Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 36 - Evidence - February 5, 2013
OTTAWA, Tuesday, February 5, 2013
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day, at 5:01 p.m., to study the current state of the safety elements of the bulk transportation of hydrocarbon products in Canada.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. This will be the first meeting we have in the year 2013. My name is Richard Neufeld, and I represent the province of British Columbia in the Senate and am chair of the committee. I would like to welcome all honourable senators and any members of the public with us in the room today and viewers all across the country watching us on television.
I will ask the senators to introduce themselves around the table, but first I would like to introduce the deputy chair, Senator Grant Mitchell, from Alberta. I will start right over here.
Senator Patterson: Dennis Patterson, from Nunavut.
Senator Seidman: Judith Seidman, from Montreal, Quebec.
Senator Wallace: John Wallace, from New Brunswick.
Senator Sibbeston: I am Nick Sibbeston, from the Northwest Territories.
Senator Massicotte: Paul Massicotte, from Montreal.
Senator Lang: Dan Lang, Yukon.
Senator Ringuette: Pierrette Ringuette, New Brunswick.
The Chair: Thank you. We have also with us Lynn Gordon, our able clerk, who has been with us for quite a while; and from the Library of Parliament, Marc LeBlanc and Sam Banks.
On November 28, 2012, our committee was authorized by the Senate to initiate a study on the safe transportation of hydrocarbons in Canada. The study will examine and compare domestic and international regulatory regimes, standards and best practices relating to the safe transport of hydrocarbons by transmission pipelines, marine tanker vessels and railcars.
The first portion of the study will focus on safety elements relating to transmission pipelines, defined generally as long-haul, larger-diameter, high-pressure pipelines. The study will examine the roles of regulators and industry in advancing the safety performance throughout the lifecycle of transmission pipelines in Canada. The committee has held two meetings to date on the study, December 6 and 13.
In the first portion of our meeting today, it gives me pleasure to introduce, from Natural Resources Canada, Mark Corey, Assistant Deputy Minister, Energy Sector; Jeff Labonté, Director General, Petroleum Resources Branch; John Foran, Director, Oil and Gas Policy and Regulatory Affairs Division; and Sankara Papavinasam, Research Scientist, CanmetMATERIALS, Minerals and Metals Sector.
Mr. Corey, I understand you will deliver opening remarks, and then we will go to a question-and-answer session.
I would like to remind honourable senators that we have another witness scheduled for the second portion of our meeting, that being Mr. Gaétan Caron, Chair and CEO of the National Energy Board of Canada. Therefore, senators, once we get to the question session, please keep your questions crisp; and I would ask the same of our presenters, but make sure you get the answers out for the questions.
We will turn it over to you, Mr. Corey.
[Translation]
Mark Corey, Assistant Deputy Minister, Energy Sector, Natural Resources Canada: I would like to start by thanking you for your invitation. I think this is the fifth or sixth time in the past year that we have appeared before you on important issues regarding energy. We appreciate your interest in these matters.
The issue of pipelines is very important for us at Natural Resources Canada.
[English]
First, we have provided you with a deck and we just want to take you through a bit of the history of pipelines in Canada. Second, we want to underline why pipelines are in the headlines now almost every day in the newspapers and why we are so seized with the expansion of pipelines. Third, we would like to talk a little bit about the safety record in Canada and a little bit about the various roles of the federal government, the provincial government and the regulators.
As you noted, Gaétan Caron from the National Energy Board will be here for the second hour. We talked to him before the meeting and said we would refer all the really difficult questions to him in the second hour.
Let us go to page 3 of the deck. Canada, of course, is complex by nature because we have a federal-provincial- territorial system. When you look at pipelines specifically, the federal government is involved where a pipeline crosses either a provincial or an international boundary. The National Energy Board gets involved with interprovincial and international pipelines. The federal government is responsible for exploration, development and regulation north of 60, so we get involved with pipelines and the NEB does up there as well.
On the other hand, where things are within a province, the ownership and management of the energy resources within the province, that is a provincial responsibility; laws and regulations on exploration, development, conservation and energy use within the province; and public utility boards that oversee the production, interprovincial transmission, storage and distribution of energy, either through pipelines or transmission lines. Land use planning is also provincial.
I would now like to touch on areas of shared responsibility, first, on the environment.
[Translation]
Environmental issues are a shared responsibility with the provinces.
Secondly, as regards research, we have, at the federal level, scientific research and development capabilities that are truly complementary to those of the provinces and territories.
Finally, we have put in place a co-management system with the provinces in extraterritorial zones —
[English]
— in the offshore sector, for example, with Newfoundland and Labrador and with Nova Scotia. We also have negotiated an accord with Quebec and are developing the legislation in the offshore sector there.
Those are the areas where the federal government really gets involved, where the provincial governments are involved, and where we share responsibility.
Under that, I would say that we have a strong regulator. We have, actually, a strong number of regulators in Canada. For example, on land, the National Energy Board regulates all aspects of, where the federal government is involved, pipeline activity, everything from, you would say, cradle to grave, from the development of plans; the approval of plans; the approval of construction; once the construction is completed, overseeing the operation of pipelines; and when the pipelines have ended their useful life, the abandonment of pipelines. That all falls under the authority of the National Energy Board.
The National Energy Board has considerable powers, ordering inspections, ordering people to comply. The most serious thing they can do is revoking a licence to operate and ordering the shutdown of a pipeline. A new one has been introduced, giving them the tool of administrative and monetary penalties, which allows them to also administer fines — which would be short of, for example, revoking a licence or shutting down a pipeline — and prosecution. They determine the level of response for every incident. They are responsible.
In terms of industry, this is the same both in the offshore and in the onshore sectors. Industry has the primary responsibility for coming up with plans to manage spills and, if there is a spill, for spill response. They are required to report any leaks, ruptures or incidents to the NEB. They are required to maintain emergency response plans. In the event of a leak, they are responsible, first of all, for containing the spill and then for cleaning it up. They have to have safety and integrity programs, which again are reviewed the by the NEB. They are responsible for all spills and damages, and there is no limit on their liability. Again, if a company is found to be liable, there is no limit on the liability of that company to fix the damage caused by a spill.
Slide 5 is a bit of an interesting history. This is something that most people do not know. The first pipeline in Canada, a 25-metre cast iron pipeline, was built in Quebec in 1853 to move natural gas to Trois-Rivières for street lighting. Technology has come a long way since 1853, we are pleased to say. A lot of people do not understand that the first oil development in Canada was in 1862 in southwestern Ontario, an area outside of London.
As a graduate of the University of Western Ontario, I made a pilgrimage down to Petrolia once; it was the first oil field in Canada. That was a pipeline that stretched from Petrolia to Sarnia.
When oil was discovered in Western Canada, three major oil pipelines began to move product: Turner Valley to Calgary; a coastal pipeline from Maine to Montreal; and a U.S. mid-continent one from Pennsylvania into Ontario. Things then began to boom and pipeline networks began to expand from the 1950s onward.
In 1957, the first gas was exported to the U.S. via Vancouver by Westcoast Transmission Company Ltd. Also, 1959 was an historic moment in Canada when we had the great pipeline debate and a government fell. The National Energy Board was created in 1959, and they have been the regulator under the NEB Act continuously since that time.
In 1961, TransCanada's Alberta Natural Gas System began to expand across the continent.
In 1975, the Sarnia-Montreal pipeline, Line 9, began to flow western oil to Montreal largely in response to the OPEC restrictions earlier on in the decade to make sure that Canadian crude flowed to Eastern Canada. Market conditions look odd now, but in the 1990s it was reversed to bring offshore crude to Sarnia because it was cheaper and was more economic to bring offshore crude in. Now, as you know, they have applied to re-reverse that. It has been approved to re-reverse it as far as Westover, and there is a proposal to reverse it all the way to Montreal.
In the 1980s we started to export natural gas to the U.S. to the point where in 2011, I believe, about 13 per cent of all natural gas consumed in the U.S. came from Canada. The 2000s saw the expansion of the Western Canadian oil sands; that is, a large expansion of pipelines, pipeline capacity and oil flowing to the U.S. You can see particularly from the 1940s and 1950s on that the pipeline network in Canada expanded dramatically.
The question is this: Why is it so newsworthy now? Why are we seeing so much pressure on pipeline infrastructure and why is there such a push to expand capacity? The answer is in a couple of numbers.
Because of the oil sands, crude oil production is forecast to grow from 3.2 million barrels per day — now this is all crude oil production, including conventional — to about 4.5 million barrels per day by 2020 and 6 million barrels per day by 2035. It is a dramatic expansion of capacity. As well, we have just crossed the point where oil sands have overtaken conventional oil production, so we have more oil sands now; 54 per cent oil sands versus 46 per cent conventional. By 2035, that will be 85 per cent oil sands. Oil sands production will triple from 1.7 million to 5.1 million barrels per day.
How far can it go? We have overall reserves of about 173 to 174 billion barrels of which 169 billion are oil sands. The other 4 to 5 billion are conventional. That is where the future for Canada is, namely in oil sands production.
The other thing that has happened the last few years which was not completely foreseen by anyone — not by industry, not by government, not by any of the trade magazines, nobody foresaw it — was the boom that would happen in the oil and gas industry basically with two technologies. One is horizontal drilling and the other is fracking. This allows companies to go in and go through formations and then frac them. This has led to tight oil and shale oil and shale gas production. Shale oil in Western Canada and tight oil is expanding dramatically, and it is even further increasing the oil reserves in Canada and the United States. It is increasing to the point that some, like the International Energy Agency, forecast that by 2030 to 2035, North America as a whole will become self-sufficient in terms of oil. Now, that includes a lot of the production increase in Canada. It includes production increases in the U.S. It also includes fairly important conservation and energy efficiency measures that will bring energy use down and we will see it used much more efficiently.
What we are really seeing is a dramatic expansion of oil and gas capacity in Canada. If you go to slide 7, these were projections that the Canadian Association of Petroleum Producers reported a year ago. The solid line shows the increase in production, and the green line shows the existing capacity of the pipeline system to move oil out. You can see that with no further expansion of pipeline capacity, the pipelines start to reach capacity around 2014-15. After that, we need more pipeline capacity to be brought on stream.
Studies done by TD bank and others have come to the same conclusion. I believe the Canada West Foundation will be putting out a study shortly. They all come to the same conclusion: We need more pipeline capacity. This demonstrates that if some of the other pipelines that are currently planned — Keystone XL, Gateway, Trans Mountain in British Columbia — come on stream, that gets us more pipeline capacity and allows us to go further out before those lines cross again. This slide underlines the importance of expanding pipeline capacity in Canada, and that is why it is such an important factor.
The next slide shows the fact that because Bakken oil field is coming on so quickly, pipelines are already starting to reach capacity. There are already bottlenecks in some areas. Crude oil is starting to move by rail right now. For example, in 2011, for all hydrocarbons, including refined products, we were up to about 400,000 barrels a day. The key thing on rail is that it is expanding rapidly. One of the biggest drivers, again, has been the fact that the Bakken oil field in Western Canada and the U.S. has been expanding that. A lot of that is coming out by rail right now. It is more expensive. You can see from some of the costs that it is $8 to $13 a barrel as opposed to $3 or $8 a barrel by pipeline, roughly; this is just order of magnitude. However, with some of the differentials that we are seeing and with some of the discounts of Western Canadian and Western U.S. crude because it is shut in right now, the differential is much bigger than the difference in transport costs, so we are starting to see that more will probably move by rail.
If you take a pipeline that moves 500,000 barrels a day, to give you a picture of this, you would need a train of 100 cars going by about every two hours. You would need 10 of those trains, so 1,000 cars, every day to move 500,000 barrels a day. Picture standing by a rail line watching a train of 100 cars go by every two or three hours; 10 of those a day. That is what you would need to move the same as one pipeline that runs about 500,000 barrels a day. Again, it is a good measure. It works in a lot of areas, but pipelines still, in the longer term, are probably the most efficient way to move crude.
The next slide shows that the private sector is actually reacting. They are following the market's signals. If I can point out some of them, Enbridge has proposed Northern Gateway. This one is very much in the news right now, with 525,000 barrels a day. In Vancouver, Kinder Morgan is proposing to expand its Trans Mountain Pipeline. That pipeline is about 300,000 barrels a day. They would add an additional 590,000 barrels a day. Keystone XL is also very newsworthy right now. That is about 700,000 barrels a day and is currently under consideration in the U.S. by the State Department.
In Eastern Canada, Enbridge has already secured approval to reverse part of Line 9 and is seeking the rest to be approved. That would actually move light crude from Western Canada and from the Bakken formation to refineries in both Ontario and Quebec because they are set up to refine light crude.
Enbridge has also expanded through the Clipper line, the Spearhead pipeline and Seaway. They are expanding their capacity to move crude through various links all the way down to the Gulf Coast.
There is also another proposal that TransCanada is considering right now. They have these big main line gas pipelines, and you can convert those to oil. Part of the original Keystone pipeline in fact was a converted natural gas pipeline. It involves taking compressors out, putting pumping stations in and doing some engineering work.
The estimates are that if they converted one of their main line gas lines, it could take anywhere from 500,000 to 1 million barrels a day. It would require them, I believe, to add 300 or so kilometres to get it all the way to Montreal. There is a possibility that they could be looking at moving major amounts of crude all the way to Montreal.
It has also been in the newspaper that they may be considering moving it on to Saint John, New Brunswick. That would be strategic for us because that is the Irving oil refinery, the largest refinery in Canada, which currently refines 300,000 barrels a day. It works largely on imported crude oil, which is more expensive. There has been a lot in the public eye recently about that possibility.
You can see that there are many possibilities out there for the expansion of pipelines. That is just an overview of some of the projects right now.
I now want to give you a bit of an overview on pipelines and the issues around them.
On the issue of pipeline safety, Canada has a very good record. The National Energy Board regulates over 71,000 kilometres of pipe across the country. A little less than 4,000 barrels a year have been spilled out of the 1 billion barrels that have been transported. It is an amount that we are obviously concerned about. We would like to get it as close to zero as possible, but it is a very small fraction of what is moved.
The 23,000-barrel spill in 2001 from the Enbridge Line 3 in Hardisty tends to skew a lot of the figures. If you look at averages after 2001, you can see that there were years when there were no spills. In 2003-04 and other years it was only operational spills, that is, spills from valves, flanges and things like that. Other than that one spill, I would say again that Canada has a very good record.
We do not want to say that Canada is better or worse internationally, but looking at the U.S. and the U.K., all three countries have very safe and reliable pipeline systems.
Again, we had no releases in four years. We had fewer release incidents per kilometre than Europe or the U.S. in eight out of the ten years. Again, our conclusion is that in all three countries the pipelines are very rigorously monitored, they have strong regulators in place and they are well managed.
We have Dr. Sankara Papavinasam with us today from the Canmet labs in Hamilton. I understand that you may be considering going down there. Dr. Papavinasam can answer technical questions.
In the news you sometimes hear the accusation that oil sands are liquid sand paper, that they are more acidic and more corrosive and that within pipelines they are very dangerous. That is completely untrue. In fact, research and industrial experience have proven that oil sands crude oil is no more corrosive in transmission lines than any other crude. The NEB sets national standards ensuring that all crude oils have low corrosivity. The removal of water, which is corrosive, and the removal of mud and sand, which are erosive, happens upstream.
There are some other things like naphthenic acids in tar sands oil, but these things are not corrosive at normal temperatures. They have to be at more than 200 degrees to become corrosive, which is a factor in refineries. Refineries take special precautions and have tubing in place to deal with that. In a normal pipeline, it is not a factor.
ASTM International is an internationally recognized agency. They have published a guide for measuring corrosivity. Measurements obtained from all their tests indicate that the corrosivity of oil sands crude is no different than that of other crudes. Dr. Papavinasam has done a fair amount of research on that and can answer your questions in that area. He was telling me that they started the research on this because they were looking at oil as a corrosion- inhibiting agent, something that would actually deter corrosion, and it then got into the area of oil sands crude versus other crudes.
A number of legislative changes have further strengthened pipeline safety. Budget 2012 provided $13.5 million over two years to the NEB to increase the number of inspections on pipelines and to increase the number of annual comprehensive audits. Also, Bill C-38, as we mentioned, provided the NEB with new powers to administer a system of administrative or monetary penalties, which are the fines that they can impose for violations. That gives them more tools for enforcement.
Finally, the private sector has been very active in this regard. I know that Dr. Brenda Kenny from the Canadian Energy Pipeline Association spoke to you about a number of things they have done. She mentioned the Canadian Common Ground Alliance, a broad-based national organization that works with the National Energy Board, the Canadian Gas Association and the Canadian Energy Pipeline Association. They are promoting things like Canada- wide, one-call systems before excavating. They are working within the provinces with provincial officials on this as well. Again, we are working with them on that currently, and people in the private sector are mobilizing around safety issues right now.
In conclusion, our view is that the safety of the oil and gas transportation system is critical to the development of oil and gas in Canada and to the expansion of our pipeline system. Increased production of oil and gas will continue to mount pressure on us for more pipelines. It will heighten the use of rail. Internationally, the statistics show that Canada has a good safety record with pipelines. We have strong regulations in place, and we are focusing on continuing to improve the safety regime to make sure that it is world class.
The Chair: Thank you. That was very interesting. I will ask you one quick question on pipelines.
You said that in 1957 we started exporting gas to the U.S. through the Westcoast Transmission Company system. I am familiar with that. That pipeline is still in place. Is it correct, as some people say, that that pipe is so old that it should no longer be used for transporting gas under high pressure?
Mr. Corey: We rely on our regulator, the National Energy Board, for the answer to that question, but I believe the answer is no. If it was not safe, the NEB would not allow the pipeline to be in operation.
I believe that Dr. Kenny did talk a bit about some of the inspection tools that they have in place, like the pigs that they send down the line to do magnetic resonance imaging and such things to detect the thickness of the walls. It is the job of the NEB to ensure that they are safe enough. If they are not safe enough, it is the NEB's job to order reduced pressure or even close them down.
The Chair: Does the Irving refinery now refine heavy crude?
Jeff Labonté, Director General, Petroleum Resources Branch, Natural Resources Canada: They do have capacity to refine some heavy crude. It is a unique refinery in that they have the capacity to do both, although they are predominantly fitted for more light sweet crude.
The Chair: What would be the split?
Mr. Labonté: I would have to get back to you with the exact split.
The Chair: If you would.
Mr. Labonté: We can do so.
Mr. Corey: We do know that they are bringing in heavy crude from Western Canada and the Western U.S. right now, and that is part of their mix. They are doing it because it is less expensive for them to transport some of that by rail, which is how it is coming in, than to pay the offshore price.
Senator Mitchell: Thank you, gentlemen, for your very interesting presentation.
On your point about price, Alberta and Saskatchewan need to get their oil offshore in order to make up the spread between the locked in price and the international price. It is confusing and maybe you can clarify it. I think people have a sense that if we cannot get it out through the West Coast, we can get it to the East Coast and that will solve that problem. However, you are saying that the East Coast would expect to buy it cheaper because it is still locked in.
Mr. Corey: That is a question that the markets would resolve.
Senator Mitchell: What is your best guess?
Mr. Corey: These things all come into equilibrium. In the longer term, as we get closer to world prices, you will see that the price to Canadian producers will go up. It is very complex because the percentage of production offshore also changes a lot as other countries come on-stream and go off stream. In economic theory, you would expect that the two prices would eventually come together.
Senator Mitchell: Even if we are just selling it to Canada, to Eastern Canada? Do you see what I am saying?
Mr. Corey: The thing is that Eastern Canada right now, they are paying world prices for the refineries.
Senator Mitchell: They would expect to pay locked-in prices, the lower price?
Mr. Corey: Again, it is a market thing. We would basically let the market —
Senator Mitchell: I am just wondering what would happen.
Mr. Labonté: I think it is fair to say that there are dynamics at play, so part of it is whether it is heavy crude or light crude. Heavy crude automatically has a discount related to the fact that it takes more energy to refine heavier crude, so there is a natural discount that occurs between heavy and light.
Refinery dynamics as to whether there is a stronger demand for heavy or light in the marketplace in North America is another huge factor that plays with the price structure, and then whether buyers and sellers are producing long-term or short-term contracts. Most of North America moves on spot market prices. However, with demand changing and some of the factors at play, we are seeing longer-term contracts being created between producers and pipeline companies who are building new infrastructure, and then the buyer at the end. You have a number of factors at play.
Presumably we will see some equilibrium occurring. Already in Eastern Canada, all of the refiners are paying world price. All of the crude is coming from offshore. We will see, as people move it to port and to water, that you will have the opportunity to either sell globally or locally, and then those factors as to how the dynamics in North America look.
Mr. Corey: The other way to look at it, senator, is that historically the Brent price, which is the international price, and the WTI price, West Texas Intermediate, have been pretty much the same, or very close. In fact, WTI actually used to sell at a slight premium to Brent. They are out of step right now. You would expect that those two will come back into line again as the market adjusts.
Senator Mitchell: I think we have a sense that somewhere, in some room with lots of computer screens, technicians and engineers are watching what has happened to these pipelines. Until Kalamazoo, we all thought they could immediately detect a spill. The public probably has expectations that are too high in that regard. What is the shortfall there? Is it a question of the technology not being up to it or that people were not trained? Can we fix it? Can it be so that you can detect these spills much more quickly?
Mr. Corey: I should mention that that particular spill was an anomaly. They continued to pump, according to reports, for 17 hours after the leak started. The reports are that they should have caught it much more quickly than that. It was basically a misunderstanding of what the equipment was telling them.
Normally a spill is much smaller than that; it is detected much more quickly. From our experience, that is an absolute worst-case scenario. I think that is the largest one we have seen on land.
Mr. Labonté: Not to denigrate that — that spill is a serious issue — but generally speaking the spills in Canada, on average, have been quite small. In fact, if you looked at them historically, the trend, and averaged all of them, they are in the tens of millions, at the very most, on the upper end. Kalamazoo is the anomaly.
I think the NEB chair, who you will hear from next, can actually speak to some of the auditing they have done of Enbridge following that particular incident, of that operational room, where there has been work done to try to get at the root issue. I think Enbridge has done a number of things, and they would probably be able to respond in terms of why it happened and what they have done about it.
Senator Lang: I want to follow up, if I could, on Senator Mitchell's question that now we are going to the east with crude oil. However, at the same time, Mr. Corey, in your presentation you indicated there were so many millions of barrels going east and then there were two pipelines going west. One is Kinder Morgan — Trans Mountain, I believe it is — and the other is Northern Gateway.
I want to get it clear for the record. The fact that there is the ability to take oil to the east, it will still be required, if we are going to maximize and benefit from the oil sands, to have further volumes going to the West Coast to be able to maximize our returns on that particular commodity; is that correct?
Mr. Corey: That is correct. In fact, it is something I think our minister has been very clear on, repeatedly. He said that we need to develop pipelines in all three directions. For example, the Northern Gateway one is before the NEB right now. Kinder Morgan is looking at the Trans Mountain expansion. To the south, I think the government has been very clear on supporting the adoption of the Keystone XL pipeline as a way to get Canadian crude down to the gulf. It should be noted that those refineries are very well set up to deal with oil sands because they are now dealing with heavy crude coming out of places like Venezuela and Mexico. You will find that Canadian crude will probably again start to displace some of those.
Going east, it is exactly as you say. The refineries in Ontario and Quebec are set up to do light, so it is more likely it will be light crude, for example, from the Bakken formation. However, you could see heavy crude, for example, going to the Irving refinery in Saint John because they are set up to do some heavy.
The view of the department and our minister — he has been very clear — is that with the expansion of Canadian production, we need to develop pipelines in all directions.
Senator Lang: One of the other areas I want to turn to is the question of safety. We hear from industry and government that pipelines are generally safe, minimal risk. There are at times some ruptures, but they are curtailed in a very expeditious manner. However, at the same time we hear the other side of the equation from environmental groups talking about how difficult it is to have a pipeline and the risks attached to a pipeline.
One of the areas they go into — and I believe this would go to the gentleman to your left there — is the question of pipeline corrosion and the possibility, then, of ruptures. Statements have been made here that research and industrial experience have proven that oil sands crude oil is no more corrosive in transmission pipelines than other crudes. When you say "no more corrosive," what are we comparing ourselves to? In respect to the actual corrosion that could take place? If corrosion takes place, to what degree does it take place?
Mr. Corey: Just to frame the issue, when you are looking at corrosion on the pipeline, it is the opposite of what most people think. Pipelines do not corrode from the inside. Oil, in fact, is a lubricant and a preservative. If you are going to get corrosion on a pipeline, it is much more likely that it will be from the outside, from environmental factors. That is principally where the concern is. You will find that crude oil going through a pipeline is carefully regulated; it is not something that will corrode the pipeline from the inside.
Dr. Papavinasam, could you talk a bit about the research you have done, just to give the senators an idea?
Sankara Papavinasam, Research Scientist, CanmetMATERIALS, Minerals and Metals Sector, Natural Resources Canada: Thank you. It is a pleasure to talk to you.
First, for corrosion to take place, we need water. In the absence of water, corrosion cannot take place. Crude oil is a non-conductor. For example, we all apply grease in our cars to protect the car from corrosion. Crude oil is not corrosive at all because it is a non-conductor.
We pump 99 per cent or more of oil through oil transmission pipelines. As a result, corrosion cannot take place. However, we do allow less than 0.5 per cent water inside the crude oil pipeline. When the water comes in contact with the surface, it may be corrosive.
What we are looking for in our research is how effectively we can control corrosion by using the crude oil. In general, crude oil is non-corrosive under pipeline operating conditions, which is less than 70 degrees Celsius. Why the crude oil is becoming corrosive is because some of the chemicals that are present in the crude oil may get transferred from the crude oil phase to the water phase, so that might change the corrosivity of the water phase.
To answer your question, if you do not have any crude oil in the pipeline — and we have done the experiments and we had a conference two months ago in Toronto — the corrosion will be around 25 milli-inches per year. That is internationally proven. The moment you add crude oil, whether it is general commercial crude oil or crude oil from dilbit, the corrosion rate drops to 4 milli-inches per year. From 25 mpy, the minute you add crude oil, it drops to less than 4 milli-inches per year, because crude oil, by nature, is non-corrosive.
Senator Massicotte: I am interested in the number of spills and a comparison of spills between different countries and different modes of transportation. I look at your page 11 and you do make a comparison of the number of spills and also the volume of them. I have not done the averaging, but I suspect when I look at the volume that we are probably the same as the United States and Europe — not the frequency, but what we have lost. If I look at the average over the last four or five years I suspect we were less some years, but we were probably the same as the others.
Would similar information be available to compare, say, pipeline to rail to boat? What is the volume of spills if you wish to compare it with different modes of transportation? We know rail is maybe five cents or $5 more a barrel, but do we have those comparisons available?
John Foran, Director, Oil and Gas Policy and Regulatory Affairs Division, Natural Resources Canada: We do not have numbers to compare on a standardized basis for the barrels of oil moved per mile by train versus by pipeline. We do not have those numbers.
Senator Massicotte: Is it possible to get them?
Mr. Foran: There are some studies that do those comparisons. The consensus is that pipelines are the safest way to move crude oil long distances; better than rail.
Senator Massicotte: Can we get the hard data? I appreciate your opinion, but I would like to see rail and boats because there are arguments in Quebec right now. They are saying that they do not want the pipeline, but they are bringing in oil from South America. When you look at the environmental risk, is that greater or less than by pipeline? I suspect it is greater, but I would not mind some hard data.
Mr. Labonté: We could bring forward some data. I think the issue that does not give you the perfect answer is it cannot always be an apple to apple to apple comparison. For example, the Transportation Safety Board keeps statistics on modes of transport, but they would not differentiate a rail accident that was moving another liquid necessarily with crude oil. They can tell you about how frequently rail accidents occur versus pipelines but not necessarily whether it was crude in the rail cargo hold or whether it was some other liquid.
Senator Massicotte: We need a common denominator that allows some form of comparison. I appreciate that it would not be perfect, but I would like to get that somehow.
Mr. Labonté: We could certainly bring forward some material to the committee.
Senator Massicotte: I want to compare different modes of transportation in comparison to other countries, which you have a bit. For example, I would not mind Europe. Also, there is the cost issue. We briefly make comment that it costs $5 a barrel more for rail, but I would not mind seeing the cost of a barrel per mile or kilometre travelled. That would give us a fairly large overview. What are the choices available to consumers?
Mr. Labonté: We certainly have the numbers around cost from major tankers, rail and pipeline. Some of that is commercially sensitive, but we can provide you a range and how they work. We are not privy to the exact contracts between one producer and another, but we have enough data that we could provide you.
Senator Massicotte: My second question is about technology. We are always surprised at the leaks that occur and how long it takes, yet some people tell us that technology should get us there. Is it nearly there so that they can detect a leak immediately and avoid the consequences of a spill, or are we years or decades away from knowing that?
Mr. Corey: The answer is yes. When you look at the control rooms of the major pipelines now, they are very sophisticated. They have all kinds of information coming in 24 hours a day, 7 days a week, on pressures and on how the system is working. They are instantly alerted if there is a problem with pressure. The difficulty, again, from our following through with Kalamazoo, is that they were misunderstanding what the readings were and they misunderstood the situation. Normally speaking, yes.
When Gaétan Caron from the National Energy Board of Canada appears next, he can give you more information on what the regulator requires.
Senator Massicotte: With diminished pressure, they will know exactly where the leak occurs so that they can get there, shut off the system and find a remedy?
Mr. Corey: The system is such that they will know there is a drop in pressure and they will know where it is.
Senator Massicotte: Why is the news covering all these spills? Why are there still spills? Are you saying human error?
Mr. Labonté: There is always an element of human error. The detection systems provide a change, something occurring out of the ordinary. There is human decision, protocols to make decisions and how to deal with those. Another one of the factors is that the data is getting better. The factor of incidents reported now and the requirement to report is higher than it was. If you look at the data from 10 or 20 years ago, it looks in some cases like more things are happening. In fact, people are being more transparent and the regulations are requiring more disclosure of what is being reported. It is not necessarily that things are worse than they were; it is that previously we would never have reported them.
Senator Ringuette: I am looking at your slide on page 9, which is a graph of the distribution system, existing and proposed. I am looking at the natural gas main line that is proposed to be converted to crude oil. How will we transport natural gas to the West Coast if that current system is removed from transporting natural gas to crude oil?
You stated that the essential goal is for Canada to be self-sufficient and to ensure that the transportation of all natural gas, crude oil and shale gas has a transmission line. How will that be replaced?
Mr. Corey: I will start off and then I will pass it over to Mr. Foran.
The TransCanada line right now has a huge overcapacity. They are not running the natural gas at 100 per cent. In fact, it is at a much lower level to the point now where their lower capacity is a problem for them. There are four to six of these lines running in parallel at some points. Transforming one of those lines from natural gas to oil basically means that they would be taking pipe that is currently underutilized and is not carrying natural gas.
Senator Ringuette: What is identified here as the purple transmission line is more than one —
Mr. Corey: It is a number. Maybe I could get Mr. Foran to talk about how many pipes there are and how that would work.
Mr. Foran: The TransCanada Canadian main line natural system starts at Empress, Alberta. When it starts there it is six loops, six pipes, laid parallel in the same right of way. As you move farther and farther east, it ends up in Montreal with two loops. There is a lot of excess capacity. It is possible to convert one of the loops and still have lots of capacity in Eastern Canada for natural gas.
Senator Ringuette: Including the expected future expansion of natural gas and shale gas?
Mr. Labonté: Correct.
One of the other issues at play is market dynamics. Natural gas shale development both in the United States and Western Canada — for the U.S. it is mostly in the northeastern states and Louisiana — is providing market incentive such that the U.S. is now exporting natural gas into Ontario. We used to export exclusively to the United States. However, we are now importing close to 3 billion cubic feet a day of U.S. gas into Ontario that competes with gas moving from Western Canada into Ontario and Quebec as well. Ironically, the cost of moving it from Alberta to Ontario is making Canadian gas more expensive than some of the gas coming from the United States. You are seeing different trends occurring in the market. At certain points of the year, we are using more U.S. gas in Ontario and Quebec than Western Canadian gas.
Senator Ringuette: I have a question for Dr. Papavinasam in regard to the conversion of a pipeline from natural gas to crude oil. The product is quite different. I suspect that the requirement in regard to the pressure for the transmission of the two products is quite different and that therefore the specs for the pipeline would also be quite different. What are the requirements in regard to making sure that a pipeline that is now transmitting natural gas is correctly converted to transport crude oil? Again, they are two different products.
Mr. Corey: Natural gas runs at a higher pressure than oil, so when they convert from a natural gas to an oil line it will be running at lower pressure. It involves moving from compressors to pumps. As I mentioned, the original Keystone pipeline was partly a natural gas pipeline that was converted to oil. Engineers are capable of managing that.
Senator Patterson: CanmetMATERIALS does research and workshops on pipeline vulnerability issues. We have talked a bit about corrosion tonight. What are the most significant sources of damage to pipelines other than corrosion and what measures are being taken to address them?
Mr. Corey: That comes back to a previous question. There are five principal things that will cause pipeline failure: external corrosion; cracking; third-party damage; construction damage; and geotechnical hazards, such as when the ground shifts. Those are the main things that will cause a pipeline to fail and lead to a pipeline accident.
The ones I think you are referring to relate more to external corrosion and cracking. I will ask Dr. Papavinasam to talk about the research that he does at Canmet in that regard.
Mr. Papavinasam: We do research at Canmet not on corrosion but on corrosion control. We have had some issues with respect to external corrosion and cracking. Our lab has been active for the last 35 years to effectively control both external corrosion, which includes stress corrosion cracking, and to some extent to prevent corrosion by effectively using crude oil on the internal side.
Senator Patterson: The U.S. National Academy of Sciences is currently engaged in a study of pipeline transportation of diluted bitumen, or dilbit. They want to determine whether it will increase the likelihood of release compared with pipeline transportation and crude oils. Are you involved with that study? Are we participating or doing our own?
Mr. Papavinasam: Yes, we are involved on that committee. In fact, I gave two talks to the committee, one on July 23 and one as recently as December 31. Tom Menzies, chair of the committee, was also a participant at the corrosion conference we had in Toronto. We are aware of that committee's activities. We understand that the committee's report will be available sometime in the summer of 2013.
Senator Seidman: Mr. Corey, your excellent presentation was filled with all kinds of good facts and knowledge. You talked about the shared responsibilities between jurisdictions in the management of energy resources. You said that scientific research and development is a shared responsibility between the federal and provincial governments. How is that responsibility shared, in what proportions? Do the pipeline companies conduct their own research and do they share it? I am speaking specifically in relation to pipeline performance and safety.
Mr. Labonté: It is shared in that both the provinces and the federal government have programs that fund innovation and research. Alberta Innovates is an example. Alberta is a fairly large funder of research that relates to things in the oil and gas sector and energy more generally.
Our ecoENERGY suite of programs at NRCan is a way that we fund research that is sometimes conducted by universities with the private sector involved. In other cases it is with the private sector, and in other cases, like the Canmet example, the lab is actually a federal lab.
As to how it is shared, we sometimes work with the province on joint projects. In other cases, they are funding research in some areas and we are funding research in other areas. Both governments are using policy instruments to encourage innovation in this area. Alberta is by far the largest investor of all the provinces in the pipeline area, predominantly because of the interest in energy in Alberta.
Senator Seidman: Do the pipeline companies themselves do research on pipeline safety?
Mr. Labonté: They do, in different ways. In many instances they partner, so you will see two or three companies collaborating with a government scientist, whether it is in the Devon lab near Edmonton, an NRCan lab, or through Canmet. Most of the federal programs involve partnering and collaborating because we have great labs but they are not practical. The people in the companies tend to have the practical experience. We have cross-pollinization of ideas and then actual operational experience working together to test the thinking, try it out in a lab, and then move it to an environment where we might test it again in a more real-world-like scenario.
Senator Seidman: Is it often the case that it moves from a lab to a real-world scenario to be tested?
Mr. Labonté: I cannot refer to specific projects with respect to pipelines, but I know that in the oil sands area, where we are checking on the chemical properties, lab scientists are working with the scientists from the companies and they are exchanging. Each company has its own approach. Dilbit is what amount of diluent is used, and it varies by company and by what the customer is looking for. The research wants to ensure it covers all the angles of the spectrum of different products rather than only one aspect. To have that knowledge you have to have access to the different products provided by the different companies.
Mr. Corey: A good example of industry pulling together is in the oil sands. Canada's Oil Sands Innovation Alliance is where most of the big oil sands companies have come together. They have put questions of intellectual property aside and have decided to share. There is a lot of sharing of technology going on now in the oil sands.
Senator Wallace: Thank you for your presentation. I am interested in the pipeline capacity information that you presented on page 9. It is interesting that it highlights the extent to which new pipelines that are being considered could potentially impact oil that is otherwise shut in and would not be exported from Alberta, in particular.
Your chart says to me that the impact of a line to Saint John, New Brunswick, to the largest refinery in the country, in terms of barrels per day of crude would be nearly double that of the Northern Gateway project and 50 per cent more than what Keystone would be. Is that correct?
Mr. Corey: Again, we need to exercise a bit of caution. TransCanada is saying that it could be in the range of 500,000 or up to 1 million based on pipe size. There is as yet no proposal to the National Energy Board or anything like that. However, it gives you an idea that we have some capacity that could be developed in all three directions — west, south and east. Our conclusion is that you need all of them.
Senator Wallace: I get that. Being from Atlantic Canada, that certainly gets my attention. It is interesting to see the significance that a refinery in Saint John, New Brunswick, would have on the national stage, and you certainly highlight that.
My second question ties in with one that Senator Massicotte asked earlier. If a pipeline were to be extended to the refinery in Saint John it would to some extent replace crude that is arriving there today by VLCC tanker from the Middle East, Europe and so on. In terms of safety of crude movement, do I understand you correctly to say that you believe that crude moved by pipeline has the fewest incidents and is the safest way to move crude versus rail or vessel tankers?
Mr. Corey: We are saying that it is very safe.
Senator Wallace: My sense was that you were saying as a general proposition that it is safer in terms of number of incidents.
Mr. Corey: We are cautious to say that. Nothing is risk free.
Senator Wallace: I am not talking about being risk free.
Mr. Corey: When you look at the statistics and the number of barrels that go through the system every day and the number of accidents and spills that we have, it is very, very low risk.
Senator Wallace: Would it be fair to say that if a pipeline were built to Saint John — although I know the performance of the refinery in Saint John is excellent with its product moved by tanker — in theory at least, the risk would be no greater and probably less so if product were to move there by pipeline?
Mr. Corey: A lot of crude is moved by tanker. Most of Eastern Canada is supplied by it. It is also very safe. We have seen a lot of crude moved by rail, and it is very safe. We are just being very cautious that we do not start making comparisons and have people jump to conclusions that one is safe and the other is not. Tankers are very safe, rail is safe and pipelines are safe. We are basically saying that if you focus just on the pipelines, they have a very good record.
Senator Wallace: I really was not looking for your opinion on that, and I know you rely on data. From the data, from the information and research you have done over the years, I was trying to ascertain if there was some risk, which I think was at the heart of Senator Massicotte's question. I think I have a sense of where you are at.
Mr. Corey: Okay.
Senator Wallace: I have one last question. I take it that new pipelines today would be built to a different standard than those listed in your history; namely, pipelines built over the last hundred years or more, or even those built over the last five or ten years or more. Would you say that is true?
Mr. Corey: You will surely be hearing from the President of the National Energy Board. That would probably be better. However, technologies have improved, our understanding of these things has improved, and we would probably allow that.
We would defer to Mr. Caron to give you more of the details on the safety aspects.
Senator Wallace: Therefore, if a new pipeline were to be built to Saint John, New Brunswick, the safety performance of that line, technically speaking, would in all likelihood exceed lines that were built a number of years ago and that exist elsewhere in the country, would it not?
Mr. Corey: For example, when you look at the Keystone XL pipeline, the opinion of those reviewing it is that it would probably be one of the safest pipelines in North America, built to the standards that are being proposed.
Senator Sibbeston: My question relates to Frontier Energy Pipelines. I appreciate you do research on this. In the Northwest Territories, there is a pipeline from Norman Wells that would run through some permafrost areas. Are the requirements for pipelines in the North different because of the permafrost? What is the difference? Is this something you can answer, or is the question better addressed to the National Energy Board?
Mr. Corey: I would ask Mr. Caron to answer that because he is the regulator up there and can give you the specifics on that.
Senator Sibbeston: I only ask because I am aware that you do research. I think I saw somewhere in our information that you do research on pipelines in the Northwest Territories, or in colder areas of our country.
Mr. Papavinasam: Yes, we do research. However, Canmet is not involved. The researchers at the Geological Society of Canada are specifically knowledgeable on the permafrost pipelines.
Mr. Corey: I would note, senator, that you are correct. One of the five things we look for in terms of causing pipeline failure is geotechnical hazards. Shifts with permafrost would be taken into account when designing a pipeline, absolutely.
Senator McCoy: Slide 9 is dedicated to oil pipelines. Do you have a similar map and information for natural gas pipelines? I know there is a proposed one, or it is being built right now from Kitimat, I guess from your territory, across B.C.
Mr. Corey: The answer is yes, we do; there is a whole separate pipeline system for natural gas. It runs across the continent.
Senator McCoy: Could you provide that to the committee?
Mr. Corey: Absolutely, yes.
Senator McCoy: You mentioned five major causes of rupture or failure in oil pipelines. I think you distinguished them for oil pipelines because most of the conversation seems to be going that way, or was that typical of both?
Mr. Corey: They would be similar. For example, a contractor digging into a pipeline with a backhoe would be the same whether it was oil or gas. It is the same hazard.
Senator McCoy: You need five for both. We all know that risk, which is the flipside of safety, is really a question of probability times consequence. Who do we ask about the relative consequences and maybe start to bore down on what is the probability? I think some of the questions as to the frequency are a bit of a probability question. However, we have not heard much on the consequences of failure.
Mr. Corey: Right.
Senator McCoy: We might not have time to answer that question tonight.
Mr. Corey: It is a very good question and in fact you will —
The Chair: If you can give me a quick answer.
Mr. Labonté: It depends on the incident and where it occurs.
Senator McCoy: Whom do we go to for delving into that understanding, which I think might be critical to a sophisticated approach to this study?
Mr. Corey: You will find, for example, that the National Energy Board basically uses a results-oriented approach to regulation where they actually go in and ask the operators to look exactly at those questions and to come up with plans as to how to deal with those things. Our regulator would be an excellent person to ask.
Senator McCoy: You probably have the information but we did not focus on that tonight. We may have to invite you back. You had provided us with very good information this evening. Thank you.
The Chair: That was very interesting. I think we had some good questions and some very good answers, so we appreciate it very much. Thank you for coming.
It is my pleasure to now welcome Gaétan Caron, Chair and CEO of the National Energy Board. I am sure there will be a lot of good questions.
Mr. Caron, I think you have a presentation that you wish to give. I turn it over to you, sir. You can give your presentation and then we will move to questions and answers.
Gaétan Caron, Chair and CEO, National Energy Board of Canada: Thank you, Mr. Chair. Indeed, I have a brief presentation to set the stage.
Good evening, honourable senators, and thank you for the chance to speak with you on what the National Energy Board is doing to continually improve the safety of pipelines in Canada.
[Translation]
You have already heard from two of my colleagues on this topic, Patrick Smyth, our Business Unit Leader of Operations and Iain Colquhoun, our Chief Engineer — two of the NEB's top technical experts on pipeline safety. I trust that their testimony before this committee has been useful.
[English]
For the NEB, protecting the interests of Canadians by keeping them safe and protecting the environment are paramount. The NEB expects regulated companies to lay a strong foundation for a pervasive culture of safety, forcefully affirmed by the organization's leadership, rigorously documented, known to all employees and consistently acted upon across the organization.
I would say, Mr. Chair, that our approach to pipeline regulation is the same as that which we apply in the North in respect of offshore drilling. I know senators from the Northwest Territories or Nunavut might be interested in what we do as well in terms of northern oil and gas development. I will be prepared for questions on that as well.
Regulated companies must identify all hazards and assess and mitigate the risk of those hazards to the public, workers and the environment when it comes to the construction and operation of pipelines. The NEB evaluates its regulated companies and their facilities year round to plan how it will verify compliance. As part of this, we will look at a number of criteria, including the pipeline's location, type, age — and I would be prepared to answer questions about the age factor later on — and operating history.
We also look at historical information on the company's management of these factors through previous compliance monitoring activities, such as inspections and audits. Based on this information, the NEB strategically allocates resources where they can have the greatest impact.
The NEB's regulations, along with our expectations of companies, continue to change as technology and the public interest evolve. The board's Onshore Pipeline Regulations already require regulated companies to have comprehensive and effective programs, which are used to address operational hazards and risks. Amendments to these regulations presently follow the federal regulatory development process, which included a 30-day comment period in which the board heard from interested Canadians. Based on the comments we received, along with our own experience and research on best practices, the board believes these amendments will strengthen our ability to promote pipeline safety in Canada.
[Translation]
Management systems are central in our strategy of continual improvement in pipeline safety. Both companies and other regulatory bodies across North America and beyond are recognizing their effectiveness and moving in the same direction. At their very essence, management systems document how people are able to carry out the responsibilities of their position.
[English]
The NEB expects its regulated companies to have well-developed and fully implemented management systems, which have been shown to consistently promote the protection of critical infrastructure and lead to a culture of safety. If there is one thing I would invite senators to remember from my presentation tonight, that is it. We believe that safety of pipeline construction and operation — in terms of the improvement, if at all possible — as far as the eye can see is grounded in the existence of real management systems driven by the top of the organization, creating a pervasive culture of safety throughout the organization. That is the one thing that I would invite senators to remember from my comments, and I would be delighted to expand on that in the question-and-answer period.
Management systems must have three key elements in order to be effective. They must be consistently applied, be incorporated into all areas of company operations and have specific assigned accountability. Management systems must also be designed to share information and intelligence between all levels of an organization in order to promote better decisions.
The proposed amendments to the Onshore Pipeline Regulations clarify the board's expectation that management systems must apply to the key program areas for which companies are responsible: safety, pipeline integrity, security, emergency management and environmental protection. The amendments also require companies to have a process for internal reporting of hazards, near misses and incidents. This includes the conditions under which immunity from disciplinary action will be granted to the reporting individual. In addition, these amendments explicitly require programs and functions in management system design and implementation to be seamlessly linked to each other. This integration is essential to the proper functioning of a management system. Finally, they include new provisions holding a company's senior leadership accountable for its management system, safety culture and the achievement of outcomes related to safety and environmental protection.
Creating a management system on paper is one thing, but fully implementing it into the day-to-day operations of an organization takes work. Effective management systems support a safety culture that is pervasive throughout the company. This happens when everyone in the company, from the top down, believes in safety, talks about it, promotes it and lives it. When there is a strong safety culture, leadership focuses on safety as much as the bottom line, and employees have the confidence that they will be backed up from the very top of the organization if they stop or delay a project over safety concerns.
Through its regulations, the NEB clearly defines outcomes that each regulated company must achieve. Companies must determine how to best achieve these outcomes. The NEB then verifies the actions taken by each company through inspections, compliance meetings, emergency exercises, audits and investigations. If at any point non-compliances are found, the board will take action using a suite of tools, such as imposing safety orders that restrict operations, issuing stop work orders and revoking authorizations, as well as pursuing criminal prosecutions if necessary.
[Translation]
No matter the requirement, all of the NEB's safety programs are designed to ensure companies effectively manage safety and environmental protection from the design of a pipeline to construction, operation and its eventual abandonment.
[English]
The NEB will continue to demonstrate its commitment to safety and environmental protection in the months and years ahead. Parliament has provided the NEB with additional funds to hire more staff, increase the number of annual inspections for regulated companies from 100 to 150 per year, and double the number of comprehensive audits from three to six per year. These measures will provide the NEB additional boots on the ground to verify the pipelines we regulate are operating safely. In addition, Parliament has provided us with a new enforcement tool in the form of administrative monetary penalties, which will allow us to issue financial penalties to companies, third-party contractors and individuals for violations of safety and environmental protection legislation. We will be ready to implement this new tool in July 2013.
In June of this year, the board will host a safety forum in Calgary. Key issues in this forum will include corporate leadership's role in building and maintaining a safety culture, effective management systems and safety performance measurement. Since a strong safety culture begins with leadership, we expect the senior management of the companies we regulate to participate in the forum. I firmly believe that issues discussed at the forum will contribute to a continually improving, robust, industry-wide culture of safety.
The safety forum will feature experts such as Dr. Mark Fleming from Saint Mary's University. Dr. Fleming has, in his own words, "spent the past 20 years working to understand safety culture in order to enhance safety." His extensive research on safety culture has served to inform the basis of the board's philosophy and expectations for its regulated companies. I know he will be a valuable addition to the forum.
[Translation]
Oil and gas remain important energy sources in our society. Canadians demand these resources to be developed safely and responsibly. The National Energy Board agrees and sees this as a fundamental element of the work that we do in keeping Canadians safe and protecting the environment.
[English]
Thank you for giving me the opportunity to address the current state of the NEB's role in pipeline safety and our ongoing effort to look for new and better ways to improve on our core work, which is protecting Canadians and their interests. I am happy to address any questions you may have.
The Chair: Thank you. I will ask you the question that I asked before about putting in the pipeline in 1957. Is it still as safe as it was in 1957?
Mr. Caron: The answer, Mr. Chair, is yes, given the fact that pipelines continually monitor the condition of their pipes through flying over the line, visual inspection on the ground and the running of internal inspection tools. It is a cyclical kind of exercise. The companies we regulate are required by National Energy Board regulations to be current on the condition of the pipe. It is rooted in the concept of management systems, which I talked about in my opening statement.
For a company to operate safely, it is fundamental that as part of their management system they continually assess the hazards and risks that the pipeline is exposed to. Age is a factor, but it is only a factor. In fact, you have newer pipe that needs more maintenance to keep it safe than some older pipe, notably with respect to some of the coatings used to protect from corrosion in the 1970s. There is a kind of coating that requires more work than pipelines built in the 1950s and 1960s. Age is a factor, but it is not a determinant of safety. We require that companies monitor the condition of the pipe and, when necessary, do repairs, cut out sections, replace with new pipe in sections where they know they have had exposure to an issue. It is our job to ensure these good practices are continually applied to the safe operation of pipelines.
The Chair: On that particular pipe, though, it would have all been looped by now, so I think there are two pipes all the way down.
Mr. Caron: That is right, yes.
The Chair: I am happy to hear about the safety part of it because we are here to try and help get the message out to the public as best as we possibly can. You cannot guarantee 100 per cent, but we do a very good job of monitoring and pipeline safety in all of Canada. The last gentleman said some of the things that NEB can do if, in fact, some pipeline company is not adhering to safety practices. Has the NEB ever revoked a licence to operate, ordered a shutdown of a pipeline or ordered financial penalties, any one of those three?
Mr. Caron: To revoke an entire authorization, no; to ask that parts of a pipeline be shut down, yes. In fact, there was an undertaking from our witnesses who came in December to send you the two examples we have from recent years where a pipeline was shut down.
As we speak today, we have probably half a dozen segments of pipelines in Canada where we have ordered a reduction in pressure so that the pipeline remains safe. It is like driving on the road. It was safe at 100 kilometres an hour, but with the potholes, you have to reduce the speed to 60. The road remains safe at the lower speed. It is the same thing with pipelines. If you reduce the pressure that they operate at, you maintain your safety level until whatever is wrong has been corrected. We have about six of those pressure-reduction orders in effect right now.
Our inspectors have the legal authority to ask companies to do this and that, including, for instance, stopping work on a construction project or amending the way they go about operating the pipeline. These powers are used every day on a risk-informed basis, based on our observations, our independent assessment of the situation, with a concern about the safety of Canadians as we make those decisions.
The Chair: Thank you. That answers my questions.
Senator Mitchell: Thank you, Mr. Caron, for being here. We know how important this is to you. You sent your officials and now you are here yourself. It is reassuring to us. I think we actually were encouraged to do this study by a letter you sent us some time ago, so thanks.
I will go back to the monitoring issue. I have asked a number of people, and you saw, I think, this evening that I did.
Some of the testimony was that Kalamazoo was an anomaly. One would hope that all accidents are an anomaly, so that does not really distinguish it particularly. Second, the point was made that the control rooms of major pipelines are very sophisticated places with a very high level of expertise, et cetera. At the same time, in the Enbridge case there seemed to have been a misunderstanding. A couple of questions come from that.
One, if a major pipeline company can have this misunderstanding, what about less major pipeline companies?
Two, how is it that a company of the quality, size and resources of Enbridge would have that kind of misunderstanding?
Finally, you make the point in this regard about the culture of safety. I know this is provocative, but the U.S. National Transportation Safety Board identified a complete breakdown of safety at Enbridge. Could you give us some reassurance in that context?
Mr. Caron: I will not try to give you reassurance per se, senator, but I will tell you what we know and what we will know.
We found the NTSB report very helpful to us. You quoted the National Transportation Safety Board. They are the U.S. authority that is the equivalent of our own Transportation Safety Board. They are independent, and they made a finding, as you said.
They also promoted in the report, as I recall, the concept of the regulation of safety by regulators — in our case, the NEB; in the case of the U.S., it is an organization called Pipeline and Hazardous Materials Safety Administration, PHMSA — to move away from prescriptive regulation and check-box regulation to something more based on management systems and outcomes. The NTSB was very useful in the report, I found, promoting, at least indirectly, the concept of strengthening safety cultures. They observed in their report — and I cannot speak for them — that one of the issues at Enbridge was the human element in the control room.
In terms of what we will know, senator, I will let you know once we have finished our examination. We have a team of inspectors who have spent many hours. They have been there many times in Edmonton, asking employees about the situation, going from the NTSB report to the next stage. We have also been collaborating with the U.S. authorities, PHMSA, as I said. I can provide the court reporter what the acronym stands for, for the record.
We do know that the human factor explains a lot of the situation. There was a question from either you or another senator about leak detection systems and whether they can predict everything. The answer is they can provide perfect measurements as to the conditions along the pipe, but the issue is with interpretation of the change in pressure.
For instance, in the case of gas, natural gas is a compressible fluid. If there is a natural gas break, the way the pressure reduction proceeds is very different from a breakdown in an oil pipeline, which is not compressible, at least not very much so.
It is not about whether the pressure measurement, the temperature measurement and the exact point where something has changed is difficult to get. It is whether you interpret that to be a normal, transient condition in the movement of products in a very long pipeline, thousands of kilometres, or whether that is evidence of something going wrong in the field.
In the case of Enbridge and Kalamazoo, it is a question of how will we debrief on what happened among human beings in the control room and what have we learned from that. I am absolutely certain we will learn a lot, and companies in Canada have already started to work together to improve how each of those companies operate their control rooms as a result of this incident.
Senator Patterson: I am not sure if this is quite on topic. We are looking at pipelines and I believe there is only one north of 60 in Canada. However, the NEB has an important role north of 60, where I think you replace the provincial role.
Mr. Caron: Yes.
Senator Patterson: Could you talk a bit about how you are operating in the North? The NEB has recently been doing quite a bit of work in the North.
Mr. Caron: Yes.
Senator Patterson: I would like a bit of explanation of that, please.
Mr. Caron: Thank you, senator. I am pleased to address that.
Our work in the North dates back from the 1970s and 1980s when there was a lot of exploration, notably in the Beaufort Sea but also in the Arctic Islands. In 1991, the NEB was merged with an organization known as COGLA, Canada Oil and Gas Lands Administration. Since 1991, we have been the regulator of oil and gas development and exploration in the Northwest Territories and Nunavut, and in the Yukon for a while, until the Yukon Act devolved the federal responsibilities to the territory.
In a nutshell, senator, our work has been about continually promoting safety, protection of the environment, and protection of communities and their ways of life, in looking for and developing energy. The Gulf of Mexico blowout, the BP Macondo event, was very significant in how we approach working with northerners because they were very concerned about the possibility one day of a blowout in the Beaufort Sea. I have been before this committee at least twice to talk about that.
Since then, we have had a final report on a major analysis we have done, in partnership with Northern institutions and land claims organizations. Since then, I gone back to many communities in the Inuvialuit Settlement Region, and I have been on Baffin Island and visited several communities, to just listen to northerners as to how they regard future development of energy on their lands, to make sure they know we exist, to make sure that if there is a proposal by industry one day to develop energy, that they know there is an independent, fair regulator to listen to them and participate in our processes.
That is as short as I could make it, senator. I could speak for hours on that, because I am passionate about the work we do in the North.
Senator Ringuette: The pipeline association indicated to us that approximately 20 per cent of Canadian transmission pipelines, all the pipelines that were indicated earlier, have this polyethylene coating that is risky. What measures is the NEB taking to have a direct continuous oversight, and maybe, before approving any kind of expansion or new pipeline, making sure that that 20 per cent of existing and risky pipelines is taken care of?
Mr. Caron: Senator, as a start, the 20 per cent will have to go down because this coating is no longer used. As soon as you add any pipeline, you know that this coating is not the same. This coating is not used anymore. The question is about managing what is in the ground still. The answer essentially is that we expect companies we regulate to identify the hazards as they operate their pipelines, and that is a known one.
They regularly run inspection tools inside the pipelines. The coating of that vintage, that 20 per cent you talk about, corresponds to a time period when it was used in the past. They started using it but stopped when it was found not be performing. Since then it has been about identifying the hazard, mostly through internal inspection, to verify whether there is any defect in the metal, in the pipe, and intervene and cut out or repair the coating along the way based on the readings from these internal inspection devices. These devices can be precise in terms of the amount of steel remaining on the pipe surface and of the place along the pipe where the potential defect is located. They find the spots, intervene, dig out, replace the pipe or the coating, and move on to the next spot. It is part of hazard identification and part of management systems and intervention when the risks are unknown.
Senator Ringuette: Have you received a plan in regard to the replacement program for that 20 per cent?
Mr. Caron: Every company we regulate must submit to us an integrated management plan driven by management systems. It is part of that.
Senator Ringuette: Do you have a replacement plan for this particular 20 per cent, for that high-risk pipe that we already have in the ground? They said that they were highly suspect of external corrosion and stress corrosion cracking. Environmentally, more and more we are facing extreme, rapid changes of temperatures that would also have an additional impact on that 20 per cent that is kind of risky. Maybe before we move on to new systems, the current system in place should be the safest possible in regard to its current state.
The previous witnesses said that the NEB is responsible to review the Enbridge Northern Gateway pipeline. Where are you in your review? Does it include consultation with the Native communities and with all the communities and land owners along that pipeline? How are you consulting with the provinces of B.C. and Alberta? It is an interprovincial pipeline. It is a proposal and you are responsible to review it. I would like to have an update in regard to the consultation process and where you are at.
Mr. Caron: For this pipeline project, a joint review panel established between the Minister of the Environment and the National Energy Board. Three panel members have been holding public hearings for about a year in various communities and they are still having hearings. Once formed, a hearing panel is independent. These three members, with staff from the NEB and from the Canadian Environmental Assessment Agency, are visiting B.C. and Alberta, listening to what people have to say; that is, experts listening to Aboriginal people in a structured process to gather the evidence, including traditional knowledge and anything that the panel sees fit to include in their record. By the middle of this year, they will be finished not only with the evidence but also with the arguments that people want to submit to the panel. They will deliberate and their plan is to finish their work by the end of 2013.
Senator Lang: I would like to go back to the question of replacing sections of pipelines that have deteriorated. Looking at the number of ruptures or oil spills that have taken place — although many of them are not that significant, the way I understand it; on average, I think we are dealing with 1.3 per year — are these ruptures happening in pipelines that were built 1950s and 1960s? Are they isolated in that area or are they in the newer pipelines as well?
Mr. Caron: I would not say they are specific to an age or to a location. The number of ruptures is so small that to project a pattern as to their root cause is not possible. We are talking about probabilities with very small numbers.
What we do know is that a rupture can happen. That is why we insist that companies take all the precautions imaginable in terms of continually assessing the hazards that their pipeline operations face. I apologize for the repetition, but this is part and parcel of a good management system. All the time, the engineers of the company, supported by the leadership, by the CEO, look at what can go wrong with a pipeline. The coating that the senator was talking about, the 20 per cent, is one of the known risk factors. There are more risk factors than that in many things. Driving a car involves about 300 risk factors that we automatically recalculate every time we drive on a road. A pipeline is more complex than a car and a company is required to know our regulations and to continually assess the risks and hazards. There is temperature, as you mentioned; there is population growth around pipelines and, therefore, the possibility that someone with a backhoe might forget to call before they hit a pipeline. That is another hazard. All these things are bundled together. We require the companies to respond to that by having to continually update plans to inspect the line, look inside, look outside and take the necessary action.
Senator Lang: Dealing with the ongoing scientific research, both with the companies and on behalf of the government — and we heard from a scientist earlier today — we go back to the corrosive effect that can happen with a pipeline. They referred to four millimetres per year. I do not want to get into statistics, but that would tell me that over a period of time with the older pipelines, the more they are used, the more they are exposed. The possibility of a rupture is more probable in that case than with a new one, obviously, because we have been told the new ones negate that and are more risk free than others.
Knowing that, knowing the anxiety expressed by the public and that the public requires these regulations be put in place, I would think that the National Energy Board would be looking at some kind of program down the road and would be working with these companies to look at replacements so that we do not wait until we have a spill and say that is too late, now we have to replace it.
Mr. Caron: I agree, senator. Every year pipeline companies replace segments of pipe. Most companies with any length of pipe replace it because they respond to our requirements. They inspect; they audit themselves. They run inspection tools inside or sometimes they feel that it is better to replace a segment if they have serious doubts about it. They are required to do that to keep the pipelines operating. We verify their plans. If we do not like their plans, we challenge them. It happens rarely, but we feel we are entitled to ask them questions about their management systems.
Senator, what you described is what happens. Every year segments of pipe are replaced in Canada on all major pipelines. That is a fact.
Senator Lang: I want to go to the question of ruptures and the after-effects we have experienced in the past 10 years. You are dealing with the spill and afterwards, in conjunction with the provinces, you go to inspect and to ensure that the effects of the spill have been mitigated.
Mr. Caron: That is right.
Senator Lang: Of all the spills that have taken place, are you satisfied that every step has been taken to mitigate the effects? Perhaps you could expand on that.
Mr. Caron: Our regulations require that, senator. We have recently issued best practices in remediation, not only to specify the outcome of remediation but also what we found were the best approaches to remediation around the world. We are using the best available knowledge on the planet to promote the outcome of a complete reversal of what happened.
What we cannot reverse is people being concerned because they saw a rupture or have been affected by one. We cannot remove the concerns of the few Canadians who have witnessed a rupture or an oil spill, but in terms of the environment, we are not finished until everything has been removed. We are still working south of Norman Wells near Wrigley where we had a spill. Much has been done, but we are still engaging the communities and the elders. We are never finished until we are satisfied that the material has been removed and there is no permanent trace left.
Senator Sibbeston: Mr. Caron, my question is whether there are major differences in the requirements for a pipeline being built in the Northwest Territories versus in the South. I cannot help but think that the answer is yes because a significant factor in the Northwest Territories, or anywhere north of 60, is permafrost. Pipelines in Southern Canada would not be affected by permafrost. With permafrost, the ground is frozen and then melts, which results in the ground shifting. To me, this would have a major effect on a pipeline, so surely there are requirements to ensure that pipelines do not break or crack.
Mr. Caron: You are right, senator. Our requirements include that the design of a pipeline take into account the specific features of the environment and the people living nearby. Once the pipeline is operating, it is the duty of the companies, under our regulations, to continually monitor the hazards with which the pipeline is faced.
You mentioned permafrost, senator. If the land is constantly frozen, that is one thing, but if you have land that is frozen then thaws and then freezes again, it is a challenge for the designer because the stresses and formations in the pipe are less stable.
If a pipeline goes up a hill and then down, geotechnical aspects such as slope stability are important. You want the material above the pipe to remain there. You have to think through the thermodynamics of oil or gas flowing at reduced pressure. What does oil flowing at a colder temperature mean in terms of design of pump stations and the behaviour of the fluid in transient conditions?
You could tell me much more than I can tell you about the ability to respond in an emergency, senator. It is difficult to respond to emergencies in the Northwest Territories. That must be built into the design as well as emergency response programs. The NEB's regulations require companies to be specific about their own hazards. We will not allow something to happen until we are satisfied that the hazard identification has been done and the mitigation of those hazards has been well handled.
Senator Sibbeston: Has the NEB done anything with respect to Enbridge, the company that owns the pipeline in Norman Wells? Since the spill in Wrigley a couple of years ago, what has the NEB done to ensure that there are no further spills like that?
Mr. Caron: I cannot promise that there will never be another spill anywhere. I can say, however, that we gained a lot of knowledge with the Wrigley spill. The main thing that we learned is that we could have communicated better with the community immediately following the spill. It was difficult for community members to find out what was going on, what amount of oil had been released and how much could be recovered. In retrospect, it took a while to communicate well, and the residents deserve better.
On whether the leak could have been prevented with better technology, I do not know. As I said, those are low probability, high consequence, high impact events.
Senator Sibbeston: The information on the streets in Fort Simpson, where I live, was that initially the company tried to undermine the seriousness of the spill saying that it was just a pin hole in the pipe that caused the slight amount of leakage. However, eventually it was learned that it was more than that. I agree that the company should have been more up-front in communicating about the spill.
Mr. Caron: I include the NEB as well. We have a responsibility to help communities get information. Enbridge could have done better and we could have done better in responding to community concerns.
Senator Sibbeston: You need to spank them; you need to do something.
Mr. Caron: Do not assume that we have not, senator, although I will not use the same verb as you did.
Senator Wallace: Mr. Caron, you pointed out in your presentation that the NEB has an expectation of the companies it regulates to have fully implemented management systems to achieve a culture of safety. As has been referred to earlier, and as you know from firsthand experience, human error is oftentimes the cause of a problem rather than failure of equipment or infrastructure.
Many of the companies, if not all of them, would have their own internal accountability process, and they all have safety manuals, so it looks great. However, incidents do happen; there are failures. What does the NEB do to ensure that the companies are doing what is in the manual and that people do understand the responsibilities so that the risk to the public is minimal?
Mr. Caron: Senator, what you describe is the most promising journey that your regulator, the NEB, can undertake. We believe that there are ways to go beyond confirming the existence of manuals. There are ways to go beyond the written word. There are ways to verify that this is real.
As I said in my opening statement, and as we will discuss in the safety forum in Calgary in June, the NEB is strongly promoting the notion that a safety culture becomes real if the CEO has affirmed it, keeps talking about it, walks the talk and feels it; if the employees believe that those manuals are real and that to follow them is good for them and their fellow workers in the communities where they work, and that to stop the work because of fears that someone might not be kept safe is a good thing. Subject to excessive responses, I suppose, it is always possible to err on the other side. Companies must make their employees believe that the right thing to do is to say, "Hold it, let's take a safety moment and verify that everyone will be safe if we keep going." We believe that the regulator has a fundamental role to play in promoting that.
Perhaps one day we will audit for compliance with the existence of a safety culture. No one does that yet. The United States are starting to talk about a culture of safety. We have been talking about it. Dr. Fleming from Saint Mary's University is promoting that.
What you described, senator, is the gold nugget in our future in terms of promotion of safety. Technology will evolve naturally. Companies have a vested interest in continuing to invest in R & D and improve the technology. When you look at all the public reports explaining major industrial accidents — the Gulf of Mexico blowout, the sinking of the Ocean Ranger platform, killing so many people on the offshore of Newfoundland, the Challenger space shuttle blowing up — the root causes are depressingly similar, senator. They are exactly what you are talking about.
Senator Wallace: Later in your presentation you referred to the number of comprehensive audits that the NEB would be able to implement going from three to six. Are those audits of safety management compliance?
Mr. Caron: The answer is yes. When our audits are comprehensive, the lenses through which we look at the company performance are the management systems. Then it is going from there to say, "We have a safety culture that is real." I think we need to find a way to demonstrate that. We must tell companies, "This is how you will tell us that you have a real safety culture."
I met with several CEOs in Calgary recently and they agree with us. I think they know how to do that, but we do not have a best practice that says how you do that and demonstrate almost scientifically that the culture is real. You miss the culture for five minutes and a major accident can happen with consequences — low probability, high consequence. These things can happen.
Senator Wallace: One of the obvious ways to minimize a pipeline spill is to have shut-off valves at key locations. As a regulator, how do you determine approving the configuration of a pipeline, given all of the different geographies that the pipeline can pass through? What types of shut-off values should be on the line and how frequently should they be placed? If there is an incident, you can shut the line down. You lose the product between the two shut-off valves. How could you determine that? Do you differentiate between pipelines under water versus through mountainous areas? How do you deal with that?
Mr. Caron: Our response is very robust in that we incorporate by reference in our regulations the Canadian Standards Association Code Z662. This is at the leading edge of standards developed by stakeholders — in this case, industry, governments and regulators. Valves come in various configurations. Some are automatically shut down if there is a pressure reduction. Many can be operated remotely.
I will not summarize for you CSA-Z662, but we rely on the Canadian Standards Association, which is recognized as having leading standards for safety in the world.
[Translation]
Senator Massicotte: Thank you very much for being with us this evening. It is always very interesting to hear from you. I would like to ask a follow-up question. In short, technology and a good management culture can effectively manage problems or risks of leaks. We can also conclude that humans make mistakes and that in almost all cases, major leaks are caused by human error or by a bad corporate culture.
The chair of the committee asked if there had been any consequences, but were major financial penalties imposed on these people? Of course to err is human, but did these people face any consequences?
Mr. Caron: To date, very few, because it is very difficult to impose fines because of our legislative framework. However, thanks to Bill C-38 which was approved by Parliament last summer, we now have a legal framework that enables us to impose fines.
Senator Massicotte: And will it be used?
Mr. Caron: We are developing a work tool. We will be ready to deploy the tool in July 2013. Of course, we hope that businesses will comply, but we will not hesitate to use it.
Senator Massicotte: It is always the same issue, it is the issue of culture. In other words, if organizations try to develop a good culture and good measures, there is no problem. However, if there are no fines, credibility is not improved and sanctions have to be imposed at some point.
Mr. Caron: I agree with you. I would ask that you look at the results of our regulation. How many pipelines have burst and how many Canadians have been injured by operations involving pipelines since 1959? Pretty much none. How many times has there been irreversible environmental impact? I do not remember any. I am not trying to minimize the incidents that do occur; however, you can see from the results of our regulatory system that many countries would envy what we are doing.
With the tool at our disposal, we can go beyond that. We think we can do better, especially in terms of organizational culture, and we believe we are going in that direction.
Senator Massicotte: But before that, we can see from the data that the number of leaks in Canada is very similar to that in Europe and the U.S. Do you agree with that? Despite a system that means we are getting good results, we are only average compared to other countries?
Mr. Caron: The tables that were presented and were not produced by us show instead that Canada is doing better.
Senator Massicotte: Not in terms of the volume of leaks.
Mr. Caron: The number of incidents includes very minor incidents that have no impact.
Senator Massicotte: But that is the same thing in other countries. I imagine that makes things comparable.
Mr. Caron: The numbers speak for themselves.
[English]
The Chair: To add to that, it is not always the fine. Restricting the flow of either oil or gas through the pipeline because they have not done something is a financial penalty to that company as well. It does not hit home in quite the same way as saying, "They got fined X amount of dollars." Would that be correct?
Mr. Caron: It is correct, Mr. Chair. It is also a fact that companies know very well that if we do not like what they are doing, we can shut them down. That has an impact on reputation, cash flow and credibility. It is like the fear of competition: Sometimes the fear of competition creates monopolistic behaviours. The fear of regulatory intervention is present on the minds of people who run these pipelines. In the end, we will not hesitate to shut down part of a pipeline if we feel it is not keeping Canadians safe.
Senator Brown: At what point along transmission lines does the NEB control pipelines to individual homes across the country as well as the larger transmission company pipelines? In Alberta, for instance, a lot of co-ops sprung up to supply lines to schools and to homes.
The only ones I heard about in natural gas were on something that was leaking to a home or in a home. The worst I heard of was in San Francisco when it took a whole block of people out. I do not know how many were killed, but they were all individually harmed.
Mr. Caron: That was in San Bruno, outside of San Francisco. Eight people died as a result of a high-pressure line in a residential neighbourhood catching fire.
The answer is that connections to individual homes, schools and places of commerce are typically low-pressure lines, sometimes made of plastic rather than steel — for houses — that are provincially regulated. The National Energy Board would not be involved in the safety of delivering natural gas to homes, businesses, farms and ranches; it is the provincial jurisdiction for distribution. For instance, ATCO Gas in Calgary would be regulated by the provincial authorities, not by the National Energy Board. It is the same in other cities, as well.
Senator Brown: What about co-ops put together by individual groups of people who may not have real ability to do it safely but they go ahead? I wonder if there are inspectors of some kind.
Mr. Caron: I cannot speak for the provinces, but I have to assume that provincial authorities would supervise the people who deliver gas from NEB-regulated pipelines at high pressure and regulate the pressure down to a much lesser pressure, equivalent to car tire pressure, and do it safely. I would suggest that if companies do that without approval, they are probably not complying with the regulations of their province.
Senator Brown: Are they still using black iron pipe in homes after it goes through a gas control?
Mr. Caron: I would be very surprised, senator. I know in some jurisdictions many years ago there were still some left over. Maybe there are. I hope there are very few of them. There certainly are not any in NEB jurisdiction because it is obviously outdated technology for our applications.
Senator Brown: I know at least one, because I live there.
Senator Seidman: Mr. Caron, you mentioned in your presentation the response that the NEB gave us when we asked in December about whether the board has shut in pipelines for non-compliance. In fact, I have here the written response. I would just like to ask you about it because it piques my curiosity.
Mr. Caron: I have it here, senator, so I can refer to it as well.
Senator Seidman: There are just two instances where the pipelines were ordered shut in by the NEB. One was in 1973 and one was in 1998. That is it?
Mr. Caron: Yes.
Senator Seidman: Could you give me some understanding of what criteria you might use to determine if such an action is necessary? I take this to mean that either companies are extremely compliant and therefore you do not have to take any action or you have not yet figured out — I think you mentioned that — an audit for compliance, which is so very critical, and you have not yet figured out how to get at that.
Mr. Caron: What explains the rarity of these, senator, is the performance of the industry. If you look at the 1973 situation, a board ordered a shutdown as a result of pipe that was subject to a number of excavations. Certain parts were removed and replaced by new pipe, seemingly without board approval, and not meeting safety requirements. You had people without the competent skills actually substituting pipe for some other pipe and not verifying that it was compliant with the code in existence at the time. It was obviously human error. It was not that the pipe was defective in terms of its metallurgy or that the welding was inadequate. It was a bad pipe in a bad place.
The 1998 event I recall because it is kind of my age group. It was a sulphur line that was not the main actual gas but it was part of a processing facility. In that case, as I recall, senator, it was the accumulation of issues making this pipeline work properly.
I cannot speak for the panel that made that decision. I recall a hearing to deal with that, but the board was not satisfied that the company was on top of the situation. They said, "Okay, enough is enough; let's shut it down, start from scratch and see how you can make this pipeline safe."
These situations, senator, are very rare. What we find when we audit, when we inspect, is that companies have a vested interest in having a well-run pipeline that is safe. They gain nothing out of neglecting the pipeline's operation. It is quite the contrary; they have a strong incentive aligned with the public interest objective we have, and we just do not find these situations very often. We will find places where we need to order a pressure reduction. That is less dramatic. If you reduce the pressure of the pipeline, you reduce the amount of gas or oil it can move, so there is an economic consequence, but you regain the safety that you had, that full pressure for a lesser volume. Those are more common.
As I said, it is very rare for an inspector to go out and inspect a facility and not find something that they can improve. It is like being audited by a financial auditor. Auditors always find something. Our people always find something, and that is a good thing.
Senator Seidman: In effect, you are saying that there are other ways of reducing the dangers without shutting in the entire pipeline and that you choose to use those as opposed to a shut-in?
Mr. Caron: That is right. Senator, we only choose tools if we have to use tools. If we find the pipeline is operating safely, we leave them alone. Instead of responding to our questions, they can run the pipeline safety. When we decide whether or not to audit or inspect, part of the risk factors in terms of age is the company's reputation with respect to how well it has performed in the past. It is relevant to how robust our inspection program will be for them. There is a benefit to companies to perform well because when we look where we go next on a risk-informed basis, we go to the place that is more risky.
Senator McCoy: I have not been at the new Enbridge central — what is the word?
Mr. Caron: Control room.
Senator McCoy: Yes, control room, but I am told that they have greatly expanded it and that it is twice or three times the size, the number of monitors and perhaps staff as well. That is part of their management system, obviously. They are controlling all of North America in that one room. It is quite a sight to see, and I hope the committee will take the time to visit again that wonderful experience.
Would that be part of the direction that the NEB would be giving to a major pipeline company that has that much pipeline under administration? Is that the kind of advice you would be giving them, to increase their number of monitors, their number of staff in the control room, and perhaps the technological devices along the pipelines themselves?
Mr. Caron: I would say yes, senator. I do not think our people would go to a company and say we know better than you do on technology and please upgrade your monitoring system. I will use an example instead.
I am not familiar with the amount of change that Enbridge did, but I know that at TransCanada PipeLines they have recently reconfigured the control room to take better account of the human factor. I think you can imagine how a room with monitors can be well adapted to human beings or poorly adapted to human beings in terms of visibility or teamwork.
I like the story that you tell about Enbridge improving the technology. I also like the story of a company like TransCanada taking into account that these are human beings operating these monitors and having to interpret the data that is thrown at them every millisecond, and improve continually how you understand what is going on along the pipe, whether it is a false alarm or whether you truly have a rupture. That, I like. If we push for something, senator, it is all of that, with emphasis on companies recognizing that the way to go is a culture of safety grounded in management systems that recognize that human beings will do what they are supposed to do when they feel supported to do so. In my opinion, that is a considerable improvement in terms of the major gains we can achieve in pipeline safety.
Senator McCoy: The NEB used to set tolls and I do not know that you still are doing that.
Mr. Caron: Yes, we do.
Senator McCoy: In setting tolls, you would be taking into account the lifetime of the asset base, which of course is pipelines. What is the depreciation, the span for these pipelines that you are calculating in for tolls?
Mr. Caron: I will go by memory, senator, because it varies by company and situation. I would say it ranges between 2.5 per cent and 4 per cent for line pipe.
Senator McCoy: Twenty-five years would be 4 per cent.
Mr. Caron: 2.5 is longer than that.
Senator McCoy: 2.5 would be —
Senator Massicotte: 25 to 40.
Mr. Caron: That is right, but at the same time, senator, companies invest in their pipe every year. The amount to be depreciated is often renewed and refreshed because sometimes they need to augment capacity. Sometimes they need to replace part of the 20 per cent that the senator is interested in to keep the asset productive. That is the range.
Senator McCoy: It is a bit of a rolling average?
Mr. Caron: We do not have any pipeline with anywhere close to having ended its economic life because of depreciation.
Senator McCoy: I am beginning to get the impression that there may not actually be any 60-year-old pipe in the ground. Would that be a rash conclusion?
Mr. Caron: I am sure there is, senator. With regard to federal jurisdiction, there is perhaps not a lot. TransCanada PipeLines, the big expansions from Western Canada to Ontario began in the mid-1950s, so that already is 50 to 60 years old. I think the answer is yes, we have that. We monitor that on a continual basis so that they are safe, as if they were a young puppy.
Senator Massicotte: You talk about what is critical is management systems, culture, basically the systems approach. When you do an audit, is it only physical pipeline, or do you actually have experts going to the Enbridge control room or TransCanada and doing an internal control study saying that they have a good control system, proper culture, or do you wait for the spill to occur and then you examine the pipeline?
Mr. Caron: No, we do not, senator. Our audits are often a combination of observing physical things, speaking with people, and seeing the way the people talk and relate to the management systems.
Senator Massicotte: How about the systems?
Mr. Caron: We want to see evidence that they have management systems, and we want to see evidence that people know about them and can interpret them.
Senator Massicotte: You have computer people and experts to verify this?
The Chair: Senator Massicotte, you are getting us into a little longer question.
Mr. Caron: We will contract out expertise if we feel there is a hazard that the audit reveals, senator. If we need to have computer specialists — I have not seen a case like that — we would make sure we have the resource. We have budgets for experts. Our staff have central core skills. We can hire the skills we do not have in-house, and we never hesitate to do so.
The Chair: Thank you very much, Mr. Caron. It was great for you to make your time available. I know you are a busy person, but there were some good questions tonight and I think some really good answers. We appreciate your time very much.
Mr. Caron: Thank you, Mr. Chair, and senators.
(The committee adjourned.)