THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, June 8, 2017
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8 a.m. to study the effects of transitioning to a low carbon economy.
Senator Richard Neufeld (Chair) in the chair.
The Chair: Good morning, colleagues, and welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld, chair of this committee, and I am a senator for British Columbia.
I wish to welcome all those who are with us in the room, as well as the viewers across the country who may be watching on television or online. As a reminder to those watching, these committee hearings are open to the public and available online on the new Senate website at sencanada.ca.
All other committee-related business can also be found online, including past reports, bills studied and lists of witnesses.
I would now ask senators around the table to introduce themselves. I will begin by introducing the deputy chair, Senator Paul Massicotte from Quebec.
Senator Massicotte: Good morning.
Senator Galvez: Rosa Galvez from Quebec. Nice meeting you.
Senator Fraser: Joan Fraser, Quebec.
Senator Wetston: Howard Wetston, Ontario.
Senator Dean: Tony Dean, Ontario.
Senator Patterson: Dennis Patterson, Nunavut.
Senator Seidman: Judith Seidman, Montreal, Quebec.
Senator Griffin: Diane Griffin, Prince Edward Island.
The Chair: I would also like to introduce our staff, beginning with the clerk on my left, Maxime Fortin, and our Library of Parliament analysts, Sam Banks and Jesse Good on my right.
Colleagues, in March 2016, the Senate mandated our committee to embark on an in-depth study on the effects, challenges and costs of transitioning to a lower carbon economy. The Government of Canada has pledged to reduce our greenhouse gas emissions 30 per cent below 2005 levels by 2030. This is a huge undertaking.
Our committee has taken a sector-by-sector approach to this study. We will study five sectors across the Canadian economy, which are responsible for over 80 per cent of all greenhouse gas emissions. They are: electricity, transportation, oil and gas, and emission-intensive, trade-exposed industries and buildings. Our first interim report on the electricity sector was released on March 7, of this year, and our second one on the transportation sector will be tabled within the next two weeks.
Today for the 44th meeting of our current study, I am pleased to welcome by video conference from the Newfoundland and Labrador Oil & Gas Industries Association, Robert Cadigan, President and Chief Executive Officer; and Byron Sparkes, Senior Policy Adviser.
Thank you very much for joining us, gentlemen. Please proceed with your opening remarks, and then we will go to questions and answers from senators. The floor is yours, sir.
Robert Cadigan, President and Chief Executive Officer, Newfoundland and Labrador Oil & Gas Industries Association: I thank you for the opportunity to contribute the perspective of the Newfoundland and Labrador Oil & Gas Industries Association or Noia, to the Standing Senate Committee on Energy, the Environment and Natural Resources with respect to the effects of transitioning to a low-carbon economy as required to meet the Government of Canada announced targets for greenhouse gas emissions reductions.
Noia is a not-for-profit organization founded in 1977. We represent the supply and service sector in Canada’s offshore oil and gas industry. Those are the companies that provide services to the oil companies that actually extract the resource. With close to 400 Canadian-headquartered and an additional 200 international companies as members, we are a strong advocate for safe and environmentally responsible industry development.
We’re taking this opportunity today to speak to the requirements and to the talk about the need to place less stringent carbon reduction requirements on existing offshore installations, since the uniqueness of offshore oil and gas production clearly poses challenges for a blanket view on carbon emissions reductions and regulations. We are asking, in consultation with industry and the province, that Canada develop a comprehensive long-term approach to future oil and gas production emissions similar to countries like Norway.
To provide some context, oil production in the Newfoundland and Labrador offshore is currently 80 million barrels per year, or about 27 per cent of Canada’s light conventional production. The industry directly employs over 7,000 Canadians and contributes about $1 billion annually in royalties to the provincial government of Newfoundland and Labrador.
The resultant emissions are primarily from three installations, with a fourth to be added later this year located about 300 kilometres offshore from St. John’s. The total current emissions are approximately 1.5 megatonnes, or about 0.8 per cent of the total oil and gas sector GHG emissions in Canada. That’s from all sources: oil sands, conventional oil, natural gas and other.
Because of the range of emissions from global oils, it matters which oil is burned on the path to a low-emissions future. In terms of carbon intensity measured by kilograms of CO2 per barrel of oil, Hibernia oil production, which has exceeded over one billion barrels to date, is one-sixth of Alberta oil sands production per barrel and is about 33 per cent below the global average. On a total life-cycle basis, which includes downstream emissions, Hibernia oil, when compared to 75 global oils, is among the lowest in the world in terms of CO2 per barrel and CO2 per unit of energy production. Western Canadian unconventional oil from the oil sands is among the highest, to give you a sense of where our oil fits in. The source of this information is the Carnegie Endowment for International Peace report of October 2016.
GHG emissions from the Newfoundland and Labrador offshore are generally comprised of carbon dioxide, methane and nitrous oxide. While there are various sources for these emissions, the flaring of hydrocarbons accounts for about 35 per cent and the generation of electrical power for the installations is about 61 per cent.
While crude production from a field declines over time, the overall energy requirements for the management of fluids and gas do not, resulting in GHG emissions staying relatively constant throughout the life of the field. Since these installations are unable to access the electricity grid, they have to meet their own energy demands and use the cleanest hydrocarbon fuels available in the offshore, which is natural gas.
Norway’s leadership in carbon intensity per barrel produced, which is about one-tenth of oil sands intensity, to give you a reference, is partially the result of some offshore installations being powered from land-based hydroelectric sources. This is an important consideration to keep in mind to more accurately compare the offshore oil and gas industry in Newfoundland and Labrador to other oil production in Canada and globally.
The burning of hydrocarbons through a flare system is a contributor of 35 per cent to greenhouse gas emissions from offshore installations. The quantity of hydrocarbons permitted to be flared is regulated by the Canada-Newfoundland and Labrador Offshore Petroleum Board, which sets daily and annual flaring allowances for offshore installations. Since 2006, it has initiated phased reductions in these allowances, keeping them at the lowest level.
In the understanding of some of the challenges posed by a blanket view on carbon emissions reductions, it is important to recognize how offshore installations differ significantly from land-based oil and gas facilities.
Oil installations have a very constrained footprint and influence decisions regarding modifications to the installations and/or additions of equipment that may be needed to meet new emissions requirements.
Offshore installations are not connected to an electricity grid to meet their energy demands.
Emissions from flaring are generally associated with activation of safety systems on facilities. These events cannot always be forecast or predicted.
Safety and emergency evacuation considerations limit the number of persons permitted on offshore installations. As a result, the ability to undertake significant modifications driven by onshore derived emissions standards could be limited.
Depending on the nature and location of the modifications, facilities may be required to shut down production operations and come off station for an extended period of time. This could result in considerable operational downtime with royalty and tax implications for Newfoundland and Labrador and Canada. These would be significant in most cases.
The uniqueness of offshore oil and gas production clearly possesses challenges for a blanket view on carbon emissions reduction and regulations. Noia and its members recognize the importance of reducing GHG emissions for all sectors in Canada. However, mitigation of GHG emissions at current offshore facilities should consider the unique operational features and the constraints of these operations.
To conclude, Newfoundland and Labrador is on the cusp of an unprecedented wave of exploration and potential development of oil and gas resources that rival those of other oil-producing nations.
During a period when exploration commitments globally have been reduced the by 75 per cent. Since the peak in 2014, our province is seeing exponential growth in exploration commitments due to our resource potential. To give a sense of scale, one recently identified prospect with potential production of 3.75 billion barrels could yield over $210 billion in royalties to the province of Newfoundland and Labrador, over $64 billion in federal and provincial taxes, and provide significant employment and business opportunities for Canadians.
It is critically important now to take a long-term view of carbon emissions related to offshore production, realizing the inherent differences in carbon emissions from offshore production versus other Canadian and global sources, and to develop a comprehensive approach to future offshore oil production emissions that maintains our competitiveness and has to be a comprehensive program, similar to countries like Norway.
During the transition to low carbon-based energy, the world needs a supply of stable, predictable and lower carbon petroleum. An OECD member like Canada would be a preferred supplier in an inherently unstable world.
The Chair: Thank you very much, Mr. Cadigan. We will go to questions, starting with the deputy chair.
Senator Massicotte: Thank you for being with us this morning. I learned a lot from your presentation and I want to confirm my understanding.
Your production of light conventional production effectively produces a lesser amount of GHGs than, say, the oil sands product. I am correct in saying that, right? You can confirm with me, but am I not correct that the proposed pricing of carbon is such that for your product, which has less GHGs, you would get priced less than the heavy oil component? Is that correct? Is my understanding accurate?
Mr. Cadigan: Our understanding of the proposal is essentially that the charge will be on the greenhouse gas emissions involved in production of the oil and gas. There would be some variability.
Senator Massicotte: You would be imposed at a lesser cost than the heavy oil.
Mr. Cadigan: In terms of differences in the production, yes, but what we’re talking about, in terms of the carbon intensity of the product compared to elsewhere in the world, is based on life-cycle carbon. It’s the end use of the product as well. It’s a higher quality oil that produces less carbon in the life cycle, in terms of the use of the product post-production, at the end of the day.
Senator Massicotte: When you make that comparison, you’re obviously using a broad generic comparison. You referred to one institute that basically confirmed that, but my understanding is that the latest technology in the oil sands is such that the last product, a Suncor product, I think it is, doesn’t actually produce GHGs equal to what we’re seeing in California or equal to what we are seeing with conventional oil and gas.
When you make those comments, you’re referring to the total average, but I presume the price will occur with the actual circumstance for each well or each production. Am I not correct?
Mr. Cadigan: Yes, it would be overall. To give a comparison on a Canadian basis, we would use the oil sands as a general total production versus any individual oil sands facility.
Senator Massicotte: Thank you.
Senator Galvez: It is true that not many people from whom we have heard in the past have put into evidence that petroleums are different. I’m very happy that you did that.
We have conventional petroleums and unconventional petroleums. It’s not only dependent on the way it is extracted but in the composition of petroleum. Yours is very light, so that is why it is so efficient and will produce less gas emissions.
Nevertheless, we happen to know that in 2010 there was the BP Deepwater Horizon catastrophe. You are in a geographic location, which I would consider a bit more dangerous than the Gulf of Mexico with all these icebergs and climate change. Are you taking extra security measures because of these changes? That’s my first question.
I have others, but I will come back.
Mr. Cadigan: That’s a bit outside of the focus and the understanding we had of our presentation, but, having said that, the offshore in Canada is regulated in our case by the Canada-Newfoundland and Labrador Offshore Petroleum Board, a very stringent regulator. Its peer group would include countries like Norway that are part of the International Regulators' Forum. The Gulf of Mexico was a very different regulatory environment. We can’t speak to exact standards, but we understand there is far more oversight in terms of the Canadian environment than there had been in the U.S. Gulf prior to Macondo.
The other issue in terms of regulation is that there’s a very robust process overall. A strategic environmental assessment that’s done in advance of production in an area, which looks at broad ecological issues, at environmental mitigation, and so on. Then it moves to a site-specific environmental assessment for a particular well, so where that well is actually located and, beyond that, even the construction standards for the well, how the well is to be constructed. If we look at a situation like Macondo, it has arisen largely based on the reports that came out post-Macondo on the basis of or practices in the construction of the well itself.
I would suggest the oversight in Canada is probably more stringent than what was occurring around that time in the Gulf of Mexico. We’re more akin to countries like Norway in terms of our regulatory regime. I don’t know if that helps.
Senator Galvez: Do you think you can send me the regulatory and technical details later so I can compare them with the those of BP?
Mr. Cadigan: It’s extremely complicated to compare regulatory regimes from country to country. However, we’ll see what we can gather.
Senator Galvez: I would appreciate that. Thank you very much.
The Chair: Anything you send, please send it to the clerk so that everyone on the committee receives it.
Senator Seidman: You referred to Norway and Norway’s leadership several times in your presentation. Obviously there are aspects to what Norway is doing that you feel we ought to consider in Canada.
Could you please highlight some of those for us?
Mr. Cadigan: At the first level Norway has made it clear that they will continue to produce the petroleum resources. They plan not to leave those resources in the ground. One of the major differences in Norway is that the focus seems to be very much on consumer behaviour around reducing carbon in the country.
For example, there are duties and incentives to purchase electric vehicles. If you go to Oslo or Stavanger, you see an inordinate number of Teslas and other electric vehicles. They’re focusing on trying to shift to lower carbon sources for transportation and so on.
In terms of the production of oil and gas they have done some unique things. For example, they have developed an electrical grid where they have a concentration of offshore installations. They have moved from those installations being powered by natural gas to electricity. In effect the state has put this grid in place and the obligation and cost for the operator of the installation would be to tie into the grid. It’s a comprehensive approach.
In Canada, if we listen to some of the clues we get from government, it sounds like we’re focused more on the production of oil and gas being called a bad thing and that you can reduce emissions by not producing the resource, which is exported and used elsewhere in the world. In effect, the Canadian approach is more akin to letting somebody else produce the oil and take the GHG emissions that go with the production, while we backpedal and potentially produce less.
I know there is an element of judgment in that statement, but I think it’s a fair comment.
Senator Seidman: You prefaced this by saying Norway wants to use the oil in the ground or, in other words, the existing oil resources. It’s not a question of shutting them down but a question of using them.
You said in your presentation that the GHG emissions stay relatively constant throughout the life of the field. If we don’t use the resources in the field and the field stays dormant or stagnant, does that mean that the GHG emissions just continue to be released regardless?
Mr. Cadigan: No, once production ceases or once a field is depleted and production would cease at a facility, obviously GHG emissions stop at that point once it is decommissioned. We’re saying that in the life of a field, as production tends to decline over time, the greenhouse gas emissions will not reduce as production reduces. It will stay relatively constant as long as that field is in production.
I have another point about the Norway comparison. Norway is a significant exporter of natural gas and oil to the world. Also,40 per cent of the value of the companies that supplies goods or services to the oil industry in Norway is export. They’ve developed a strong export-focused economy. Right now in Norway three significant fields are in development, but they have not produced a barrel of oil yet. We can provide the names of those fields under development.
They are also exploring in the Barents Sea. They are issuing exploration licences and are continuing to explore and develop new resources. Norway looks at it from the point of view of the value of the resource to the people of Norway in terms of the royalties and so on. They will keep producing the oil but they will become one of the lower carbon producers of oil worldwide. In effect they have a competitive advantage by virtue of being lower carbon.
I can’t speak for why a country does what they do, but I think they have a far more realistic way of looking at oil and gas production in that the world will transition over time. In the meantime, oil and gas will be used, and the oil and gas that’s used can be just as well produced in Norway as elsewhere. You could probably argue that production in an OECD country with far better health and safety standards for workers and far better environmental overview can be a benefit.
Again, the stability of a country like Canada, certainly in terms of being a supplier to the world, is a good thing. I think it’s an obligation we have.
Senator Dean: Thanks for a terrific presentation. Going back to Norway and to the issue of stranded production facilities offshore, it’s a great story from Norway about an integrated hydroelectric power supply.
Given the relatively and comparatively clean nature of your oil and the Norway experience, combined with the abundant supply, if we’re in this for the long haul and there are abundant supplies of relatively clean hydrocarbons available, is there any potential at all to replicate or to find a way of getting land-based power to any of your facilities, or are the challenges insurmountable?
It seems to me this is a sector in which there is an enormous amount of capital investment. Given the comparison with Norway and the big difference being the supply of power versus the generation on site, is there any potential for that or is it just not doable?
Mr. Cadigan: I think Norway has certainly significant advantages in that case. They are more mature as a region. They have far more production facilities. In some areas, those facilities are clustered in a manner that makes it feasible to put power to the offshore.
In our case, it is far more complex. The point is not so much that we should go to hydroelectric power in the offshore. The point is that Norway as a country which has high standards environmentally has looked at their industry as a source of wealth for the state and for the people of the state. It’s a way to pay for public goods. They have taken a comprehensive approach to the production of oil and gas and how they can reduce the emissions with a goal of being one of the cleaner sources of oil and gas internationally.
We don’t hear that kind of dialogue in Canada. What we tend to hear is more of a sense that production produces emissions, so therefore it’s bad. We need to have a more wholesome dialogue. We have to be more strategic about the value of our resources and the fact that a lot of those resources are better, like Hibernia’s, from a GHG emissions perspective and in terms of environmental performance. Let’s not just take a blanket approach that production is bad, that it produces GHG, that we shouldn’t grow our industry anymore, or that we should wait for the industry to shrink and go away. It’s not the approach that a country like Norway has taken. They have been far more proactive and I think Canada needs to look at it in the same manner.
Having said that, there are also other possibilities. For example, in Norway there are a number of projects on the search and development side where they are looking at providing offshore wind to support smaller satellite fields to provide power for the reinjection of produced water back into reservoirs. They are looking at how to do it better. I think Canada needs to take a similar approach. We need to recognize that further development of resources in the offshore has significantly less impact in terms of carbon production than, for example, further development of an oil sands resource.
We have to make the choices in terms of future growth. We have to be comprehensive in the way we approach it. Simply setting a standard and hoping things will take care of themselves we think is a bit naive.
Senator Dean: Thank you.
Senator Griffin: I notice in your brief that you mentioned flaring is done primarily for safety reasons, which is certainly one of the reasons, and a 35 per cent contributor to the emissions of GHG.
My question would be in regard to these fugitive methane emissions. How challenging would it be to curb those?
Mr. Cadigan: The methane emissions are totally unrelated to the flaring of gas. They are two distinct issues. There is room for a reduction in methane from the offshore, but the standards have to be realistic in terms of the particular production facilities.
As we said, it’s a very unique environment. You would have a production facility with a couple of hundred people living and working on that facility. It’s a very constrained footprint or constrained area, so the ability to add additional equipment to eliminate methane or other substances is a bit more challenging. That is the point.
Senator Griffin: It’s challenging but not impossible.
Mr. Cadigan: Technically, I can’t say whether it’s possible to reduce it 100 per cent. Probably not, but to make reductions is certainly possible.
Another point is that the four offshore installations, the three that are out there now and the Hebron one that is being towed to the offshore, as we speak, to be set up for production, were built with certain standards in mind. Those were the standards at the time the facilities were built and the regulatory regime was in place. In terms of future resource development, future installations can be designed to a more stringent standard, potentially. They could be designed, potentially, to have more of the gas and the emissions reinjected.
There are some example in Norway. There is a field called Snöhvit, which is a gas field in the north of Norway where they pipe the gas 140 kilometres to shore. They strip out emissions. They strip the carbon out of the gas. They pump it back offshore and reinject it in the reservoir.
It’s more about a planned and delivered approach or message than imposing a standard without consideration as to how that standard will be met. It has to be a planned approach. The industry has to understand what is coming. We have to work within the technology that is available in the current context at the time the installation is built.
Senator Griffin: In an ideal world, you’re saying, existing facilities should be treated differently from upcoming facilities, which have a chance to use newer technology. It strikes me, with 35 per cent of your emissions coming from these fugitive sources, that this is a great place to make a difference.
Mr. Cadigan: I have a correction. The emissions for flaring would not be called fugitive emissions, really. Those would be planned. You have a production facility. You have oil, gas and water being extracted. That has to be separated. It has to be handled by the equipment.
Sometimes the volumes of gas, for example, would go beyond the equipment’s ability to process and reinject that gas. There are times when they would have to flare the gas in order to be within the specifications for the separation and reinjection. It’s very complex, probably more complex than my ability to explain it, but I hope that helps.
Senator Griffin: The 100 per cent is not perhaps what we’re asking for here. Pipelines have fugitive emissions of about 8 per cent. Even if some of these sources were reduced by a significant amount, we would go a long way toward meeting Canada’s commitments.
Mr. Cadigan: Right. To be clear, the fugitive emissions you refer to of 8 per cent for pipelines are emissions that escape, in effect, from the transportation.
Senator Griffin: That’s right.
Mr. Cadigan: We’re talking about natural gas that is handled as part of the production of the oil and the burning of some of that gas for safety and efficiency reasons. That same activity would happen, to some degree, in any land-based facility. Because of the footprint of the facility it’s easier to change or to increase equipment to eliminate flaring.
Flaring and fugitive emissions are totally separate. They are totally different. I just want to make sure that point is understood.
Senator Griffin: Great. Thank you.
Senator Wetston: I wonder if I could pursue a more general area with you. We all recognize the importance of the oil and gas industry to Atlantic Canada and Newfoundland, in particular.
Can you describe for me your view about the public policy challenges associated with greenhouse gas reductions, which is obviously positive, with respect to economic growth, resource development and the need to meet the emissions reduction targets set by the federal government of 30 per cent below 2005 levels by 2030?
Do you have a point of view about the balance necessary to try to achieve those goals in face of the importance of economic growth?
Mr. Cadigan: We spoke of using an example like Norway. Canada is a very complex country with a small population spread over a large area. We have natural additional costs in terms of transportation alone just because of our geography. We’re a northern climate. We have to heat our homes.
In terms of GHG emissions, we have to be realistic. We have to reduce emissions, but we have to reduce emissions, in my personal view, in a manner that is consistent with our country and the economy of the country. We have to recognize that we produce a lot of natural resources. Those natural resources aren’t produced in cities like Toronto, Montreal, or areas of concentrated population. In Canada, as a whole, we have a variety ways and means to work toward reducing greenhouse gas emissions. It needs to be a systemic approach.
One problem in the approach so far, in terms of simply the taxing of carbon, is that it doesn’t in any way look or reflect the economic value of the particular industry and how that industry contributes to society.
On one hand, oil and gas is an industry and the production produces GHG. On the other hand, it’s a very large contributor of royalties and taxes, arguably disproportionate to some other industries potentially. We believe we need a simplistic approach of carbon pricing alone. It does push things in the right direction, but in terms of how we implement that over time is important. Where we get savings in some parts of the economy, we may not get the same savings in the oil and gas industry.
We have to strive for it, but we have to be realistic in terms of the economic value produced and how we reduce carbon overall in a country the size and complexity of Canada.
Senator Wetston: Following up in another area, I’m looking at a chart here. You don’t have it, but I think you would appreciate what I’m getting at. Emissions from the oil and gas sector are projected to increase in Canada by 35 per cent between 2013 and 2030. That’s not surprising. It varies depending on the sector. Oil and gas is a pretty significant one.
I will put this question to you. I realize it’s a bit open-ended, but if you could get that to 30 per cent between 2013 and 2030, given your experience and expertise, what would you do relative to offshore oil and gas production in Newfoundland? How could you assist in achieving a lesser increase, if I could put it that way?
Mr. Cadigan: If we just take existing production in the offshore, the reality is that a 30 per cent reduction will be very difficult to achieve, absolutely. My guess is that it is probably not achievable fully but we have to look at Newfoundland and Labrador as an economy. I am a taxpayer and I have lived my life here. The largest hydroelectric project in the country will be coming on stream hopefully in two years. The reduction is about 1.1 megatonnes, so certainly we are contributing to greening our total provincial emissions. We have, on the other hand, a resource that produces emissions but also creates great value in terms of the economic benefit and fiscal benefit to the province. It is not just the province, but Canada as a whole.
We have to take a balanced approach and try to do what is best for the country as a whole and also for the regions within the country. What you can do in a concentrated population area or population corridor like southern Ontario, in terms of transportation and other ways to reduce emissions, is not possible in a place like Newfoundland.
We can’t look at it industry by industry or a source of emissions by source. We have to look at in a more holistic way and look at what the impacts would be to an economy in a province like Newfoundland and Labrador, if we are to be very stringent and uncaring about how the impact of the carbon reduction guidelines would be implemented.
Senator Fraser: I have more of the same. I’m trying to understand. This is an extremely interesting session you’re giving us, incidentally, so thank you very much for it.
You’re asking for relief from the emissions standards for existing facilities, which I gather includes Hebron, but not for future installations. Should we conclude that the future installations can make significant reductions in the current level of emissions? If so, how?
I'm not an engineer or a geologist, but in your explanation of the flaring, as I understood it, you were saying that essentially the reason you have to have flaring is because sometimes you have more gas to cope with than the equipment can handle. Is it simply a question of putting in more capacity so that the equipment in new installations can handle more gas, or is there a natural limit beyond which you cannot reduce emissions? I’m being a bit cloudy here, but I think you understand what I’m trying to get at.
Secondary to that the future oil fields that are apparently there to be discovered sound very interesting. Is the oil from those going to be as light and clean as the oil from the existing fields?
Mr. Cadigan: That’s a very broad set of questions. I’ll take the last because I’m getting older and my memory is a little more cloudy.
In terms of the oil and gas that remain to be discovered, right now there are about 37.5 billion barrels of oil and about 130 trillion cubic feet of gas. We have a significant resource, a very big potential resource, and Norway has 19 billion barrels of undiscovered resource left to be found. The quality of the oil would vary somewhat from field to field.
Most of the oil produced in Newfoundland and Labrador is light. Obviously, the economics with carbon tax and other things will drive better value for lighter oil facilities than heavier oil facilities. Its life-cycle emissions where it predominantly comes in, in terms of the life-cycle emissions from the oil or gas. A carbon tax simply adds cost for the carbon produced in production. It doesn’t really deal with life cycle. That’s one of the issues that maybe we need to think about a bit. All oil is not equal. Is there a different way to handle that?
In terms of the existing facilities we’re not here saying, “Please don’t put any standards on the offshore existing facilities.” We are saying that there are existing facilities. There are potential resources. We need to look at this in a manner like Norway has. We need to look at and have a comprehensive plan as to how we continue to develop our resources over time, while minimizing or impacting our carbon footprint and meeting our international commitments. It can’t be totally industry by industry. It has to be more on an economy base.
In terms of the new facilities, one of the challenges with existing facilities is that there are a bunch of different aspects. One aspect is subsurface. Below the surface, below the floor of the ocean where the resources are contained, there are different reservoirs. There are different geological structures. The way that a company decides to extract the resource can have an impact on the ability to reinject natural gas to avoid flaring.
In a world where carbon emissions are more of a critical issue, the design and the decisions around how to develop a resource from a subsurface perspective, or how they will actually execute the extraction, can be looked at differently than it might have been 20 years ago when some of the existing facilities were originally designed and built.
It’s a combination of the whole from subsurface to reservoir engineering, how they tackle that, how they handle produced gas and the options for handling produced gas. For example, in some cases it could be flaring, reducing flaring or reinjection. There are a lot of different possibilities.
We have facilities that were built, essentially, to a standard difficult to change to meet the facility-by-facility government-mandated 30 per cent pre-2005 standard, if it were applied facility by facility. New facilities can be designed in a better way that can probably reduce emissions. I say “probably,” because each reservoir is different and each facility has to meet the unique conditions of the particular resource, particularly from a subsurface perspective. It’s about it being planned and deliberate in terms of how you apply the standards and taking a more strategic approach to the industry and the resource.
One issue, very simply, is that offshore resources do not have a lot of the same problems other resources in Canada have. Because it’s produced in the ocean at tidewater, it’s pumped into a tanker and it goes directly to market. There are a lot of benefits to the offshore versus some other kinds of production. Canada has to look at it in a more holistic manner. We need a strategy as to how we produce these resources while reducing our overall carbon footprint or our carbon emissions.
Senator Patterson: Sir, I wonder if your association has a position on carbon pricing as a means of reducing emissions. Would you describe yourselves as an emissions-intensive and trade-exposed industry that should be exempted from carbon pricing programs?
Could you tell me where Newfoundland and Labrador is in determining its regime versus carbon tax or cap and trade?
Mr. Cadigan: On the last question of the province’s position, I don’t really want to speak for the province. There is still some flux in the approach. I’ll leave that to others.
In terms of the position of Noia, we understand and accept the fact that we are Newfoundland and Labrador. About 380 of our members are Canadian companies. We understand the importance of the environment. We understand the importance of carbon emissions. We’re good with that.
The means of achieving the emissions and the mechanisms used are potentially where more of the issues are. We talked about the existing facilities and the development of new facilities as an example. The carbon tax on the existing facilities will not drive a behaviour to reduce the emissions, because the emissions can only be reduced based on what is technically feasible. Even if money were no object, emissions can only be reduced to a certain level.
A tax is designed to change behaviour by adding cost. It doesn’t change the behaviour because the ability to reduce the carbon production in those facilities is limited. It’s not going to change the behaviour. What it’s going to do is add cost.
What would be the best system? Cap and trade would probably be a better approach from our perspective. Other provinces reduce their emissions, such as Nova Scotia with the elimination of coal-fired electricity production and clean hydroelectricity coming from Newfoundland and Labrador. Maybe a cap-and-trade situation would allow each economy to move within its ability, based on the way the economy is structured.
The only thing we could say is that in our view one size probably doesn’t fit all. We need to take a more complex and strategic view of how to reduce our carbon emissions while at the same time not cause significant economic hardship in terms of losses of opportunity within our industry.
I know that’s not a direct answer, but that’s as close as I can give.
Senator Patterson: My colleague mentioned the challenge of drilling in waters with iceberg hazards. As a neighbour up the coast in Nunavut, I always thought the experience of drilling offshore Newfoundland and Labrador in cold waters could be very helpful in developing our own offshore oil and gas potential. I hoped companies that had invested in your offshore would eventually be interested in developing our significant offshore resources.
Having said that, does your association have any reaction to the recent arbitrary announcement of the oil and gas drilling moratorium in the Arctic?
Mr. Cadigan: In our case, there are two considerations for drilling north of 60. Can it be done safely and in an environmentally sound way? Our general belief is yes, but with the price per barrel of oil right now the economics aren’t in favour of the additional costs of working in a harsh environment.
In our case we have pack ice and icebergs. If you look back to the Hibernia days, Hibernia was designed to withstand the impact of a million-tonne iceberg. We have learned that facilities aren’t going to get necessarily hit by an iceberg, because we know how to manage the icebergs now. We have learned a lot about how to handle ice and icebergs. We have learned how you can start to tow an iceberg a significant distance away from the facility. We can move it a short distance, but by the time it reaches the production area the trajectory has changed in a way that iceberg doesn’t impact the facilities at all.
In terms of pack ice, with the GBS, Hibernia and Hebron, they are designed to operate in pack ice. The technology is robust enough for that. The floating facilities have built-in disconnectable turrets. All the sub-sea equipment can be disconnected and the facility moved offsite away from the approaching ice in a very short period of time. We have done a lot of R&D. The technology has evolved so that the industry can operate and knows how to operate safely in harsh environments.
There are other economic challenges as well, for example a regulatory same-season relief well, which means you need two offshore drilling units in an area at the same time. It’s a significant impact on costs. The technology is evolving. We’ve moved along the management of ice and environmental concerns a great deal in terms of our environment. I think that knowledge can be transferred to the Arctic. At the end of the day we’re all going to face economics which will drive development and costs for Nunavut, Newfoundland and Labrador, and for anyone in a harsh environment.
One of the advantages we have in some of the offshore areas like Labrador is that the new basins and the new resource potential that have been discovered are actually off the continental shelf. It’s sloped in deep water at the edge of the continental shelf. There have been a lot of metocean studies in terms of ice coverage. What we see is that the expectation or the experience on the Labrador shelf, i.e. on the continental shelf closer to land, is far worse than the ice conditions in the operating season at the edge of the continental shelf. It’s more akin to the operating environment we have in the Grand Banks. It’s probably a little better in some respects.
I can’t really speak to translating that to Nunavut, but I can speak to the fact that the resource discovery of oil and gas in Newfoundland has stabilized our economy. Certainly the downturn in prices hasn’t helped, but we are in a far better place economically than we’ve been for a long time. The development of the resources offshore will give the province the ability to provide the services needed by a geographically dispersed population in a somewhat hostile environment, even our living environment. It’s cool here as well.
There is the social good of the resource, the development of the resource and the value that gives to society versus carbon footprint and our obligation to reduce our carbon emissions. However to say that Nunavut, for example, cannot have an oil and gas industry because carbon reduction needs to happen, I don’t think that is a very smart or fair way for a country like Canada to look at its regions. It’s far more critical that we look from an overall strategic basis across the board and ensure that whatever is best for the region is what’s done.
The Chair: Thank you. We’ve reached our time. I have a couple of quick questions I want to ask you. If the answers are going to be fairly long I’d like you to write them and send them in, because we have another set of witnesses sitting here and waiting.
First off, on Norway, you talked about their being tied into the electrical on-land system. Can you tell me how far out offshore they go with those facilities? Norway has 98 per cent hydro-generated electricity, so it’s clean. Also, the country is pretty small in comparison to Canada. With 4.5 million people, it’s a little different from what we look at in Canada.
On the Alaska North Slope at one time they flared about as much gas as we produced in western Canada on a daily basis. They now reinject most of that for enhanced oil recovery. Is that a possible way to reduce your flaring offshore on the East Coast?
Mr. Cadigan: The oil and gas industry in Newfoundland and Labrador actually injects the bulk of gas produced in pressurized reservoirs. That’s already part of the process. The issue is really more about volumes and the ability of the processes and limited equipment on a facility to process the volumes at a particular time, so I think the reinjection is being done.
In Norway, the facilities are predominantly 100-150 kilometres offshore, so they are not near shore. They are a significant distance offshore. As a society, I guess they’ve decided they want to produce the resource. Not all of the resources are going to be electrified. They are selectively electrifying some of the offshore to minimize emissions as best they can.
The Chair: Thank you very much, gentlemen, for your great presentation and answers. We appreciate them very much. They will certainly help us develop our report. Thank you very much for joining us.
For the second portion of this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources, we are continuing our study on the effects of transitioning to a low-carbon economy. I am pleased to welcome from the Canadian Association of Petroleum Producers, Terry Abel, Executive Vice-President, who is by video conference from Calgary, and with us in Ottawa is Patrick McDonald, Director, Climate and Innovation.
You have a presentation to make and then we will go to some questions and answers. The floor is yours.
Terry Abel, Executive Vice-President, Canadian Association of Petroleum Producers: Good morning, chair and members of the committee. We are pleased to have the opportunity to provide insights and experience to help inform your study on the effects of transitioning Canada to a lower carbon economy.
I want to start with some brief comments and background on CAPP, the members we represent, and a bit about our industry as well. CAPP works on behalf of Canada’s upstream oil and gas industry. We represent about 100 members who together are responsible for producing about 85 per cent of Canada’s oil and natural gas production.
Our members are responsible within Canada for exploring for and producing natural gas, natural gas liquids, crude oil and oil sands from coast to coast in Canada. As you know, our offshore production is in Eastern Canada, generally 200 to 500 kilometres offshore from Nova Scotia and Newfoundland.
I’m sure it is no surprise to members of the committee that market conditions have had a significant impact on our industry over the past three years. Since its peak in 2014, annual capital investment by the industry has declined by almost half to about $44 billion per year. We are down significantly. Direct employment by our industry, including some indirect, has fallen from a high of over half a million to just under 400,000 Canadians today. Despite these challenges, our industry is working hard to reduce costs and bring investment back to Canada while still maintaining Canada’s global leadership on environmentally and socially responsible production.
We are clearly committed to leadership on climate action as well. We’re convinced that responsible oil and gas development, driven by technology and continued industry innovation, is essential to a healthy Canadian economy. It is therefore imperative that Canada remain competitive with other oil and gas producing jurisdictions. Otherwise, we risk losing not only the economic value of our industry but also the consequential global reduction in GHG emissions.
Today, the world consumes about 95 million barrels of oil per day and currently that’s growing at a rate of about a million barrels per day annually. When you look at the International Energy Agency’s forecast, their base case forecast, they show the world’s demand for energy growing by over 30 per cent by 2040, including a 12 per cent growth in oil and more than a 50 per cent growth in natural gas in that same time period. Even when you look at their most optimistic lower carbon scenario where global action is able to keep climate change to under 2ºC, they still forecast a demand for oil at over 67 million barrels a day by 2040. Hydrocarbon petroleum sources aren’t disappearing from the energy mix any time soon.
We at CAPP believe that responsibly produced Canadian oil and gas should be a priority to fill global hydrocarbon demand. One of the big reasons is that Canada is blessed with the world’s largest and some of the highest quality reserves of oil and natural gas, but, perhaps more important, Canada as a nation represents a country with a strong established business reputation underpinned by strong rule of law and security of contract. We have world-leading environmental regulatory systems and among the highest levels of verifiable performance within those environmental regulatory systems.
We have a mature sophisticated workforce and a proven track record of innovation and technology-driven development. Sadly, though, today that aspiration of supplier of choice is still a challenge as we have really only one customer for our oil and gas resources, and that customer is very quickly becoming our greatest competitor.
Briefly on innovation, I think our industry has demonstrated its capacity to play lead role in achieving Canada’s desired low-carbon economy. We believe that probably the most efficient way to achieve emissions reductions from our sector is to invest in, promote and apply that technology. We think supporting and enabling that development and adoption of cost-effective technologies is a win-win for Canada. We know it can meaningfully reduce GHG emissions, but at the same time it can allow our industry to grow, continue to promote investment and to create jobs for Canadians. Our industry has a proven track record in this regard. We have already achieved substantial emissions reductions through technology development. We believe, with the right enabling framework and appropriate investment, additional breakthroughs are certain.
Today, our industry is finding ways to innovate more efficiently through organizations like Canada’s Oil Sands Innovation Alliance, COSIA, and the Petroleum Technology Alliance of Canada. We’re pioneering new ways to collaborate together, to better leverage individual research and development, and to accelerate the pace of innovation. CAPP certainly recommends that federal and provincial governments band together to prioritize and coordinate their investment in clean infrastructure for our industry and develop even stronger partnerships with our industry.
We as an industry are currently investing and exploring many exciting opportunities to reduce emissions. Some of these include electrification of our upstream infrastructure, as you may be aware. I know others have talked to your committee about some of the carbon captures and storage efforts. We are doing things on methane reduction. In fact, we are a world leader in terms of methane emissions management and performance. We are using cogeneration and can expand that. Probably one of the most obvious and promising areas is substituting fuels with lower carbon natural gas.
Most of the world understands that natural gas is widely acknowledged as the cleanest-burning fossil fuel. It provides a cost-effect energy source that enables countries to reduce the carbon intensity of their economies. It can efficiently reduce emissions from hydrocarbon electricity infrastructure and provides grid stability as the world moves toward renewables. The development, use and export of our natural gas resources can provide a responsible transition fuel to support a clean energy transition around the world as well.
Recognizing that energy demand will grow significantly over the next couple decades, we believe natural gas is a reliable, cost-effective way to meet growing energy demand, especially in those developing nations where they want to achieve the same sort of success and prosperity that developed nations have achieved. They also need some help in reducing their greenhouse gas emissions as they move that way and toward improvements in their own air quality.
Clearly, we acknowledge there are opportunities for our industry to reduce GHG emissions, but most importantly for you at this committee is to recognize that one size does not fit all. As such, policy and regulatory flexibility will be essential for Canada to achieve its climate policy aspirations and maintain a healthy and growing upstream energy industry. A good example our offshore facilities. Because of their remote location and the unique nature of that development, they will have some particularly challenging matters in order to achieve reductions there.
As you can probably imagine, being 200 to 500 kilometres offshore they will not be connected to an electricity grid, which means they have to generate power on site by burning gas from those reservoirs or by burning diesel fuel. As well, they do have some fugitive emissions from flaring, but that flaring activity is a safety precaution. Trying to curtail that puts workers at risk as well. We’re not saying there are not opportunities there, but there will be challenges we have to address in order to find opportunities to reduce emissions there.
To sum up, in terms of a path forward, it’s important to remember that climate change is a global issue. Canada needs to be especially vigilant to ensure their policies do not lead to carbon leakage. Hopefully most of you understand that’s a situation whereby industries take their associated investments and leave Canada in favour of other jurisdictions that have no or far less costly carbon policies.
We think climate policy that protects trade-exposed industries and enables the development and adoption of cost-effective technologies is the optimal approach for Canada to achieve its climate objectives, while maintaining that growing and healthy economy. This is not a new concept. Many jurisdictions across the world have adopted carbon policies, such as California in particular and the European Union, already have policies that protect emission-intensive, trade-exposed industries. In the case of the hydrocarbon industry, California essentially provides 100 per cent protection of that industry from their carbon policies, and the European Union on average is somewhere in the 90 per cent range of protection.
CAPP and its members producing oil and gas are committed to implementing cost-effective measures that will result in reduced emissions from our operations, but we need that regulatory flexibility to achieve the climate aspirations and to maintain a healthy industry. We will continue to develop resources responsibly with a commitment to continuously improving our already world-class performance. We’ll deliver the outcomes Canadians expect. We think we can be the supplier of choice when it comes to meeting world energy demand. We think that’s a responsible position for Canada to take.
I will thank you now and conclude my remarks there. I am open for questions.
The Chair: Thank you very much for those remarks. We will begin with questions.
Senator Massicotte: Thank you very much for being with us this morning.
You referred to the International Energy Agency, which is a highly credible agency, and a report issued several days ago in which they are projecting a significant increase in energy demand in the next 25 years, an increase in the oil demand and, obviously, even a larger increase in natural gas.
Could you explain to the public exactly how to reconcile all that with our need to get a handle on climate change? You made a comment about innovations, but even if you innovative you still have a significant amount of GHGs from that production. Could you clue us in on how we meet all those objectives in spite of the fact that world citizens still want an increase in energy demand?
Mr. Abel: You’re pointing to that dichotomy of what we see. When I think of energy, it is as essential to a prosperous and healthy economy and healthy people as something like fresh water. You can’t deprive the world of the need for energy. I think what we’re seeing is that there needs to be a transition to lower carbon sources of energy and more efficient use of energy.
A lot of the reductions in the short term come from transitioning to lower carbon sources. Maybe, more importantly, one of the points we’re trying to get to is that we are a leader in terms of producing our resources responsibly. If Canada is truly considering and supportive of addressing a global issue, we should, therefore, be taking up a bigger percentage of that world market. Right now, we only contribute to exporting our resources to a single market, the U.S. south of the border. We think we could be displacing oil and gas production in other parts of the world that are not producing as responsibly as it is in Canada.
You hear lots of claims about responsible production, but we in Canada have a very transparent and highly monitored system. We talk about the emissions from our oil and gas production. Those emissions are verifiable to a standard that I think far exceeds other parts of the world.
You make reference to innovation. Because of the stringent environmental policies, our industry in Canada has constantly been pushing the envelope on cost-effective, environmentally responsible and lower emissions-intensive technology. There are precious few jurisdictions in the world that will put any effort or any money into environmentally responsible production. You’re seeing a transition even in the U.S. now where they seem to be backing away in a lot of jurisdictions from a focus on environmental investment.
That’s a strength Canada has. If you are going to export technologies, there is likely only one place putting that much effort into technology now, and that’s Canada.
Senator Massicotte: My question is: How do you reconcile that? I appreciate that poor countries want the same services we get. I understand that part.
How do you reconcile the energy demand with our need to get a handle on the CO2dioxide and climate change? What’s the solution to achieve both? In the IEA and your own association, these are not foolish people. They are responsible people. What is the plan to get there irrespectively?
Mr. Abel: That plan is ultimately a transition to non-carbon-emitting sources of energy.
Senator Massicotte: I would have thought you would have said to me carbon capture and storage, or CCS. Recent evidence suggests that the cargo price of CCS is $60 to $80 a tonne. That’s not bad. That would be a significant solution to the problem, but it’s not total. What else can be done? What’s the solution?
Mr. Abel: Again, ultimately, you have to reduce the use of carbon-emitting sources of energy. That will take time, so in that time you take the reliable lower carbon sources of emissions and you reduce the emissions associated with both the production of that fuel and the consumption of that fuel.
Yes, things like carbon capture and storage and more efficient use of it, all bend the curve toward lower carbon emissions from the planet but it doesn’t happen overnight. It really is the transition to those other sources of energy.
Patrick McDonald, Director, Climate and Innovation, Canadian Association of Petroleum Producers: I will build on Mr. Abel’s comment in terms of the transition. You’ll see that maybe there is not one overall solution; it is a progression.
As an industry we’re trying to focus on all the different opportunities to promote efficiency and effectiveness and lower the overall carbon footprint of our operations, keeping in mind that all of that is being progressive to those long-term goals.
Senator Massicotte: The only thing is that I hear you saying that you go with low carbon. Effectively, given our need to get close to zero within 40 or 50 years, what I’m hearing is that therefore the only answer is to shut down because you can never get to zero.
You can be more efficient, and I’m not sure that is the right answer, but that’s what I’m interpreting the answer to be.
Mr. McDonald: Even if we look at the uses, we can definitely produce our resources in a manner that is moving toward a lower carbon footprint. Again, even at the lower projections, there will be a need for oil and gas resources. There are other uses for petroleum products than just combustion-related ones.
As far as the future of the industry is concerned, I think Mr. Abel would agree that we do see oil and gas being a continuing part of not only the energy future, but the future of use globally. As such, we are committed to progressing to reduction-intensive lower emissions.
The Chair: Thank you.
Senator Seidman: Thank you for your presentation.
You talked about innovation. You gave us a list of things here. One of the things you said that CAPP recommends is that the federal and provincial governments band together to prioritize and coordinate investment in clean infrastructure for our own gas development, and develop stronger innovation partnerships with our industry.
Regardless of whatever it is we’re studying, we often hear about the propensity of industry, academia, and federal-provincial governments and territories to work in silos. There are a lot of partners involved in innovation and working together. Now that you recommend this, what kind of success you may see already in all of the partnerships?
Mr. Abel: Senator Seidman, you highlight something important that is not unique to our industry, the challenge of getting all research partners to work better together.
Our industry has been working on, in the most recent time, something we call the clean resources innovation network. This is a group now with which we’re working in academia, universities across Canada, and the two organizations I mentioned, the provincial and federal governments. We’re talking about how we can create an innovation ecosystem where all different organizations and research partners are more aware of the needs of the industry. We’re creating a space where we can share that information. We’re going to make a submission for the call for innovation superclusters the government has recently put out, talking about that network and how it can work together better.
Really, it’s building on some of the collaborative partnerships that industry has done and the success we have seen with that, and recognizing the problem you identified. We need to bring others into that mix as well.
I don’t want to leave the impression that we don’t work with universities or academia, or that we don’t work with the government. We do that now, but we don’t necessarily pull all those pieces together in one place and create a space where everyone is aware of what each other is working on and what are the needs of the industry.
We’re actually doing exactly what you’re describing right now. We’re trying to pull that together. We have been talking with all those different groups. A steering committee has been meeting now for probably the last six to eight months, talking about how you do that.
Senator Seidman: Because you represent industry, do your members have targeted proportions of their budgets to spend on R&D, specifically on some of the exciting emission-reduction opportunities that you refer to in your presentation?
My colleague referred to carbon capture and storage, for example. Do you have targets of investment proportion you would spend on things like this that come out of your members’ budgets?
Mr. McDonald: As Mr. Abel mentioned in his presentation, with the Canada’s Oil Sands Innovation Alliance each company typically has its own R&D fund, but if we really want to drive into innovation and move the needle, we have been seeing that collaborative approaches are more effective. Instead only focusing on operator-specific opportunities, they are pooling their dollars together. There is a set amount. I can check, but as far as the amount that has been invested in COSIA it’s upward of a billion dollars. I believe in looking into that. A number of technologies have been developed out of there.
There has been a great deal of success in that collaboration. If we’re looking at driving innovation and opportunities, it’s really about moving those technologies into operations in a more timely manner. One area we have been exploring is not only the development of the technologies but how to get those technologies to be commercially viable in a more timely manner.
Given regulatory processes, design challenges and implementation, the sooner we can ensure that any technology to reduce emissions is able to be applied immediately, that’s really going to assist us in the change.
Mr. Abel: Each company might have slightly different specific targets for their company in terms of R&D dollars. The larger, more integrated companies have a higher target than the smaller companies.
Combined as an industry, it’s approaching $100 million to $120 million a year for the petroleum industry in Canada in terms of investment in research and development. That number actually exceeds the next three highest industries’ R&D combined spending. It’s significant in terms of dollars and Canadian dollars.
During the downturn, there wasn’t a blip in that. The number didn’t go down consistent with the drop in revenues in those companies. They maintained their R&D spending, which is traditionally what this industry has done. When they are faced with cost or regulatory challenges, they essentially double down in R&D because they have had success addressing those challenges in the past.
The investment is significant. It continues despite downturns. There’s no question it’s challenged at those times and they examine those dollars carefully, but they have been very comfortable with the idea of collaborative research and leveraging their dollars together. As Mr. McDonald said, the big challenge in a lot of cases is not the tabletop research and development work. It is taking some of those ideas and moving them into the field. When you’re moving those research projects to commercialization, it’s in the hundreds of millions of dollars of investment to actually take a technology and make it commercial.
Senator Galvez: I first want to make some clarifications and then to ask some questions.
When we talk about energy demand, we have to make a difference between energy demand and electricity demand. It is going to increase the need for electricity because population is growing, everybody wants to have gadgets, electricity and fridges, and the emerging economies such as China.
We need electricity, but there has been a major change in electricity production. You are no longer the only shop in town. We have other sources of electricity: solar, wind, hydro and tidal. It’s a big difference between petroleum demand and electricity demand. That’s one point I wanted to clarify.
It’s true that a lot of electricity or energy demand is for transportation. Petroleum, which is an incredible useful resource for humanity, being combusted in transportation is a waste. That has to change. That’s my preliminary statement.
Your oil and gas industry is not a new industry. It’s one of the oldest industries. It’s true that you have been doing a lot of research. We now have deepwater construction wells and we are separating oil from sand. Your industry has received enormous amounts of money for research. I’ve been in committees, NSERC committees and provincial committees, and you have received tons of money.
You now have a bad image. If I were you, I would be doing some balance and showing what all the money spent in research has been translated into, quantitatively. So far you are just saying low down and relative. We need numbers. I am sorry, I need numbers.
All this research and all this money have been translated into which benefit? Was it for the environment in emissions reductions? We just heard a 35 per cent flare is wasted in the atmosphere at the offshore platform. That looks bad. That looks terrible.
I want to acknowledge an elephant. It is about subsidies. For a long time and up to now you have been receivers of a lot of subsidies. In my opinion — I am sorry for saying it, but, in my opinion, you seem to be the sector out of which Canadians feel the right to ask for more effort. I want to have a clear idea of how to quantify these efforts. As my colleague said, goals and targets.
Mr. McDonald: I’ll take a first stab in terms of the communications, benefits and numbers. I appreciate the desire but, perhaps to build on your first comment, we’re a very old industry. I would agree with that in terms of some areas of our production.
If we’re looking at the diversity of where we generate our resources from, we have the offshore, conventional and unconventional, but the oil sands as an industry, as a production technology, is actually fairly new, specifically in situ oil production using steam and other injected fluids to extract the oil sands. There has been growth in that area in the last 10 years. Since 2006, within an eight-year period, the emissions associated with those extractions have been reduced 20 per cent to 40 per cent in that specific technology.
We feel there is the opportunity to reduce them more. As Mr. Abel noted, there is a great deal of data and reporting, but maybe we could do a better job, a more complete job of communicating that and making sure the public is aware of the reductions that have happened. We have had reductions, specifically with in situ, and there is still the opportunity for more.
Mr. Abel: Senator Galvez, I don’t disagree with you that our industry wants to continue to improve its performance. I think we have a track record of responsibly investing in technologies to reduce our environmental footprint. That’s not just from air emissions. It’s water we use, land we disturb, practices we develop for reclaiming facilities, and the landscape after we’re done with some of those production facilities.
I worked for 30 years as a regulator with jurisdictions all over the world. Canada has been a leader in developing practices for the efficient development of resources. It’s no accident that the World Bank, to help address flaring and venting issues across the globe with oil and gas production, looked to Canada for best practices and worked with Canada to bring those best practices into other nations.
Are we zero footprint on the environment? Absolutely not. Nor is any industry in this country. We are committed. We’re more committed than any other part of the world to developing technologies. Absolutely that’s based on very stringent environmental regulation within this country. We invest that technology to allow us to perform in an environmentally responsible manner that conforms with the regulations in Canada and still allows us to be competitive on the world market.
That is one of the reasons it is worth both Canada and our industry investing in technology. It makes little difference to develop technology and have high environmental standards in Canada if there is no oil production here, no gas production here; and it only happens somewhere else where there are no standards, no enforcement of those standards, and no effort to develop more efficient, environmentally and cost-effective technologies. It is a good investment. I think that investment has paid off dramatically. It goes well beyond atmospheric emissions.
Mr. McDonald mentioned oil sand. In the case of oil sands, they use fewer than 10 per cent of the water in their production operations from fresh sources. Over 90 per cent of the water they use is recycled over and over again. They have reduced the actual surface land footprint through developing long reach horizontal drilling technology. That has reduced the surface footprint by upward of 60 per cent. There are a lot of aspects where I think Canada has performed well, but we’re not sitting idle. We want to improve that performance all the time.
We can provide you, Senator Galvez, with some more information on our environmental footprint and the broad investment in environmental performance. I want to assure you that Canada, as a producing nation, far exceeds any others in terms of our efforts and focus on environmental performance.
We do want to get better. I look to Canada’s commitment to reduce methane emissions from our industry by 45 per cent. Most don’t realize that our performance today is three to four times better on methane emissions than that of our closest neighbours to the south. Even if they met a similar commitment to reduce their emissions by 45 per cent, they still wouldn’t be at where we are today.
In Canada, we’re going to try to do even better yet. I want to assure you that our industry is responsible. We’re not sitting there resting on old technology. We’re constantly trying to innovate. It’s hard work. It takes time. It takes investment, and that investment is good for Canada as well.
If we can actually displace less efficient technology, that’s good for global emissions. I think that’s one of our aspirations as an industry. We should be doing that. Canada should be interested in that.
Senator Wetston: It was a few years ago when President Obama, in thinking about carbon reduction, talked about the social cost of carbon and the estimates of the social cost of carbon. I’m not sure if you’re familiar with that expression or thought in your work. Basically, what he was thinking about, I believe, was the cost of emitting one tonne of carbon versus the cost of reducing one tonne of carbon. I just use that as an example.
Do you have any views from the perspective of the sector you represent with respect to the social cost of carbon and the challenges in achieving that balance between emission and reduction?
Mr. Abel: Senator, we haven’t done any work to try to estimate what we think is the social cost of carbon. The work that has been done is based on what we’re seeing as the environmental effects of climate change, such as flooding, greater severity of storms that cause damage, and some health effects. I’m not an expert in putting a cost on those things, but what I would say is that we don’t disagree the changing climate will have some definitely significant social costs and effects.
I don’t disagree. The world has united and said, “We have to reduce carbon or at least minimize carbon to a point that we’re minimizing those environmental effects.” Their commitment isn’t to get to zero carbon emissions, but it is to reduce emissions to a point that they can control and limit global warming. We support that. We know that means a transition to more electricity and generating that electricity in a way that doesn’t produce carbon emissions. We’re supportive of that, but even those aspirations still mean hydrocarbon resources need to be produced.
Can we produce them with zero emissions? It’s a good aspiration and it will to take time to get there. A starting point is to produce hydrocarbons with the lowest intensity sources. I think Canada will be a leader in that regard and is actively working to reduce those emissions with new technologies, not just emission-capturing technologies but technologies that don’t create emissions in the first place.
The world putting a price on carbon is trying to recognize that is the incentive you need to get that investment to occur and to get people to move to different sources of energy resources. Those are all reasonable policies, but it comes back to if the world will need some hydrocarbon resources for some period of time. I will not debate what that period will be, but it is certainly decades rather than years. We think Canada can step up and be a source of transitioning to lower carbon-intense oil and gas production.
Senator Wetston: I would like to pursue a current issue. I realize you’re upstream. I always think of it as upstream, midstream and downstream. I know midstream is not what we call it. For me, it’s the pipeline challenge. You have to get your product to market. In answering questions of my colleagues, you have answered a number of specific issues around the approach of your sector to reducing carbon.
I would like to take you a step further into the area of social licence. I think you would agree with me that you have to get your product to market, be it gas or oil, and we have one main customer, obviously. We have a lot of discussion these days about projects like Kinder Morgan, Enbridge Line 3 and Keystone, but my question to you is a little more from a business perspective. Social licence has now become a business strategy. If it’s not a business strategy, it seems to me that some of these projects will not get built. Do you have any comments on that?
Mr. Abel: Absolutely. Whatever you call it, social licence or by some other name, it’s really important for our industry and all aspects of our industry, as you said upstream, midstream and downstream, to rebuild public confidence in our industry, to help Canadians and global citizens understand that particularly in Canada we are committed to producing resources responsibly. There is lots of information out there. Some of it is not good information, but we’re absolutely focused on helping Canadians understand that we are committed to safe and responsible production. That is key to getting infrastructure built. It’s key to growing our upstream industry.
In a world that will need some hydrocarbon resources, as you can tell, I firmly believe that Canada should be a supplier of choice because of how we go about producing our resources and how we will improve our performance going forward. I don’t think that’s a mutually exclusive objective from Canada’s own aspirations to use less and less carbon. We can do both. We can show Canadians that we actually are very responsible.
If you look at how our industry operates and look at it relative to other producing jurisdictions, we are protecting our environment. We are spending hundreds of millions of dollars monitoring our operations to better understand those effects and respond to those effects, whether they are predictive or something that we determine through monitoring. That message isn’t out there, and I think we need to do a better job of getting out some of that information to allow Canadians to have faith and trust in our industry.
The Chair: Did you have anything else you wanted to add, Mr. McDonald?
Mr. McDonald: No, that’s fine.
The Chair: Thank you very much, gentlemen. Those are our questions that we have. We are getting close to the hour we have to be out of here. I just have a couple of quick questions for you.
Senator Black, who is a part of this committee but is unable to be here today, has said to us a number of times recently that some technology your industry is on the cusp of bringing out would reduce the greenhouse gas emissions from the production of oil from the oil sands dramatically.
Can you tell us what that is or help me a bit?
Mr. Abel: You bet. Right now both mining oil sands and in situ oil sands essentially require heating of the oil to reduce viscosity and allow that extraction. On the in situ side, in particular, they are injecting steam underground to soften or reduce the viscosity of that oil so it can flow to the surface like conventional oil.
In order to put that steam in, you have to put a lot of energy into water to make that steam. They do that through natural gas boilers right now. The technologies that are most promising are the use of solvents instead of steam.
The Chair: Can I stop you for a moment? I’m aware of that.
Mr. McDonald: I think Mr. Abel is setting the framework.
Mr. Abel: Whether warm solvents or regular solvents, they're injected into subsurface reservoirs.
That is an area where a lot of research is being done. It could virtually eliminate the need for that upfront natural gas energy going in.
Mr. McDonald: To build on Mr. Abel’s comment, he was setting the stage for where the energy is coming from to mobilize the bitumen resource right now. Looking at the future and where we’re seeing the most promising result, it is, again, utilizing lighter hydrocarbons to inject with that steam. It drastically reduces the amount of steam and in conjunction the energy required to extract the resource.
There have been a number of pilots. This is something that has been ongoing for probably over a decade as far as pilots, but we’re getting to the point on the commercial viability side that folks are definitely considering it in terms of those projects.
The Chair: We’re running out of time, but I have a couple more questions.
You stated that you will reduce methane or fugitive emissions by 45 per cent. Over what period of time? As I understand, the federal government has backed away from the time frame that they set in place originally to three years from now before you have to do that. That’s one question.
Are you doing that prior to being told by the federal government that you need to reduce those fugitive emissions?
Don’t get me wrong. I have been in the oil and gas industry a good part of my life. I know you are doing a lot of things, but we hear all the time -- and we heard it again this morning?-- that we are high up on the scale of how we treat the environment in Canada as compared to other countries, it’s always “other countries”.
Is there some form of measurement that compares Canada to the U.S.A.? In fact, you just said, in comparison to the U.S.A., that we’re much better. I’d like to see a graph that says we’re better on those things.
Are we better than Saudi Arabia? Are we better than Venezuela? Instead of just saying we’re better than all “other countries”, where do we fit in that scale? I have heard Norway is much better than Canada. I know it’s offshore.
Can you help me a bit there, or is there something you can provide to the committee so we can actually see on a targeted graph where we are better than all of these other countries? I don’t expect you to list all of them, but some of the major ones.
Mr. McDonald: I’ll take a stab at that first, Mr. Abel, in terms of the methane reduction targets. We are committed to meeting that 45 per cent reduction by 2023 and are moving out on that as far as the government’s planned timelines shift. They are their timelines and we’re committed to meeting them.
With regard to waiting for them, and I note that Mr. Abel made comments earlier, we haven’t waited for government action. This is a space in which we have been active reducing flaring and venting and being proactive in that space to limit our emissions footprint. There have been regulations in place well in advance of recent methane reduction targets. Our industry has been leading in that space compared to those south of our border.
As far as our environmental performance, there are challenges around how we specifically compare in a data emissions piece to other jurisdictions. Again, as Mr. Abel noted, we’re leading in monitoring, capturing data and reporting for all of ours, but as far as leading in a lot of other jurisdictions, the ones we’re looking at to compare with don’t have as readily available data to roll everything up to see really how they are performing.
One piece of information we looked at to evaluate was environmentally responsible jurisdictions in terms of regulatory framework and stringency, all the permits and approval processes required to develop oil and gas in the country. We did a study in regard. We commissioned WorleyParsons Canada to do a comparison of all these different jurisdictions to determine how, in terms of environmental regulatory performance, Canada stands.
We do have that, and more recently we updated that work to support the current review of environmental assessments in terms of how robust and competent is the Canadian process in terms of doing environmental assessments and what best practices could be undertaken if there are others from other jurisdictions that we might want to add to our portfolio.
We would be more than willing to provide that work to the committee.
The Chair: Thank you. I would like it if you would, and provide it through the clerk. Then each member of the committee actually gets a copy of it so that we can all see it.
We’re over time and there is probably another committee waiting to come in. Thank you very much, gentlemen, for your presentations. We appreciate that.
Just before the committee leaves, I want to say that steering had their meeting yesterday and we’re not going to have a press conference and the release of the transportation report we just finished. We’re going to do it in a different way that tries to get it out to the print media across the country by sending it to them. We have some communications processes that are happening now. In the chamber you will hear me say that it will be released somewhere between June 15 and June 23. I have to get that approval.
Secondly, there will be no meeting next Tuesday, just simply because of getting to the end of the session. There will be one next Thursday. Who knows? That could be our final one for all I know. That remains to be seen.
Thank you very much everyone.
(The committee adjourned.)