Proceedings of the Standing Senate Committee on
Banking, Trade and Commerce
Issue No. 38 - Evidence - April 19, 2018
OTTAWA, Thursday, April 19, 2018
The Standing Senate Committee on Banking, Trade and Commerce met this day at 10:32 a.m. to study on new and emerging issues for Canadian importers and exporters in North American and global markets.
Senator Douglas Black (Chair) in the chair.
The Chair: Good morning and welcome, colleagues and members of the general public, who are following today’s proceedings of the Standing Senate Committee on Banking, Trade and Commerce either here in the room or listening via the web.
My name is Doug Black. I’m a senator from Alberta, and I chair this committee.
I am going to ask if my colleagues would introduce themselves to the witnesses, please.
Senator Marwah: Sabi Marwah, Ontario.
Senator Ringuette: Pierrette Ringuette, New Brunswick.
Senator Unger: Betty Unger, Alberta.
Senator Tannas: Scott Tannas, Alberta.
Senator Wetston: Howard Wetston, Ontario.
Senator Maltais: Ghislain Maltais from Quebec.
Senator Day: Joseph Day, Saint John, New Brunswick.
Senator Stewart Olsen: Carolyn Stewart Olsen, New Brunswick.
Senator Tkachuk: David Tkachuk, Saskatoon, Saskatchewan.
The Chair: And of course, we are, as always, ably assisted by our clerk and our analysts.
Today our committee will continue our hearings on new and emerging issues faced by Canadian importers and exporters in relation to their international competitiveness. The committee is interested in learning about the potential impacts of developments on Canadian importers’ and exporters’ competitiveness as well as the manner in which Canadian importers and exporters and the federal government might respond to these developments.
Today, I am pleased to introduce our witnesses who have been invited to comment as part of this panel regarding energy in the context of this study.
From the Canadian Energy Pipeline Association, Chris Bloomer, Chief Executive Officer. From the Canadian Association of Petroleum Producers, Tim McMillan, President and CEO. And from one of their members, Suncor, one of Canada’s significant energy companies, Steve Douglas, Vice President, Investor Relations. Gentlemen, thank you very much for joining us here today.
We would like to begin with opening comments from each of you, and I understand, Mr. Bloomer, you will kick it off.
Chris Bloomer, Chief Executive Officer, Canadian Energy Pipeline Association: Great. I’d love to kick it off.
Good morning. My name is Chris Bloomer. I am President and CEO of the Canadian Energy Pipeline Association, or CEPA. Thank you for the opportunity to speak to you today. Our members operate the major Canadian pipeline infrastructure that safely moves 97 per cent of Canada’s oil, natural gas and refined products to market. It’s essential our sector and Canada’s energy sector overall be understood in terms of its impact on the Canadian economy, trade, financial and banking sectors.
Let me first frame the opportunity. Canada’s oil and gas resource wealth is the envy of the world. We are the world’s eighth-largest consumer, sixth-largest energy producer, fifth-largest net energy exporter and have the third-largest proven oil and gas reserves. We have tremendous potential.
According to Natural Resources Canada, our energy industry accounts for almost 7 per cent of our nominal gross domestic product. In 2015, it contributed $12.9 billion in revenue to the government. Clearly, the high standard of living Canadians enjoy is linked to the wealth creation that comes from the development and export of our energy resources. That would explain the Prime Minister’s statement from last year that no country would find 173 billion barrels of oil in the ground and just leave it there. We couldn’t agree more.
Indeed, Minister Carr reported recently there is approximately $500 billion of potential future investment in the Canadian energy sector. The transmission pipeline industry alone has the potential to invest approximately $50 billion in new projects over the next five years.
In 2016, CEPA members invested $7.9 billion in capital projects and contributed $1.5 billion in government tax revenues. Energy production and pipeline infrastructure projects are of national economic importance and play a significant role in underwriting Canada’s economic prosperity. The challenge we have is whether Canada’s energy sector can continue to do so in the future.
At this moment, it is at considerable risk. Investment in the energy sector has taken a serious hit. In 2017, total capital spending in the energy sector decreased 47 per cent from 2014 levels. I believe that’s according to my friend here from CAPP.
This is an alarming decline. More and more investors globally no longer see Canada’s energy sector as a competitive environment in which to invest. The problem lies in the fact that increasingly, our energy resources are essentially landlocked and transmission to and through the United States to get to tidewater comes at a steep cost to Canada’s competitiveness. The lack of access to broader global markets has emerged as one of our most pressing and substantial economic issues.
Production in Canada has grown faster than pipeline capacity, increasing the costs and intensifying the discounts. Add to the mix the fact that major pipeline developments have been cancelled due to policy and regulatory uncertainty and fierce political opposition.
A 2018 Scotiabank report maintains that at current levels, restrained pipeline capacity yields discounts that shave $15.6 billion in revenue annually from the energy sector. This is about three quarters of 1 per cent of Canada’s GDP. This is foregone revenue that negatively impacts the quality of life for all Canadians.
In addition, consider the Kinder Morgan decision to suspend all non-essential spending and activities on the Trans Mountain expansion project. A cancellation would mean the potential loss of $7.4 billion in project spending. Federal governments will forego $46.7 billion over the next 20 years from taxes and royalties, revenues that could be put to good use investing in public infrastructure such as roads, hospitals, schools, et cetera.
A Globe and Mail editorial recently said the failure of this project would be nothing short of an economic and constitutional disaster for Canada. We believe this is why we’re seeing a galvanized coalition of over 70 industries, business organizations, municipalities, labour and trade unions and other stakeholder groups from across the country collectively signing onto an open letter to the Prime Minister calling on the federal government and provincial leaders to work to resolve impasses and signal to the world that Canada is open for business.
The current solutions to pipeline development must be improved if we are to reconcile legitimate environmental interests and energy development. Our country is at a historical crossroads. We must have a clear vision as to how Canada is going to develop its energy resources.
We submit that if we are to restore a healthy and competitive environment for our country, we require decision-making reached through appropriate rigorous technical, environmental and social processes that are clear and have certainty, respect for the rule of law and leadership on Canada’s energy vision.
With respect to decision-making, the federal government has put forward Bill C-69, which is intended to achieve clarity and certainty on major project decision-making. However, we are very concerned this legislation will not accomplish its intended outcomes.
CEPA said as much at a recent Standing Committee on the Environment presentation.
The pipeline transmission sector believes firmly the proposed legislation for impact assessment fails to meet the government’s intentions to restore public trust and introduce new, fair and timely processes to get resources to market. Throughout the consultation process, we advocated for legislation that provided for science and fact-based decision-making that levers the considerable and established expertise of the National Energy Board, now known as the Canadian Energy Regulator.
We cautioned the government at every turn about baking in climate change and other broad policy matters into what is otherwise a very technical process focused on the safe and effective transmission of energy products. Instead, Bill C-69 is seriously imbalanced with a tilt toward broad policy issues and a sustainability test that is highly subjective and inherently unpredictable.
Bill C-69 touts stricter timelines, but we see the proposed process as leading to longer timelines and uncertainty, potentially worse than under the current legislation. As it stands, Bill C-69 is a concrete example of an approach that intended to provide clarity and timeliness but achieves the opposite and harms our sector’s competitiveness.
With respect to the rule of law, our sector is concerned that when government and regulators make decisions and grant approvals, they should be upheld and respected after due process. When governments make a decision to proceed with a project of national interest, they should use their legal and constitutional rights to proceed with that project.
The Trans Mountain Expansion Project is the exclamation point for the problems we have as a country in moving major resource projects forward. The current situation, along with whatever the outcome may be, will have long-term impacts. We’re now in a regrettable position where governments are having to step in and put in place extraordinary measures to try and make sure the project is built and affirms that our processes are failing.
We need to turn this situation around quickly. We call on all levels of government to respect the decisions of other levels of governments and work cooperatively as jurisdictions and uphold the rule of law, because the failure to do so is negatively impacting Canada’s competitiveness.
In closing, the future of Canada’s competitiveness requires leadership and long-term vision, and we need to do this right now. Our energy economy was previously buoyed through the United States as our largest trading partner and the world’s largest energy consumer. This has changed forever. American hydrocarbon exports occur at a record pace, and the United States has emerged as a global energy supplier and our greatest competitor.
Canada must take concrete action, show leadership and develop a national strategy that addresses our long-term energy and economic interests and articulates the powerful role energy resources play in Canada’s economic well-being.
How Canada achieves its longer-term energy objectives should not be an existential question. It must reflect the reality that oil and gas will continue to play a significant role in the energy mix for the next several decades in Canada and globally, and for Canada to achieve its full value for its resources in the world markets. Every day Canada’s ingenuity expands — the boundaries of technology and science, crucial ingredients to evolving innovation, the economy and energy transition that will help establish the next chapter in Canada’s future — but it will be our energy resources economy that can be the foundation for this future.
Thank you, and I look forward to questions and conversation.
Tim McMillan, President and CEO, Canadian Association of Petroleum Producers: Thank you, Mr. Chair. The debate or discussion you are engendering here in your committee is an excellent one for Canada. I think it’s essential today.
A quick snapshot of the Canadian Association of Petroleum Producers: We represent Canada’s upstream, those drilling the wells, building the platforms for Eastern Canada, developing the gas fields in British Columbia, so truly across the country.
We represent 80 per cent of the crude oil and natural gas produced in Canada, and our mandate aligns very much with the questions you are asking. On behalf of our members, our mandate is to advocate for and enable the competitive, safe, environmentally and socially responsible performance of the oil and gas industry.
The reason I point that out, Mr. Chair, is too often people think that safety and the environment are at odds with competitiveness. I fundamentally do not believe that is true, and my experience has shown me that it’s not. We can have efficient regulatory processes and be safe and environmentally responsible. In fact, that often enhances a company’s competitiveness. It’s where we get lazy and have inefficiencies that truly is a burden on not just our industry but, I believe, our country as a whole.
We will hear on occasion the energy sector is yesterday’s fuel. I would like to, at the start of my comments, recognize that wouldn’t bear the facts. The International Energy Agency has recently put out their view out to 2040. They call it their new policy scenario. In that, they take into account the expectation of energy demand for the next 25 years in the context of countries’ commitments on climate: policies that are in place, policies that have been discussed in different countries, and policies that haven’t even been considered, that countries would have to put in place to meet the targets. Even in that quite conservative scenario, the demand for both oil and natural gas continues to rise dramatically. In fact, at the end of their scenario, oil and gas are the two largest energy sources globally, and just those two combined are bigger than all the rest — coal, nuclear, hydro, wind, solar and biomass.
That is the future we’re looking at. Sixty per cent of that growth will be in India and China. We as Canadians have an opportunity to position ourselves as a supplier of choice, a country that comes forward with solutions. We are investing in technologies to have the cleanest, most responsible production in the world.
If Canada doesn’t step into that space, this production will continue to increasingly come from Iraq, Iran, Saudi Arabia, Nigeria, Venezuela, Azerbaijan, the former Soviet Union. That is where today’s supplies are increasingly coming from. Canada has an opportunity if we can get these competitiveness issues and market-access issues taken care of.
As Mr. Bloomer mentioned, Canada is losing in this regard. In 2014, we were investing $81 billion into the Canadian economy. When the price of oil and gas dropped, we saw a global pullback, and we certainly saw that in Canada. The challenge is that Canada continues to pull back. Even this year we are losing investment from what we had last year. At the same time, globally investment is ramping up. In the U.S., investment this year, 2018 over 2017, is up 37 per cent. We’re down 47 per cent from 2014 and continuing to go down.
This, I think, is something all Canadians should be concerned about, with energy exports being our number one export as a country, and the fact that we only have one meaningful export customer, the United States, and the fact that we have such opportunity in front of us. We have the world’s third largest crude oil supply and a sophisticated and experienced workforce. We are technologically advanced. We have a lot going for us.
On the gas side, demand is growing around the world. We have a 300-year supply. If technology didn’t advance one bit from today, we have 300 years under our feet. But as we see, technology is accelerating our ability to develop our resources and to do it in a responsible way.
We’re hearing about several of these challenges that are today standing in the way of attracting the capital, building our economy and being that supplier of choice for the world. I’ll identify a few, but I know we’ll get into more detail with the questions from senators.
My colleague mentioned the challenge of market access. That is fundamental to Canada’s competitiveness. Having one customer leaves us with a vulnerability, especially at a time where within the last year we’ve dealt with a border adjustment tax issue with the United States. We’ve rallied, and it looks like we’re past that. We’re in the middle of a NAFTA negotiation.
Our customer has now, through the use of technology, much of it that we are utilizing and some of which we have developed, has been pushing American gas into Canada. Where the Ontario and Quebec market used to be 100 per cent Canadian, today 50 per cent of that gas is actually American gas coming in and displacing Canadian production.
On the oil side, the U.S. has passed a law that allows them to now export. Since the Nixon era, they’ve had a barrier on their ability to export. What is happening today is they’re importing Canadian oil at a deep discount and exporting American produced to the highest-priced markets. That is not a good situation for Canada to find itself in.
The reputation we have around the world today is a country that can’t get things done. As I’m meeting with some of our members that are foreign companies and others looking at Canada as a potential investment environment, they will raise with me that Canada can’t get projects done.
You cancelled Northern Gateway after it was approved. Energy East was cancelled and didn’t even make it through the regulatory process, the LNG facility in the pacific northwest was cancelled and couldn’t go forward in Canada, Aurora LNG. This is a problem for our country. It’s bigger than just energy when these reputational hits come. We have the opportunity, with Kinder Morgan’s Trans Mountain project, to prove to the world that we are a country that gets things done. And I’m very encouraged with the efforts I’m seeing from elected leaders, from Canadians who are raising their voice and saying we want to see the project concluded and move forward in a timely manner. I hope this is on all Canadians’ minds to move it forward.
When I look at other costs that are affecting our competitiveness, one is the climate file. Again, we can have a very responsible policy here in Canada, but we have to do it in a thoughtful way. None of the other global top 10 energy producers in oil and gas are moving meaningfully with a carbon policy. That doesn’t mean Canada can’t. I’ll highlight what we’ve seen on methane. We partnered with the United States for a 45 per cent reduction on methane. We felt that if we went together that we could be more ambitious. Ultimately, the U.S. pulled back and Canada has made the decision to go it alone. If we do this, it’s possible our industry can make the changes necessary, but there will be a cost. The numbers that came from the federal government with the Gazette of their regulatory change looks like it would cost industry $3.3 billion. That’s $3.3 billion that wouldn’t be borne by our competitors who are tracking capital.
We have looked at their assessment and think it is quite conservative, that it likely would have higher costs. How could we be a positive force? What could our industry do? We think we could do it, in the most efficient way, for potentially $700 million, still very meaningful. It would cost about 7,000 jobs, but we could do it in a more efficient manner, make bigger reductions in one area that are more cost effective. That’s how Canadians should look at problems. How can we be leaders in the most efficient way if others aren’t following?
The Chair: Can you bring this to a conclusion?
Mr. McMillan: Certainly. Tax policy would be the last thing I highlight. And the U.S. changes around capital cost allowance will make large capital investments a challenge in Canada, and the corporate tax rates dropping below Canada’s is one we would ask all elected officials to look at in great detail. This is a big concern for our members and industry. I look forward to your questions. Thank you very much.
Steve Douglas, Vice President, Investor Relations, Suncor: Good morning committee members and other attendees. I’m Steve Douglas, Vice President of Investor Relations for Suncor. I want to say the work the committee is doing on the issue of competitiveness is critically important for all Canadians, and it’s timely because decisions the federal government makes today will influence our national competitiveness and prosperity for many years to come. What I see in my role is even decisions that have yet to be made that are pending are already influencing the behaviour of capital. Because of this, I am very happy to be able to speak to you today.
In my remarks, I would like to address three things. I would like to give you a brief overview of Suncor and what we’re doing on the competitiveness front; explain our concerns with Canadian competitiveness, particularly in the resource sector; and finally offer a few thoughts for your consideration going forward.
Before I go any further, I want to mention that since we were invited to appear before this committee, our CEO Steve Williams and other industry CEOs had the opportunity to meet with the Prime Minister and Minister Carr in Fort McMurray to discuss the importance of balancing Canada’s environmental leadership and competitiveness. While much work remains to be done, we were encouraged by the discussion and see this opportuity as a continuation of that dialogue.
Suncor is Canada’s leading integrated energy company. We employ thousands of Canadians from coast to coast, and we work closely with Aboriginal communities. Our operations include oil sands production in northern Alberta and conventional production off the East Coast and in the north sea. We produce about 700,000 barrels of oil a day. About 50 per cent of it is exported and the vast majority to the south to the United States. For that reason, we’re very interested in Canada’s competitive position. We own and operate four refineries in Edmonton, Sarnia, Montreal and Denver, Colorado. We’re active in renewable energy. We have developed eight wind farms across the country. And we operate the largest biofuels plant in the country.
Many know us as Canada’s gas station and that’s because of the 1,500 plus Petro-Canada sites. Fifty years ago, we pioneered the oil sands in northern Alberta. The first challenge was separating the oil from the sands. The next challenge was commercializing a process. The challenge today is lowering the carbon intensity of that oil to ensure oil sands oil is cost and carbon competitive globally for decades to come.
I’d like to now tell you about what we’re doing to improve our competitiveness. Our strategy is centred around capital discipline, operational excellence and profitable growth. Over the last few years, we’ve consolidated a number of assets in the Canadian oil sands. We’ve steadily driven costs down across our organization and accelerated investment in technology and innovation. Our latest mine in Fort Hills is ramping up production and a barrel of Fort Hills oil, on a full life cycle carbon intensity basis, is equal to the average barrel consumed in the U.S. today. We have forged long-standing relationships with Aboriginal communities, including most recently a partnership with the Fort McKay and Mikisew Cree First Nations at our East Tank Farm. At $500 million, it’s the largest capital investment by Aboriginal communities in Canada’s history.
We support provincial and national carbon pricing policies that enhance our environmental leadership but also protect the competitiveness of the industry. We’re taking actions and making investments. We’re a leader and our success, in many ways, depends on Canada’s success. I’d like to turn to the issue of Canada’s competitiveness.
Rather than use my limited time to talk about where I think we rank in the space, I would like to reference the World Economic Forum’s annual report on competitiveness. As you’re likely aware, we ranked fourteenth out of 137 countries. Not bad, except that our neighbour to the south, who is our biggest competitor and customer, ranked number two. Clearly, we have an opportunity and a need. We have to get better. According to the World Economic Forum, the biggest challenge to doing business in Canada is government bureaucracy, lack of innovation, inadequate supply of infrastructure, tax regulations and policy instability. In short, we have a huge opportunity in front of us.
I will now highlight some of the consequences of Canada’s competitive challenge for our industry. A period of major projects and growth is coming to an end. Investment today is largely limited to sustaining capital — investments not to grow the business but simply to keep our plants running. Foreign direct investment is down 47 per cent, or $43 billion, in the last three years. We’ve seen the flight of capital on the part of the energy supermajors. They’ve sold down or even sold out of Canada because international capital will go to the lowest risk, highest return jurisdiction.
Capital investment by Canadian corporations is also declining here at home. Canadian capital is increasingly being deployed elsewhere or being returned to shareholders. We’re a Canadian company. We have a number of projects in various states of approval. We would like to do more projects here, but we have an obligation to our shareholders to deliver value and protect their interests. More than 50 per cent of them are Canadians and it includes every major Canadian public pension fund. In my role, I spend a lot of time speaking to large institutional investors around the globe and I’m troubled by what I’m hearing. Here in Canada, pension funds are reducing their exposure to Canadian equities. They’re steadily increasing the weighting of foreign investment in their portfolios. Internationally, investors consistently express their concerns to me about complexity and uncertainty surrounding the permitting of major energy infrastructure.
Finally, the competitiveness improvement, so that we’re achieving as an industry thorough ongoing innovation, are being largely negated by the continuously increasing cost of new regulations.
We need Canada to lead economically as well as environmentally. Let me turn to some thoughts for improving Canadian competitiveness.
First, we need to take a thoughtful, holistic, long-term approach to regulation. We consider ourselves an environmental leader, yet we’re seeing that an unprecedented pace, scale and scope of environmental regulatory change is inhibiting our competitiveness. We recognize the need to address environmental concerns including climate change, and we recognize the importance of Canada doing its part and we’re committed to doing ours.
We also think it is absolutely critical for the future of Canada that the federal legislative agenda proceeds with great care and deliberation. This includes meaningful consultation with industry, so environmental policy is enacted in the way that best maintains competitiveness.
As a company that’s operating in an emissions-intensive, trade-exposed industry, we support broad-based carbon pricing mechanisms as a tool that can achieve desired outcomes if they’re balanced with regulatory and fiscal relief, and if they take into account competitive pressures from other jurisdictions that don’t have the same costs. We’ll continue to lead in Canada, but we need to lead with one eye on the environment and one on the economy.
Any new regulation should strike the optimum balance between improving environmental performance and maintaining or improving competitiveness. We must advance our economy with the same diligence we devote to protecting our environment.
Canada should consider overall industry costs, and a potential commitment to net-neutral regulatory costs so that when a cost is added in one area, it’s actually reduced in another.
It’s critical the federal government continue to send very strong signals both to investors and to international capital that our federation works the way it was designed to work. By that I mean that when major energy infrastructure projects go through a rigorous environmental process and receive federal approval, the international community can have confidence these projects will proceed on predictable timelines and under well-understood process.
Finally, we think it’s important that government policy takes into account the primary role innovation plays in oil and gas. This includes the strides we’ve made in recent years to improve environmental performance, reducing greenhouse gas emissions intensity and making moves into automation and digitization. The oil and gas industry is an innovative one and we’re determined not just to support the transition to a low-carbon economy but to lead it. We think it’s important government policy recognize Canada’s oil and gas industry as a key part of the carbon solution and as an essential part of Canada’s future prosperity. Thank you. I look forward to your comments.
The Chair: Thank you very much, Mr. Douglas and panellists. That was very meaty material which we appreciate.
Senator Stewart Olsen: Thank you for your presentations. I don’t usually do this, but I’m going to lay some of the blame on what’s happening in the country directly with oil producers and with you people who did not seem to understand that this government has said clearly its position is to wean Canadians away from dependence on fossil fuels.
I have to say, where did you think we were going? When I heard that, I knew that Energy East did not have a chance and I don’t believe any of the pipelines in this country really have much of a chance of moving forward.
My question to you is: How do you work with the government like that? What do you do? Suncor had some rosy positioning at the very first, which I think is a nice thing, but I don’t understand if you think you met with the Minister of Finance and got a really good hearing. How do you address that? How do you work with these people?
Mr. Douglas: I think we heard the government many times talk about the importance of balancing the economy and the environment. They’ve talked about our industry as a driver of economic activity. That acknowledgment is there, clearly. What I would point to is, we need to be less apologetic and stop talking about balancing the environment and the economy. We believe in an optimal mix where they go hand in hand.
We have one of the world’s most progressive greenhouse gas regimes. We’re working to contribute to vibrant communities, healthy environments and develop Canada’s resources in a socially and environmentally responsible way. I think it is something we should be proud of and promoting.
Mr. McMillan: Some of the efforts we have done at CAPP is putting out the economic report that we started this year, the second in that series is that global outlook. What is the reality of global energy demand to the end of everyone’s forecast? It is that energy is giving people better diets and better quality of lives. The demand for oil and gas is increasing dramatically. Our purpose for that is we make policy decisions in Canada that enable us to be part of that global energy mix. That we can bring positive solutions to that global energy mix, but those decisions have to be based on the reality of what’s happening in the world.
Mr. Bloomer: Thank you for the question. Clearly, it is an issue. We trust the system, we trust the processes, we meet the requirements. Tell us what to do and we’ll do it the best in the world.
The problem is that the rug, especially on the pipeline, is pulled out from under us. There is new stuff piling on, so we have been working with the government on the basis of trust in the system, trust in the approval of law and processes, and we are where we are. Those processes are broken and don’t work. What we see for the future is probably worse policy and processes.
We have tried to engage with the government, Bill C-69, giving them input for almost two years, participating on panels, giving them what we think they should do. What we got back was Bill C-69, just the opposite. So we’ve gone on faith and trust in the systems and that has been a failure. We have contributed.
Senator Stewart Olsen: I’d like your comments on taxpayers assuming all of the risk for the development of our oil resources in this country, and the possibility of favouritism over one company not the next. What’s happening with this? I’d like your opinion on that movement because I’m not so sure it’s tenable.
Mr. McMillan: I am happy to give thoughts on that. Your question is hinging on the question of how we enable Kinder Morgan to move forward. No one in Canada is happy about the situation we’re currently in. The reality is governments continue and have in the past put funds into projects that wouldn’t otherwise be economic for job creation.
That’s not the case here. This is a project which is economically viable. It’s connecting Canada’s large resources to global markets. It is only because of political obstinacy and political action out of British Columbia that this is a challenge today. I think this project is too important to fail, that passing a piece of federal legislation that clears up the regulatory certainty in a way that is unassailable is one piece of it. I would leave it to the governments in their discussions with the proponent to what model can give them the other assurances they need to move this forward.
Mr. Bloomer: We should not be in this position. We should not be here. It’s not good when governments have to step in on what are commercial arrangements that have gone through processes. It will lead to unintended consequences on the Alberta and federal side. We should not be here. Whatever the outcome, it’s going to lay down a pretty long shadow over how things proceed in the future and it’s problematic.
Senator Ringuette: Thank you for your contribution. One of the key elements all three of you mentioned was the project assessment process and regulation and how it impacts your competitiveness.
I look at the Kinder Morgan situation, where we have an issue regarding a pipeline between two provinces. So how did Russia manage to have many pipelines crossing the European Union with regard to assessment? Maybe we can highlight how they managed to do that. Do you have any information?
Mr. Douglas: One thing I would say is not about Russian pipeline building but it is important that we have world-class regulatory standards. As I go around the world and talk to investors, it’s very reassuring to them when I can point out the very high environmental and regulatory standards we have. These aren’t new. We have had them for a good long time.
A 2014 Worley Parsons study, the Australian engineering company looked at 75 resource basins across the world, distilled it down to the top 10 and then looked at them in terms of stringency, transparency and compliance. Do you know what they found? Canada was number two in stringency of the regulatory system, just behind Queensland, Australia, which was number one in transparency and compliance, and number one overall. Investors are impressed with that. We should be proud of that.
But they also point out to me surveys like those of the World Bank, which evaluated us as thirty-fourth out of 35 OECD countries in terms of the timeliness of permitting a construction project. I think it was 47 weeks slower than the United States.
You want a world-class regulatory system you can trust, but in order to be competitive, it also has to be time-bound, predictable and reliable.
Senator Wallin: Yesterday, Kinder Morgan had an earnings call to talk about the state of play. The CEO said despite promises by Ottawa and Alberta to backstop the expansion project, the project now faces, in his words, “unquantifiable risk because of British Columbia’s increased opposition.”
I think they agree. They don’t really want the money, and I will put the question the other way: Do you think this project will ever go forward?
Mr. McMillan: Yes, unqualified. I think it will. It is too important to Canada to fail. The circumstances of having a government propped up by the Green Party in British Columbia, who hold the balance of power with just three seats, is a challenge, no question. This project is a good project. It has been through the regulatory review system, here in Canada, and is robust. The federal government has committed and put together a plan of action as of last weekend. We are watching very closely for the legislation they’ve committed to introduce to clarify the legal issues. I’m confident this project will get built.
Senator Wallin: Do you think that requires a failure of a government that is a minority government propped up by another party? Is it going to require that? Not that they will change their minds, but something else might happen on the political front.
Mr. McMillan: I don’t. I think in Canada the law is very clear that on pipelines of this nature, the federal government has priority.
Mr. Bloomer: I agree the pipeline will be built. The issue is how that happens, how it actually gets built, what gets put in place and what kinds of things Canada has to do to bend like a pretzel to get it done. It’s problematic. It will get done, but it’s how it gets done.
Senator Wallin: It will get done under the current regime, under the current government or you’re saying this might be some time out?
Mr. Bloomer: I don’t presume to know what goes on that company’s boardroom, but having been involved in that business I can imagine. They have clearly stated they’re not willing to take the risk. I’m saying something else has to happen here to make it happen. Whether it’s the company or whether it’s the Crown, it’s how this comes together that will be problematic. It doesn’t necessarily mean it will be a government that will fall. I don’t know.
Senator Wallin: I’m trying to see what you think. In the current climate, we all know what the Prime Minister has said publicly. We also know what he says standing in the French National Assembly, saying that we’re sorry we haven’t stopped all of this faster. I’m trying to find where the Pollyanna gene comes from.
Mr. Bloomer: That’s an ongoing issue but I believe the government understands if this project does not proceed and get done, it is a going to be a very big problem for them and it will be.
Senator Wallin: Mr. Douglas, I mean, Suncor has made these hard decisions saying, “We’re not going ahead of this because of the price and because of the political climate.”
What do you think?
Mr. Douglas: We think the pipeline will get built but the timing is the question. I think it has broad support. I think the objections are more a minority than a majority, but we have managed our business operationally such that we are not dependent on a single pipeline. But we do think it will get built and we certainly support it.
Senator Wallin: I want to raise the issue because I think this is important and it was, in a way, to Senator Stewart Olsen’s point, which is we all know where the dirty oil actually comes from, as opposed to Alberta.
Is it smart for you to make that case more vociferously at this point?
Mr. McMillan: Regarding the quality of the Canadian product, I think that it is and we need to continually talk about where we’re positioned in the world. I think the debate we’re having today is forcing a discussion on Canada that otherwise wouldn’t have happened about one pipeline. But more broadly on the issues globally, we’re importing about half the oil in Ontario and Quebec comes from offshore, as well as some from the U.S., some from Saudi Arabia and some from regimes that do not have the environmental or political standards.
I would love it if Canadians would have stood up when we were talking about Energy East and said, “I want to make a priority of getting Canadian products, developed in a Canadian way, in my gas tank.” Sadly, that wasn’t the case. Could there be an opportunity in the future? Potentially. I think discussions like we’re having today are important and I would love to see Canadians make that demand of their products.
Mr. Bloomer: In principle, this debate we’re having right now, and have been having for quite a while, is around the oil sands and moving bitumen to markets. That has been a big lightning rod.
I think now is an opportunity to look beyond, because the oil sands are going to be a reality for a long time and they’re going to produce for a long time. But in the Western basin there is always the next play. There is always the next technology and that next play and the next technology is light, tight oil in the Montney, the Duvernay and the Deep Basin. Those are fabulous resources. That’s going to be light oil, natural gas, natural gas liquids and so on. The next phase of major development is sustaining capital in the oil sands but the real risk capital and the real exploration and developing of new resources will be in those deep basins and in that product suite.
That will be a different conversation. That’s a risk for the future so we need a conversation that asks how we will develop that in the future. We will need this infrastructure for that but it’s a different commodity suite.
This is an ever-evolving thing, but we need to keep our eye on what the future is.
Senator Tannas: Thank you for being here. I actually heard something the other day coming from the leader of the Green Party that I hadn’t heard before, and I wonder if it’s the beginning of a new narrative that’s simplistic and maybe a mirage. Maybe you can help us with this. It’s around on refining here. Crude on water is everyone’s nightmare in British Columbia. We understand that. But refined products on water, somehow, according to the Green Party is a better deal. I think, frankly, for many Canadians it’s a common sense thing to say: Why can’t we refine and sell? Instead of selling crude, sell jet fuel and diesel and so on and see that sail off our shores, us having added an extra 20 per cent of value to it.
Can you give us and Canadians a short tutorial on why that doesn’t make sense?
Mr. Douglas: I will start, having spent 20 years in Suncor’s downstream and being a refiner at heart.
There is a reason refineries are typically built in built-up population centres. It’s because a refinery takes a single feedstock, crude oil, or a handful of feedstocks and produces dozens of products. If I were to build a new refinery in Edmonton, Alberta, it’s not only a question of getting gasoline and diesel to market, it’s propanes and butanes and asphalts and on and on. You’ve changed your transportation problem from one of moving crude to one of moving two dozen products to market because you’re in a province of 3 to 4 million people, and you have got to get to a population centre. That’s the reason refineries are built in population centres.
Alternately, they’re built on the coast where they can ship a product to market, and that is a viable alternative.
Senator Tannas: If an industry wanted to work together to have good refining standards that will lower the carbon footprint in other places, not just in Canada, why wouldn’t there be some creative thinking, cooperation and tax incentives like the oil sands many years ago, et cetera, for us to develop a world-class refining capacity for export in British Columbia?
Mr. Douglas: North America is a mature market where demand for petroleum products is actually level or we’d expect it to slowly decline due to the mature market demographics, renewables, et cetera. You would be shipping those dozens of products a long way around the world. We’ve actually seen refining in North America rationalize. Montreal had about six refineries 30 or 40 years ago and is down to one now. I would not anticipate new refineries being built in North America.
Mr. McMillan: Could I add a couple of comments? Traditionally we see refining happening close to market, and that’s a model that has built up over time. If the economics work that refining would happen close to production, as an upstream producer, we don’t have much concern as to where our products are refined. But today Canada is a net exporter of refined products, so we already refine more than we can consume and export. That is today’s reality.
The other reality is we’re seeing a rationalization of refining in Canada, and we’re seeing a build-out of petrochemical plants and refining around the world, and the economics of building one in Canada are such that we’re not in the game, and after the tax changes the U.S. made, we’re not even in the same stadium. I think ExxonMobil committed $20 billion or $50 billion towards these value-added petrochemical facilities in the Gulf Coast. We haven’t seen investment in value-added Canada. Tax changes to lower the capital cost allowance further accelerates that difference. The last point is refining is traditionally a low-margin business. Production of natural gas and crude oil is a high-margin business, so how much we want to tip the scales in favour of a low-margin business where we have the opportunity to be a supplier of choice globally on the high-margin side is a question for policy makers.
Senator Tannas: Are you saying there is increased refining capacity being built in the United States in spite of the declining market? Does that not imply they will jump into the refined product, export-by-boat, market and we just missed it because we couldn’t get there from here? Our thinking wasn’t right before? What has happened here?
Mr. McMillan: There’s a massive build-out of petrochemical and refining capacity in the Gulf Coast being built over the next 20 years, commitments that have been made.
Senator Tannas: We missed it. We in Canada, great innovators, missed it.
Mr. McMillan: We are also struggling today to get an LNG facility built. The U.S. has six under construction. They leapfrogged us and are shipping it out there.
Senator Tannas: We missed that one too.
Mr. McMillan: This is a competitiveness issue I think your committee is positioned to talk about.
Mr. Bloomer: I don’t think we have missed it. The fact is refining has been rationalized globally, and the U.S. Gulf Coast has always been a major refining centre. The U.S. has always been a net exporter of refined products.
They have been doing this for decades. Even though they weren’t exporting crude oil, they were massive exporters of refined products over decades. We’re saying, what do we need to do to build a refinery? The fact is refineries have been rationalized globally and you need scale. You need a million barrels a day of refining capacity. That’s what’s going in. We can’t build that at the same cost that India can or in the same time frame that India or China can. We can’t do that. We don’t have the capability to do it.
They’ve been in that business for decades.
Senator Tkachuk: We used to have refineries on the West Coast, four or five them, right, and there was an expansion in New Brunswick. Irving as well planned, which has now been cancelled, and they’re building it in Ireland instead. That isn’t because of your reasons. That’s because they don’t trust the economic stability of getting the oil to their plant. Why did they cancel Saint John? Why are they moving to Ireland?
Mr. Bloomer: On the B.C. side, there were a number of refineries but they were small refineries, not competitive. In the rationalization of North American refineries, those were the first refineries right across North America to go, the smaller, not complex, can’t process heavy oil type refineries.
In Saint John, they import foreign light crude and there was an opportunity with Energy East to start taking heavy oil and build coking capacity there that made sense. That opportunity has gone away.
Senator Wetston: Thank you. I have to make an admission. I used to work at the National Energy Board, quite a while ago, I have to say. When I worked at the board as counsel to C. Geoff Edge, who was chair of the commission, we built the TQM Pipeline. I think Quebec should be happy about that. We didn’t have the same issues then as now. We had regulatory issues, but we were able to resolve them. There were environmental issues, but we were able to manage them. I feel satisfied the NEB granted a public convenience certificate to build TQM because I think Quebec benefited from that. It’s unfortunate we’re unable to continue Energy East because I think the Maritimes would benefit from that, as would Canada. You can tell from my comment I think that’s unfortunate.
I don’t see the issue as a constitutional issue at all. I don’t see it as a regulatory issue at all. I think we can manage those issues. What I see here is a political problem.
It’s a political problem we faced on building Energy East, and now we’re facing a different political problem between Alberta and B.C. in attempting to build Trans Mountain.
I think oil and gas remains one of the most important natural resources we have in this country, and I know that, over time, transitionally, we may rely on it less, but that has to occur in a smooth transition for our country.
My question to you is this, and you’ve talked about the politics here. The federation is not working very well these days. That’s my view. It needs to work better. We’re at a bit of an inflection point. I would ask if you could comment on the fact that I don’t think this is a regulatory or constitutional problem; I think it’s really a problem with our political ability to resolve these issues.
I would refer you — and I said it this morning in the Energy Committee, chair — to the period of 1918 to 1930, when governments had to deal with the control over natural resources in this country and the battle that occurred between the west and the east. Why not build Energy East as opposed to focusing on trying to resolve this challenge with Trans Mountain? Maybe we should try and do that. Any comments?
Mr. Bloomer: If I may, we are where we are in many respects because the government has not been able to articulate a vision for our energy resources. They have been able to articulate a vision for climate change, Indigenous reconciliation, transition to a lower-carbon economy and so on, but they have not been able to put forward a vision of where our hydrocarbon resources play in this economy; and in terms of a strategy to utilize that to the benefit of Canada, Energy East, backing out foreign oil, we do not have a coherent and decisive vision. I think that’s one of the causes. Call it politics, because that’s not their agenda, but it is the reality. We have to go back to basic principles and have that conversation and put clearly on the table what we’re going to do with our hydrocarbon resources going forward and have a vision and a clear strategy. Our regulatory systems and so on have to align. We’re shooting in the dark because we don’t know what the target is.
Mr. McMillan: Maybe a quick comment. I think too often we think we could have Kinder Morgan’s project or Energy East. I think we should aspire to both. Global demand is growing, and if Canada were able to step in and supply Eastern Canada off the East and West Coasts, I think the world is a better place if there’s more Canadian oil on the market and less Nigerian, Venezuelan and Saudi Arabian oil.
I’m in full support of your initiative. I would just say let’s look at it as a “both” piece.
In terms of your comment about it’s Alberta against B.C., I’m trying to look at this and step back from it. I think it’s the B.C. political class against Canada. The polling that came out yesterday showed the majority of Canadians want this and the majority of British Columbians want this. I don’t like provinces pitted against each other, because I don’t think that’s the case.
Mr. Douglas: Maybe I could combine Senator Wallin’s earlier question on dirty oil and Chris’s comments on not having a well-thought-through strategy on what the future of Canadian energy looks like.
The fact is we’re bringing technology to bear in oil sands at such a pace that our future production — if we went back 10 or 15 years, people thought it’s not competitive; it’s on the extreme right-hand side of the cost curve. But I think we put those fears to bed in the period of 2015, 2016 and 2017, when oil went down as low as $27 and companies like Suncor were actually still generating free cash flow and American producers were declining.
We’re competitive globally on a cost basis today. With new technologies, in the future we’ll be competitive on a carbon basis. It’s our belief that a long life, low-decline resource that’s cost and carbon competitive will be part of baseload global supply for decades to come, and this is something we should be very proud of.
Senator Wetston: One other quick question. I’m not going to comment on Bill C-69. It’s not before the Senate yet, and we’ll wait to see what happens when it does come. I have taken a look at it and heard some of your views about that.
However, I would like to ask you from your experience: I think economic regulators have an important role to play. We’ve built thousands of pipelines in this country, maybe 80,000 miles, and I’m not including the interprovincial pipelines built or certified by provincial regulators. It’s a bit surprising at this stage we can’t seem to rationalize the energy production with environmental sustainability and have a reasonable way of aligning those important issues.
What regulatory models, in your mind, would work best in this environment? Let’s assume Trans Mountain goes ahead. Whether it’s through the discussions you’ve had with Senator Wallin or whether it’s nationalized or whatever, let’s assume it goes ahead. What incentives do you believe would be appropriate today for the NEB, which is still in place, having to consider those matters, and not the impact agency, which is not in place yet? What would you think would be appropriate incentives?
Mr. Douglas, you talked about incentives, the regulatory ones as well, but what do you think would be appropriate? We know what’s going on in the U.S. Generally they’re reducing the regulatory burden on the oil and gas sector to be able to build and bring new resources to market. Any thoughts about that?
Sorry for the long question, chair, but I think it’s really more the incentives and models that you might consider to enhance the opportunity to build this.
Mr. Bloomer: I’ll take a shot at that. It’s not as much incentives. As you pointed out, we have a long history of regulatory ability to get things done. The world changes. New things come into play. It adapts and so on. Things need to get renovated. We were the first to say the NEB wasn’t broken but some things needed to change. It wasn’t a teardown; it was more of a renovation that needed to happen in these processes, and a renovation that led to better clarity and certainty.
What’s happening now is that for major projects, for sure, these things are being rewritten and wholesale changed. The system we had up to now worked. It needed some renovation. We should have done that. Now we’re ripping it all up and putting a whole bunch of other things in those processes.
So it’s not as much about incentives. We need certainty and clarity on the regulatory side of things.
Mr. McMillan: I would agree wholeheartedly. I think incentives isn’t the way we’re looking at it. It’s a clear set of rules, a clear understanding of timelines, and the ability to execute on projects.
I think that your example of the experience you had where, when you were building the pipeline in Quebec, you had regulatory issues to deal with and environment issues, that’s absolutely appropriate. Today we’re seeing obstructionist tactics deliberately meant to derail projects, often coming out of American-based actors. 350.org crafted the architecture of the opponent’s “hive and swarm” model publicized in the newspapers a month or so ago. That is disrupting Canada’s interest. If we, as a nation, can come to a place where we’ll be a strong regulatory process that cares about the environment and safety, that is what we should be concentrating on.
Mr. Douglas: I’d agree. It’s not as though we’re looking for subsidies or handouts. As I talk to investors globally, it’s quite interesting. They don’t express concerns about the resource. They recognize it’s world class. They don’t express concerns about Canadian companies’ abilities to operate and to bring new technologies and innovation to bear to drive out cost and be competitive. They express concerns about certainty and predictability of major projects actually getting built. Capital doesn’t like uncertainty.
Senator Wetston: Just one quick followup —
The Chair: You’ll go on a second round. Unfortunately, there’s still a long list.
Senator Tkachuk: I’m going to take a bit of a different Canadian tack on this. Mr. Douglas, you talked about Suncor, the environmental responsibility of the oil industry and how important it was. Then, Mr. McMillan, you talked about the future being China and India. There’s one thing I would like to say, and I would like you to comment on it. I don’t think China and India care how we get our oil. They’re going to buy it whether we have environmental processes in place or not.
But the important thing is the present government doesn’t care either, because by Energy East failing, we’re now buying oil from Venezuela and all those other countries that don’t have those environmental regulations you’re talking about. Your marketing is off the mark. You have to market to Canadians and the government. I don’t think India or China care, and obviously this government doesn’t care, because they’re forcing Eastern Canada to buy it from non-Canadian sources.
I’ll leave that with you, and I have one other question.
The Chair: Do you wish to comment?
Mr. Douglas: In terms of our marketing being off the mark, we’re dealing with a one-hundred-year resource. We’re not talking about a project where we go in, construct, monetize and go out. We’re forming life-long, multi-generational relationships with communities.
A long, long time ago — I’m a 30-year Suncor person, and it probably predates me — we decided we had to look at community, environment and economy, and balance those.
Senator Tkachuk: Totally agree.
Mr. Douglas: My job today is to go around today and sell the company to investors globally. I can tell you they care deeply about our environmental standards. When I go to investors in Singapore, Kuala Lumpur, Tokyo, Hong Kong or throughout Europe.
Senator Tkachuk: They’re buying it from Russia. Don’t tell me that. They don’t care.
Mr. Douglas: I’m talking about investors who are buying us.
Mr. McMillan: On the customer side, I would agree with you. Canadians and Canadian producers are the best producers in the world. We’re going to use less water per barrel next year and the year after that. We’re always going to innovate. We’ll have fewer emissions, and we’re investing in technology to continually improve. That isn’t about our customers; that’s about us being a Canadian producer.
I’ll tell you a quick story. When the ambassadors come through Calgary will often stop in and see us at CAPP. I had a European ambassador from a country that fancies itself as taking the environment very pridefully. He spent the first five minutes chastising me about the way we produce energy in Canada. I respectfully listened. Then I said, “Your country imports 100 per cent of your natural gas and 100 per cent of your crude oil. Your usage has been stable over the past decade. Most of it comes from Russia. Canada’s investing in technology, we’re improving upon this. Our projects being brought on stream are better than your average barrel produced in North America. Over time, our oil will be some of the best in the world. Would you pay a small premium to get Canadian crude to your country?”
He thought about it for 15 seconds, and then said, “No, we’re a free enterprise country, and my customers would drive another two kilometres to get a penny off their gas.”
That was a very frustrating response for someone who started off a meeting with a tirade about Canada.
When we talk about environmental performance, it’s about being a producer and doing it well. It’s frustrating when the global community has expectations but aren’t willing to hold others accountable.
Mr. Bloomer: I have a few thoughts. We can use the phrase “walk and chew gum at the same time.” In Canada, we should be able to develop our resources and our energy portfolio over time that meets the expectations of Canadians. We should be able to export our resources to other countries and get full fair value of that, but we should do that in a way that is sustainable and meets Canada standards. We should be able to do both.
I agree with you that the only thing people care about in terms of energy globally is price. But we can do both: We can do it in the best way in Canada and satisfy ourselves that those energy commodities that go out of Canada meet a high standard, but we have to compete in the market.
Senator Tkachuk: I want to get this cleared up. I’m very proud of the Canadian oil industry. I think you’re a great industry. The point I was trying to make is that we had Energy East fail, Northern Gateway fail and Kinder Morgan is going to fail. I don’t know. You seem to think we’re going to be able to solve these problems. I’m saying we all have to do a better job explaining to Canadians that we can’t solve the problems.
I come from an energy exporter perspective, and we have difficulty moving simple things like canola and grain to the West Coast for export. Now on the West Coast, they’re saying, “All those natural resources you have there — we don’t want to move them either.” If Alberta and Saskatchewan can’t sell to the East and can’t sell to the West, and we have the Supreme Court telling us we can’t even go across the bridge and buy a bunch of beer and wine — that’s serious stuff. That’s what they said today. You can’t do that.
What reason would we have to stay in the country? How are we going to make a living? This is a political problem that’s coming, and it’s going to get worse.
Mr. McMillan: I think you’re honing in on the challenge. The problem isn’t that Canadians don’t support market access or that British Columbians don’t. It’s a political problem. Where I get very uncomfortable is when I see foreign actors trying to disrupt the Canadian political system —
Senator Tkachuk: This is the crux of the problem.
Mr. McMillan: This sounds like conspiracy theory, and I apologize for that.
Senator Tkachuk: It’s not, though.
Mr. McMillan: We’ve seen the hive-and-swarm manifesto put out by 350.org. We’ve seen American lobbying groups that have bragged about how many ridings in which they’ve been influential in provincial elections.
I don’t know if that is good or bad, but when it comes to energy policy, we see their actions are delegitimizing our regulator at times. After our government and regulator have put forward a decision, they are putting forward plans to actively oppose the directions the government has given a project. I don’t think that’s healthy for Canada or our democracy.
Senator Tkachuk: I agree.
Senator Day: Thank you very much, gentlemen, for your frankness and openness in dealing with these questions we’re putting to you.
I have a couple of points of clarification with respect to my colleagues’ points earlier. You felt the Trans Mountain project will go ahead, but I’m taking from that all the indirect regulatory activity is delaying this. Mr. McMillan has just reminded us again that if it does go ahead, it’s going to require government input to a much greater extent than should have been the case. Is that a good takeaway from the discussion?
Mr. McMillan: It absolutely will take federal government leadership to step in to take the authority to get the permits, the certainty and the regulatory assurance in the timeline needed, and it will likely take legislation to clarify the issues the BC government is trying to inflame or quibble about.
Beyond that, what other tools governments may be looking at to give that assurance, I don’t have clarity on.
Senator Day: Let me tell you my bias. It goes along with a number of other colleagues who have made points about Energy East. I’m from Saint John. Let’s put it all out so people understand: Saint John has a deep-water terminal. Ships come in, unload the crude and go directly to the refinery. That refinery is very successful because the refined products are very close to the major U.S. market. In addition to crude oil that’s brought in, gas is shipped out, and there is a gas terminal, the deep water terminal for gas, out of Saint John. There could easily be an LNG connection there, very easily. There was an announcement by the Irving family that they would be prepared to build another refinery if they had the proper supply.
All of that was there, in place, from the market point of view. With that background, Mr. Bloomer, you were giving some very good statistics, and I want to make sure they’re understood and we can interpret these correctly. You talked about Canada being a major producer and exporter of product. Were you including crude oil coming into Canada on the East Coast, and do you know what percentage? Was that a net figure you were giving us or a gross export figure, without taking into consideration the amount of crude oil being brought into Saint John to feed that refinery?
Mr. Bloomer: They’re basically not including those numbers.
Senator Day: Do any of you have, just for the record, any feeling of how much is being brought into Saint John to feed the refinery there? This is being bought on the world market. I was on other Senate business with NATO in Lithuania recently, and the ambassador told us that Lithuanian crude was being shipped to Saint John, New Brunswick to feed that refinery. That’s Caspian or Russian oil. We know that. We should know what kind of a figure that is, and we should know what the cancellation of Energy East has done to that Canadian picture.
Mr. Bloomer: No question. It’s in the order of hundreds of thousands of barrels a day that go into that port facility, and you’re exporting similar volumes out of that facility. Absolutely. That refinery is, from a market perspective, in a good position. It’s able to benefit from sourcing oil across the world. It’s a tragedy we’re not able to do it with Canadian oil.
Mr. McMillan: I believe it’s $14 billion of oil we import a year into Canada. A large portion would be into the Saint John refinery, some into Ontario and Quebec refineries as well, but we can provide a more detailed list of those imports for the committee.
Senator Day: I think, for the record, would be very good.
The Chair: Very good.
Mr. McMillan: Okay, will do.
Senator Day: Mr. McMillan, just another point of clarification. You said we’re standing here, in Canada, on huge resources of oil and gas. You talked about technology. I was wondering, is fracking part of the advancement in technology you’re talking about? That brings in the political problem of fracking not being allowed in so many places that we can’t tap into what the American market has done. They’re now a major supplier in Quebec and Ontario.
Mr. McMillan: Absolutely. Hydraulic fracturing is one of the technologies that has truly unlocked the American energy sector. It has unlocked our Bakken. It has unlocked Canada’s Duvernay and Montney and several of our other plays as well. We have opportunities in Quebec, in New Brunswick and in other parts of Canada where, today, they haven’t been able to get the regulatory pieces in place to allow it. Very frustrating. The opportunities it could bring to your province and others in Eastern Canada would be terrific for us as a nation. It’s technology that is well understood, very well regulated, done safely. The number of wells being drilled in the Permian Basin and Eagle Ford, in the Marcellus, in the same zones just south of the border from Eastern Canada, the technology being repeated safely over and over, should give confidence, but the same people who are opposing the pipelines in Western Canada are the people who are opposing fracking in Eastern Canada. It’s frustrating for us, as a nation, to have that small group of active people dictating our energy policy.
Mr. Douglas: This comes back to an earlier comment about the way we market. When I say “we,” I’m talking broadly, the way government talks about the resource, even the way we talk about it. It’s talked about as though it’s a bygone era; we’re hewers of wood and drawers of water. In fact, if you invest in Suncor, you’re investing in a technology play. The industry itself is a technology play. There are amazing innovations going on. I’ll give you a couple of examples. Canada’s Oil Sands Innovation Alliance was absolutely precedent-setting globally a couple of years ago, when we brought together all of the major oil sands leaders and formed a collaborative group. We put in over 900 individual pieces of technology, intellectual property, over $1.3 billion. They’re working specifically on reducing the environmental footprint, addressing land reclamation, addressing water usage, addressing greenhouse gas, energy intensity. We formed a partnership with B.C. cleantech, called Evok Innovations, again working to address, with applied technology, cutting-edge technology, challenges like greenhouse gas emissions. You probably saw where we’ve just announced that we’re rolling out a fleet of automated trucks. It’s the first in North America. Our entire fleet of vehicles, across all of our mines, will be automated. This is an absolute first in North America. It will make them safer, have fewer emissions and be more profitable, frankly.
Senator Maltais: I am glad that you could join us. We do not have the opportunity to meet you every day.
I know that you have no real connection, but I would like to make a connection with the Energy East pipeline project. Do you not believe that the errors made with Energy East are currently being reproduced with Kinder Morgan? Let me explain. When you have public support, you have to cultivate it, make sure of it and maintain it. Energy East missed its opportunity all along the line in Quebec. The proof is that, a few years ago, Senator Wetston was on the energy board and they solved the pipeline problem.
You have a golden opportunity now to seize the moment. You are supported by a little more than 60 per cent of Canadians. Support like that is quite rare in Canada. Few political parties have been in a similar situation. Seize this opportunity to establish a solid base for petroleum. Go into the schools, go and show them that you have a product for the future. Explain to young people that the products that we import into Canada come from countries where human rights are not respected, countries where living conditions are very precarious. Use those arguments. Go to the provinces — Quebec, Ontario, Nova Scotia, Newfoundland, New Brunswick — and explain to the people that you are a company of the future and that the economic results you are generating benefit all Canadians. Go and give them the information in their homes, in person, not through the media. Do not let environmental groups take control of the situation. Take advantage of the fact that serious Canadians are behind you. This is an opportunity to seize the moment that may not happen again. A political party with the support of 60 per cent of the population can go a long way. Thank you.
The Chair: Thank you, Senator Maltais. Does anyone wish to comment on that?
Mr. McMillan: I would like to, Mr. Chair. I would like to thank the senator for his comments, and I would love to take him with me as I go on that.
Absolutely right, senator. I believe this is a time where Canadians are focusing on the energy issues in a way they haven’t in the past and probably should have, and we are trying to capture that momentum.
One thing we have done at CAPP is, over the last three years, we looked at what our opponents have done, and they are very user-friendly, social media savvy, all these things that our industry — we’re very technical, engineering and science-based. We realize if we want Canadians to support us, we have to connect with them. So we created something called Canada’s Energy Citizens, which is a grassroots advocacy organization that we support up front; we’re not hiding anything. It has grown to over 220,000 Canadian energy citizens. Today it is bigger than the reach of Greenpeace or any of our other activist opponents. It’s two to three times more active; our members are more active than our opponents.
People are proud of our industry. They have been frustrated that for years they have been beaten up, not realizing that 60 per cent, 6 out of every 10 people at coffee row, want to see a pipeline or hydraulic fracturing or whatever the issue is. This connects them and gives them an opportunity to be proud.
We host pub nights across Canada where we invite people who are signed-up energy citizens to come out and have a beer. We share infographics they can share with their friends and family who agree with them, or those who don’t. This is no small task. I think you’ve identified that it is schools, communities, organizations and charity groups that we need to talk to.
Mr. Douglas: I think any criticism of us on that front is just and deserved. We are an industry of engineers and accountants, and we were working very hard, head down, pushing oil sands forward in the 2000s. To be frank, we lost control of the agenda.
I recall meeting with the head of governance for a major bank who said to me, “We came to look at Alberta, and we thought we were going to see cowboys way to the right of Texas, but what we found was the most due diligent, dedicated oversight, and we’ve concluded that you’re the problem; you’re not marketing.”
We have in the past few years really taken steps to up our game on that front, and it’s largely the influence of the opinion leaders, so it’s showing up at the ESG — environmental, social, governance — conferences. It’s talking to the governance people of the banks. It’s talking to responsible investors. I think we’re changing the view, but it’s a hard slog.
Senator Maltais: I am sensitive to what you are telling us, Mr. Douglas, but you have to go further than that. You might have to consider changing your strategy. It has been said that the government has no strategy, but you have to have one. Get out of your offices. Do not stop at meeting only people from Alberta. Meet Canadians from coast to coast. You will see that your capital is for the long term. You have said that there are reserves for several hundred years, so I believe that you will solidify your capital by ensuring the base of the population that supports you. That is my wish for you. It is the only way to make your product acceptable in each of the provinces, even the most reluctant. In Quebec, 54 per cent of the population supports you. Do not make the same mistake as Energy East. Go and meet Quebecers and explain to them what you want to do. When you provide no explanation, any old nonsense can replace the truth and I do not want that to happen to you.
Senator Unger: Thank you, gentlemen. Your presentations are fantastic.
Mr. McMillan, I surely agree this is not an Alberta versus B.C. situation with regard to Kinder Morgan; it is B.C. versus Canada.
I have a couple of questions — they’ve both been touched on a few times — just with regard to the Supreme Court cross-border case with Mr. Comeau. The Supreme Court ruled that provinces have the constitutional right to restrict the importation of goods from another province as long as the primary aim of the restriction is not to impede trade. My interpretation is this should help Alberta’s case. I don’t know if you would be interested in commenting.
I also wanted to comment on the foundations. Recently, a study on pipeline development was done by the Senate Transport Committee. Of course, Vivian Krause has long been the advocate, but they heard testimony that foreign funding was coming into Canada. I can remember Ezra Levant travelling across Canada and getting to know the people doing the protesting. Of course, they were all paid protesters. Do you have any additional comments on that?
Mr. McMillan: In regard to the court case, I haven’t read the ruling, but we have looked in quite a bit of detail as to what responsibility the federal government has. We don’t feel they need to introduce legislation to even clarify it, but in the time frames we have, that is one action they can immediately execute and give that certainty to move this forward in an accelerated manner.
As far as the challenges around our opponents, it’s happening in plain sight. Those who have been organizing from outside of Canada have been bragging about it, and it never really became an issue, which for me I find frustrating because it’s something I’m passionate about, as I know the people who work in this industry are, but we’ll see how that plays out.
Mr. Bloomer: Thank you for your question. We are very concerned, certainly from a pipeline perspective, about the activism that could potentially evolve on Kinder Morgan. We hear all the rhetoric, all the protesting and so on. One of the issues is that the people and the groups you’re talking about, given we’ve had a number of pipelines cancelled and Kinder Morgan is teetering, those folks see the light at the end of the tunnel. We’re concerned that can embolden them to create a very insecure and dangerous environment going forward. We are very concerned about safety and security, and we’ve expressed that to both the B.C. government and to the federal government, that they need the show leadership and get a hold of that because it is a big problem. We need to understand they are emboldened and are not going to let go.
It comes down to you can protest and so on, but when you get into confrontation — we saw it at Standing Rock — that becomes a very big concern for safety and security, and in the broadest sense, not just focused on Kinder Morgan. It’s focused on pipelines. We need to be alive to the potential of this going on, and we need to be alive to the fact this is being instigated from outside our borders.
The Chair: I understand Senator Wallin has something she wishes to read into the record. I’m sorry, Senator Unger, you’re not finished.
Senator Unger: I wonder if you would care to comment on Alberta’s very recent legislation.
Mr. Bloomer: From CEPA’s point of view, we understand the Alberta government has to do something. They feel they have to have some sort of instrument or way to influence the process and we do get that.
The concern is this legislation, again, is government intruding into commercial arrangements and into the business.
That legislation, as it stands, is concerning because it has a lot of power to it to interfere, potentially, and regulate. In the wrong hands, that could be a very dangerous piece of legislation.
We understand they have to do this. We hope they don’t have to use it. It is concerning because all these interventions can create unintended consequences and precedents down the road.
Mr. McMillan: We continue to believe this is a federal responsibility, this isn’t between Alberta and B.C. It’s between British Columbia’s illegal and unconstitutional actions and the federal government.
That being said, we support the Alberta government’s efforts to raise the pressure here. Without their efforts to really move this project forward, I don’t think it would have the very positive direction it does today. We support that action.
This particular piece of legislation, I think, is in that regard. When the premier introduced it, she said, “I hope we never have to execute on this.” We would share that hope, but we understand it’s a deliberate action to continue to get the long-term benefit of a project built and we’re committed to getting that project built.
Mr. Douglas: We also appreciate the support this legislation indicates, but we have many, many customers in British Columbia and obviously we want to be able to continue to supply them. It would be our hope the legislation would never be acted upon.
Senator Wallin: This was a letter to the editor in a Seattle newspaper today, just FYI. It says:
Thanks to the citizens of B.C. who seem once again to have blocked an oil pipeline to the coast. Those of us living south of the border will continue to enjoy importing your oil at substantial discounts while exporting our oil from Gulf ports at world-market prices. Your gift to us, around $100 million per day Canadian, is greatly appreciated. We marvel at your generosity while doubting your sanity.
Sorry, I just wanted to put that on.
The Chair: I want to thank you, Mr. Bloomer, Mr. McMillan, Mr. Douglas. Tremendous, tremendous panel. Its underlying concerns, I think, that are broadly held across Canada. It’s our challenge now to try and be helpful to make a more productive future than we’re currently facing. You have been very, very helpful to us in our deliberations and I thank you very much.
(The committee adjourned.)