Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 5 - Evidence, September 19, 2016 - Morning
EDMONTON, Monday, September 19, 2016
The Standing Senate Committee on Transport and Communications met this day at 9 a.m. to study the development of a strategy to facilitate the transport of crude oil to Eastern Canadian refineries and to ports on the East and West Coasts of Canada.
Senator Michael L. MacDonald (Deputy Chair) in the chair.
[English]
The Deputy Chair: Good morning, everybody. I would like to bring this meeting of the Senate Standing Committee on Transport and Communications to order.
Before we introduce our witnesses, I have to ask the committee's permission for these public proceedings in Edmonton to be recorded by electronic media. They want to record it, so we need the permission of the committee for the Edmonton, Calgary and Vancouver hearings to be electronically recorded by the media. Is that agreed?
Hon. Senators: Agreed.
The Deputy Chair: Thank you.
On behalf of the committee I would like to express our distinct pleasure to be in Edmonton. I would like to begin by congratulating the people of Alberta for their resilience during these difficult economic times, and especially the population of Fort McMurray for their courage and perseverance as they rebuild their community.
This morning the committee is continuing a study on the development of a strategy to facilitate the transport of crude oil to Eastern Canadian refineries and to ports on the East and West Coasts of Canada. This study began last March with the objective of finding a better way to bring Canadian oil products to markets.
We are pleased to be in oil country to hear from individuals close to the industry versus the limited view we often receive in Ottawa.
I would like to introduce our first panel. From the Edmonton Chamber of Commerce, James Merkosky, Vice-Chair of the Board of Directors; Scott McEachern, Member of the Board of Directors; and from the Edmonton Economic Development Corporation, Adam Sweet, Senior Advisor to the President.
Please begin your presentations, gentlemen, and afterward the senators will have questions.
Scott McEachern, Member of the Board of Directors, Edmonton Chamber of Commerce: Good morning, everyone. On behalf of the Edmonton Chamber of Commerce I would like to welcome you to the fine city of Edmonton.
My name is Scott McEachern. I sit on the Edmonton Chamber of Commerce Board of Directors and in my day job I am the vice-president of engineering and projects with Enbridge Pipelines.
We are here to discuss the transportation of crude oil in Canada, where it is at today and where it is going in the future. We will be talking about a national transportation strategy, public engagement considerations, and confidence in the regulatory process, and striking a critical balance between the importance of energy security to Canada's future prosperity and the importance of action on climate change and key environmental issues.
I would like to address a small set of these important issues to kick things off today. From an industry perspective and as a director of the Chamber of Commerce I can tell you that these issues will play a pivotal role as we work together to chart a path forward for responsible energy development in Canada.
Given the recent events in Montreal I would like to start with the pipeline review process. Public confidence in the regulatory process is absolutely vital to Canada and Canada needs a rigorous, transparent, inclusive and predictable model to restore this confidence. People need to feel that the process is both fair and timely. This requires a joint effort from industry, regulators and government, and we need to start now.
Investors too need to have confidence in the process. Without long-term capital investment responsible energy just does not happen; nor does job creation or ongoing tax revenue.
Duplication and overlap within the regulatory process causes unnecessary delays and uncertainty. Clear timelines are important to restoring investor confidence and in industry's view the most direct way of avoiding duplication is to retain the National Energy Board as the single best placed regulator to evaluate infrastructure projects under federal jurisdiction.
Market access is another imperative for Canada. We stand to lose out on a massive scale because of our lack of connectivity to global markets. Edmonton's economy, Alberta's economy and Canada's economy have all been hampered by having just one customer for our oil.
In this economic downturn the need for access to new markets is greater than ever. Through resources, technology and capital markets we have a latent energy advantage in Canada. The key word in this statement is "latent". It is either use it or lose it.
In July, Kenneth Green of the Fraser Institute co-authored a report called The Costs of Pipeline Obstructionism in which he wrote that without adequate pipelines to Canada's coasts Canadian oil producers were forced to sell their products to the U.S. at dramatically discounted prices, resulting in a greatly diminished benefit for Canada's economy.
This Fraser Institute report also called on government to expedite pipeline project review. The window of opportunity is only going to be open for so long and without action others will take advantage.
I can also tell you speaking from professional experience that safety and operational reliability is a top priority for the pipeline industry. Chris Bloomer is the President of the Canadian Energy Pipeline Association. When CEPA released its 2016 industry performance report in June, Chris noted that zero is the only goal to strive for and that CEPA and its members have a collective vision that no incident is acceptable.
Through leading edge technology and relentless safety culture Canada's pipeline operators focus on prevention and use a multi-pronged approach to safety through methods like automatic remotely controlled valves, automatic leak detection alarm systems, regular inspections using high-tech tools similar to MRIs that we have in our hospitals, and verification and maintenance digs to examine the pipelines for defects and make any required repairs.
Through the CEPA Integrity First program, member companies share best practices to enhance control room management, emergency response and pipeline maintenance. In the event of a pipeline incident CEPA's Mutual Emergency Assistance Agreement acts much like a mutual aid agreement between fire departments as member companies step forward with personnel, equipment and tools as required to ensure rapid and effective response.
Water safety is also an essential component of the pipeline industry's overall safety approach. This includes the use of horizontal directional drilling which minimizes environmental and stakeholder impact even in sensitive areas. It means paying special attention to areas with a potentially heightened impact on the public including drinking water sources and watercourse crossings. It also means working with government, regulatory agencies, environmental organizations and community representatives at the project planning stages to understand and accommodate unique and local environmental needs.
For many of us in the industry our indigenous engagement strategy is based on forging mutually beneficial relationships with indigenous communities. That includes community partnerships, educational training, employment opportunities, indigenous business and economic opportunities, and meaningful dialogue based on mutual respect and trust.
Industry fully supports the Government of Canada in its duty to engage the indigenous communities. We feel it is imperative to the success of the NEB review process as well.
At the Edmonton Chamber of Commerce we believe the future prosperity of Alberta is dependent upon meaningful collaboration between the government, First Nations and industry as it relates to economic development of our province.
The Edmonton chamber supports government effort to address the very real threat of climate change. The energy industry also recognizes climate change as a legitimate global issue. In some corners industry is leading the movement toward a lower carbon future with significant investments in renewables and the positioning of our natural gas, which is an abundant low cost bridge fuel, to a lower carbon energy mix.
Again industry supports the Government of Canada as it engages with provinces and industry and works toward national climate change as a framework.
I hope the opening thoughts have set the table for a frank, honest and productive discussion today as we explore the concept of national crude oil transportation for Canada.
I would be happy to answer any questions as we move toward the question period.
Adam Sweet, Senior Advisor to the President, Edmonton Economic Development Corporation: Good morning, Mr. Chair. To you and through you to the honourable senators of this committee, thank you for the invitation to present to you today. I look forward to the discussion that I am hopeful will follow this presentation.
My name is Adam Sweet and on behalf of Edmonton Economic Development Corporation, or EEDC for short, we are pleased to provide our commentary on the development of a strategy to facilitate the transport of crude oil to Eastern Canadian refineries and to ports on the East and West Coasts of Canada.
As our CEO Brad Ferguson has pointed out, if Mark Twain was an Albertan he would say that the demise of the fossil fuel industry has been greatly exaggerated.
This province has been blessed with an abundance of energy products like no other. The extraction and production of conventional oil, oil sands, natural gas, coal and coalbed methane have created billions of dollars in wealth, billions of dollars in government programs, and billions of dollars in research and development. There are trillions of dollars and trillions of barrels more available if we take the right approach.
As background for your committee, Mr. Chair, the EEDC is the City of Edmonton's agency tasked with cultivating the energy, innovation and investment needed to build a prosperous and resilient Edmonton economy.
We lead and manage Edmonton Tourism, the Shaw Conference Centre, Startup Edmonton, Make Something Edmonton, the Edmonton Research Park, a joint venture between ourselves and the University of Alberta called TEC Edmonton, an urban economy team focused on activating the 31 football fields of office space and $5.5 billion in downtown real estate coming on line shortly, and a trade and investment team focused on opening up new markets for the countless health, agriculture, ICT and advanced manufacturing products that call the Edmonton Metro Region home.
We are a unique model in Canada and we are intimately connected to the drivers of local economic growth. While there is a great deal we can and do on the local level unfortunately there is an overarching economic driver that sets the context under which we operate.
While Edmonton's economy is technically one of the most diversified in the country in terms of sector makeup of our GDP, it is the second most volatile in terms of economic resiliency due to the sector's overdependence on revenues stemming from the energy industry and more specifically the capital investment that fuels its growth.
In short, the Edmonton Metro Region is the manufacturing and servicing hub of the Alberta energy industry and of the oil sands. It is where the tens of billions of dollars spent annually on capital expenditures come to life.
To be clear, without capital investment there is no job growth and no increase in government revenue provincially or federally. We must always remember that capital is mobile. Without the right environment to generate healthy returns it has no reason to stay here.
As context for your committee, Mr. Chair, here are some current numbers on the Capex in Alberta from the Alberta Energy Regulator. Capital expenditures have decreased 38.4 per cent to an estimated $37.3 billion in 2015, down from $60.5 billion in 2014. Capital expenditures are forecast to decline by a further 30 per cent in 2016 to $26 billion. This marks the first time in Alberta's history that capital spending has declined for two consecutive years.
The rate and size of declining capital expenditures in 2016 are on track to be significantly larger than the 2009 slowdown and as a result the quick recovery that occurred in 2010 is not expected.
To make matters worse investor confidence is at a low point based on a lack of confidence and trust in the decision-making processes that govern their activities: confidence that the system will not change halfway through and that increased expenditures will generate the necessary revenues and return on investment, and trust that the government will do what it says, that there is a line between words and actions and that we are all on the same page.
It is not a complex concept. Would it be wise to invest in a Quebec cheese shop if one was not confident that the government would let you transport your cheese to market, or to buy a section of forest in B.C. if you did not know if the government would impose new regulations on your licence to cut, or to buy a fish plant in Nova Scotia where my family is from if you thought the cans could not leave the peninsula?
We cannot build pipelines at EEDC even though we wish we could. While the task falls to the private sector there is a key role for our federal leaders. It is not necessarily about a strategy. It is largely about leadership. Leadership sets the context under which others operate and their job is to answer the question of why.
If we need it, which our economy has proven, then it falls to our federal leaders to be the champion. No longer can we just pass this off to mandarins and marketers to solve the problem. We need to ensure that there is fairness applied in all decisions across the country.
For example, if we are deciding on which industry sectors to consider the upstream greenhouse gas emissions, what are the upstream greenhouse gas emissions of bailing out a major airline producer or an auto industry? Why is this only being applied through the National Energy Board hearings?
We also need to ensure that leaders are fighting for our economy at home and abroad. We need to double our advocacy efforts and resources at our embassy in the United States. We need to recognize that it is going to be a fight and that we need to have the intestinal fortitude to win it.
I have not spoken to the great strides the industry has made on improving its environmental record or the work the provincial government has done on trying to improve the environmental image of the oil sands. We know that in order to be more competitive we need to be cleaner, greener, cheaper, faster, safer, and telling you all the things that our business community is doing would take up all of my time.
In our discussion I would be pleased to elaborate further on what some benefits of taking this approach might be. However, with consideration to the time left, please allow me a final comment.
A man who I call mentor once taught me that we are much more likely to act our way into a new way of thinking than to think our way into a new way of acting. When it comes to developing our natural resources it is not necessarily about coming up with a strategy. It is more about stepping up to the plate and doing what needs to be done. Thank you.
Senator Mercer: Thank you, gentlemen, for your presentations.
This is the beginning of our hearings here in Alberta and we are anxious to hear what people have to say. I am also not surprised about how you started off our week in Alberta.
I am from Nova Scotia. Those of us on the East Coast are anxious to talk about the pipeline and look at helping get Alberta's product to market, but one of the things that I find disturbing is that we, and I mean the global "we," do not talk about the price of oil. I am not pointing fingers at anyone in particular. We do not talk about it in the context of what we will accomplish from a price point of view if we are able to get the product to tidewater, if we are able to get it to either the Pacific or the Atlantic.
I think we can exclude the Gulf Coast because that goes directly to the problem I want to talk about: the Texas crude price and the world price.
I do not think we collectively have explained to Canadians the significance of the difference of the price between what you sell your product to Americans for and what you will be able to sell it for on the world market.
We have to put this in the minds of Canadians. Here is the difference. This is one of the reasons we need to do it, but like many of our other industries the petroleum sector is held hostage by the fact that we have one customer. We need to diversify that in many different industries but this one is easier to understand particularly when there is a difference in the price of Texas crude and the world price.
Perhaps somebody could explain to me why we do not spend more time talking about that and talking about what the benefit will be when we get to the point where we are exporting Alberta and Saskatchewan petroleum products by water from either the East or the West Coast. In my case I am interested in what the East Coast does, but if we do it to the West as well there are lots of markets there. Perhaps someone could help me with that.
Mr. McEachern: Perhaps I will try to start approximately where you ended. The oil and gas industry and certainly the pipeline industry that I am in are typical Canadian industries. We are humble. We have stated what the economic benefit is of closing the gap between what tidewater will give us in the future and what the current market is where we have one customer. The piece where we really need to strengthen the message is by making sure that the average Canadian can then translate that into a benefit, whether it is through our social system and the ultimate revenue that is generated within taxation or some other form of being able to represent the revenue gain that is had by enabling organizations and companies that are investing in the oil and gas industry to be able to share some of those benefits.
The key that I see is not just stating a number which has billions and billions of dollars in revenue but being able to translate that so the average individual understands what the benefit of that closing of the gap is between the markets.
Senator Mercer: That is helpful although we still have not talked about the actual numbers which is what I think we need to get into the minds of Canadians.
As we talk about pipelines one of the issues is the involvement of our First Nations peoples and the potential for there to be a barrier in the development of any pipeline because many of them will have to go across lands that are owned and controlled by our First Nations people.
I had occasion yesterday to casually bump into National Chief Dwight Dorey of the Congress of Aboriginal Peoples in the airport in Halifax. He is from Nova Scotia. We had some time before our flights so we had a long talk.
One of the issues that I talked with Chief Dorey about was how we could get over the hurdle of what appears to be an objection. The angle I was trying to talk to him about, and he was somewhat receptive although I do not want to put words in his mouth, was how we involve young Aboriginal people in the development and the construction of pipelines. That is very important because it is a very lucrative business. The long-term management of the pipeline once it is operational, the management of existing pipelines and how industry can involve Aboriginal people in doing just that, are also of big benefit to them. Chief Dorey was making no commitments but he was interested in that discussion.
Have you initiated any thoughts from your side and/or any discussions with First Nations people?
Mr. McEachern: Let me start off with maybe just a comment from the Edmonton Chamber of Commerce perspective and then move into the industry perspective with which I am certainly very familiar as well.
From an Edmonton Chamber of Commerce perspective we certainly have northern partnerships with various indigenous groups in northern Alberta and within northern Canada as well. That is an active, ongoing effort that we continue.
An important element of all efforts with the indigenous peoples is to make sure we recognize that we need to build a strong and trusting relationship. Those strong and trusting relationships will take time, but we need to commit to that and we need to make sure that it is an ongoing effort.
From an industry perspective I can tell you we have entered into a couple of key areas that are important for us to develop that long-term benefit to the First Nations people and to make sure that we can create employment and business opportunities.
One of the initiatives that we have actually started — and it was started in Manitoba — was a school that allowed for training of indigenous youth specific to equipment operations. It was operator training. We do believe it was a starting point. We had our first graduates from that class in either 2014 or 2015. We believe that is a way we can create a sustainable future.
Another thing is to really make sure that indigenous businesses themselves have an opportunity. We need to nurture that relationship because most of those organizations are not going to be able to start off and do the construction of a full pipeline. They need to grow into the strengths they have and to build on the strengths they have. That is another area that I think is important.
Mr. Sweet: Part of the challenge that exists within Canada is that the government entity that is simultaneously regulating product and access through First Nations lands is the same one that is responsible for undertaking the treaties that set up those lands. This is a big challenge that we see in the North around the mining industry. There is a challenge that the mines you are trying to regulate are in areas that you are simultaneously trying to develop treaty understandings around.
If you look at things like the Aboriginal pipeline group or some of the other work that has taken place, one way they have been able to come about that is through ownership models, through joint ownership and through joint collaboration models. It might be worth exploring areas around that to actually have First Nations be part of that solution as opposed to not.
Senator Mercer: I know the Chair will like my final question. When we talk about the eastern pipeline we continue to talk about the pipeline going to Saint John, New Brunswick. I wanted to talk about the pipeline not going to Saint John, New Brunswick. I want the pipeline to go by Saint John, New Brunswick, and with perhaps a little line off to go to the refinery in Saint John, New Brunswick. I want to hear some discussion about the pipeline ending in the Strait of Canso in Nova Scotia.
Why I think it is important that we put this on the table and start talking about it seriously is that by going to Saint John, New Brunswick, and then building this large terminal just offshore of the Port of Saint John we are then going to be sending these ships with large amounts of petroleum products through the environmentally sensitive Bay of Fundy.
It is not only environmentally sensitive ecosystem but also the Bay of Fundy is home to a small group of whales. Some of them are so big that they cannot get out of the way of the ships even when they see them coming.
I want to talk about the Strait of Canso because when we import oil into Canada one of the major terminals where it comes in now is in the Strait of Canso. We already have the place to store it there as it comes in and we move it inland from Venezuela or Saudi Arabia or wherever it may come from.
We already have the terminals for it to come in. It seems to me that at those terminals you turn the pipe around and put it on the ships to go out. It seems to me that we already have a safe port. It is the Atlantic Ocean. It is not a sensitive smaller area such as the Bay of Fundy which is environmentally sensitive to many people and involves the two provinces of Nova Scotia and New Brunswick plus the state of Maine whereas if you go to Port Hawkesbury or the Strait of Canso you are dealing with Nova Scotia and that is it.
Has the industry been talking about the eastern pipeline going not to Saint John but extending the pipeline through Nova Scotia to the Strait of Canso?
Mr. McEachern: I do not think I am going to be able to speak on behalf of the industry with regard to that question. Certainly my familiarity is more with the Enbridge pipeline which is Northern Gateway moving to the West Coast. Because your question is a very specific question I think it would have to be left to my colleagues who are looking at Energy East.
What I would say about it as an industry is that we certainly need to be aware of localized environmental specific items. When you speak of the Bay of Fundy it certainly meets the qualifications of an environmentally sensitive area. We need to make sure that we understand that when we are looking at the placement of facilities like the terminalling as well as the pipelines themselves.
Mr. Sweet: As Edmonton Economic Development we cannot speak for industry, but I just wanted to ensure I have on the record that I support anything that develops Nova Scotia and its economy for I fear that I would not be allowed back by my family if I did not say that.
Senator Mercer: We will being watching.
Senator Mitchell: Being a senator for Alberta from Edmonton I would just like to welcome members of the committee, their staff and other people who are here with you. It is wonderful to demonstrate directly to the people of Alberta, to Edmontonians, the great work that committees like this committee do in the Senate and for the people of Canada.
Thank you for your presentations. A number of very, very pertinent issues have been raised in these presentations. I would like to get at one in particular first, and that is the question that you alluded to or addressed directly of negotiations with indigenous peoples.
I am also very interested specifically in the relationship between negotiations on a pipeline and the implications for treaty development, particularly in a place like British Columbia or the North where treaties do not necessarily exist.
Are there potential commitments or relationships that would be required of indigenous peoples in the construction agreements surrounding a pipeline that would have implications, negative or otherwise, for the development of treaties? The corollary question to that is I think there probably is some of that. That would seem that a company cannot do those negotiations adequately themselves.
To what extent and how do companies like Enbridge, for example, coordinate their activities in negotiating with indigenous people with direct involvement from the provincial and federal governments as required? How do you handle all of that?
Mr. McEachern: Yes, that is a big piece. I would say that is an area in which we do need to become more collaborative. I think that there is a gap right now between the role that the Government of Canada has played or can play and the role that industry has played.
I cannot speak for some of the areas as we move into Eastern Canada but as we move to the West I think that we are the conduit with some of these pipeline projects. There is a gap. There is an issue that exists and I believe it probably is related back to the treaty relationships.
What is key here is that the Government of Canada needs to step in and be part of this relationship. Whether it is industry leading in the collaboration with that relationship or whether it is the Government of Canada leading, in both pieces as well as within the provincial governments it will be a requirement that we have alignment on all three levels of industry, the provincial government, federal government and the First Nations peoples in order for us to move forward toward tidewater on either the east or the west coast.
Mr. Sweet: I have just two brief comments. Industry has been doing yeoman's work on engaging with First Nations and has advanced dramatically even over the last few years.
There are two other places where there is a role to be played. One is at that federal level of setting the context of why this is important and how we can work together. That is a piece that needs to be clear and it needs to be almost — this is a terrible speech — a stump speech where it is going out and explaining that again and again and again.
Another role actually exists at the municipal level as well. We have Edmonton where we have the second largest urban Aboriginal population on track to become the largest Aboriginal population in Canada. Our mayor has started to champion the issues of connectivity and engagement with First Nations communities.
This can happen in other major municipalities to help understand what the benefits are for cities and to draw that connectivity between those First Nations who are along the area and draw from those municipal resources.
It is not just industry. There is actually a need for multiple levels of government.
Senator Mitchell: That kind of confirms my suspicion or my concern that to some extent governments have delegated that relationship and those negotiations to indigenous peoples who one could imagine could correctly embrace in good faith the industry but still be concerned the industry cannot make the commitments that are needed to be made to reassure Aboriginal peoples within the broader context of law and rights and treaty development, for example, they are commitments that only the federal government and perhaps provincial governments can really make with any kind of certainty. That collaboration is very important and it might be something that is worth the committee's consideration in its report.
I have another question, if I may. It is quite technical. If oil is not transported by pipelines it has been and will be transported by train. Given that there are issues there, can you give us a rough idea of what volume of oil, give or take, is currently being transported by train that will be replaced by a pipeline or a scenario of pipelines? You can pick one: Kinder Morgan or Gateway. Not all train oil will be replaced by pipelines but a good portion will be.
James Merkosky, Vice-Chair of the Board of Directors, Edmonton Chamber of Commerce: I am not sure any of us have the numbers at our fingertips, but I think the key point is that pipelines are the safest and most efficient way of transporting that oil.
There were two points raised earlier that just underlie that. Our only customer is currently an energy producer itself and that is the United States, so anything we can do to have other customers is important.
Most of the oil currently moving through some of those same oilfields is by rail which is not as safe as pipeline. I guess the bottom line is pipelines in our mind are the safest, most efficient way of transporting that oil. That is what we should strive for.
Senator Black: Thank you all for being here and for your tremendous, very strong presentations focused on the issues.
I have two requests and one question. My first request, sir, is the report that you referred to that Mr. Green had prepared. Could you provide a copy of that to the committee, please? I think that could be very helpful for us.
Now, to all of you, you have done a tremendous job of outlining what our challenges are. It is appreciated, it is succinct, and I think it is a very helpful way for the committee to start.
What I want to focus on with all of you now is: What are the economic consequences for Alberta and Canada of not building pipelines? Can you be as succinct in those answers as you were in identifying the problems?
Mr. McEachern: I will let my colleagues talk a little bit about the numbers themselves but I would say that it is two things. One is the differential that will be removed if we can get oil to tidewater which allows us to have more than one customer. The second, and I think equally or perhaps even more important, is the fact that we are going to find that the development and investment in the province of Alberta within our oil sands and even in conventional oil will be stymied if we do not give an opportunity or a place for that volume of oil to move.
It is really twofold. It is one in the differential and it is two in the investment in the oil in the province of Alberta.
Mr. Merkosky: I also think we have a limited window to make these commitments and build these pipelines. It is a competitive world out there. There are a lot of energy producers out there. If we do not act soon the opportunity may be gone forever. The longer we delay, the more likely that is going to be.
Another part of it is that Canada is currently a country that imports oil from other countries and that oil is imported through shipping lanes as well. We have to recognize as a nation that building pipelines to bring our oil to other parts of our country is vital just from a Canadian perspective.
Mr. Sweet: I fear being labeled Chicken Little with the following three comments but I think the consequences are in our current economic growth. I spoke to the drops in capital expenditure which is the lifeblood of our economy and which drives the economic development of the fifth largest city in the country.
The first piece is Kinder Morgan Trans Mountain Pipeline would generate 678,000 person-years of employment and $18.5 billion in revenue for federal and provincial governments over the first 20 years of operations, the largest of which accrues in Alberta.
The second piece would be around nation-building quite frankly. Alberta requires the help of the rest of the country right now. There was famous Canadian who once said, "The forgotten man does not forget," and I fear for the ability of nation-building efforts in the future if there is not assistance from the rest of the country to this province at this time.
Senator Black: By assistance do you mean support for building pipelines?
Mr. Sweet: That is exactly what I mean, sir. That builds to the third piece, which is what future economic opportunities are available for future generations.
While there is certainly a need to shift off of fossil fuels toward more sustainable long-term sources of energy that cannot be done recklessly. I am the father of a two-year-old and one of the lessons that was taught to me very early on was that when you become a parent you lose the right to be reckless. We cannot be reckless in our attempt to shift off of our energy industry toward these new sectors.
Senator Black: Tremendous answers. Building on all of that, folks that talk to me throughout the province, and as you know I am also an Alberta Senator, tell me that effectively investment has stopped. Incoming investment to Alberta has stopped and investment among our businesses in Alberta has effectively stopped. Would you agree with that?
Mr. Merkosky: In my day job I work in the accounting world and we are seeing a significant pullback in investment in Alberta. There are two pieces to that. One is uncertainty as to where the industry is going. The second one, though, really is access to markets.
It does not matter how much oil we produce in Alberta. If we cannot get it to markets it is almost irrelevant. I do believe that is one of the key reasons why investment is being pulled back right now.
Mr. McEachern: I have maybe a slightly different twist on this. I believe either this week or next week an international pipeline conference is being held in Calgary. It has been held every second year for approximately 20 years.
One of the things that I think that we have seen over the years within that is the fact that the world sees our regulatory environment as one of the most predictable and one of the most stable in the world. They look to it as an opportunity to emulate it. They look at it as an opportunity to in fact be utilizing papers and discussions with individuals within the National Energy Board to assist in the development of regulations for countries beyond our own borders.
Right now we have lost that predictability. We have lost the ability for the NEB to be able to take that leadership role, and I think that that is an important piece within the role that the Government of Canada can play. That will facilitate the stabilization and enable investment back into Canada as it relates to the oil and gas industry.
Senator Black: That is a very interesting point. Are you telling us that you believe that the current uncertainty around the status of the NEB is adversely affecting investment?
Mr. McEachern: Correct.
Senator Unger: Again my thanks to each and every one of you for coming and for your great presentations. Many of my questions have already been commented on or asked.
I would just like to talk first about Alberta's record with indigenous people. These are 1914 stats. I am sorry, 2014. I wish it were 1914; maybe we could get this pipeline built.
These are 2014 stats from the Canadian Association of Pipeline Producers. Between 2011 and 2012 more than 1,500 consultation meetings were held between First Nations and industry on oil pipelines, forestry or other resource developments.
Some $1.8 billion is what the Wood Buffalo and Lac La Biche Aboriginal companies performing work, contract work, made working with oil sands companies.
Over the past 14 years Aboriginal companies have earned over $8 billion in revenue through working relationships with the oil sands industry.
The Fort McKay Group of Companies which works extensively with oil sands operations brings in more than $150 million in revenue annually. Syncrude along with all the oil sands industries are huge employers of First Nations people.
I think Alberta's relationship with First Nations people is a model to be admired. I look at what is happening in other parts of Canada and I wonder why those kinds of working relationships cannot exist in other provinces.
Do you have any comments about that? If not, I can keep talking but please go ahead.
Mr. McEachern: I will maybe make one very brief comment. In the province of Alberta just proximity has really enabled the relationships to grow. We need to give very serious consideration to how we create discussion that demonstrates those same benefits can be had by other groups in other provinces through the sustainable development of our resources.
Perhaps the Government of Canada can assist in creating that open dialogue so that we are able to demonstrate the benefits to others that the Province of Alberta and the indigenous people of the province of Alberta have experienced.
Senator Unger: In previous meetings two professors from the University of Lethbridge appeared before us. We were asking questions and the conversation was around this notion of social licence. It had been described, and I am not sure if it was by those two gentlemen, as an amorphous thing. Who has the right to issue social licences?
I believe it will evolve into another name, but here we are with Canada's greatest industry being stalled by people. I would argue, if I had brought the complete statistical report that was done by Angus Reid, that when a lot of the young people who are out protesting were asked if they knew about shipping rules, shipping or getting oil to tidewater, most of them did not really know what it was all about. Would you agree that the primary concerns are spills and climate change?
In terms of pipeline safety, other countries view Canada as being very safe. We take our time and do all of these things. Yet on the issue of the environment and social licence, I hate to say, even if every single condition were set out by the NEB for every pipeline company and if everybody did everything perfectly, do you think that Canadians and other people in opposition would say, okay, you are right; go ahead, build the pipelines? Is it ever going to happen I guess is my question.
Mr. Sweet: When I think of social licence and how to get social licence quite often I feel as though the public service, the NEB, proponents, everybody, all get thrown into a magic eight ball and we shake it and hope that it comes out that all signs point to yes, you will get that social licence.
Even if you have that, even if you get that answer, it does not really matter. What it really comes down to is whether or not the leaders set the context to actually allow and to push that social licence.
I am not really describing this very well but it is an amorphous concept that really comes down to whether or not there is a shared story and a shared understanding among the people of Canada that this is the right direction forward and there is agreement on that.
It cannot be that everybody gets to get what they want because that is just simply not possible. It is whether or not we can come together and have a shared understanding of the direction forward. To me, that is how a social licence can be achieved, and that can only be done by the leaders of the country being able to pull that shared story together.
Mr. Merkosky: Speaking on behalf of the chamber we had intervener status on a number of pipeline related projects and in looking at that I agree we will never have 100 per cent agreement.
We did feel that a very vocal minority were heard more so than the majority. On the Trans Mountain project, for example, which was a pipeline project, at the time it was looked at a survey was done and more Canadians were in favour of it than opposed to it. I do not believe that story has been told to the Canadian public because it is more or less drowned out by, as I said, the vocal minority.
Mr. McEachern: I believe that social licence is an amorphous definition because we have allowed it to become an amorphous definition. In my view we need to step away from the words social licence and remember that this is about public acceptance.
We also need to remember that the National Energy Board as the regulator of pipelines has the role to play to make decisions in the best interests of the public. That does not mean 100 per cent of the people. It does not always mean the most vocal individuals. It means in the best interests of the public.
We need to remember that the group that gives us the "licence" or "social licence" is the National Energy Board. Again, that is in the best interests of the public; that is in the best interests of Canada.
Senator Unger: As you know there is secondary containment around storage tanks so that if there is a leak it can be mitigated. It is already required by law in many situations. Do you know of it being used at all with regard to pipelines?
Mr. McEachern: Tankage does have secondary containment as you have stated. Within our pipeline systems the majority of pipelines are single-wall pipe but there certainly are significant technical issues where you have a secondary pipe around that.
We need to be looking at technologies that will increase capabilities with regard to leak detection. Even more primary than that we need to step back to the planning, the engineering and the design of pipelines to make sure that we design safety in, build operating and maintenance procedures that help to assure and ensure the pipelines are safe to operate, and make sure that we have a safety culture that takes into account all processes and controls and manages safe operation of those pipelines.
To go back to your question, are there secondary containment systems within pipelines? Most pipeline systems are a single-wall pipe and they do not have a secondary containment in the event of a release from that primary pipe.
Senator Unger: My opinion is that maybe in particularly sensitive or contentious areas such as municipal water supply people could get their heads around that better and say oh, that is good. Then I guess it would be why isn't not done right across the country.
As far as developing a safety culture, as you were saying those words I was immediately thinking of all of the ads that I have seen, primarily by Exxon and from the States about all of their safety measures indeed even in the oil sands. Maybe industry needs to do more. Certainly the government needs to do more and in some cases less such as in the case of the moratorium on tankers on the West Coast. That is like another hammer coming down.
How do you work around that one? There does not seem to be any logical reason at least that I can see for that moratorium. If you wish to comment about that, please do.
Mr. Sweet: On the moratorium piece that speaks to the confidence and the trust question we have heard quite a bit. There is confidence and trust that there will be an analysis of what is the most effective way to get something to the coast and while that is going on there is a ban on anything that will take it from the coast out to market, so that creates some confusion.
On the question of social licence I have an idea or a comment for the committee. Some 45 per cent of Quebec's energy comes from renewable resources, largely from hydropower. There is a hydropower station on the Ottawa River right behind Parliament that is dammed all the way up the Ottawa River. I wonder how social licence would have been achieved for those projects in today's environment.
When we talk about impacts on the environment and we see the work around Site C and whatnot the question becomes was it the right thing to do and if it was the right thing to do a decision has to be made by the leaders to enable it to happen.
That is part of the question that arises for us when we look at that challenge of social licences. Others have had an opportunity to develop the resources and move forward. How does that exist for Alberta as well?
The Deputy Chair: Before we go to the second round I just want to make a comment to Mr. Sweet and one to Mr. McEachern, and maybe a response from you.
Mr. Sweet, you raised the point in your initial address — and it is one that I have raised and will continue to raise — the arbitrary application of the measurement of upstream greenhouse gas emissions on the pipeline.
You also raised the point — one that I have raised — that it is well known in industry that one of the biggest emitters of greenhouse gases is the aviation industry at all levels. If the aviation industry is going to be asking for billions of dollars and operating without any restrictions it is arbitrary and subjective to apply different criteria to the petroleum industry. In fact I do not think we should be applying these criteria to any industries. There are other ways to go at this besides hobbling these industries on the front end.
In terms of the pipeline I want to speak to you for a second, Mr. McEachern, about the mentality around pipeline companies. I mean pipelines do not produce anything. You do not produce bitumen; you deliver it. That is all you do. Once you deliver from point A to B you are free of it. For example, if you send bitumen to the East Coast of Canada, when you are free of it that is when we get it. We are not free of it.
We are here to try to determine the best way to get this stuff to market. One of the challenges has been the lack of appreciation of the pipeline companies about what happens to that bitumen once they are free of it.
In designing your pipelines it would have been wise for all the pipeline companies to determine what their port of export was first and build the pipeline backward to source as opposed to the way they have been doing it.
Senator Mercer brought up Point Tupper. It is going to be an issue on the East Coast. It should be, just the way it became an issue in the Gulf of St. Lawrence, when they determined not to put a terminus in the St. Lawrence River with I think good reasons about managing risk.
You did mention your involvement with Northern Gateway. Speaking from the East Coast of Canada, I did not understand why anybody would consider putting bitumen into Kitimat when they could send it to Prince Rupert. I just do not understand this way of thinking. The pipeline companies have to get their heads around this stuff, that it is a two- or three-pronged process in terms of handling this product.
We are here because we want to get it to market. We are here because we support it. We are not the National Energy Board. We are not here to hear people who are for it or against it. We are for it. We want to determine how we are going to get it there and get around these obstacles.
We can criticize industry. We can criticize interest groups. I really think the leadership has to be provided at the federal level. This is the authority of the federal government.
If I have any criticism about our previous government of which I was a member, I do not think we were proactive enough when it came to this and the new government is dragging its feet even more. We left a problem area. We are still in problem areas. We are trying to find a solution. That is why you are here today.
Senator Mitchell: We are running out of time and I am interested if you could comment on this point. One of the key elements of pipeline safety is punctures by people who dig, who do not take the precautions, who do not call or do not get the locates.
I know the Common Ground Alliance is doing a great deal of work but there is only one province in the country that has legislation and that is Ontario. That is striking to me and in fact I could not believe it.
Could you give us some idea about how the industry is approaching Common Ground Alliance, Call Before You Dig and that kind of pipeline safety and perhaps put in perspective what portion of the damage to pipelines and leaks comes from things that are actually perfectly preventable if people would just call?
Mr. McEachern: Yes, third party contact is an extremely important area that needs to be addressed. I participate in a Canadian Standards Association committee which looks at how we put in place a federally regulated requirement. We certainly have significant public awareness campaigns. Industry as a whole recognizes it as an issue.
We would not be afraid of legislation that would take us across all provinces so that we have the ability and really the increased means of communicating those messages to all Canadians to protect the infrastructure that we have there to serve the people.
Senator Mitchell: I have actually been working with Common Ground Alliance with Mike Sullivan and others on developing legislation that would cover the federal jurisdiction for interprovincial pipelines on federal lands with respect to that, but your comments are very encouraging about getting that national, getting it done province by province. It is a big job but it is very important.
Senator Black: As we all know Gateway is a very important part of this equation in theory. It would be very helpful if you could indicate to the committee the current status of the Gateway proposal.
Mr. McEachern: As I understand it the status is that a deadline for an appeal comes up at the end of this week. Until decisions are made around that appeal the certainty or uncertainty around the Northern Gateway project is up in the air.
Senator Black: Just for clarity's sake, then, we know that the National Energy Board has approved the Gateway project with some 300 conditions. We know that it went to the cabinet of Canada for approval.
We know that a court has indicated that the Government of Canada's approval is invalid because of lack of consultation. We are now waiting to hear whether the Government of Canada will appeal that decision.
Mr. McEachern: That is my understanding as well, correct.
Senator Black: At this moment in time if the Government of Canada does not appeal that decision would it be your understanding that the Gateway has no approval?
Mr. McEachern: I am certainly not a lawyer by background but I think that would be my understanding at the level I have. I am not sure if there are other appeals or other forums that we can go toward government on that one or to the courts.
Senator Black: Presuming as Senator Unger has alluded to that sane heads prevail on this particular matter and presuming that we can move ahead with Gateway, the chairman has raised a very important issue that we see and in my travels on the West Coast of Canada I hear about continually, that Kitimat is not the right end point, that Prince Rupert is a preferable end point. Are you able to comment on that?
Mr. McEachern: I am not able to comment on that specifically but I do appreciate the perspective because I think that as an industry we have looked at it from supply point to demand point. Taking a different perspective on that matter is certainly one that I will take back to my organization and certainly one that I do appreciate.
The Deputy Chair: I would like to thank the witnesses for their presentations.
I wish to welcome our next witness, from Alberta Enterprise Group, David MacLean, Vice-President of Communications and Policy.
Please begin your presentation, Mr. MacLean, and the senators will have some questions for you.
David MacLean, Vice-President of Communications and Policy, Alberta Enterprise Group: Mr. Chair and members of the committee, it is a great honour to be here. I thank you for the opportunity to meet and share the views of our members on the important issues around pipeline development in Canada.
Alberta Enterprise Group, for those who do not know, is a member-based, not-for-profit business association. We represent over 100 Canadian companies that collectively employ 150,000 Canadians in every sector from restaurants to welding shops, to transport companies, to the titans of the Canadian energy industry.
Our members clean the coveralls worn by oil sand miners. They build and operate the camps used to house and feed the workers. They transport fuel and materials used in the drilling industry and provide the accounting and legal support for members of the energy industry.
Alberta Enterprise Group embodies the entire energy supply chain, from the drill bit to the highway service station. We stand in support of the development of pipeline infrastructure across Canada connecting Canadian energy with markets around the world. We believe it is in the national interest to move ahead with these projects.
The proposed Energy East Pipeline which will originate right here in the Edmonton region represents about 12.8 billion in 2013 dollars of expenditures across six provinces according to the Conference Board of Canada.
The Conference Board also estimates the project will support 128,000 full-time equivalent person-years of employment, with 45.7 per cent of those being direct jobs and the rest being either indirect or induced.
Nearly 90 per cent of all employment benefits will accrue to provinces through which the pipeline will pass, with Ontario capturing the largest share, followed by Quebec, New Brunswick and Alberta.
The $12.8 billion in spending associated with the development of Energy East and Eastern Mainline projects are expected to generate $2.9 billion in federal and provincial government revenues during the construction phase of the project. With $8.2 billion in wages, salary and supplementary labour income expected to result from the project's development, the largest fiscal impact is found in personal income tax collection at $1.4 billion.
Assuming that federal tax collections will be distributed across the provinces basically according to their respective populations, the Conference Board estimates Ontario would capture the largest share of combined federal-provincial fiscal benefit with $902 million, followed by Quebec and New Brunswick at $319 million.
The first 20 years of the project's operations would support 88,193 person-years of employment and this figure rises to as much as 117,000 person-years of employment if the pipeline reaches full capacity.
At 43 per cent Ontario would be the biggest beneficiary but other provinces, specifically the prairies with 33 per cent and Quebec 15 per cent, would see tremendous employment benefits as well.
Pipeline operations are expected to generate a minimum of $4.7 billion in government revenues over the first 20 years of operation. Corporate income tax receipts account for 50 per cent of the fiscal impact, followed by personal income taxes at 24 per cent, with the rest coming from indirect taxes or enhanced contributions to social insurance plans.
According to the Conference Board's modelling, Ontario will experience the largest combined boost to tax revenues with 35 per cent of the total, and Quebec receives the second largest.
When you include corporate income taxes and dividends at minimum Energy East would support an additional $31.9 billion in government revenue. Federal corporate income tax collections would account for 42 per cent of this while provincial corporate income tax collections would account for 28.3 per cent.
Kinder Morgan's Trans Mountain line also originates right here in the capital region, as we like to call it, and the economic benefits of Kinder Morgan's Trans Mountain expansion project are also staggering. The Conference Board estimates TMX as it is commonly known would generate 678,000 person-years of employment and $18.5 billion in fiscal benefits over the first 20 years of operations. This is equivalent to 33,900 jobs and $925 million per year over this period.
Alberta would be the largest beneficiary of the fiscal benefits of the project but B.C. accounts for 24 per cent of the employment impacts and 12 per cent of the fiscal benefits.
TMX would result in $8.5 billion in additional dividends retained right here in Canada. Those dividends benefit pension plans and retirement holdings of millions of Canadians.
These potential economic benefits are outstanding. Even if the estimates were revised downward due to the low price climate we are currently experiencing they are still staggering.
The benefits for all Canadians, should these projects proceed, dwarf any government stimulus process imagined. The often-touted economic impacts of federal infrastructure spending are insignificant in comparison. These projects do not require a single cent of public money, but yet none of the current proposed projects are certain to proceed.
At Alberta Enterprise Group we understand that permission to build energy infrastructure must come from Canadians, that we must have institutions that are fair and objective, that we are legally bound to consult and work with First Nations to achieve that permission.
We understand that not every resource project is a good project, that there are environmental, economic and social risks involved with every proposed development. Those risks must be weighed against the benefits in order for good decisions to be made.
When we look at the risk of proposed pipelines we must conclude that the benefits outweigh those risks. The world pulses with pipes, trucks, trains and tankers carrying energy in the form of crude oil, diluted bitumen, uranium and coal around the world. This energy helps lift human civilization from poverty each day.
Nearly 1.6 billion people still have no access to electricity according to the International Energy Agency. Hundreds of millions of people still use wood, scraps, dung, leaves or coal to cook food, leading to tremendous health problems. In India 82 per cent of people use these fuels to prepare their food every day.
People who live in energy poverty dream of the conveniences enjoyed in the developed world and they strive to one day join us. The solution to energy poverty will inevitably be a mix of hydrocarbons, nuclear and renewable energy, hydrocarbons, as far as anybody can see, will play the single largest role.
Yet there are some Canadians who do not want our country to participate in that market. They do not want Canada to be involved in providing the energy the world needs. The desires and dreams of some Canadians and Canadian politicians are fundamentally disconnected from our global energy reality. We believe that not only should Canada build the necessary infrastructure to provide the world with energy but Canada has a responsibility to do so. Canada is a progressive country with strict environmental standards and health and safety protections for workers. Canadian workers are free to organize and collectively bargain. Canada is a free and open society that permits dissent.
Many nations around the world that stand ready to provide the energy Canada won't cannot say the same. The energy will be produced. The market demand will be met but if we do not build the necessary infrastructure it won't be Canadians who provide it and it won't be Canadian taxpayers and investors who benefit.
Of course the federal government has an important role to play in helping make projects a reality. It must rigorously work to ensure the impartiality of regulatory agencies like the National Energy Board. It must ensure timelines around project approvals are reasonable and preferably as short as possible while still ensuring adequate consultation and debate. The rights of indigenous people must be respected.
The Canadian premiers recently agreed to a Canadian energy strategy under our previous premier or maybe two premiers ago. There is one important win secured by the governments of Alberta and Saskatchewan in that document. They all signed off on a commitment to develop and enhance a modern, reliable, environmentally safe and efficient series of transmission and transportation networks for domestic use and export.
Implicit in that is the acknowledgment that transmission and transportation of energy is in the national interest and that all Canadians have a stake in seeing it proceed.
As a society we have to close the gap between the environmental concerns many Canadians hold and the global energy reality. At Alberta Enterprise Group we try to talk about the economic benefits because that is our experience and that is our mandate. Clearly Canadians deserve a better conversation around energy and risk. The world needs the energy and for the foreseeable future energy will come in large part from hydrocarbons.
The energy the world needs will be provided if not by Canadians then by someone else. With robust health, safety and environmental policies Canada is ideally suited to meet this global demand and reap the subsequent economic benefits.
Thank you for the opportunity to speak.
Senator Black: Mr. MacLean, I would say that is as good a presentation as I have heard at any Senate committee in the four years I have been participating. It was absolutely focused, relevant and non-judgmental, so thank you very much for that. I have little to ask except to pull a couple of strings out, if I can, please.
You made the point but I want to confirm that the money which will benefit Canadians if pipelines are developed is all private money. There is no government money in that. Do you agree with that?
Mr. MacLean: Yes, absolutely.
Senator Black: When we are talking in Canada about investment and the need for investment to get out of the financial doldrums in which we find ourselves, perhaps the largest ability to do that is to build pipelines and generate private money.
Mr. MacLean: Without question.
Senator Black: Thank you very much.
I have a general question that I am going to ask all the witnesses. If we do not approve pipelines what does the economy of Edmonton, Alberta, Canada, look like to you?
Mr. MacLean: The absence of pipelines means the absence of billions of dollars for our provincial government over a very short period of time.
There are currently Alberta Enterprise Group members who no longer exist. They are done, right? It is bad out there. I have never seen the province as tough as it is now. I am not hearing good things from the membership so it is tough.
The approval of pipelines would be such an incredible stimulus package for Western Canada, Saskatchewan and Alberta, and such an easy fix. One of our members has a $1.8 billion contract to build TMX. I do not know if that company is at the point of layoffs at this point, but they are closed. As soon as that project gets approved, they are going to be back in business and so will British Columbia and Alberta workers. Pipelines are superior method of economic stimulation to any government infrastructure program.
Senator Black: We of course all support strict environmental regulation. We always have. That is what Canadians do. That is what Albertans do.
If in this particular conversation the environmental interests trump the business interests and pipelines are not built, will that make any global difference at all?
Mr. MacLean: Not at all, especially with the emergence of the United States and the technology partly developed here in Alberta around fracking unconventional shale development. The United States is a major global producer. The market has shifted under our feet. Canada is not a big player at all and never has been. We are a small player and we are lucky to have the position in the global energy marketplace that we have. If Canada were to drop out completely it would have almost no impact on global energy prices.
Senator Mercer: I am going to the first page of your presentation where you talk about the proposed Energy East Pipeline which will originate right here in the Edmonton region, representing $12.8 billion of expenditures across six provinces according to the Conference Board of Canada. The Conference Board of Canada cannot count, because it is not six provinces. If it goes where it should go it will be seven provinces.
You may have heard my questions of the first witnesses this morning. We continue to talk about the Energy East Pipeline ending in Saint John, New Brunswick. Saint John, New Brunswick, is an important stop-off for the product because there is a huge refinery there that provides product to Eastern Canada. The more logical and the more environmentally safe spot would be at the Strait of Canso in Nova Scotia where we already have a large terminal which receives foreign oil product coming into Canada from places like Venezuela and Saudi Arabia, et cetera.
I am trying to get people to start talking about an environmentally safer location for the end of Energy East. Yes, it ends in another province but it also cuts down the cost of shipping because we are that much closer to the marketplace and it is environmentally safer.
On the environmental sensitivity of the Bay of Fundy there is no major opposition right now but once we get down to it the Irvings are going to build the terminal out in the Bay of Fundy. It is not an onshore terminal; it is out in the Bay of Fundy which is environmentally sensitive with the world's highest tides and the sensitivity of certain species of whales that make their summer home in the Bay of Fundy.
Why do I and others have to continue to remind people that a better end location for Energy East is the Strait of Canso, not Saint John, New Brunswick?
Mr. MacLean: I grew up in Fort McMurray so I know nothing about marine navigation and frankly I do not know a lot about the geography of your part of the world. I have been there once in my life.
What I do know is that Energy East is very popular in New Brunswick and that is a benefit. I also know that we can supplant some of Irving Oil's feedstock with diluted bitumen and if they were to expand the refinery they could be a potential customer for Canadian energy.
Sure, I mean whatever it takes. I have heard a proposal for a deepwater port in Quebec. I cannot remember the region. I trust that TransCanada has done its homework on the economics of it and those local environmental concerns ought to be addressed.
Senator Mercer: A deepwater port in Quebec would again be environmentally sensitive because that would involve the St. Lawrence River and the Gulf of St. Lawrence where you have a captive piece of water surrounded by all Canadian provinces.
It seems to me that while you indicate you are from Fort McMurray and do not know much about it, I think you need to learn little more. Everybody involved in the project needs to know that we have a large piece of infrastructure already in place. You do not have to build the terminals to hold it. They are there. We are receiving product not daily but weekly product is coming in there from offshore. It is no problem to turn it around to start receiving product from Alberta because the future prosperity of Alberta is the future prosperity of Canada.
We all have a stake in this. It is important that we also look at the opportunities of avoiding environmentally sensitive areas like the Bay of Fundy and going to more friendly waters. Mr. Chairman and I would probably agree if I were to suggest there is a friendlier environment for approvals provincially in Nova Scotia than you might find elsewhere.
The Deputy Chair: We always agree on everything, senator.
Senator Mercer: We always agree, yes, of course. Mr. MacLean, I just want to bring that to your attention.
We also need to start framing the opportunities in dollars. Senator Black has brought up very good points about the fact that this is not going to require government expenditures. It is going to be private money. It is going to create all these jobs. It is going to be a stimulus package without any government money, which is good news. God knows the treasury could use it.
We need to continue to talk about the difference in the price: the price that would be paid for Energy East or for the TMX, the price that would be paid for the product going there, as opposed to the price of the product that we are shipping south to our one customer now.
This is a reality and concept that Canadians need to grasp. It is not that complicated. If you tell Canadians that we are now selling our product for this amount and if we go through either pipeline to either coast we will be selling it for this amount they can do the math. They will ask then why are not we doing it. That would be the majority case.
They will all demand that it will be environmentally sensitive, environmentally safe and they will all demand that we have a good relationship with the Aboriginal people that we will need to deal with as we cross the country.
The oil companies involved here spend billions of dollars in marketing and advertising for the downstream stuff but they do not seem to grasp the idea that we need to sell this to Canadians. One way to sell it to them is to use the math. The math is pretty simple.
Mr. MacLean: Like I mentioned in my introductory remarks we try to stick to the economics because we are a business group. That is our expertise.
The spread between the prices we receive in Western Canada and the WTI price at Cushing and Brent is what drives the entire economics of Energy East. It is significant but narrowing.
Another thing too is that we need to be quick because we need to capitalize our market to make sure it is aligned the right way for us. The spread or the discount at Cushing is narrowing and that is because great companies in the United States are building pipes and reversing pipes and reconfiguring pipe systems to get around the bottleneck.
What they used to call the old spread does not exist. It has had a bunch of different names but it is certainly a lot less. The Brent spread is still there so we need to access North Sea prices. That is the entire justification for Energy East.
Senator Unger: Thank you, Mr. MacLean, for your presentation. It was very interesting.
When you start to add up all of the benefits you think that this should be a no-brainer. Yet we have the U.S., which is nearly energy self-sufficient. We have tankers already for many years bringing oil from foreign nations like Saudi Arabia and the Middle East and from the U.S. You would think, as I said, that pipelines really should be a no-brainer and yet too much of the opposition is rooted in ideology, anti-oil sand sentiment.
My question really is how do we, the people who favour the building of these pipelines, convince the people who are opposed? Is it possible even to get a message out that they could latch on to? All the statistics that you quote in your presentation are fairly commonly known and yet there is still resistance to this.
Mr. MacLean: Senator Unger, I have to say that sometimes I find the discussion a little surreal because as of yet, outside Northern Gateway, we have not had a major project denied.
In Alberta we have had seven or eight new oil sand mines successfully achieve licences and start production. We just had three new mines that are approved and ready for final investment decisions.
You and I know those mines or those SAGD projects that were approved last week are not going to go ahead in these market circumstances but we have not had Energy East denied and we have not had TMX denied.
Northern Gateway is in trouble. It looks like the federal government played a role in that and the courts are going to have to figure that out. That is disappointing, but part of me feels like we are all getting a little ahead of ourselves. We are all upset about social licence and we have to achieve 100 per cent consensus. Not exactly. We have not even tested it.
If a pipeline is approved like Energy East we are all afraid of blockades and we are afraid of citizen revolt, but we have never pushed to the point where we could see if that was an end result.
For example, we all know that opposition to Northern Gateway in various parts of B.C. is very strong, particularly in First Nations communities, but should that project be permitted and construction begin where are we at then and where are we at in terms of rule of law? Would that project be likely to be blockaded? Perhaps. Would Energy East be blockaded? I don't know.
Sometimes I think we are ahead of ourselves. The problem with Energy East process looking forward is of course now it is stopped. Who knows? Years are going to tick by. TMX took way too long for a pipeline that is going through an existing right-of-way that just needed to be expanded, way too long for this project.
I am hoping in November that our federal cabinet will give us a decision that we like. I am not as concerned about other people who say oh, they don't like our projects because we have not seen any projects fail yet.
Senator Unger: That is really what my question is about. We did hear from two witnesses from the University of Lethbridge who were commenting on Energy East. One of them said that some of the First Nations groups whose land would be affected said they would stop. They did not care about money. They would take it to civil unrest if that is what was called for.
That idea is out there and I honestly do not know if there is a will to push harder to try to test it.
Mr. MacLean: You will notice in my opening remarks that I did not use the words "social licence." I used the words "permission" or "public permission."
I think reasonable people understand we do not need consensus. We just need a reasonable test by an objective, independent regulatory agency to make the decision after listening to everybody. I have not seen that process really tested. Like I said, in Alberta we have had a lot of success getting new projects approved and it is only now that we are very concerned about pipelines.
Senator Mitchell: I would like to pursue the economic impact more specifically and as Senator Black did pull out a couple of threads.
I am quite interested in your argument that the economic impacts will be largely proportional to the size of the provinces through which the pipeline will go. Clearly Alberta will have some advantage in that because a good deal of the construction would be here.
You are saying 128,000 full-time equivalent person-years and about 30 per cent of those would be in Quebec. Am I correct in therefore concluding that about 40,000 person-years equivalent jobs would be in Quebec during what period of time for the construction of this pipeline?
Mr. MacLean: That is according to the Conference Board of Canada during the construction phase.
Senator Mitchell: And that would be about how long?
Mr. MacLean: I think it is three to four years.
Senator Mitchell: The next stat is that $8.2 billion in wages, salaries and supplementary labour income would result from the project. If you drew a straight line 30 per cent of that $8.2 billion would be going to those 40,000 jobs in Quebec. If I do the math properly that is about $60,000 a job.
Mr. MacLean: That sounds about right.
Senator Mitchell: I think it is subsequent; I think it is operating. In your next paragraph you mention that $749 million will go to Quebec. Could you just clarify that? I think you say it is total provincial fiscal benefit. Is that income, investment and tax? How do you measure that?
Mr. MacLean: That would be corporate tax revenue, personal income tax revenue and property tax revenue generated from the project.
Senator Mitchell: Would that be annually or would that be in total?
Mr. MacLean: That would be in total.
Senator Mitchell: Just from the project?
Mr. MacLean: Just from the development phase. Most of the economic benefits in Quebec are during construction. It is all new pipe in Quebec if I am correct for Energy East so that would be all construction related.
Senator Mitchell: It is one thing to talk about jobs. Those are big numbers. What does that really mean if I have a job, for example?
Another approach that does come out but has not been brought out this morning yet is: What exactly can you say is the impact of a west-east pipeline of Kinder Morgan or one of the western pipelines on GDP, both the construction phase versus the operation phase? Can you say that?
Mr. MacLean: Yes, you can, but I do not have them handy. The Conference Board has estimates on GDP impact and they are measurable but I cannot remember the exact number.
Senator Mitchell: We can get that though. Clearly we need a pipeline. We need two pipelines. We need to develop resources to sustain our wealth, but there is also a very strong argument I think people are beginning to accept. The industry is accepting it, that there are also alternative energies in our future if we are to maintain our competitiveness, if we are to develop new technologies, if we are to have an economy of the future.
In your enterprise group are there industries that are investing in and producing and pursuing alternative energies? What is your perspective on where that fits in a future Alberta and Canadian economy and on how that actually legitimizes pipelines in fact in people's minds perhaps?
Mr. MacLean: As you know Alberta will have in January 2017 a price on carbon. Regardless of your personal views on pricing carbon we believe Alberta's model is the best model in the country and maybe in the world because it allows the market to decide how to mitigate or to reduce its exposure to the climate levy. That will create a market for renewable energy.
I can think of a couple of examples of companies, a very small minority, that have already started to pivot toward meeting the demands of renewable energy. One of the great strengths in the Alberta economy is the wonderful University of Alberta. Its great critical mass of technical, scientific and research experience combined with the advanced engineering involved in the oil and gas sector makes it ideally suited to provide new technological solutions to reduce carbon emissions.
That pivot is happening. It was happening before the carbon levy because everyone wants to reduce their fuel use, their fuel consumption, but it is an even stronger trend in the Alberta economy now.
Senator Mitchell: It is very interesting to note that one of the real synergies in that regard with engineering would be that geothermal requires drilling and we are very good at drilling in Alberta.
Mr. MacLean: We are the best at drilling and we have some of the best engineers in the world so we are really well suited.
As an organization we host delegations of companies in Alberta. Most of the renewable tech companies are coming out of Quebec. I would like to see that change. I want to see the flow of renewable energy technology coming from Alberta to the rest of Canada.
The Deputy Chair: Mr. MacLean, I have a few comments and statements in regard to your presentation.
I want to address the employment benefits you laid out. Ontario captures the largest share with 97 per cent of the employment benefits. You talked about the pipeline passing through these provinces, but of course the issue is not just the pipelines. It is what the pipeline carries. As I said to our witnesses earlier, one of the problems with the pipeline companies is that they do not seem to be cognizant of that aspect of their delivery.
For example, in Nova Scotia today we have about 500,000 barrels of oil go through our water every day to refineries in New Brunswick and Quebec. We get not one benefit from it, not one. Now we are talking about doubling that by exporting another 500,000 through the Bay of Fundy, through our water, and no benefit.
There are a million barrels of oil going through our water every day with no benefit to Nova Scotia. We take all this risk and we get no benefit. I think the pipeline companies and the oil sands people have to get their heads around that aspect of this element of the project.
I support the project. Everybody around this table supports the project. We want all Canadians to benefit from the project, but there is Nova Scotia stuck out in the middle of the North Atlantic with deep sea ports and getting no benefit from these projects. It is going to be an issue on the East Coast. I will make sure it is an issue.
The industry out here is landlocked. We understand that but bitumen in the water is a much different thing than bitumen in a pipeline. I am not concerned about pipelines. I am concerned about the proper handling of bitumen in the water and about managing risk.
I want to impress that upon you for your colleagues. We are here to try to find a solution to this stuff and I think managing risk is a very important element to the solution.
Mr. MacLean: I am hung up on the idea of no benefit for Nova Scotia because as I mentioned in my presentation the benefits are enormous to Confederation. Nova Scotia is not excluded from the benefits of Energy East or even TMX. Don't forget that TMX is going to benefit Nova Scotia as well.
The Deputy Chair: You are talking in broad general terms now. I am talking in specific terms.
Mr. MacLean: Sure, but look at the road we have to travel down then. We are getting specific about First Nations benefits. We are starting to peel off and make them equity partners in that. I think that is a great initiative.
Let us peel off and make the Government of British Columbia a beneficiary of TMX. Let us peel off another 2 per cent and make the Government of Nova Scotia a beneficiary of Energy East because they have tankers going by their province.
Eventually we do not have an economic project. We do not have a project with a sound financial basis.
Sure, let's make everybody benefit from pipelines. If we go down that road nothing is going to be sustainably built in this country because everyone is going to demand their slice of the pie. The pie is only so big, and I would argue that First Nations, New Brunswick, P.E.I. and Nunavut are all beneficiaries of Energy East.
I understand where you are coming from, but I just do not understand how we go as in Confederation.
The Deputy Chair: No, I do not think you do understand where I am coming from Mr. MacLean. I am just talking about reasonable return for managing risk.
Mr. MacLean: Right.
The Deputy Chair: We don't mind taking the risk. We just want to participate in the project to a certain extent.
We have a gas pipeline now from Sable Island that goes to New Brunswick. That pipeline is going to be empty in 12 months or 16 months. All they have to do is reverse that pipeline like they do anywhere else. That pipeline goes to Point Tupper.
In that way we would take all the risk to a deepwater port as opposed to an inland seaway which has right whales, humpback whales, scallop industry, herring industry, salmon industry, highest, lowest and strongest tides in the world, and is right beside an international border.
I hear people saying, "Well, these ships are double hulled." They are. It does not make much difference if they are double hulled or not and they roll over. I grew up on the water. My family sailed for decades, for centuries. This stuff in the water is different from this stuff in the pipeline.
Mr. MacLean: Are there 500 ships currently a year coming into the Bay of Fundy or 500 tankers?
The Deputy Chair: No, no, there is more than that. There are 500,000 barrels of oil every day going through Nova Scotia water to refineries in Quebec and New Brunswick.
Mr. MacLean: Is there currently compensation to the Government of Nova Scotia for that?
The Deputy Chair: Listen, we are participants in Confederation. We are not expecting compensation. We find it strange that ships are not allowed to sail out of northern British Columbia yet they can sail through our water.
Mr. MacLean: I find that strange too.
The Deputy Chair: I see it as a nation-building project. There is a bit of a disconnect out here when it comes to getting this stuff to market, that once it is in the pipeline you do not have to worry about it anymore. I know you do not but we do.
Senator Unger: I have a comment about Nova Scotia getting no benefit. Who should be trying to fix this problem of no pipelines? It is the federal government that really needs to be educated on this. I never thought about it in terms of what you just said, that this oil being shipped to Nova Scotia brings no benefit to Nova Scotians.
Mr. MacLean mentioned the premiers. They have their council of federation meetings, and yet you say just Alberta and Saskatchewan agreed on nation building, if you will.
The question is: How do we get a response from the federal government as well as the premiers on dealing with this problem?
The Deputy Chair: If I could add my five cents here, the federal government has the authority to put the pipeline through. This is all within the purview of the federal government under the Constitution. There is no debate about this. It is a matter of political will and it is a matter of nation building. It is a matter of taking the approach that we have to put the best interests of the country first.
When I say that there is no benefit for Nova Scotia I am not saying there is not a general benefit. Of course there is. There is risk though. If we are managing a lot of risk, if we are dealing with a lot of risk, we should have some say in of how we want it to be managed properly and if we can benefit from managing the risks the more so the better.
Mr. MacLean: I find it refreshing to hear there are communities in Nova Scotia that want to host our energy.
The Deputy Chair: Of course we do.
Mr. MacLean: We do not hear that every day so that is a relief to me.
The Deputy Chair: I guess maybe the wrong people are speaking or maybe the right people are not speaking. In any event I think it will become more of an issue in the next few months. Mr. MacLean, thank you very much for your presentation.
Senators, our final witness for this morning is from Natural Resources Canada, Heather Dettman, Research Scientist with CanmetENERGY.
Ms. Dettman, I would ask you to make your presentation and the senators will have questions for you.
Heather D. Dettman, Research Scientist, CanmetENERGY, Natural Resources Canada: Thank you very much. I feel honoured to have this opportunity to talk to all of you, but I have to admit it is always a challenge when they say you have 10 minutes to please give us a technical presentation but in a non-technical way. I am going to say yes.
If you look at the documents I have given you I have actually prepared a presentation that is kind of a high-level presentation. I have included all kinds of extra information in it to help you with understanding technical terms that you will hear in the industry, defining what things are, a little bit of Petroleum 101, what are hydrocarbons and what we are talking about.
I am using my time to introduce you to understanding what they are talking about out there. Only a couple of slides actually talk about the specific presentation that I did in June that has drawn all this attention but basically I give you the conclusions from it.
I will say at the onset that what I am talking about is not revolutionary for the oil spill industry. They are well aware of what I am talking about and have seen it in actual spills. What is perhaps novel is that we have developed test tank facilities that are allowing us to simulate what happens out there. That is sort of a novel thing and what is new.
If you go to my first slide, then, crude oils produced in Canada may be transported by pipeline, rail, cars or tanker ships. Bitumen is the thick oil that is extracted from the oil sands. Bitumen, being that it is thicker and heavier than conventional crude, needs lighter solvents or oils added to be able to meet pipeline specification for transportation. The resulting product is called diluted bitumen.
There are various kinds of diluted bitumen and the products vary according to what the diluent is. I actually have gone to length to explain what the different diluents are in my further slides.
The crude oils being transported around Canada include conventional crude where there is no diluent added or needed, diluted bitumen, and then railbit which people have heard can go on the railway. That actually is bitumen or heavy oil that uses less diluent typically than what would be needed for the pipeline. You will also see that there is all this extra writing on the bottom which I am not talking about. That is for the analyst to look at and inform you on.
In the types of diluent it is very important that basically three kinds of diluent are used. The first one that people are assuming is with diluted bitumen is what is called natural gas condensate. It is sort of a chemistry perspective. These are relatively small molecules so when I have the terminology C4 to C8 it means they are molecules that have from four carbons up to eight carbons.
The key feature about this is that because they are small they evaporate quite quickly. If you have diluted bitumen that has these small hydrocarbons in it then that will evaporate very quickly and you will get left with your starting heavy oil or bitumen.
In references in the National Academy of Sciences review throughout the whole document they are assuming that is the diluent that is used in diluted bitumen. However natural gas condensate is not used in National Energy Board pipelines. It is not used outside of Alberta. It will be used within feeder lines and gathering lines that sort of get the oil from the field to a plant or something within Alberta but it does not go out of the province.
The next diluent that is more widely used is the light oil condensate which is termed CRW condensate and that particular oil starts with having four carbons, C4 going up to C40. Because it has 40 carbons as the upper end it has a wider range of molecules in it. Having the heavier carbons that are above C12 even C12 to C40 stays with the oil and so by weight percentage about 25 per cent of the diluent is that kind of molecule that is in there.
When that would spill the C4 to about C12 would evaporate quite quickly but the C13 up to the C40 would pretty well stay with the oil after that. That changes the bitumen so that it is never truly bitumen again. That is something else. It is a slightly lighter I guess would be a way to describe that bitumen after this type of condensate is gone. Again the CRW condensate is what is used in the transmission pipelines which are the NEB-regulated pipelines.
Then a third kind of diluent is called synthetic crude oil and that particular diluent actually starts around C12 for the smallest kind of molecules and then goes up to C40. That slightly heavier light oil is called a synbit. When you have the condensate, which is the previous one, it is called a dilbit. When we are talking about the dilbit, the dilbit that was spilled in Kalamazoo, this was the CRW condensate while if you have a synbit then it has a synthetic crude oil. Given that synthetic crude oil is a little bit heavier actually most of it will stay with the oil. It will be light for a long time if it is spilled is a way to put that.
The confusing thing is that people or even in the industry can be talking about diluted bitumen. They will say the acronym for diluted bitumen is dilbit but that is not true. Dilbit is specifically when you use the CRW condensate for the transmission pipelines. When spills happen within Alberta then they are saying that is dilbit. It is very confusing but in reality that is what those are. On the technical and spill response behavior they have different impacts.
If you go to the next slide you see what happens when petroleum spills into water. This is a very simple diagram where if the oil like the diluted bitumen or conventional crude gets spilled on to water then they have a lower density than the water, freshwater and salt water, so they will float on the surface as shown in the diagram.
Then with time you can start having the oil mix into the water. For various reasons, which I will mention in a bit, it starts to mix into the water. As the oil mixes into the water and if there is sediment in the water — and most water has sediment in it — then it will pick up it up and the sediment glomps on to the oil droplet. That then makes it heavier or more dense than what it was to start with and that is what takes it to the bottom.
The oil is not sinking by itself there. It is actually because it picks up some sediment that makes it heavy. It becomes like a little rock and then it goes down. Once it gets down in the sediment then that is much harder to be cleaning up.
Of course this is an interesting area because at any given time you have about six variables that are going at the same time. You have things like biodegradation happening and photo-oxidation, these kinds of processes. Those also influence what the oil does.
Going to the next slide, what influences how much crude oil can be recovered? If you have water and weather conditions that rapidly move the oil away from the spill site — a flowing current, a big storm or any of these kinds of conditions — then it is harder to pick it up.
When you have the light hydrocarbons evaporating then they are gone in the air. I guess we can consider that a good thing. They go away and they go away in the wind. Then your recovery gets to be low because part of it is evaporated. That is one thing. Once you have evaporated those lighter hydrocarbons then what is left behind is more dense. Actually the concern is whether the part that is left behind is dense enough to now be a little bit heavier than the water and start to become submerged and have the waves go over the oil. That is kind of the question here.
With conventional crudes the density of the weathered oil is lower than what the diluted bitumens are, but from the samples we have studied so far they are still lower than what the freshwater is. We are finding that we have floating. Even after the weathering for our tests we were up to eight days still was floating.
Something that people seem to not be too aware of or put in context is that when you have very light oil like conventional oil they talk about oil dispersion. If the oil has a very low viscosity — it is very fluid; it is floating there — but then some waves start and it becomes like cream into coffee kind of thing where the waves can start to mix the oil into the water. Once it goes into the water then you cannot recover it either because now it is not on the surface any more.
For instance, that is a well-known phenomenon for conventional crudes. The National Academy of Science report refers to that it is well documented on the California coast where the conventional crudes can mix in and disappear because they interact with the sediment. You can end up having very low recoveries of conventional crude because of that. The good news is that it disappears. The bad news is about half of it is still actually in the environment somewhere. It is just you do not see it. Finally, once it is mixing into the waves then it can sink. It truly sinks when it picks up the sediment and goes down.
Now we get to our test results. With our tank facility we have performed various kinds of experiments. At the AMOP technical seminar we presented two papers. In one we were doing tests to see what happens to the oil spill behaviour if we do a partial upgrading pretreatment on the bitumen to begin with. If you think analogy you can start with the bitumen as it is freshly produced and then at the other end is synthetic crude oil after it goes through a Syncrude or Suncor upgrader plant. We are testing what happens if we do steps along that way toward the synthetic crude oil and how that influences behaviour. That is one line of research we are doing.
Another one, which has been getting a lot of attention, is the tank tests where we actually wanted in a way to simulate the conditions that happened in Kalamazoo and we wanted to benchmark against the conventional crude. If the conventional crude had been there, how would it have behaved?
We started with the Cold Lake oil which was the major crude that was spilled in Kalamazoo. We also had the Western Canada Select which was the minor crude that was involved in Kalamazoo and then we had conventional crude.
When we went through these tests we had a tank which you are seeing a little bit of in the picture. That was about day 4 I believe when this picture was taken here with waves splashing over it. Basically because our tank is quite small the waves rapidly push it to the edge. This is like at a beach where it is constantly being beaten in the waves so the waves are throwing it up against our beach.
What we were doing was two days of waves on, two days of waves off, two days on, two days off, and then we looked at what happened. The water and sediment we had were simulating if it had spilled in the North Saskatchewan River what it would have been.
If we go to the next slide, first of all we started with the usual kind of conditions that people test. The water temperature was around 15 degrees and we started with the Cold Lake, which is the diluted bitumen we chose. We found that it became more dense with time, as expected, but even at the end of the eight days it was still floating. When we picked it up the sand on the bottom was clean or the sediment on the bottom was clean. When we did our mass balance of what we recovered, taking into account what evaporated we got 100 per cent back. Within an error we got it back.
When we worked with the conventional crude by the time we finished the series there was nothing left on the surface. At that point we were quite surprised to see this because people have always been talking about how by inference if the bitumen is bad the conventional should be good. Good to me means you can recover it.
By the end of our tests it was all on the bottom. It was only once we emptied the water, collected the sediment in buckets, shook the buckets and tapped them and whatever, that with time the conventional crude came up and we collected it. The sample we actually analyzed we got off the bottom of our tank.
Looking at the literature it has been documented by Bedford Institute of Fisheries and Oceans in Halifax. They have done research where they have found that if you have very low viscosity oils they mix into the water and can interact with sediment more, compared to the heavier oils. This paper was actually done back in 2002.
At that point we figured we would have a clue of what was going on here. At Kalamazoo it was actually hotter than 15 degrees. From what I could find on the Web it was actually closer to about 22 to 25 degrees with very hot air temperatures because it was summer in Michigan.
We then repeated the tests with the Cold Lake at the warmer temperature. At that point we started to see as temperature goes up oils become less viscous. Basically we are taking it toward being like conventional crude.
With that we mixed some of the oil from the Cold Lake into the water and sediment, so both that and the Western Canada Select which was the other oil that was spilled in Kalamazoo we ended up seeing it was in the same kind of range. Basically we got about 15 per cent of the oil mixing into the sediment.
Our conclusions from all this first of all is that up to the eight or nine days until we finally collected it the diluted bitumen were floating and recoverable. We found at the lower temperature that none of it mixed in. It was all recovered off the surface other than evaporation. With the warmer temperature then we started to have some mixing in, but compared to the conventional crude if you have energy enough for it to mix into the water then it would have disappeared and been in the sediment.
The research is ongoing. We would like to try longer tests to see how long it would take if it ever does start to submerge, but usually in response situations they talk about nine days as being a time period where you can reasonably expect to be doing your recovery before weather or waves do something with it depending on the situation. We also have different types of oils that we are going to try. Certainly going into the future Canada has a lot of this thing called winter so we definitely want to be able to simulate situations when you have a freeze-thaw situation or winter kinds of conditions. We have developed facilities to be able to do those studies and going into the future we will look at that.
We are sharing this information with our colleagues in Environment and Climate Change Canada and Fisheries and Oceans so that they can get incorporated into models. I guess that about summarizes what I have.
The other half of the presentation talks about our program that was set up with the world-class tanker safety system and the kinds of research that we were doing and initiatives on that. I think that would be easy for you to understand and to read. That was the hard part and I am happy to take any questions.
Senator Black: You are a very good presenter, and it is always difficult to make complicated things simple. Now we are going to see whether I actually got it or not.
My specific concerns relate to let us presume we are fortunate enough to get Energy East approved either into New Brunswick or into Nova Scotia — we will leave that discussion aside — and/or Trans Mountain to Burnaby.
I have had an opportunity to visit the port authorities in both Prince Rupert and Vancouver and as well the Coast Guard and the harbour officials. They have left me with the impression that for oil spills there is some kind of product you can apply to the oil and it dissipates.
Ms. Dettman: That would be dispersants.
Senator Black: What is your view on dispersants? Do they work in your view?
Ms. Dettman: Dispersants, as you probably know, need to be approved for Canada. They have not been used in Canada yet, I guess is the way to put that. The idea of dispersants is more for the open ocean situation where you have a very sensitive coast and the oil is out there.
Senator Black: We have that in both those cases.
Ms. Dettman: Yes, exactly. Say a ship is offshore somewhere and it has spilled. That oil is heading toward the coast and there is a possibility that if you add the dispersant it disperses it or spreads it out and then it ends up going throughout the water and does not go to the coast.
On one hand you can say the coast and certainly the most vulnerable areas are right along the coastline with the kinds of creatures and animals and birds and activities that happen at the coast.
On the idea of dispersing they are finding in the Gulf that the oil is still there. The biggest use of the dispersants happened during the Gulf spill. They were pumping the dispersant into the oil to prevent it from getting to the surface but now they talk about there being like a bathtub ring around the Gulf in the water.
To me, that is a natural consequence of having done that because all crude oils start around C4 and go up to greater than C120 in terms of size of molecules. The most easily biodegraded hydrocarbons are up to about C15, so from 15 above they can be around a long time. Certain molecules in there could be biodegraded but the rest of it could be around for a long time. Given the fact you have dispersed it you now have all those hydrocarbons, sort of solution by dilution. It has disappeared but it would be there.
Senator Black: What is the concept then of putting a dispersant? Is it just to spread it out?
Ms. Dettman: To do exactly what it says. It is like adding soap to your dishwater. You are washing your dishes. You do not have any soap and you see the grease on the top. Then you add your detergent and you do not see it any more. You see bubbles.
Senator Black: It is still there but it is dispersed.
Ms. Dettman: It is still there. It is dispersed. The droplets are very small. The concept for those that have been doing research on this for quite a while — like DFO has been doing research on this for quite a while — is that as the oil breaks up and starts to mix in with the water you will have a certain size droplet because the oil itself does not like being in the water. It is like oil water; it wants out of the water.
It will be a certain size and the bacteria for the biodegradation like the water. They swim around in the water. They can only work on the oil at the oil water interface. If you have a big droplet you can have the bacteria on the outside this way and they can kind of chew away, but then you have the internal part of oil droplet that is untouched until it eventually gets smaller or breaks up.
To try to make it faster they make little droplets. That is the concept. Microbial digestion is a natural degradation process. You can also have the sun with photo-oxidation. Again it is smaller.
Senator Black: That would be a good process. Do you agree with that?
Ms. Dettman: For facilitating the biodegradation, yes.
Senator Black: When I meet with these folks, and I referred to the organizations, they say that the ability of the Canadian resources to clean up or deal with a potential oil spill in water would be as good as any in the world. It is the global standard. They are not saying the global standard is good enough but they are saying that we can do whatever science allows us to deal with oil and water. Do you agree with that?
Ms. Dettman: I would say that is true from going to these international meetings. Certainly the AMOP technical seminar has people from all over the world there so the techniques we are talking about are the same as techniques that others are talking about. The specific response things are not my expertise but just in how we are talking.
Senator Black: What is your hope as to what your research will result in? Is there a practical outcome to your research?
Ms. Dettman: We always think so.
Senator Black: I do not doubt there is. I am just wondering what it is.
Ms. Dettman: I guess it is information. For our facility because our expertise is actually coming from working with petroleum we are actually bringing expertise from the petroleum industry basically for totally quantifying all the oil that gets spilled, whereas before the environmental chemist per se would be looking at the molecules that are very important for toxicity. We actually can add to the picture what is happening with the rest of the oil.
For instance, when I am talking about what happens with the dispersant I talk about it differently than how others do because they are used to seeing it disappear, looking for toxicity markers and those kinds of things relevant to environmental chemistry.
For us, we are used to seeing where everything goes. Going forward it is very practical if you are trying to decide when is an end point for clean-up. If you dredge that area once is it safe? Do you have to dredge it five times? That is the practical application of what we are wanting to provide.
Senator Black: Thanks, Dr. Dettman. That was very helpful.
Senator Mercer: Dr. Dettman, thank you very much. As Senator Black said you are very good at explaining this. Sometimes I think we do not learn things at these meetings but we have learned a lot in the last half hour. Thank you for that.
I want to go back to your slide on page 2, which I guess is the first one. You talk about railbit transport in rail cars being less diluted than needed for pipeline. I assume, and you will correct me if I am wrong, that railbit would have been what was in the train at Lac-Mégantic in Quebec.
Ms. Dettman: No. At Lac-Mégantic it was Bakken crude. It was a different kind. It was a very light crude oil. Thank you for this question. It allows me to explain another technical aspect.
When you talk about light oil versus heavy oil what you are really talking about is how much gasoline is in that oil. That is the way to look at it. Crude oil can be described in the simplest terms as being a mixture of gasoline, diesel fuel, bunker B fuel and asphalt. Basically those products would cover all that size of C4 up to C120-plus molecules. So that is that.
When you have light crude like Bakken or conventional crude 30 per cent or 40 per cent or a significant portion of that crude oil is gasoline. Another 20 per cent is the diesel and then 30 per cent is the heaviest parts, compared to when you have a heavy oil it is half asphalt and maybe only 15 per cent of gasoline. That is what that is talking about. With conventional crude like the Bakken there is so much gasoline in it that all you need is a spark and it goes.
Senator Mercer: It would burn at a lower temperature than bitumen would.
Ms. Dettman: Because it has so much of gasoline and it is explosive. It depends but I mean they both have gasoline in them. They both could have an explosion point or whatever because they both have that C4 part. It is just that you have a much less of it compared to the conventional. That could egg it on more or make it go faster I guess. The heaviest parts do not burn as easily.
Senator Mercer: I am trying to look at this from the point of view of selling to Canadians that I want a pipeline to be going through their backyards. I want to be able to tell them that bitumen going through those pipelines, which will have something added to it to facilitate it moving, is unlikely to result in a fire similar to Lac-Mégantic if there were a spill. I think that is really what Canadians want to know. Am I right in my assumption that it would be unlikely? If we were to get done what people want to do, if there was a spill when moving bitumen east or west from Alberta is it unlikely that it would ignite?
Ms. Dettman: I believe that is true, although if you have a lot of sparks around then it could burn but it would not explode. There would be that kind of thing.
Maybe I would say I will look into answering that because others have looked at that specific question. I could get back to you with it. That may be the best way to do it because I know that groups have specifically looked at that and what the terminology is.
Senator Mercer: Please do.
Ms. Dettman: I will give you a better answer.
Senator Unger: If I can pick up on this conversation the Bakken oil that exploded in Lac-Mégantic was highly flammable and because there was more gasoline in it, it burned hotter and was more of a big flame issue. If we compare that to crude, crude will burn but it does not explode the way the Bakken oil does.
Ms. Dettman: I guess I am working on exactly the right words to define that but that is absolutely true. Even if you have a fire with gasoline that is when it blows up and people get hurt by it. If they then use a diesel fuel they can just put it on and use that to start the barbecue. It is that kind of a flammability thing. I guess I am struggling to find the exact technical terms to say that but what you are describing is true.
Senator Unger: I thank you for your explanation because I think it makes it really clear or makes the difference clear. I was wondering about C4 to C8. It is not a diluent.
Ms. Dettman: That is natural gas condensate so they do call it a diluent.
Senator Unger: Because it evaporates fairly quickly can it not be used in more applications or is there specificity in which applications it can be used or not?
Ms. Dettman: Certainly like within Alberta when they want to move the oil to the gathering lines or the feeder lines it is convenient to use because it is so easy to get out. They can add it and when their crude oil is basically starting around the beginning at about C4 or C5 it is easy to come off and then they have their crude oil ready to use.
For instance, if you have the bitumen the initial boiling point of bitumen is around C12. If you have C4 to C8 it evaporates easily and you are left with bitumen. You do your next process because when you are going to the refinery you want to use it for the processes: start the distillation or start whatever processes in the refinery. You want to get rid of that diluent easily, so it is easy to remove it. It would be an advantage for it.
Senator Unger: But it cannot be used for like the next one, the dilbit C4 to C40.
Ms. Dettman: Is that a product of some sort?
Senator Unger: I am wondering if the diluent that evaporates quickly could not be used in more of these different heavy crude applications.
Ms. Dettman: I guess certainly there is a use for it. It becomes part of gasoline. Like gasoline is C4 up to about C12. They are in that range so it can be part of a product. It could be used.
I guess we need a lot of diluent, so there are mixed things about it. It is actually an advantage that we have light oil from the spill response. If we have those heavier components with the bitumen that helps to keep the density lower than that of water because the density of some bitumen is very close to that of water so it can be a little bit below or a little bit above.
If you have the heavier part of the CRW condensate there then that can help keep it just a little bit below from the spill response. I guess it is just in how much they need and the relative value of that. They probably do not have enough of it really. They would not have enough to be able to use just that in a diluent, but for a spill response it is actually better that it actually has that light oil rather than just the natural gas condensate.
Senator Unger: I have a comment and then a question. I just heard recently that exfoliating beads that are used in both men's and women's cosmetics like facial scrubs and that sort of thing are now being banned because those beads do not dissipate as quickly as had been thought.
Ms. Dettman: When they go into the water and the environment.
Senator Unger: Yes, you wash it down the sink and away it goes. Is there something that can be done about that? They are being banned. I was surprised that something as innocuous as a facial scrub after many years of use is now a bad thing.
Ms. Dettman: Everything is chemical from the chemist's perspective. The cosmetic industry makes use of a lot of oils and waters. I think they use vegetable oils usually but it just comes down to the basic chemistry. They would be little globs of oil and if they cannot be dissolved then they would be left over. Oil does not like to mix into the water and ends up becoming a problem, just like the plastics not breaking down because of the kinds of molecules they are.
Senator Mitchell: Thank you, Dr. Dettman. I am interested in knowing where the process of bacteria breaking down oil fits into all of this.
Ms. Dettman: Microbes are very opportunistic. Given that the oceans are full of ships and basically we are travelling the world the water is all connected. Ships spill a little bit of fuel here, a little fuel there. These things happen.
Bacteria will eat whatever they can to survive. There are whole classes of bacteria that have specifically evolved for eating petroleum products. We have natural seeps, I am told, in Hudson's Bay and down in the Gulf. The earth makes petroleum. They are part of the recycling that the earth does. We do not have any particular product accumulating and covering us, I guess is the way, so that is just part of those whole natural processes.
As soon as you are having a spill, whether it is a little bit of diesel in a dock in a port area from your motorboat or any of that, the bacteria would start to work on that. As I described, the oil goes in and does not mix in completely. It actually is little droplets. They act on the oil's surface. They are doing that for their life. That is what they are eating.
For the small molecules they can do that completely and they actually end up turning it into CO2. It is part of that process. CO2 then gets used by the trees and gets recycled into life again in that whole circle.
If the molecules are too big they start having certain kinds of structures that cannot work. Then they will sort of chew on them a little bit and spit them out. In a section of my research I spent 10 years looking at crude oils that have what is called a high total acid number from a refinery corrosion perspective. That is what is left over from the bacteria trying to chew on it and only getting partway down the molecule and then going, "I cannot eat this." Those molecules get left behind and that is how it works.
The sun of course can help with this because the sun can do what is called photo-oxidation. That actually can crack the larger molecules into smaller ones. Some of them will crack completely and go to CO2, again part of the earth's cycle, or can crack it small enough that maybe now some bacteria can work on it.
Mud, for instance, is full of humic and fulvic acids, which are big molecules with oxygen on them that are environmentally inert. Every two-year-old makes a lollipop and licks on mud at some point in their life. At some point the petroleum would end up being like the mud, but how much? Actually in our research we are trying to see how long. Is it after it is biodegraded? How much photo-oxidation do you need? Where is that end point? Our research is hoping to go toward that direction.
Senator Mitchell: Thank you. Science can be fun. I just want to clarify the point you were making about light crude which will sort of filter through the water. You do not think it is there but it really is and that is a bad thing if you are trying to get it out. Maybe it is heavy crude that actually begins to collect dirt and then that weighs it down, or do both crudes have that problem?
Ms. Dettman: This goes really into what our research is. People have known for a long time that the conventional crudes will disperse easily and the research around dispersant is to try to help it do what it tends to do anyway.
There are papers on how great it was that after three days this crude disappeared and the coast was saved, this kind of terminology and how wonderful that is. No oil really wants to be in that water and just as sediment is charged oil is not. There not a natural reason for them to really stick together. In the past people have not really talked about why that might be and our work is going toward trying to figure that out.
If the bacteria chew on that oil a bit they become more charged and now there is something for the sediment to stick to and then it can go down. That would make sense for why all these spills find the conventional crude at the bottom. When we had the Alaska North Slope it was at the bottom under the Exxon Valdez. At the Gulf they are finding it down below. Those mechanisms have not been well studied. That is another practical thing we are trying to figure out exactly. Yes, that is what happens.
The Deputy Chair: I have a few questions and some clarification to run by you. First of all synthetic crude oil, SCO, is that what we know by the acronym syncrude? Is that syncrude itself?
Ms. Dettman: There are various names for it. No, Syncrude is a company name.
The Deputy Chair: Yes, but syncrude is also an upgraded, refined product.
Ms. Dettman: It would be. Syncrude is synthetic crude if that is what it means. I have heard various names for it. Usually it goes up to C40 and they take the gasoline out, so basically it is the diesel plus the bunker fuel.
The Deputy Chair: The bitumen that is going through the lines today, the stuff that is presently there, is it SCO? Exactly what is it? Is it diluent?
Ms. Dettman: There are lines that have SCO in them but for the bitumen, the synbit, if you have something that is called a synbit, then that has synthetic crude oil mixed with the bitumen.
The Deputy Chair: The stuff going to the U.S.
Ms. Dettman: There can be various things and that is why I have that page of explanations. If it is called a dilbit then it has a CRW condensate with it. If it is called a synbit then it has synthetic crude oil mixed with the bitumen. There can even be a dilsynbit. That is when it has some condensate and SCO, synthetic crude oil, with it.
There are also lines that have synthetic crude oil. In the end all these pipelines for the oil in Alberta have made these long-term agreements with refineries all around the U.S. It is like a shopping cart and they say we want so much of this one, so much of that one and so much of that one. Then the pipeline is like the highway in between. They put in their order and then it goes down.
Some like to have the synthetic crude oil. Some even like, in one of the pipelines, to actually have diluted bitumen go through. They will start with some gasoline, then have some diesel, then have some conventional crude, and then have some diluted bitumen and some crude. Basically it is batches going and then they get distributed at the end according to who bought what because the refineries are blending stations really.
The Deputy Chair: In terms of its viscosity and its properties how does dilbit or synbit compare to bunker C particularly in the water?
Ms. Dettman: Bunker C is a part of it so they are lighter. They are lighter. They float. Their density is lighter. Bunker C is a combination. When I talked about bunker being asphalt, like that is bunker C. Every crude oil has that. When you have the dilbit it has its portion of gasoline and diesel together with the bunker C.
The Deputy Chair: Dilbit and synbit are always lighter than bunker C.
Ms. Dettman: Yes.
The Deputy Chair: There is more refinement in them.
Ms. Dettman: It has gasoline and diesel in it as well while the bunker C does not have those components in it.
The Deputy Chair: In your studies and in your work you are familiar with the Exxon Valdez of course, but did you do any study of the Arrow when it went ashore in Chedabucto Bay in 1970 in Nova Scotia? We had two oil spills off the East Coast, the Arrow and the Kurdistan.
Ms. Dettman: I actually tried to get samples from one site, and I am working on it, for what the weathered oil looks like now. I do not know a lot of examples of that. I think it was from the Arrow that they have left a site and are just seeing how it was weathering. At the meeting at AMOP, which was in Halifax this summer, they had a field trip to go to that site to get samples or to see that site, but it filled up within five minutes so I did not manage to go on that one.
The Deputy Chair: I think the understanding is that most of the damage that was done there, long-term damage or even medium-term damage, was done by the recovery effort.
Ms. Dettman: Yes.
The Deputy Chair: There were lobsters completely covered in oil that dispersed the oil in 24 hours, just threw it all off. Most of the damage was short term. What they did in the end was they plowed all of the beach and the wetlands and that created long-term damage.
Ms. Dettman: That is true and that is part of the discussion that goes on. I have heard of that in other places too. They go in and if they are trying to pick it up they are removing all the vegetation and stripping it out to get rid of the oil. Then they actually kill the ecosystem that was in there just by doing that.
With the work that we are doing, especially around the idea of determining what the whole oil is doing all the time and its relative toxicity, in certain situations could be just let time do it.
The Deputy Chair: I have just one more question. When it comes to moving this product the bitumen comes from the East Coast of Canada let's say. It comes from the East Coast of Canada. They put it in the water.
Ms. Dettman: It does not come just as bitumen though. It will always be diluted if it is coming by pipeline.
The Deputy Chair: It will always be diluted if it is going through the pipeline. Can I make this assumption: The more refined it is or the more it is mixed with gasoline and other things to help drive it through the pipeline, the lower the carbon footprint in terms of moving this product?
Ms. Dettman: Right about now I am believing that there are various factors so the concern has been on how much you recover. We have had two spills with diluted bitumen. One was at Burrard and the other one at Kalamazoo. In both cases they had actually very high recovery. Even at Kalamazoo the final numbers on that is that 74 per cent of it was recovered off the surface and about 24 per cent they got out of dredging and dredging for what they recovered.
With their numbers for recovery they are saying that they have 140 per cent recovery according to what was spilled, showing that they are having issues with judging how much was spilled. In that case no fish died, in that study, and they really spent a lot of money in recovering because there were so many people there and everybody wanted to say, "There's a spot, there's a spot" so you have to pick it up.
That is one thing. You can respond. If you start having the conventional crudes then they disappear but they have much more gasoline. When you have the gasoline that is where you start having the BTX issues, immediate acute toxicity issues and flammability issues.
With the diluent in Kalamazoo people were in the area but it did not burst into flames. If you had had conventional crude with big gasoline content that would have had a higher possibility of somebody tossing a cigarette in it and the thing taking off.
There is a toxicity aspect to it that is worse. It would disappear but it would be spread through and could be in the sediment just even more than what the diluted bitumen was because it disappears and mixes in with the sediment and then you cannot really get it out of the sediment. That lighter component could actually have higher PAHs, which have longer toxicity.
I am kind of talking here because there are various aspects of it. It depends on what you are looking at. If you see it, it is ugly but you can pick it up. That could have less effect. No fish died at Kalamazoo but at Pine River where they say they got high recoveries from they are talking about thousands of fish dying for years from the fact that conventional crude had spilled into the water. That had a longer term effect. It is lighter because it is conventional crude but it had that higher toxic effect.
If you get to products that have synthetic crude oil which is lighter and goes up to C40 without having the larger molecules in it, that would be a very concentrated version of having possibly the PAHs and toxicity.
You may not see it. It may move along but could have a higher toxicity impact. Petroleum is not good for us in general. It is just depending on what it is, where it is, and what kinds of issues there would be.
The Deputy Chair: Have you done any study or any work on exposed waterway bottoms? I go back to the Bay of Fundy. When that tidal bore goes out you have square miles of exposed bottom. It is exposed for 12 hours yet it can be covered by 20 feet of water in the next 12 hours, and then 30 feet of water and 40 feet of water. It is a huge tide. Dispersants would not seem to be too practical.
Ms. Dettman: No, no.
The Deputy Chair: It would not seem to be very practical in that environment where half the time there is no water. All that oil would go to the bottom or a lot of it would. What would happen in a situation like that?
Ms. Dettman: Any oil would end up being on the bottom and probably stay at the bottom. I believe that was even what happened at Lac-Mégantic. The water went out. They had control of that. It went down and stuck to everything and then when it came back it was on the bottom. Basically they went and they were cleaning under the rocks kind of thing for clean-up on that.
Senator Unger: You mentioned that as you complete your research you are sharing it with many different government agencies. I am just wondering how well it is being received. This is extremely interesting.
I know a lot of people are concerned about an oil spill in water. How is it being received and how can you publicize your findings so that the general public is more aware of first of all your work and secondly of the different impacts?
Ms. Dettman: I have to say that since this presentation in June it has been very, very busy doing exactly that kind of thing. Bloomberg wanted an interview and I gave an interview to them in June. Then that article came out and since then I have had many emails to me because if they put my name in they can find it. I have had many emails and interviews are being lined up, even continuing. This is not a usual thing when you are a scientist. Usually you do research and nobody cares but this has been very active that way.
Certainly I gave the presentations at AMOP. Those papers are available. I believe that it is being publicized. I will not say exactly what is coming, but there are ongoing interviews. I guess at some point, though, I have to be able to go back and do some more work. I have my group. It is very difficult to be out talking all the time. We have to actually do the research.
Anyway I guess that is a thing. I am certainly responding to any requests. I have gone to specific meetings where I have given Petroleum 101 courses to even First Nations people or whoever was asking. I have worked with whoever has asked whether environmental groups or industry.
As I describe at this sort of event I have got this information and I talk to who needs to know and who wants to know as much as I can because in the end I am supposed to go and do some work too. It is a balance.
The Deputy Chair: Dr. Dettman, thank you for your presentation this morning.
Honourable senators, this concludes the morning session of our hearings.
(The committee adjourned.)