Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue No. 3 - Evidence - March 8, 2016
OTTAWA, Tuesday, March 8, 2016
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 5:12 p.m. to study emerging issues related to its mandate.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this 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'm chair of this 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. As a reminder to those watching, these committee hearings are open to the public and also available via webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under Senate Committees.
I would now like to ask senators around the table to introduce themselves.
[Translation]
Senator Ringuette: Senator Pierrette Ringuette from New Brunswick.
[English]
Senator Patterson: Dennis Patterson, senator for Nunavut.
Senator Seidman: Judith Seidman from Montreal, Quebec.
The Chair: I'd also like to introduce the staff, beginning with the clerk, Lynn Gordon, on my left and our two Library of Parliamentary analysts Sam Banks and Marc LeBlanc on my right.
Honourable senators, you will recollect that on Tuesday, February 23, the committee heard from Tim McMillan, President and CEO of the Canadian Association of Petroleum Producers. Unfortunately, this session was interrupted due to glitches with the video conference technology. The committee wanted to further pursue its discussions with CAPP, so I'm pleased to welcome Alex Ferguson, CAPP's Vice-President of Policy and Performance, who is with us in person today. On behalf of the committee, Mr. Ferguson, please accept our thanks for agreeing to meet with us today so we can complete our session.
As you know, Mr. McMillan addressed a number of matters relating to the current status and outlook of the oil and gas sector in Canada, among some other things. I know you have received a transcript, and I therefore presume you're familiar with Mr. McMillan's remarks and responses to our line of questioning.
If you have any opening remarks, I leave it to you to proceed, after which we shall continue our questions and answers. If you have some remarks to make, please go ahead, Mr. Ferguson.
Alex Ferguson, Vice-President, Policy and Performance, Canadian Association of Petroleum Producers: I'll be very brief, Mr. Chair. First, I want to apologize on behalf of Tim that he is not able to come and complete the testimony that he had a week ago. He does send his apologies.
You're right: I have gone through everything, so I've got a fairly good perspective on what Tim spoke with you about. I also have some very clear direction from him as to what I should continue to speak to and then answer any questions that you have. So I hope to be a good stand-in for my boss at this point.
Thank you.
The Chair: Thank you. Let us go right to questions.
Senator Patterson: Let me ask some questions, then. Since the middle of 2014, global markets have witnessed steep declines in oil prices, and those low oil prices, as we know, have had a very immediate negative effect on oil-producing regions in Canada, resulting in cuts in business investment and employment. Could you describe please how the drop in oil prices has affected the oil industry in Canada, and in particular, could you describe how much investment in Canadian oil production has been curbed or delayed by the drop in oil prices?
Mr. Ferguson: Thank you very much for the question. There is a number of ways to answer that. I'll start first with a perspective on oil production.
You'll see from the forecast and projections that CAPP publishes on a frequent basis that the amount of production decline on a per-barrel basis has not been as severe as you would expect, given the commodity price decline. That, frankly, is an artifact of the large, significant oil sands projects that are the major producing sources for oil for Canada. These large projects are very difficult to shut down quickly compared to some of our competition, for example, in the U.S. where there is a lot of tight, individual oil-well drilling, which are a lot easier to ramp down production-wise and idle some drilling rigs and people, and also ramp them up more rapidly in a very short order.
Canada's production has and will continue to grow regardless of the commodity price decline, because these big projects have long lead times and take a very long-term view of what the commodity price environment is going to look like. So we haven't seen a lot of decline in oil production. We have seen a lot of activity related to future projects, or projects that will be thought of, kind of slowing down, so we'll probably see a gap in terms of declining oil production in a mid-term environment more for Canada than the short term.
The other way to look at this is that it's not just an oil-producing jurisdiction issue. We do publish and offer stats on the number of suppliers to oil sand projects across Canada. I know, for example, that there are approximately 1100 companies in Ontario that supply goods and services to the oil sands. Those are not obviously in an oil-producing jurisdiction like Alberta, but if you talk to them, they will have a pretty negative effect in terms of their ability to keep their people employed and grow their businesses.
One of my favourite quotes around that is that Prince Edward Island has three companies that run a good business supplying products and services to Canada's oil sands, so even one of my favourite provinces, Prince Edward Island, is feeling the effects of the commodity price decline.
Of course, then there is the broad investment climate. We talk about oil, the commodity prices and effect on near- term and longer-term oil production across Canada or in our producing jurisdictions, but the real near-term effect has been the decline in capital investment. Broadly speaking, in our industry, not just oil sands but oil sands as well as other products, the natural resource plays, tight oils and shale gas operations have felt a pretty significant sharp decline in investment.
Those are plays outside the oil sands that probably have a more direct impact on distributed smaller communities across Western Canada. Those are the ones who are feeling, frankly, a lot more pain in some of those communities.
We have quoted previously the decline in investment in our industry. Last year to this year, with the commodity price difference, that loss in capital investment is probably equal to a capital investment cycle in a couple of our other major sectors in Canada. For example, it would be like we had no investment in the Canadian manufacturing sector. That's how relevant that investment decline opportunity is.
I do like to offer that for the last eight to ten years, every dollar of capital cash flow that these companies in our sector have made has been reinvested into the ground in Canada. Obviously there are inflows and outflows but, on the whole, these companies have reinvested every dollar of cash flow back into Canada. Those translate to real jobs, real opportunities for Canadians and real opportunities for wealth creation for Canada.
On top of that, for several years now, there has been a lot of capital coming in on top of the internal reinvestment that these companies make. We're at a point now where, because of the volatility in some of these markets, there is that risk or opportunity to continue to bring in investment capital from outside our jurisdiction. Canada doesn't have enough investment capital itself to maintain the levels of activity we have in our sector, so we need investor confidence from outside to bring those dollars into Canada and to look at Canada as an investment destination of choice.
There is a manifestation of that, I believe, on all of us as Canadians. A couple of weeks ago, there was a very interesting report out of the Canadian Imperial Bank of Commerce that commented that because of the volatility in the marketplace — driven primarily by oil commodity price right now, obviously — Canadians, all of us, are holding on to cash positions in our investments, RRSPs and so on, in the order of $75 billion more than we would normally be holding on to in cash positions.
The effect of that for Canadians is that we will not get a return on that money. Cash is not a good investment opportunity; we lose money on cash. Anything we can do to build investment confidence — externally but also internally — in our economy, our sector would obviously want to be at the top of that. We are an important sector across Canada. We see that as an opportunity to bolster.
I hope I answered your question.
Senator Patterson: Yes. That's very helpful. If I may pursue that a little bit further, you mentioned the province of P.E.I. as being a supplier of goods and services to the oil industry. Could you tell us what other major provinces provide those services? If I also may ask, because we're talking about the impact of lower oil prices, does CAPP have some views on the short-, medium- and long-term outlook for oil prices? I know that may be a crystal-ball-type question, but I presume you have researched this better than most.
Mr. Ferguson: I don't have the exact numbers with me, but I can certainly make them available. We track, through our oil sands operators, the location of suppliers across Canada by province. The province of Quebec — don't quote me on the specific number, but I think it's in the order of 500 or 600suppliers that provide goods and services to the oil sands. I think B.C. is in the order of 600, 700, 800, somewhere in that neighbourhood. Again, I may be a little off on those numbers, but it is quite a wide distribution across the country.
Senator Patterson: Would the larger provinces be Ontario and northern Quebec?
Mr. Ferguson: Yes. I think Ontario is the largest province in terms of supply, the heart of the manufacturing sector.
I will tell you one small anecdote, if I could. One of my favourite suppliers of choice we actually don't track because it's one layer down. Around the Greater Toronto Area, there are approximately 67 — I could be one or two off — companies that produce pallets. If you know anything about the small- and mid-sized manufacturing sector, nothing moves in this country that isn't on a pallet.
Senator Patterson: Wooden pallets?
Mr. Ferguson: Wooden pallets. If you think of the opportunities in employment for new Canadians in that kind of sector, it's a good stepping stone. Pallet manufacturers are one of my favourite sub-sectors that we count on quite a bit.
In terms of your question on the oil price, we're very cautious — I'll be honest — at CAPP around forecasting or projecting commodity prices. We have some very strict competition law restrictions around us in a roomful of our members talking about commodity prices in the future. The word ``collusion'' is one that we take very seriously. Even the projections that we offer, that we publish a couple of times a year, aren't really, in the broad sense, something that you would call a price forecast. It's more of a survey of our members on production and what they think they are going to be producing given the state of their projects. It is not a true production forecast in that sense.
In terms of where the commodity price will be in the short- and mid-term, I think this week we have a little bit of an uplift, I think $38, so things are looking fairly positive from that point, but $38 is a long way from $60 or $70, which is probably something that might be more normalized in the long term.
We also like to say, continually, that as a group of operators, we control only what we can control, and commodity price is far out of our hands. We need to do the rest of the hard work regardless of the commodity price environment we find ourselves in.
Senator Seidman: Thank you very much, Mr. Ferguson.
A couple of weeks ago, when Mr. McMillan was here, I was going to ask about the upcoming first minister's meeting. Of course now it's no longer the upcoming meeting; it's happened. What we do know is that in every province and territory, ministers are going to go back and look at the issues with the express purpose, as we heard it to be, to reduce emissions in this country and to put a price on carbon in some way or other. They all seem to have bought into the concept, in any case.
What I would like to know from you is this: Would this increase the financial burdens on the oil industry? What kinds of measures would your industry be supportive of to curb emissions? In fact, do you see carbon pricing as something you could support?
Mr. Ferguson: I was asked that question earlier today as well. I'll give you a broad answer first. Our membership at CAPP is very diverse in terms of large companies and small companies, but also in the kinds of investment patterns these companies have, the shareholders and where they come from. We also have across Canada incredible diversity of resources in the oil and gas sector that we are trying to develop, and then the diversity across the jurisdictions. As you could expect in that broad diversity piece that I just described, our members have very broad, diverse views on a carbon price as a mechanism.
You have heard, clearly, that some of our members are very supportive of a broad-based carbon tax or carbon pricing mechanism applied across Canada. Some of our other members are less open about what level of support they would have or not have for that. Our view, consistently expressed as the sector representive, has been that the diversity is there. There are a lot of mechanisms to achieve the outcomes we all want to get to, which is reduced emissions over time.
Also, all of our sector — and it goes beyond our sector — believes that technology and invasion are the keys, not just for the future of emissions reductions that we aspire to, but also in terms of future competitiveness and opportunities for Canada as a natural resource economy.
We do live under carbon-pricing-mechanism jurisdictions right now. We're quite happy and function well in those. We do operate in regulatory environments that are not specifically carbon-pricing-based. We function very well in those jurisdictions. Saskatchewan, for example, has done some great work around carbon capture and storage, so we see that. That's not really a pricing mechanism. British Columbia has a carbon tax that is applied broadly speaking. Alberta has done some really good work and even accelerated that recently, looking at a broad-based carbon tax but also some regulatory mechanisms to address significant opportunities in some large emission sources like ours, as well as coal.
We were encouraged by in the session in Vancouver in that we actually had all the provinces at the table with the federal government having these discussions. We have learned recently that if you take a different approach on things, new and hopefully better solutions will come about. The link between the value gain on moving forward respecting the diversity, but having some consistency on accelerating toward our pathway that we want to get to — maybe that's part of the help on getting market access and getting our natural resources to the right markets at the right time, all the time.
Senator Seidman: You mentioned there were a lot of mechanisms, and then you went on to describe some. You mentioned regulatory mechanisms. Could you be more explicit?
Mr. Ferguson: Sure. There's a very good one right now that I'm very passionate about around methane emissions. It's for our sector, in particular, but broadly speaking there are other important sectors of the economy that emit a lot of methane into the atmosphere. Specific to our sector, in the two provinces — in British Columbia and Alberta, and we are just starting to work with Saskatchewan as well — we have embarked on a regulatory approach for new facilities and new infrastructure we put in place in terms of our emission standards and performance standards for emissions of methane. That's with the federal government, working with the provinces.
We are also working with those two provinces right now initially, along with some ENGO groups at the table, to design for some of the legacy assets that are existing in all provinces. How do we accelerate making equipment changes? I would call that not exactly a regulatory framework; it is something we would do with government, ENGOs and our sector at the table, designing what that program would look like so that we can align better with the U.S. model on some of the activities they have on the regulatory front.
Then there are some specific regulatory instruments we have in B.C., Alberta and Saskatchewan, pointing out the leak detection and repair regulations. We have advocated in both B.C. and Alberta through the climate policy processes that there is a piece that we think government should just write regulations for, and let's get on with it. We will be engaged with them to try to figure out the most efficient way of regulating and implementing those regulations for leak detection and repair for methane emissions for our own gas sector.
Senator Seidman: That leads me to a question I wanted to ask you: Have you, in fact, been involved or consulted by the Minister of Environment on carbon pricing? What would be acceptable to the industry without harming overall prices?
Mr. Ferguson: I apologize. Your initial question was if this would be a cost burden on the industry. Not to give a trite answer, but any cost increase on a sector that is struggling on that cost profile basis, compared to our competition for investment, is important. We need to see value for the progress we're making.
Our view on carbon pricing or carbon valuing is important, as long as there's a heavy focus on bringing those funds to bear back on technology for the mid- and long-term benefit of us broadly speaking, not just in our sector but in Canada.
The cost increase is a concern to us. There is no question about that. We are looking for a lot of efficiencies in the system. We are a high-cost-producing jurisdiction globally, and that's emphasized a lot when you have a commodity price problem like the one we have now. We are mindful of that, but we see an opportunity to create some real long- term value here as well.
In terms of being consulted on the broad-based carbon price, our view is that there's a lot of work to be done in that area. I don't think it's a short-term solution. There will be a lot of engagement between jurisdictions across Canada. I reflected today to somebody that there's been a lot of discussion and dialogue around creating a single securities regulator across Canada, and it hasn't happened in a short time frame, so getting something consistently on carbon pricing over a period of a few months is probably not realistic. We are encouraged that they're going to start that dialogue and will be looking to be engaged, as appropriate.
Our short-term priority is around some of the other related environmental regulations in Canada — to look for those kinds of efficiencies, whether it is the environmental assessment processes or the NEB. Those are two that we're particularly interested in and will be heavily engaged in, because we see opportunities there to get a good position in terms of an efficient process that works well for all Canadians and gets us what we need in the mid-term, which is market access.
The Chair: I want to take it a step further on fugitive emissions. You responded to Senator Seidman about that. Correct me if I'm wrong but natural gas, if it's fugitive — not burnt — and is released into the atmosphere, it is about 25 times as much greenhouse gas as if you had burnt that same amount of gas. I'm trying to remember some of this.
When we try to measure how many tonnes of greenhouse gas are emitted, is fugitive gas now included in that as a percentage or something? How do you measure what fugitive gas is going into the atmosphere now, or is there a measurement? If there is a measurement and if you actually do the things that are needed to stem that — maybe new valves, all kinds of things going on to make that happen — can you actually show that you have reduced the emissions by that much? What is the science around measuring fugitive gas?
It is something that, while obviously being a cost, can relatively easily be done to reduce greenhouse gas emissions hugely, I would think, but I don't know what the average emission is now.
Mr. Ferguson: It is different in every province. I can tell you that, between the two that I have spent a lot of time in, British Columbia and Alberta, British Columbia has a much stronger monitoring and reporting data piece around fugitives, venting and flaring. I think part of it is just because the carbon tax regulation forced us to tighten up and measure more.
We have a good database to work from in British Columbia to look at progress as we try to achieve that. We have a good source, on a facility basis in British Columbia in particular, down to the facility basis: fugitives, venting, flaring. It is really robust.
One of the reasons we wanted to move on and regulate leak detection and repair mechanisms is, frankly, to get the other provinces up to the same level of getting data. If we want to start making progress on methane emissions, which is critically important in the short term because of the global warming potentials that you mentioned, having a good database to start with is critical.
I think we have a good leg up. We have targets in both B.C. and Alberta, which have been stated and that we looked at from a feasibility perspective among our membership. We think those are achievable, given that we want to make sure that the economics work in terms of an ability to backstop them with the offset market, where appropriate. We will figure that piece out with the help of a regulator in both provinces and with government, as well as the ENGOs at the table that keep everyone relatively honest.
The science of monitoring and collecting the data, we've got that. Certainly on the measurement side in B.C., as I said, it's a little bit more advanced. In terms of understanding through methane guns and so on, we have a pretty good handle on what is leaking. In terms of volumes, it depends on which jurisdiction you're in, but we will get there.
The Chair: That's very good to hear.
Senator Ringuette: I have three questions.
You stated that production has and will continue to grow. However, in the last month I have seen data that, if my memory is right, 107,000 jobs were lost in Alberta. If production has continued to grow, how come we are seeing all these job losses?
Mr. Ferguson: A lot of the jobs that have been lost have been on projects that were anticipated to be built. Also, non-oil sands have taken a pretty significant hit in terms of employment and production. As I mentioned, the oil sands projects, the ones that were three-quarters built, for example, or three-quarters in getting to full production, will continue.
Most of the declines have been in and around Calgary, compared to Fort McMurray, for example. In Fort McMurray, you have a base, believe it or not, of people that are working in the trades and everything related to the oil sands production. That hasn't declined. There's a steady base there. A lot of the employment losses in Alberta have been certainly in head offices in Calgary, for example, but also in the service sector. I think there's going to be more unfortunate announcements coming soon in that sector.
Senator McCoy: The oil service sector?
Mr. Ferguson: Yes, the oil service sector. The job losses haven't correlated exactly to a production decline, only because of the massive size of the projects.
Senator Ringuette: Is it a production decline or a production growth?
Mr. Ferguson: Pardon me; the commodity price decline. If we didn't have those big, long-term lead-time projects in the oil sands, you would have seen production decline and employment decline.
Senator Ringuette: Okay.
Mr. Ferguson: I think there's a misstep there just because of the size and scale of the projects.
Senator Ringuette: I believe that the offshore producers in Atlantic Canada are members of your association too.
Mr. Ferguson: Yes.
Senator Ringuette: How would production in regard to the offshore of Nova Scotia and Newfoundland be affected in comparison to Alberta?
Mr. Ferguson: Those are subtly different — not subtly different; completely different. Nova Scotia and Newfoundland and Labrador —
Senator Ringuette: But they're still facing the commodity pricing issue.
Mr. Ferguson: Yes. The natural gas side around Nova Scotia has been in decline for a while. On the other hand, natural gas prices have been in decline for a long time. That sector has already adjusted to a long period of low commodity price.
The issue for Nova Scotia, for offshore members and government there, is that with the continual low commodity price for natural gas, there's still some good demand on the East Coast, but there isn't really a lot of incentive or willingness to spend a lot of exploration investment in new natural gas opportunities off Nova Scotia. There is a concern there that's a little different than the oil price decline problem.
Newfoundland is, frankly, one of our bright stories for our sector across Canada. There have been new announcements of interest out of some of the major companies to continue to explore and reinvest in the offshore resource there. Again, there are large projects, big capital investments. They will look far past the short, one- to two- year commodity price change. They will be looking for long-term stability in what their projections would be over a 25- , 30-year time frame. It is no different than the oil sands. You will see continued investment in those big projects.
Senator Ringuette: In regard to your experience with carbon pricing in B.C. and Alberta and the capture and storage, Western Canada is a huge farming area and B.C. is a huge forestry area. Do you negotiate agreements with the farmers and foresters in order to balance the output of carbon with their potential for storage?
Mr. Ferguson: I would say that over the last five or ten years, there has been a lot more dialogue across sectors than I have seen in the past, in particular between forestry and oil and gas — not just on the carbon piece but also the broad footprint piece on the land base, whether it is managing caribou jointly — because we're both making an effect on the land base that affects caribou — whether it's water utilization, recycling. There has been some dialogue starting, I would say not very robust yet, around the role of forests as a carbon sink, compared to other carbon emissions that we primarily are into. It is still early days in terms of really understanding that. I tell you that as a forester myself. There is a connection between the two sectors.
Senator Ringuette: Yes.
Mr. Ferguson: There are significant opportunities, I believe strongly, with more sharing of information and direction across those sectors.
Senator Ringuette: As a follow-up to this question, from the industry perspective, do you see that it is incumbent on your industry to initiate those dialogues and cooperation carbon agreements, or do you think it is the responsibility of governments, whether provincial or federal?
Mr. Ferguson: I don't think we have a position on that as an association. I can certainly give you my answer. I believe where we would land is that it is a joint responsibility. It's not our land; it is not our resources. It is owned by the Crown. I don't think we would enter into those discussions without the owner of the resource at the table, broadly speaking.
I will be honest. That doesn't include the Government of Canada or the provincial governments, but indigenous governments. This is not our land. It is not our resources. We are a good facilitator, but we're not the owner.
Senator Ringuette: Carbon pricing has been happening in both B.C. and Alberta for a number of years now, so has that dynamic happened? I don't think so, from what you are saying. That is, that full-fledged dynamic in regard to consolidating all these —
Mr. Ferguson: I think it is getting to that point. In my home province of British Columbia, we have done good work and achieved something to this point. Now it is getting harder to continue to achieve good things. It will now require different kinds of thinking and interactions and interplay on the land base.
Senator Ringuette: You are going from an individual industry-based approach —
The Chair: I have a couple more questioners.
Senator Ringuette: Sorry.
The Chair: Thank you. Senator McCoy.
Senator McCoy: I apologize for being late. I was caught in another committee. I apologize to you, Mr. Ferguson. I'm delighted to see you here and to continue this conversation, which is of great importance to Alberta, my province.
In following up on Senator Ringuette's questions around the economic downturn, we have been through this before, of course, particularly in the 1980s. We saw a severe global price drop and suffered great job losses but also — and I think it was you who taught me this — we suffered great equipment losses because the oil service sector abandoned us. They had nothing to do, and so they went elsewhere, south of the border, and then it took us a long time to recover from that. What is the situation like today?
Mr. Ferguson: Over the next quarter or two, there will be a lot more announcements coming out of our service sector that I would stay tuned to and watch. There's more equipment being idled right now, which is not a good sign. Families need to work. They will go where the work is, eventually.
You are right: It is very hard for that support base of that really important service sector for our sector to not be able to come back when we need them. We are really concerned about that. That's one of the reasons we look at any opportunities across Canada to look at oil and gas development, whether it is New Brunswick or Nova Scotia, offshore or onshore, or Quebec. Anything we can do to create the investment that allows those rigs and those people to continue to work is critical at this point.
This year will be a very important year to see how things work and how they play out. I don't propose to suggest that I have a real positive story to say on that. It is something that we're concerned about, and we're doing what we can to find opportunities.
Senator McCoy: I hear that it is in Alberta's interests, in one region's interest, to promote economic development in other regions of Canada and to keep our sector alive, which is good.
We touched on the subject of a market access plan with Mr. McMillan when he was here a couple of weeks ago.
Mr. Ferguson: Right.
Senator McCoy: That is, bringing people together from across Canada and from various interests to plot out specifics on how we would achieve market access that would benefit all regions of Canada. We just began to talk about this. You are quite informed on this subject. Could you add to that?
Mr. Ferguson: Sure. For quite a while, we have been struggling with an energy strategy for Canada. A very good effort should be continued, we believe. Certainly that broad energy strategy for Canada would include everything from electricity, renewables, nuclear — the whole mix.
A small angle that we're seized of right now is around market access — getting ourselves to a place where we have better access to markets as opposed to just one. We have commented that it would be good to have a focused effort to figure out what that road map is to get from broad statements of the need for market access to definitive action points that need to be made.
We spend a lot of time, for example, talking about trying to understand and always seeking to understand the role of indigenous peoples in Canada with respect to market access. I don't think it is a lack of wanting to understand that role, but there are probably too many different roles and they are not organized in a way that is a definitive action plan to make sure that that leads to a good outcome in terms of getting our products to diverse markets.
I make the comment several times that this is not just an oil issue. It is a natural gas issue. It is a lumber issue. Probably, if you talk to the mining people, it is a mining issue. If we believe that our natural resources in this country are and will continue to be an important part of our economy, we believe that there's a need to have a focused effort to find what it takes to get maximum flexibility for all of our natural resources to the right markets at the right time all the time.
No disrespect to the Canada energy strategy efforts that have been taking place, but we are looking at a very short window of opportunity, we believe. The sooner we get to it, the better to create a bit of investment certainty and investor confidence globally so that we in Canada can get projects built and we can get our products to the right markets.
Senator McCoy: We are talking about a very pragmatic, practical approach. The strategy was a broad principle agreement, which has worked. Now we're talking about let's get down to brass tacks.
Mr. Ferguson: Yes.
Senator McCoy: Segueing off, in terms of collecting data — and this was a specific reference to building leak detection regulations, but the need for data — I'm sure everyone knows that we had a royalty report in Alberta recently. One of their pleas was for Alberta to institute an Alberta energy information agency that would rival the U.S. energy information administration.
In all of Canada, we have poor energy data. It is surprising that we have managed to do as well as we can, in my opinion. I throw that to you. What is your opinion?
Mr. Ferguson: We have been really supportive as we have gone through the Alberta royalty process, and we are still going through the calibration process right now. It was pretty clear that the formulation of the royalty system that we now have in front of us in Alberta is heavily data-dependent. We found out, unfortunately the hard way, that we were kind of lacking in a few of those data areas in terms of how some of the initial work was formulated.
We are really supportive of the kind of initiative that would lead to more consistent, robust, integrity-based data around our sector. We have spent a lot of time and resources in our sector collecting data or creating data, whether it's environmental, social or economic data. We haven't quite put the same amount of emphasis, perhaps, on how we properly manage that data and ensure that it's robust and available to everybody who needs to see it. That kind of work needs to take place, but I think it will start to emerge.
One of the favourite examples I have is a piece of work we have done, along with our safety association Enform, as well as the oil sands equivalent of Enform. We have spent a lot of time trying to bring together the three western provinces worker compensation data sets so that there is a tool available to understand what programs can be the most effective in terms of reducing safety incidents. I would say that took about three years of effort.
Our sector really understands and supports the notion of good data access and management.
Senator McCoy: Thank you. I'll leave it there for now. I'm sure there are others.
Senator Mockler: I, too, want to apologize for being late. Being from Atlantic Canada — New Brunswick — I have a few questions. Is it factual that the most secure means of transportation of crude is really pipelines?
Mr. Ferguson: On a factual basis, I think the NEB or CEPA would tell you that there are a lot of facts to support that. In terms of a volume basis, they would also tell that you that incidents do occur, but probably not on the same frequency, perhaps, or severity — two different ways of measuring it — as perhaps other means of transportation like truck or rail.
Senator Mockler: My next question on this is that as we look at Atlantic Canada and Quebec, we require energy security.
Mr. Ferguson: Yes.
Senator Mockler: Currently, we do not have that, with the importation of some 100,000 cubic metres of oil a day, every day, including coming from Saudi Arabia, Iraq, Algeria, Angola — members of an organization whose interests certainly do not include energy security in Atlantic Canada or Quebec. My question to you is: What would the pipeline from Lévis, Quebec to Saint John, New Brunswick do to the oil industry in Canada?
Mr. Ferguson: In the short term, there is an opportunity for moving some of our product to different markets — access to some of the refineries and offsetting, at some point — because oil is not all the same — with some of the refinery and demand operations in Eastern Canada, and also, fundamentally, getting our product to tidewater so that we have access to markets beyond North America.
At this point, I would hesitate to say exactly how many, but I'm sure there are quite a few molecules of Alberta oil that make it down to the States and down to the port through different means, get on a boat and are shipped back up somehow into Eastern Canada and eastern United States. Canada is not benefitting from that transportation; someone else is.
An opportunity to transport our own oil in our own country is probably a significant value-added opportunity that can trigger some benefit right away in the short term. It is important for our sector. All opportunities to get our products, whether it's oil or natural gas, to tidewater to access diverse markets is critically important.
Senator Mockler: It was Mr. McMillan who was here last time who said that the International Energy Agency, which is based out of Paris, France, put forward on an annual basis a forecast of oil and gas consumption for the next 25 years. Their most recent work shows that they expect the demand for oil and natural gas to increase out to the end of their survey. Each year it should grow incrementally. My question to you then is about Canadian currency. Does the decline in value of the Canadian currency help the oil industry in Canada?
Mr. Ferguson: That's a good question. I am certainly not a currency or foreign exchange expert. I think it depends on the particular operator and company in terms of what their exposure is and where they get their products and where they sell their markets to. I know from my time in the forest sector that when we export Canadian product into the U.S. and we have this kind of low exchange rate, it is a significant benefit, but I think that's tempered with the need to understand that a lot of our sector brings in a lot of material and equipment from the U.S. that is priced in U.S. dollars. It would be different depending on the operator and the type of play they are in.
I think it would be safe to say, broadly speaking, that for an export-driven sector, a low Canadian dollar is helpful.
Senator Mockler: I will conclude with a comment. You as a forester — you didn't talk about pellets but you talk about pallets.
Mr. Ferguson: Right.
Senator Mockler: I would just share with you that the second-biggest pallet producer in Canada, if not the first — he was reaching for the first in 2016 — it's la Groupe Savoie — Senator Ringuette from our area.
Mr. Ferguson: I'm going to come out and visit.
Senator Mockler: You have to.
The Chair: You got in that little plug. Very good, senator. We'll move on.
[Translation]
Senator Bellemare: I want to apologize for being late. I missed several questions, and maybe this one has been put to you already. I wanted to ask it last week or two weeks ago, during our videoconference, but we ended up having technical difficulties. So I will put it to you. It follows up on the previous questions.
Do you know what the lowest crude oil price is from which it is worth investing in Canada's oil industry? To put my question in context, we know that the forecasts, in terms of the dollar and the crude oil price, are fairly weak. There could be a recovery — you never know — but the forecasts are fairly weak for the time being. There is surely a threshold below which investments are not worth it. Do you have an idea, in U.S. dollars — or in Canadian dollars, if you prefer — what that oil price would be?
[English]
Mr. Ferguson: I'll try to understand that in either dollar. First, I will say it really depends on which resource you're looking at. A new oil sands mine would be very expensive, for example. It would be very capital-intensive. It would require a fairly high return, or reasonable return, which would imply a higher commodity price. It depends on where and which kind of mine. The resource is so spectacularly diverse.
There is some little-known legal requirement in Alberta for an oil sands operator to develop that resource to a certain percentage. Once you are in that game, you have to develop, regardless of the commodity price.
Generally speaking, I have heard several times — because I'm not an individual operator — that the current prices will not support any new projects in terms of those big projects. On an unconventional gas play — shale gas, for example, in northeast B.C., or places in Alberta, or even opportunities in places like New Brunswick — again are very variable because it all depends on the support services that are available and the state of development. A resource play that is fairly well developed probably will have a lower cost. To drill a shale gas well or a tight oil well could be in the order of $8 million to $10 million, if you're lucky. We're talking significant investment. In order to get that money, as a company, you have to be able to demonstrate that there is a predictable, reasonable return on that investment.
Certainly, if you look at the natural gas price, which has been fairly low for quite a while, I don't think a lot of new, high-cost shale gas wells will be drilled, given that commodity price. It would have to be very close to market. Unfortunately, in British Columbia and Alberta, without an LNG opportunity, I like to say we're at the wrong end of the pipe. Most of the market that we have, without an LNG export opportunity, is down to the U.S., which we are farthest away from. Given the cost of transporting, you need a higher commodity price to be able to support those kinds of costs.
Again, there is no simple answer. The LNG opportunity is very expensive as well. I think with some of the economics we have seen, that we have been involved in for the broad-sector LNG opportunity, it was somewhat reasonable when the Japan price was in the range of $12 to $15, but that has dropped significantly lately. I think those investments are really challenged right now. That's why we have seen the delay in proceeding with some of those LNG projects.
I'm sorry that I can't give you a specific dollar number of commodity price because the commodities are so different, whether it's heavy oil or light oil. Saskatchewan has done quite well in a low oil price commodity, just because of the nature of their resource and the cost structure they have for developing. It will vary, depending on where you are in the reservoir for any of these resource plays. The production economics that our companies go through are very specific and tricky and under a lot of scrutiny from the investment community today.
[Translation]
Senator Bellemare: My second question is related to the current thinking of many people in Quebec. Should the price of oil remain at its current low level, do you think that the profitability of the pipeline project toward the east would be compromised or that, on the contrary, the two things are unrelated and that, given the current cost of production, the pipeline is profitable?
[English]
Mr. Ferguson: I will tell you that those kinds of pipeline projects are major projects with long lead times and a pretty long investment horizon, so they are not looking at smaller-term blips in commodity prices. They will be looking at a long-term opportunity. Remember that the pipeline projects are transportation, no different than a rail system. They are building infrastructure to make money off transporting our product. They would look at being able to sign up long-term contracts for certain aspects of pipeline capacity. It's no different. You're not going to build a rail system unless you have some customers.
In terms of the profitability, if you look at the opportunity to capture some of the differential in price between North America and global prices, there is probably enough money there. Now, that differential has shrunk quite a bit lately, but so has the commodity price, so the value of that differential, even though it looks pretty small when you look at the graph, is amplified because of the low commodity price. That differential is very important economically right now, and those would drive those kinds of major investments.
Senator McCoy: I wonder if I might have an opportunity to ask for clarification. We heard last week that an injunction had been taken out by the Government of Quebec against the Energy East Pipeline. Our premier in Alberta took the time to find out what it was all about and decided that it was perfectly legitimate, and she had no problem with it. For the record, could you just clarify what that action is about?
Mr. Ferguson: We didn't actually look at it in specifics, so I can't offer you any information other than what I think you already know. We looked at it as a need for a provincial government to make a statement around what they believe is important in a process. On reflection, we didn't have any statements to make about that. We thought, ``Okay, that's fine. That will be worked out between the federal government and that provincial government.'' We would expect that there would be an outcome that we would see fairly soon. The processes have started, I think yesterday in Quebec, in terms of the environmental process they have. We have an observer. We're watching. We haven't been asked to testify or give evidence at the BAPE process there yet, but we would be ready to offer any inputs or advice we could give.
Senator McCoy: To sum up, it was to ensure that Quebec itself had an opportunity to undertake an environmental impact assessment?
Mr. Ferguson: Yes.
Senator McCoy: Not to prevent the pipeline?
Mr. Ferguson: Yes.
Senator McCoy: Thank you. That's good for the record. Thank you very much.
Senator Patterson: I have a brief question, if I may, Mr. Chair, further on the outlook on oil prices going forward.
Mr. Ferguson, would you have any comments on the implications of the lifting of sanctions against Iran and how that could impact oil prices going forward? I am wondering if you would have any thoughts on whether Iran requires reinvestment in its oil infrastructure before its supply can affect global markets.
Mr. Ferguson: The geopolitics of that dynamic are pretty important. You're right. The little that I know around some of those markets is that there has been a lot of conflict. I think there is a lot of investment that has to take place in order for that to really make a significant impact.
When you look at it, the commodity price problem or issue that we have today has not been caused by the Middle East. If you look over the last several years, the production profile out of Saudi Arabia, for example, which people once in a while point to, has not increased substantially.
The supply issue we have has frankly been caused by Canada, the United States and a few countries in South America. We have ramped up our production. Unfortunately for us in Canada, we only have one place to sell our product to, and that's a place that is oversupplied. Our ability to get outside of that will lead to quicker stabilization of that for us, for Canada in particular. We don't begrudge or question what the Middle East countries are doing on production. They are just doing what they would normally be doing. We have caused this supply problem.
Senator Patterson: That's a very interesting analysis. Thank you.
The Chair: Thank you very much, Mr. Ferguson. There is some very good information for us to actually put together for our report, and we appreciate your time very much. We'll suspend and then we'll go in camera for a little bit.
(The committee continued in camera.)