferred methodology but, for smaller crossings, that might not be the case. Whether a regulator impacts that decision, coming back to an earlier statement I made, the regulator requires the operating company within its management system to identify all hazards and risks. If some methodology other than directional drilling is selected, we would expect to see an engineering assessment to explain that those hazards associated with that method of crossing have been taken into account and the risks have been properly controlled.
Mr. Smyth: If I could add to that, for a project such as a northern gateway or anything of that significance, there is a requirement for an environmental assessment. Companies would be required to look at whether there are sensitive habitats and provide a plan to the National Energy Board as part of their application that shows they have identified these areas of concern and proposed mitigation to ensure that they are considering and protecting the environment and habitat.
Mr. Stringham: As we go through the application process for any pipeline, regardless of where it is going, that entire routing detail is made available to the public, and each one of those stream or river crossings is part of the proposal that says this is how we propose to actually cross that river. In some cases, it will be directionally drilled. In other cases, it will not be because it is a smaller stream crossing. All of the environmental aspects, the wild life aspect and all of that are considered as part of the application through the National Energy Board hearing. As you know, in some cases that is ongoing right now.
Mr. Pryce: If I could add also, other agencies or departments within the federal government and indeed provincial governments may be engaged in that — Department of Fisheries and Oceans, Transport Canada and provincial environmental regulators. They may all have some input as to the merits of the methodology of the stream crossing, whether it is directionally drilled or coffer dam entrenched. All of them will have a consideration, depending on the size or the nature of the stream and its crossing.
Senator Wallace: Gentlemen, my first comment is along the same lines as Senator Massicotte's when you spoke about what information is available dealing with incidents. I do not think you described them as incidents, but incidents do occur. As part of any assessment, whether it is the assessment made by the regulator or the assessment made by the public, it is that risk-benefit assessment that is important. I think we all realize the importance of the development of our natural resources, but weighed against that, at what risk?
We have heard you describe in a lot of detail the practices and the process that is followed to minimize the risk, but what sticks in my mind is this: What are the facts? What has the history been of spill incidents with pipeline movement?
There was a response given along the same line to Senator Massicotte. What strikes me when I think of the pipelines in Canada is that there are pipelines that are in very difficult terrain, above ground, underground, under waterways, in extremely cold conditions, through mountainous areas and so on. In each of those cases, I am sure the degree of risk that would be posed to a pipeline would vary. The public will have to be satisfied that the risk is one that is reasonable and can be maintained or is containable.
That is a long buildup to the question, but I am wondering in terms of data and statistics that are available, is there information that breaks that risk down not simply by kilometres of pipeline but by pipeline in these various geographic conditions? If that detail does exist, would the NEB require that to be before them in making their determination of approval or disapproval of a project?
Mr. Colquhoun: I do prefer your characterization of the question, senator. Thank you very much.
There are a number of potential damaging conditions in the preamble to the question, and these comprise the hazards to which a pipeline might be exposed. In identifying the hazards associated with water crossings, be it with respect to mountainous regions, be it earth movement, slope movement, be it an earthquake zone, these are all well understood.
The NEB's position is quite general, which gives us phenomenal power to evaluate applications, and that is that these hazards have to be explicitly stated and recognized and the control mechanisms must be described in the application.
Whether there are specific geographic lists of those is a little harder to say. In route selection and in evaluation of a pipeline route, an evaluation must be made on a kilometre-by-kilometre basis identifying where there could be potential hazards that have to be accommodated in the design. For example, earthquake areas are well established in doing the route selection, and potentially unstable slopes would be identified, and that hazard would be taken into account in the design, construction and operation of the pipeline. That would basically comprise the NEB's requirements.
Mr. Smyth: During the application process, if there are specific conditions that the board would identify as the company lays out their plan to mitigate these risks, they would actually be included in the authorization if it is approved by GIC.
Once an authorization is granted and the company goes about constructing the pipeline, NEB inspectors will be out there to verify that the company is indeed meeting regulatory requirements and any conditions or commitments they made during the application process. Once construction is complete, our role does not stop there. We continue oversight through the operation phase, and we will pay attention to any risk areas that they might have identified. That feeds into the way that we identify compliance verification activities. It is a risk-informed model, where we take that information and intelligence from various sources and focus our compliance activities accordingly.
Mr. Colquhoun: If I could add one small comment, we do require companies to identify hazards. As we examine their operation or their application, we also might identify deficiencies in their hazard identification, and in that case we would follow up with an information request. We would, at that point, continue with the identification and control process. The NEB, in reviewing the submissions to it from the operating companies, might additionally identify hazards.
Senator Wallace: At the heart of the question I was raising was the initial assessment of risk, the risk before the project is approved and what that assessment is based on. It goes back again to what was raised by Senator Massicotte. What I was trying to get a sense of is the extent to which you rely upon detailed statistical analysis of past occurrences in similar circumstances, similar terrain and so on. You hear risk described as negligible, nearly non-existent, and that is fine. Those words do not mean much to the public. The extent to which you actually rely on data or expect that to be provided was my question. How detailed is that information? Is it available? Do you rely on it? Do you expect it?
Mr. Colquhoun: The honourable senator has hit on an area of improvement in which we participate. He referred to some qualitative measures for risk. We are working with industry to develop more quantitative methodologies. In fact, Mr. Pryce mentioned earlier the strong reliance we put on the Canadian Standards Association. CSA Z662 Annex O is a risk-based annex that is available for companies to use under certain conditions.
In my previous answer, I mentioned earthquakes. Statistics are available, and they are used at the risk assessment stage for all of the threats or hazards that are commonly identified for pipelines. That would be specifically the case in an earthquake, in slope stability and in corrosion growth in the event that there is a break in the corrosion protection mechanism of the pipeline. This data does exist and is used as a fundamental input to the risk assessment.
Senator Wallace: Am I out of time?
The Chair: You have run fairly well. Senator Lang, you had a supplement to this, a quick one.
Senator Lang: You talked about the question of terrain, the earthquake possibilities and various other aspects with respect to, maybe, avalanches. Could you expand a bit, from a risk management point of view, on the use of satellite? I know there is some utilization of it now. How does that tie into what you do on a daily basis?
Mr. Colquhoun: Another excellent question because it brings up a very important tool that is available to pipeline operators, and that is satellite monitoring. There has been development, again in the last 15 to 20 years, of ways of applying this for two principal areas. The obvious one is security, and that is more recent. The more traditional one is slope stability monitoring. You mentioned avalanches, but it probably also covers things like mud slides and catastrophic failures. These things do occur. They are relatively rare. With slopes, sometimes it is impossible not to cross a slope that is moving very slowly, say 25 millimetres a year or something like that. The appropriate technology there, in addition to slope indicators looking at the soil itself, is the use of satellite monitoring techniques. These have been developed and are being used.
The Chair: Senator Wallace, you had another question.
Senator Wallace: Maybe not a question, but I will put it out. It might be information that you can provide to us.
There was discussion of, in the event of a spill, the spill response capability that is expected from industry. I am not sure if there is a spill response capability in pipeline circumstances available from government. For example, if there is an incident from a tanker, there are private spill response capabilities, but the Coast Guard also has its own. There is an interaction there between government and industry.
I would be interested if you could provide us with information about the responsibilities of industry and government in responding to incidents that might occur from pipelines. Who provides the equipment? Who is required to provide the manpower? Who oversees the whole spill response program with respect to that incident? Is it government that directs it? Is it industry? The public obviously wants to be confident that incidents would be responded to in an appropriate way. How does that interaction occur between government and industry? If there is information you could provide us, I, at least, would appreciate it.
Mr. Smyth: Certainly. I will give a short answer now and we can certainly provide you more information in writing.
When a company applies to construct and operate a pipeline, one of the requirements is that they demonstrate their ability to respond effectively to an emergency, should it arise. They need to submit to the National Energy Board an emergency response manual, which is reviewed. It lays out what they are going to do and how they are going to do it in the event of an emergency, such as where they will get the equipment, how they will notify residents and how first responders will be identified.
From an NEB perspective, we have an emergency response program in place as well. We have staff trained to respond, in the event of an emergency, to provide oversight and to ensure that the company is appropriately managing the incident. We monitor that from our Emergency Operations Centre here in Calgary, and, depending on the nature of the incident, we are also tied into the Government of Canada's Emergency Operations Centre in Ottawa.
The Chair: Thank you. I would ask you folks, for any information that you have committed to sending us, please send it to the clerk so that it will go out to each and every senator.
Senator Brown: I would like to know what your position is on construction companies that break the lines while they are crossing another pipeline. Are you charging them with the costs and having them ensure that they put it back where it was?
I would like to know, as well, what is done with spillage from a pipeline. I know that there are some ways that you can do away with the spillage. Do you actually have a law to ensure that oil or whatever does not seep into the ground and is left there? Do you have that dug out and have microbes to eat that oil?
Mr. Smyth: From an NEB perspective, if a contractor makes contact with a pipeline and either damages it or severs it all together, there is a requirement under the NEB Pipeline Crossing Regulations that any unauthorized activity on the right-of-way or safety zone is reported to the board. There is also a requirement that prior to any activity taking place, either the landowner or the contractor or whoever is contemplating the activity needs to contact the company, either directly or through a one-call centre.
In the event they sever a line, the pipeline company will know and will shut in the line. Hopefully there is not a kaboom, because that would be a bad thing. As far as the cost to bring that line back into operation, that would be a negotiation between the pipeline company and whoever caused the damage. We would provide oversight as far as the investigation of the unauthorized activity, and if there is damage, we would be involved in an investigation to determine root cause and contributing factors.
The second part of your question, in the event of a spill, what happens with the product, if the spill happens on an NEB-regulated pipeline, part of our investigation is the requirement for the company to provide a remediation plan that lays out first very clearly what they will do with the product. Typically, they will monitor how it may migrate underground, so they will put monitors and wells in place. The expectation generally is they would remove all the contaminated soil and all the free product, and it would be removed from site, contained and appropriately disposed off. They would set that out within the remediation plan that would come to the board for our review and approval.
Senator Brown: You are saying it is taken away, but what actually happens to it? I know there was a great deal of research done at Olds College in Alberta, and they proved that putting microbes into lines with the damaged soil will actually eat the oil. They turn the soil every so often, and the oil is actually gone when they are through treating the soil. Is that not being used? What do they do with the spillage you are talking about? Do they just pile it some place?
Mr. Pryce: Senator, indeed there has been a fair bit of research on learning the ability of biotechnology to degrade the oil and render it inert. In some cases, the companies will use that technology to recover or restore the soil. There is some advantage of doing that in that the soil remains to put back on the land. Where we can do that, we will certainly consider that.
One of the considerations, though, is the site itself and whether or not it is conducive to containment as that biodegradation occurs or whether there is a risk it will seep into groundwater. Where that is not a risk, companies certainly look at that because that helps preserve the soil.
In other circumstances, whether pipeline or wellheads, the expectation of the regulators, provincially at least, is it all must be managed in a secure fashion. There are a number of secure landfills that exist throughout Western Canada that could be a receptor for those soils. Our preference is to minimize the utilization of those, but in no circumstance are we enabled or allowed to leave it unsecured or in some fashion posing a risk to further contamination.
Senator Brown: You do have regulations to enforce that sort of damage control; is that correct?
Mr. Pryce: I will leave our NEB colleagues to respond as well, but certainly from the provincial regulatory perspective, yes indeed. We would have to get approval of the strategy we would employ for the handling of any contaminated soils.
Mr. Smyth: Similarly, with the NEB, we have regulatory requirements, but also, on an incident-by-incident basis, we can set out very strict conditions and requirements.
Mr. Colquhoun: The overarching principle is that the land be returned to the condition it was in before the incident.
Mr. Stringham: Adding on the former question as well, I do not want to leave the impression that there will be a discussion of who would pay for this. The advantage of some of the response corporations that have been established is if an incident does happen, which we try to minimize, those kick in immediately, and then the sorting out afterwards about who pays for the bill is taken care of. It is not something waited around for. I just want to be sure that is not left on the table as something that waits to happen. The response is immediate; it is triggered by the regulator, and they supervise what is going on there, and the companies take care of it and then sort out afterwards how that will be allocated amongst whoever caused the incident.
Senator Sibbeston: My first question is more of probably an administrative nature, and I appreciate you may not know, but if you could provide the information. Changes in legislation in the past few years have resulted in the NEB being responsible for environmental assessments regarding pipelines. What does this mean for the NEB? Does it mean a buildup of personnel? I would be interested in having information on how the NEB plans to deal with this increased responsibility.
Second, with respect to spills, when a spill occurs, it is dealt with, examined and analyzed as to the cause. Are there reports on the major causes of spills? Information in this regard I think would be useful to us.
Mr. Smyth: Thank you for the question. If I may, I will speak first to environmental assessment. Certainly we have seen a change through the Jobs, Growth and Long-term Prosperity Act, but as far as NEB capacity, we have been conducting environmental assessments for years. It will not change the way we do business, whether it is under the CEAA or the National Energy Board Act. We have the capacity with environmental specialists, socio-economic specialists and others to conduct the environmental assessments appropriately. From a capacity perspective, we are there already.
When we look at your second question around root cause and contributing factors of incidents, certainly we look for that when we conduct an investigation. For significant incidents that we investigate solely, we will publish a report. If the Transportation Safety Board is the lead investigator, they will publish a report that we contribute to.
You asked about primary, what it boils down to. We recently published two incident investigation reports on our website. I think they are pretty good examples of the nature of our investigations. If you were to look at the two of them, I think it boils down to management system failures.
The Chair: That brings us to 10 o'clock. Mr. Pryce, Mr. Stringham, Mr. Smyth and Mr. Colquhoun, thank you for your answers. They were very enlightening. If there is anything further you would like us to know, please do not hesitate to contact us. We appreciate your time.
(The committee adjourned.)