Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 18 - Evidence - April 5, 2017
OTTAWA, Wednesday, April 5, 2017
The Standing Senate Committee on Banking, Trade and Commerce met this day at 4:18 p.m. to study and report on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade.
Senator David Tkachuk (Chair) in the chair.
[English]
The Chair: Good afternoon and welcome, colleagues, and members of the general public who are following today's proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the Web.
My name is David Tkachuk, and I'm the chair of the committee.
Today is our fourteenth meeting on the subject of our study on the development of a national corridor in Canada as a means of enhancing and facilitating commerce and internal trade.
Honourable senators are no doubt aware that on June 25, 2014, the federal Minister of Transport launched a review of the Canada Transportation Act. The entity that conducted the review was chaired by our first witness this evening, appearing by video conference, the Honourable David Emerson, P.C., currently the Chairman of Emerson Services Ltd.
The review concluded on December 21, 2015, with the submission of a report to the minister, which was then tabled in Parliament on February 25, 2016.
Mr. Emerson, thank you so much for being with us today. Please proceed with your opening remarks, after which we will go to a question and answer session.
Hon. David Emerson, P.C., Chairman, Emerson Services Ltd., as an individual: Thank you very much, Mr. Chair, and senators. It's good to be here, as always. I thought I would read a very brief statement and save maximum time for questions and interaction after my statement.
There is a tendency, concerning trade and transportation corridors, to think physical infrastructure: roads, rail, bridges, pipelines, transmission lines and the like. In my view, this is a mistake.
Trade and logistics corridors are complex, dynamic systems made up of many parts. There are physical components, some stationary, some fixed; technological components; massive information requirements; intellectual and human capital dimensions; management systems; security systems; operating systems; numerous participating agents; financial capital; first mile/last mile requirements; and a host of other tangible and intangible elements.
Similarly, the corridor's spatial boundaries need not be precisely defined so much as the concept needs to be formally embraced and defined, and part of the government's decision-making and regulatory mechanisms and processes.
Absent a federal governance framework for integrated whole-of-government decision-making around the full range of trade, transportation and logistics issues, the trade corridor concept will fall short of its potential.
You'll recall the Asia-Pacific Gateway and Corridor Initiative was a great success because funding was prioritized to those elements essential to the overall success and efficiency of the trade corridor, and that included investment in technology and a variety of important non-infrastructural initiatives.
Other countries have since recognized and emulated its success and are now doing it themselves as a competitive response. It is my view, and it was the view of the committee that completed the review of the Canada Transportation Act, that Canada must again up our game or we risk falling further behind.
Thank you, Mr. Chair, and I'll entertain questions.
The Chair: Thank you, Mr. Emerson. Who wants to start? Senator Tannas?
Senator Tannas: Hello, Mr. Emerson. Thank you very much for your comments, and I'm sorry I missed the first couple of minutes of them.
I got here as you were just detailing the mighty list of things that would need to be considered, and I think we all appreciate, and know you would too, as a business leader that sees the big picture but also from your time in government, that this is still in the crazy idea stage, and is not likely to be something that anybody would want to take a whole lot of risk on.
The one question I have for you is: Is this worth $5 million to have the people who have indicated an interest in taking this to the next level try and understand its plausibility? The groups that have signalled that they would like to be involved are the First Nations Major Projects folks, led by Harold Calla, whom you may know, and also, obviously, the School of Public Policy and some of their partners at the University of Calgary.
Is it worth the money for the federal government, and potentially for other interested parties, to provide funding for a more fulsome look at this?
Mr. Emerson: I think it's really important that we distinguish between what some folks have been recommending in terms of a geographic land-based corridor that could accommodate multiple transportation systems, be it pipelines, transmission lines, rail or whatever, and the trade corridors that really are fundamental to connecting Canada to the global marketplace.
As I think everyone will appreciate, without really efficient connections to the global marketplace for Canadian goods and services, Canada's economy would be, quite bluntly, toast. When I think of trade corridors, I do not think of a corridor that is really set up to expedite major project approvals and enlist the support of First Nations. I think of the fundamental requirement for corridors that are, first and foremost, transportation and logistics systems, which have to have a very strong core to them. Normally, in this case, that would be built around the railroads and through the ports, along with the feeder systems, the technologies, the data, the various measures around security and border fluidity and so on that enable Canadian companies to access the global marketplace with great efficiency.
I would just say, in conclusion, that transportation and logistics is now a more important competitive driver than most tariff and non-tariff barriers are.
Senator Tannas: Maybe I'll go at this in a little different way.
Given what you have just said, do you see the existing physical transportation corridors — the CP railway, the CN railway, the Trans-Canada Highway and the existing ports — being able to provide the capacity for our country and its want to export goods 50, 75 and 100 years from now when, hopefully, our economy is triple, quadruple or quintuple the size it is right now?
Mr. Emerson: I would say not without further policy adaptation, and I say that because when you look at the fundamental trade corridors, there are bottlenecks developing and that have developed. There are various areas where urban encroachment is bringing the system if not to a standstill, then at least creating serious delays and problems with the import and export of products.
So in the sense that we need government acknowledgment that trade corridors are a fundamental part of the greater national economic interest, I believe that we will need and should put in place mechanisms and authorities that would enable government to, if you like, take control of certain pieces of land or implement certain initiatives that would prevent the ultimate encroachment into the trade corridor that is already starting to bind.
Senator Tannas: Thank you, sir.
Senator Enverga: Thank you, Mr. Emerson. I know that you are a distinguished person who is knowledgeable about this kind of project.
I know Canada has huge areas of land that cannot be built upon. This particular corridor cannot be built in one swoop of the pen, nor can it be done in a year. It's going to maybe take a generation just to complete everything.
My question to you, that I'm hoping you can answer for us, is: Do you believe that we would have to build this corridor in phases, let's say, going from the eastern part of Canada first and the northern part of Canada later on? Where do you think we should start? Do we have to start maybe with the oil pipelines first, or go to the east pipeline on the next?
Mr. Emerson: That's a really good question, and I would say that the development of the corridor — and it shouldn't be singular, it should be corridors — will go on continuously for our lifetime and the lifetime of our kids and grandkids, and it will, as you say, evolve in projects and segments. But I think we all need to be very cognizant of the fact that the key artery, if you like, of the corridor will be high volume, high speed movement of freight, whether it's bulk or container cargo. It will be high speed, bulk, high volume movement. And that means there will be corridors that are used intensively and efficient to competitive global standards, but they will basically run across the bottom half of the country from coast to coast, and up and down the North American continent.
What needs to be recognized, and we laid this out in the review of the Canada Transportation Act, is that for many communities in Canada — historically, now and into the future — there needs to be efficient feeder systems, whether it's through short line rail, better trucking and road connections. We need to ensure that in developing and building a corridor, transportation policy in Canada looks at the entirety of the Canadian trade-driven transportation system, including short line railways, run often by provinces, and road systems. If they are not put in place and regulated so that small communities off the main line get a high level of service, then we will disenfranchise a large number of smaller communities and prevent their growth and development over time.
To me, it's important to recognize that transportation is a very long game. Projects take 10, sometimes 20 years to go through approvals and construction. In that time, you can actually bring about the re-definition of the economic geography of the country. You can see towns die. You can see towns grow. You can see all kinds of geographic and local community disruption as a result of what's happening.
So think of the corridor as arteries — high speed, high volume — with feeder systems that have to be part of the puzzle and treated every bit as seriously as the main arteries.
Senator Wallin: I want to come back to one of the things that we have been looking at. Although the basic issue is whether this issue should really be studied, and if so where would the money come from to study where the best place would be. But a lot of people have been talking about the northern corridor and not the same as the trade routes, and that it's not just highways and rail lines. It's about technological digital lines, those kinds of things. Are you saying that those could be offshoot corridors or that shouldn't be the focus?
Mr. Emerson: No, I'm saying that, to some degree, those corridors should feed into the main system and allow product to move from the main system up into the northern and more remote areas. When we talk about the physical corridor, I do think that there is scope for that in Northern Canada, but it needs to be thought through very carefully and the financing needs to be thought through very carefully, because one has to anticipate 30 and 40 years out where the major resource deposits and economic opportunities lie. We need to recognize that there's a security dimension to making sure that we can secure our northern borders and our northern waters.
When you get into the North, it's not so much the trade aspect of the corridor as it is servicing those communities, servicing those developments and finding a way where, over time, as more mines or energy developments or economic development comes along, you can use the incremental economic activity that comes on over a few decades to help pay back the initial cost because those corridors will lose money for a long time.
Senator Wallin: I guess that's my next question. Is there a distinction in terms of who funds? Maybe you have a private-public partnership for the more southern trade-focused corridors and the North becomes more of a national responsibility, national project, a national government responsibility.
Mr. Emerson: Yes, that is what I think, senator.
Senator Wallin: Okay.
Mr. Emerson: There may be PPP opportunities in the North, but they will be few and far between, and frankly if the government doesn't step up, as other governments with northern Arctic land masses have done, then we are just going to fall further and further behind up in the North.
Senator Wallin: Great, thank you.
The Chair: I will go to Senator Wetston for a minute, and then hopefully we have this problem solved with translation.
Senator Wetston: I have a general question about the corridor concept. Do you view the corridor concept as something like a strategic plan in the sense that it seems like you need to have that concept to develop some of the strengths that we have as a country, that you could potentially think about as an organizational concept, but in reality is very difficult to achieve a corridor concept in Canada because of the constitutional issues, the federal-provincial issues, the financing issues, the challenges that one has to achieve this corridor concept in general terms? How do you view it?
Mr. Emerson: There's a whole chapter in the Canada Transportation Act review on governance, and we laid out one way in which one could incorporate the different players, the different stakeholders. There are multiple ministries. There are multiple levels of government. There are multiple sectors, shippers and transportation providers in different modes. We had argued that there should be, in the Government of Canada, a mechanism through which trade and transportation and logistics decisions could be made in a comprehensive way.
One of the things to come out of it would be a project, a strategic transportation logistics project pipeline. Those projects would have priorities, depending on how our trade was evolving and how Canada's trade policy was attempting to shift the pattern of trade.
One has to, in my view, have a whole-of-government approach to making strategic transportation decisions. And as I said before, it covers way more than infrastructure. It covers research. It covers manpower, people power. It covers the applications of technology and innovation. It covers security and border issues, environmental issues, and on and on. If you don't connect all of those in a focused decision-making exercise, driven by the need for the most efficient connection possible for Canada to the global marketplace, we will simply fall behind because other countries are doing it and you know we have issues with the U.S. these days. You simply cannot go on assuming the status quo stability of NAFTA and the relationship with the U.S.
We've got to get into Asian and European markets. If we're going to do that, we have to have world-leading transportation and logistics capability.
The Chair: Mr. Emerson, we're going to give this another shot with Senator Forest. He's going to be speaking in French. Sort of nod your head if you can hear the English translation, which is what you should be receiving. We'll give that a shot.
[Translation]
Senator Forest: That shows that there are problems transporting all kinds of things in Canada, even conveying someone's voice.
I think this is a very important concept for the efficient transportation of merchandise in Canada in the context of globalization. If I understand correctly, one of the keys to success for such a project is intermodality. In addition to the efficient transportation of merchandise, do you think this could also help reduce the greenhouse gas emissions in Canada that are generated by traditional means of transportation?
[English]
Mr. Emerson: I have the view that if we're going to produce a billion dollars of GDP, for the sake of argument, we will produce a billion dollars' worth of GDP far more efficiently if we have a fluid and efficient intermodal transportation system. So the efficiency of the transportation system, its fluidity and the lack of stop-and-start and bottlenecks and that kind of thing, and the application of newer technologies will all contribute to environmental improvement, safety improvement and productivity improvement.
I'm a believer that a good transportation system is one of the best things you can do, environmentally and economically.
[Translation]
Senator Forest: I have another question for you. This is a massive project involving the federal, provincial and territorial governments. What are your thoughts on managing this planning phase? We would have to start with a planning phase. Should the federal government take the initiative? How do you see the sharing of responsibilities among the various orders of government?
[English]
Mr. Emerson: The federal government should take the lead in the interprovincial and international elements. An advisory capability can be put together. We outlined what that might look like in our CTA review. Where there are jurisdictional issues, cost sharing and other mechanisms can be used to ensure that provinces and municipalities can make their contribution to a very efficient logistical system for the country.
Senator Forest: Thank you.
Senator Ringuette: Nice to see you again, Mr. Emerson. In our early discussion with regard to a possible northern corridor, I indicated that we should have not only feeders but also formal links between the northern proposed corridor and the current trade corridor that we have in the southern area. From what you're saying, maybe we should look at doing the reverse: doing the feeder that would link the different communities up North and then, in a second phase, link one parallel feeder going to the North to one another. It seems you're saying that would be more efficient with regard to helping the communities and trade.
Mr. Emerson: I think you're going to have to do both. For example, the Northwest Territories and the Yukon should be linked into the national transportation system, and we should be pushing those corridors upward to the Arctic.
But there are areas in the territories and in Nunavut, in particular, where the linkage to the national transportation system simply may not happen for several lifetimes. For parts of the Arctic, you're going to have to look at a corridor with an entry point that is coastal in the Arctic.
We've made recommendations. The Government of Canada over the years has been cutting back on funding for the surveying of the ocean floor and the ice, and has been cutting funding for loading and unloading facilities in remote northern areas. To me that's just craziness.
We need to make sure that for all of the areas in the North where there are communities now and will be forever, essentially, that we are assessing how product can be brought into those communities and how economic lifelines can be put in place. They may not link in the traditional way to our Lower Canada corridors.
Senator Ringuette: Thank you.
Mr. Emerson: If you look at the Yukon and northern British Columbia, there is scope for access to tidewater in some of the northern inlets up there. We made comment on that.
In the Canada Transportation Act review, we enumerated, with the support of Indigenous and Northern Affairs Canada — there were, I think, six different corridors that we gave priority to. In the paper by, I think, Jack Mince and company, they were talking about a single northern corridor, if I'm not mistaken. I don't think a single corridor is going to do the trick.
The Chair: Could you explain that just a little further? Could you talk a little more about that about why you don't think so?
Mr. Emerson: In the sense that if you have only one corridor — you can't have a corridor covering all of northern Canada. You're going to have to then have a corridor that will — let's say within a couple hundred kilometres of that corridor, there will be some very beneficial impacts, but that's only going to be a small fraction of the communities and the landmass of the North.
So I believe you're going to have to make sure that there is linkage into some of those great expanses of land, people and resources that may not be economically associated with a single corridor.
Senator Ringuette: Thank you.
Senator Moncion: Thank you for answering our questions, Mr. Emerson. My question is about the corridor going through the Ring of Fire in Ontario.
There were issues with the railroad in Ontario where it would have been maybe part of the route that would have been used for transport. That's one issue. I think it was rejected. Are you aware of this? Was that ever on the plans?
Mr. Emerson: I'm aware of the Ring of Fire and the failures of it. The specifics of the railway deal I'm less aware of. But I can tell you that in the CTA review, we made very emphatic reference to the need for much greater public policy focus on short-line railways, because the short-line railways, regulations-wise, are treated in ways that basically inhibit their economic viability. They're taxed in a way that is much less generous and competitive than short-line rail in the U.S. Many of these short-line rail systems are peeled off from the Class 1 railways, so they tend to be under-invested in, under-maintained. We have a problem with neglecting short-line rail. We've made it pretty easy for the Class 1s to basically terminate a spur line. Frankly, I don't think we should be doing that. I think we should be making it exceedingly difficult to get rid of a short-line railway. I think we should be recognizing that at some point the economics of reinvesting in those spur lines could be very critical to the country, particularly to the development of the hinterland and rural communities.
Senator Moncion: I agree. The other question I have is about cost sharing. You were talking about the government input. How about the different companies' input? Would they be putting money into these projects?
Mr. Emerson: Yes, I think so. For any given project, for private investors, even if they're pension funds, for example, they're going to have to earn a private rate of return. You can do that by various P3 arrangements in terms of government guaranteeing a revenue stream. You can improve a project's economics by the federal government doing some of the risk mitigation; for example, taking responsibility for the relationship with First Nations. There are an awful lot of projects that die because the risk is passed off onto private sector companies that have no ability to manage it, whereas the government does have the ability.
So there are different ways the government can come to the table, but it needs very smart people to do it. In my judgment, it probably is going to require an infusion of some really good financial engineers to really understand how to do it and protect the taxpayer.
Senator Moncion: Thank you.
The Chair: Any further questions? Thank you very much, Mr. Emerson. That was a great hour. Thanks for making your presentation short. We had a lot of time for questions and answers and we actually got around the full table. It is much appreciated.
It gives me great pleasure to welcome, from the Canadian Energy Pipeline Association, Chris Bloomer, President and Chief Executive Officer.
Mr. Bloomer, thank you for appearing before us today via video conference. Please begin with your opening remarks, and then we'll go to a question-and-answer session. Please proceed.
Chris Bloomer, President and Chief Executive Officer, Canadian Energy Pipeline Association: My comments will be fairly brief. I appreciate the opportunity to meet with the committee and to have a conversation about northern corridors.
I am the president of the Canadian Energy Pipeline Association, otherwise known as CEPA. We represent the 11 major transmission pipeline companies and we move about 97 per cent of the country's crude oil and natural gas production to market. We operate about 119,000 kilometres of pipelines across Canada.
It's important to note that no matter where these pipelines are located, constructed, operated and eventually retired, the industry adheres to the highest standards for safety and environmental stewardship. To this end, the Canadian government should support pipelines as the safest and most efficient means of getting the best possible value for our natural resources into the global market.
The pipeline rights-of-way — we also call them corridors — in which our members operate are unique. It is important to understand the complexity that goes into routing these pipelines.
Before a pipeline is built, proponents spend hundreds of millions of dollars to complete complex, route-specific environmental and engineering assessments and conduct multi-year engagement with indigenous groups, private landowners and other affected communities. Some of the comprehensive measures taken include, but are not limited to, analyzing environmentally sensitive areas that need to be avoided; determining who owns the land and what it's currently used for; working with local communities to understand their needs, concerns, plans and the potential benefits pipeline infrastructure may provide; avoiding geohazards such as steep slopes, landslides and seismic faults; determining how construction and maintenance teams will access the area and where pipeline is buried during the life cycle of the pipeline. We identify treaty lands, reserves or traditional land use and work with the indigenous groups that are involved in that. We determine the most efficient access for emergency crews and their equipment, and study seasonal variations in temperature and weather that may impact the design. That's all to say that an awful lot goes into a pipeline in terms of the rights-of-way, the corridors and the impacts they have.
In addition, proponents must also finalize complicated commercial negotiations and secure shipper commitments prior to receiving regulatory approval for a project. There's a market pull in all of this, too, and market access is obviously key. These commercially-driven decisions are made by individual project proponents and reviewed through effective and efficient regulatory processes.
These economic and route-specific complexities lead us to the conclusion that the concept of a northern multi-use corridor is a bit too hypothetical to determine if a specific corridor would be a viable option for major pipeline infrastructure. Furthermore, Canada's pipeline sector must be capable of responding to the emerging energy demands and opportunities of the Canadian international market. These factors invariably affect the routes that pipeline companies will consider and further research regarding the type of product markets that would be served and other available market access points as required.
Major pipeline transmission lines move products from its source to markets, which do not necessarily align with the previously defined corridor. Multi-use corridors will also not impact the complex policy consultations and market considerations and processes that accompany major pipeline projects. With this in mind, transmission pipelines should not be seen as a driving force for a multi-use corridor concept.
As I said, my comments are brief. I thank you for listening, and we'll get to the most important part: the questions.
The Chair: Thank you very much. First on the list is Senator Tannas.
Senator Tannas: Thank you for taking the time to be with us today. I've got a couple of questions, and they're very quick.
I think you would be the first person to be able to confirm that it's tricky right now getting a pipeline done going east and west, and maybe a little easier going north and south. Is that true, and in your view will it get trickier in the future?
Mr. Bloomer: That is a really good question. That's a policy question. We're in the middle of regulatory reform reviews and so on, and that's going to determine, to a large extent, whether or not it gets trickier.
Senator Tannas: Fair enough.
I'm wondering if you could help me: The pipeline operators obviously need to differentiate themselves. They can't all be going to the same place and ending at the same place. We're an enormous country, so does it make any sense, in your mind — given that the tricky part is to find the right-of-way, the actual geographic right-of-way and get it in an economic fashion, get it all nailed down, get all the environmental — would it not somehow make sense that pipelines could have different beginning and end points, but for vast lengths, potentially thousands of miles in our country, they could travel the same route? Not through the same pipe; they could all have their own pipelines, but they could actually travel the same route.
In that way, does the concept of a single right-of-way, which then only allows pipeline operators to have to worry about the end point and the beginning point and the route to the right-of-way — so spurs, if you will — does that not make any sense at all? I don't know anything about this, but it seems to me there's something there, and I'm interested to know if you could educate us.
Mr. Bloomer: Ideally, the concept has some merit, but if you look at the existing pipeline systems — I'm talking about the major transmission pipelines; I'm not talking about the feeders in the field to the gathering systems and so on. The major pipelines are really focused on moving to specific markets. Obviously, Canada, along the border, that's where the major demand is to move the products to the markets.
With that in mind, it really is a market access question, and a northern corridor doesn't necessarily tie into a specific market.
I know part of the intent is to try to provide services to communities along the route, but they're very scattered. A mainline pipeline is really to serve major markets, and in the case of international markets, getting it on water. Once you get on water, whether it's on the East Coast or the West Coast or the North, once it's on a ship there's not a big difference. From that perspective, it doesn't solve the market issue.
As I said in my opening statement, we don't think it solves the policy issues. If you get to that point where you've got this right-of-way, the engineering aspects, ideally that could be the case, but practically I don't think it solves the issues.
Senator Tannas: Fair enough. Would it be fair to say your message is that if you're considering this northern corridor for us pipeline guys as being one of the primary beneficiaries, thanks but no thanks?
Mr. Bloomer: I wouldn't say it as harshly as that. I wouldn't use it as the primary driver for a multi-use corridor. There are roads and other things that may play into this, but for major pipeline transmission lines, I wouldn't use that as the cornerstone of a northern corridor.
Senator Wallin: Thank you for your comments. You've clearly laid out a lot of the impediments, and you're not the first to note that you spend hundreds of millions of dollars trying to get environmental approvals and negotiations with landowners and indigenous groups. That's a big wall poster for anyone who wants to take this mission on.
Our previous witness today, Mr. Emerson, also raised a point. He said that it would be very hard to talk private money into taking the risks involved in this, never mind the length of time, to take a risk for public policy objectives rather than a specific project, which would have a result and is presumably designed to create profit. Is that fair?
Mr. Bloomer: I think that's a fair comment. If you consider a northern corridor, setting aside the land, doing the work to acquire the land, there are going to be various agreements with communities along the way. It's a very complex, long-term and costly thing. Private money investing in something that has a questionable or indeterminate long-term benefit is not something that private capital would step up for.
Senator Wallin: What about the issue of if people were to go ahead with this and government decided it needed to do this for other purposes, again Mr. Emerson's view is basically to keep it where we have existing trade corridors so we can be competitive and get the stuff to the markets we're selling it to versus a more social approach by trying to connect Northern communities or digital transmissions, that they have two different intentions?
Mr. Bloomer: We would agree with that.
Senator Wetston: There's been a lot of discussion about the regulatory framework associated with the construction of pipelines. We've had views expressed about it, and of course there has been some recent discussion and maybe a bit of controversy around some of the regulatory issues associated with the necessary approvals associated with pipelines.
Do you have any views about the appropriate incentives that would be required from a regulatory perspective to ensure that these pipelines potentially, if necessary, are built?
Mr. Bloomer: In the context of a corridor or just in general?
Senator Wetston: I think you might have pipelines along a corridor, so I see them similarly, although I recognize the corridor concept is larger than simply, by the way, the northern corridor, it's also a national corridor. You have indicated that 80 per cent of the Canadian population lives maybe 100 miles from the U.S. border, so we understand that concept generally. Getting the supply to the demand is obviously an important task. It's more the regulatory framework which has come under some discussion.
Mr. Bloomer: Right. We wouldn't characterize it as incentives through the regulatory system. The industry is looking for clarity in the regulatory system and a process that once you go through it has an ability to make a decision. Where we've run into problems, we've had a lot of things impinge on the regulatory process with respect to transmission pipelines that are not really owned by the transmission pipelines.
It's not necessarily incentives; it's how the regulatory system functions, and there's clarity in decision making and process. Then we're able to make commercial decisions within that framework.
Senator Wetston: Let me give you an example, if I may, of what I'm getting at. As the regulators decide on setting the infrastructure for rates of return on equity for these pipeline companies, that's an inducement for them to build, because private capital is going to build these things. If they engage in some incentive rate-making process, it might encourage investment. That's something that has been used for many years by regulators in inducing the importance of building this infrastructure.
Are there any new incentives that would attract the capital necessary to build these projects?
Mr. Bloomer: I think the process by which companies make a determination on building a pipeline, first you've got to have people commit to volume so they can understand the capacity requirements. Then, yes, there is the rate structure. There are the rates of return on capital that drive the economic return.
That structure works. Incentives can be here today, gone tomorrow, to some extent, but incentives to induce what the market may not otherwise see going ahead can be used in the case where if there is a longer term strategic need, that may be useful.
Senator Enverga: Thank you for being with us, Mr. Bloomer. As President of the Canadian Energy Pipeline Association, you must have built thousands of miles of pipelines. You mentioned it's very important that you have multi-year engagement with indigenous groups. You also mentioned that we have to identify treaty lands. I'm concerned about indigenous lands.
Can you tell us, with your experience, what are the benefits that indigenous people are getting through these pipelines?
Mr. Bloomer: Well, currently, there are economic agreements to supply services, ongoing maintenance on these pipelines. There are rights-of-way costs and so on, so there are benefits. Where things are evolving, certainly in the review of the regulatory processes, I think there will be other means to provide life cycle participation on pipelines for First Nations so there's a longer term benefit seen.
There are things like training, contracts for maintenance, development, participation in the construction of the pipeline. Those things are benefits occurring today. In the future there will be other ways to provide long-term benefits to First Nations.
Senator Enverga: In a sense you believe that in the long run this national corridor would benefit our indigenous peoples, right?
Mr. Bloomer: Yes, it comes down to, in a national corridor, what are the agreements that I presume the government would negotiate with First Nations to acquire this corridor? Then if it's multi-use, there would be compound benefits potentially. It all depends on what the transactions would be in developing this corridor with First Nations.
The Chair: I have a couple of questions. I read a couple of news reports that, if Keystone XL gets built — authority is being given to build it; that doesn't mean that it's going to get built, but if it gets built— we would not be able to actually have enough product to supply Canada East. Is that a fact, or is that fake news?
Mr. Bloomer: Well, I think the question is: Do we have enough pipeline now, with the pipelines that are approved? The statistics are that, with the current pipeline approvals — and they are going to be built over a period of time here — the forecast for production of oil is that, by 2020, it will fill that capacity. An extra 1.2 to 1.3 million barrels a day will come on stream.
Pipelines need operating capacity, so, if you have a capacity for X thousand barrels a day, you are not going to move that every day. You're going to need time to maintain the pipeline. It's going to be down; then it's going to be up. So you need an operating capacity.
I would say that, for the near term, the pipeline capacity will be filled by incremental production, but I think that, from an industry perspective, that's a moment-in-time look at it. If we look 10 years out, if we look at how long it takes to get pipelines approved and then built, we need to take into consideration longer term. These new pipelines are going to be moving incremental production primarily from oil sands, but the basin is evolving. We're seeing terrific developments in a massive resource on the border of Alberta and B.C, with the Montney and the Duvernay formations. These are world-class resources that have hundreds of TCF of gas and billions of barrels of NGL and light crude. Over a 10-year time span, the results and the technologies being applied, these are competitive with U.S. basins. To develop those resources, we're going to need new pipeline capacity to move it to new markets.
Energy East is a longer-term piece. It's still in process. But what the future brings from the Western basin could be quite large and of tremendous economic benefit to Canada, and it will need new pipelines in the future.
The Chair: If, 50 years ago, the politicians had decided to proceed with a national corridor all the way to Eastern Canada, would Energy East have already been in construction?
Mr. Bloomer: Well, bear in mind that a great majority of that Energy East pipeline is already built, and this is an incremental piece to the East. I can't speculate on whether or not that would have been something that would have occurred.
Senator Day: On your list of things that you had to consider, one of them was with respect to whether or not the pipeline was buried. I wonder if you could expand on the desirability of burying pipelines versus above-ground pipelines. What's happening? What's the future?
Mr. Bloomer: The vast majority of pipelines in Canada are buried. We often see pictures in the newspaper of above-ground pipelines, and those are usually pictures of the Alaska Highway pipeline. That pipeline is built above ground because it's going through a permafrost area, and it's a heated line and so on.
In Canada, I would say that virtually all of the pipelines, the major transmission pipelines, are buried, and that's standard practice.
Senator Day: You referred to the newly discovered basins in the West. Will that require fracking?
Mr. Bloomer: Yes. These are sandstone reservoirs, and these are long-reach horizontal wells. They are fracked wells, yes.
Senator Day: We heard lots of information, a few years ago, about the United States and the various basins that had been located and how fracking had changed the game entirely. Are these long-distance pipelines still going to be necessary, or will we see fracking in areas where there aren't huge basins discovered but where there can still be enough production locally, just from fracking that might be going on?
Mr. Bloomer: Today, in the Bakken in southeast Saskatchewan, and in the Cardium, in Alberta, there is fracking going on there, and those are producing. The production is being taken away in the existing pipelines. Wherever it's economic to do it, they'll do it.
Senator Day: I'm wondering if that impacts the long-term need for certain pipelines if you can have a production closer by and a shorter pipeline.
Mr. Bloomer: The resources are where the resources are, and, certainly, the next phase of development in the Canadian Western energy business is going to be in these reservoirs that run along the B.C.-Alberta border. They are being newly developed. So there's not a lot of infrastructure there yet, but it will need new infrastructure.
Senator Day: Are you aware of anywhere in Canada where there has been work done in the past in creating a right-of-way that hasn't been fully utilized? Maybe it was used for rail but wide enough that they could put a pipeline along beside the rail line. The work had already been done. It's gone through indigenous communities, or the environmental impact studies have been completed. So there would be a lot of saving of time, energy and money if another service — whatever it might be, it might be a transmission line for oil but it might also be telecommunications.
Are you aware of any existing situation that you could tap into or one of your member companies could tap into now and save years of going through the regulatory process?
Mr. Bloomer: I'd have to say that we're not aware of anything of significant magnitude. I think that, on some of the old short-haul railroads in Saskatchewan and so on, there's some right-of-way, but, if that were the case, it doesn't eliminate the regulatory process to utilize those lands for new infrastructure, specifically pipelines. You still have to go through all of the regulatory process anyway. It doesn't mitigate any of that.
Senator Day: I would assume, from your association, that the Energy East pipeline is something you would like to see happen?
Mr. Bloomer: Like to see happen, that's a corporate decision, really, by TransCanada. Whatever transpires there, whatever is built there, would be built in the safest way and operated in the safest way, and, if it's serving a market that has the economics there, that will be served in a safe way and will be managed appropriately through the life cycle of that pipeline.
Senator Day: Assuming all of that that you have just described is positive, how many years would you anticipate it would take to see Energy East pipeline down to Saint John, New Brunswick?
Mr. Bloomer: I don't really have a crystal ball on that, but I would say it's a few years.
Senator Day: A few being ten, three?
Mr. Bloomer: I think that, according to the NEB process that's forecast now, it is going to be somewhere in 2025 where we get some sort of decision, and then you would have to build it. It's that far out.
Senator Day: My final question on Energy East was: They have to start all over again on the process because of a conflict or a perceived conflict of interest or potential conflict of interest. Who pays for all of those costs?
You talk about the millions of dollars in the regulatory process. The regulator had a conflict of interest. This is a regulator that had people sitting in judgment who shouldn't have been. But does industry still just have to pay those costs, or is there some compensation?
Senator Massicotte: I think Nova Scotia should pay for it.
Mr. Bloomer: There's no compensation for that. The industry pays for those costs. The industry pays, through levies for the NEB and the costs incurred in those things, in addition to the proponents developing their engineering, their application to the NEB and all of the consultation and everything else that goes around it. It's really for the proponent. The industry does, through the levies, fund the NEB.
The Chair: Any other questions? If not, Mr. Bloomer, thank you very much for your testimony today.
Mr. Bloomer: Thank you.
The Chair: Thanks for agreeing to come before us. Very enjoyable. Thanks very much.
Mr. Bloomer: Likewise. I really appreciate the opportunity.
The Chair: Meeting adjourned.
(The committee adjourned.)