THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, December 5, 2024
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9:01 a.m. [ET] to study emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Good morning, honourable senators. My name is Paul J. Massicotte, I am a senator from Québec, and I am the Chair of the Standing Senate Committee on Energy, the Environment and Natural Resources. I ask my fellow committee members to introduce themselves, beginning on my left.
Senator Verner: Josée Verner from Quebec.
[English]
Senator D. M. Wells: David Wells, Newfoundland and Labrador.
Senator Fridhandler: Daryl Fridhandler, Alberta.
Senator Anderson: Margaret Dawn Anderson, Northwest Territories.
Senator Arnot: David Arnot, Saskatchewan.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
Senator Youance: Suze Youance from Quebec.
The Chair: Today, the committee has invited witnesses to appear as part of its continued special study on climate change, in particular the Canadian oil and gas industry.
[English]
For our first panel, we welcome from Parkland Corporation, Bob Espey, President and Chief Executive Officer. Welcome, and thank you for being with us.
Five minutes are reserved for your opening remarks. The floor is yours, Mr. Espey.
Bob Espey, President and Chief Executive Officer, Parkland Corporation: Good morning, Mr. Chairman. It is my pleasure to join you today.
In the spirit of reconciliation, I acknowledge that I am speaking to you from the traditional territories of the Blackfoot Confederacy, the Tsuut’ina, the Stoney Nakoda Nations, the Métis Districts 5 and 6 and all the people who make their homes in the Treaty 7 region of Southern Alberta.
My name is Bob Espey. I am the President and CEO of Parkland Corporation, a Calgary-based fuel and convenience retailer with operations in 26 countries, including the United States. While we don’t drill for oil or gas, we provide energy, convenience items and food to one in five Canadians every day.
If you’ve fuelled up at Pioneer, Ultramar, Chevron, charged your electric vehicle, or EV, or shopped at On the Run, or bought food from M&M Food Market, you’re one of our customers.
Through these daily interactions, we gain valuable insights into the needs of Canadians. Today, I urge you to approach our dialogue not through an energy industry lens, but from the perspective of the 39 million Canadians who depend on us for reliable, affordable energy.
I’ll begin with the industry’s relevance to Canada. Every day we provide the energy for airplanes, ships, trucking fleets and roughly 28 million personal vehicles on the road in Canada. When Canadians stop at a gas station, they are doing more than filling up their car — they are ensuring they get to work and their kids to school and sports practices. The fuels we provide bring families and communities together.
From a Canadian wellhead to the consumer, we have an enviable domestic made-in-Canada value chain. We must cherish and protect this. Otherwise, we must buy from and rely on other countries. This diminishes our energy security, squanders economic opportunity and unnecessarily impacts the environment.
Let me touch on three ways Parkland is helping lower the carbon intensity of Canadian transportation. First, for industries like trucking, shipping and aviation, with limited alternatives to liquid fuel, reducing carbon intensity is key. In 2017, we led the way by blending renewable feedstocks with crude oil using existing infrastructure at our Burnaby refinery. This renewable fuel has roughly one eighth the carbon intensity of conventional fuel and works in existing vehicles without modification.
Second, electrification in aviation is challenging, so we are piloting production of Canada’s first domestic lower carbon jet fuel. This is often called Sustainable Aviation Fuel, or SAF. Currently, all SAF is imported to Canada. On completion of this big milestone, we will deliver a made-in-Canada success story, which we must build on.
Third, Canada needs lower carbon fuels and electrification, and we see tremendous opportunity in the energy transition. We have built a leading EV charging network in the West and are expanding in the East. However, there is a disconnect. Governments want to mandate change that not all Canadians are ready for or can afford.
How can Canada better compete, and how can the government provide Canadians with choice while incentivizing decarbonization and driving economic growth?
First, give Canadians affordable choice. In a customer-facing business like ours, we meet customers’ needs; otherwise we lose them. The same is true for policy and regulation. Government should focus on the current and evolving needs of Canadians and embrace energy policy that ensures no Canadian is left behind.
Second, we must strengthen our Canadian value chain and let industry compete. For instance, regarding Sustainable Aviation Fuel, the US Inflation Reduction Act incentivizes SAF blending, production and use, while Canada relies entirely on imports. It makes no sense to buy a low-carbon fuel and transport it around the world before it can be used. Incentivizing Canadian SAF production would support sustainability goals and harness economic opportunity.
Third, political leaders must be proud of our Canadian energy industry. I spent time in Norway speaking with the leaders and citizens who proudly support their energy industry. We need Canadian political leaders to express the same pride in our industry while, at the same time, incentivizing lower emissions. We have the natural resources that the world needs, along with some of the highest environmental standards in the world.
Thank you for the chance to speak with you today. I’m happy to take your questions.
The Chair: Thank you very much, Mr. Espey. We will proceed to our question period.
[Translation]
Senator Verner: My thanks to the witness. The fourth objective of our study is to assess the industry’s strategic positioning to better address risks and global trends, including electric vehicles. Early this week, a Quebec minister stated that service stations were already closing down in the face of increasing electric vehicle sales. It will be harder to find gas as we approach the 2035 deadline for banning the sale of gas-powered vehicles.
Your business has 4,000 gas points of sale in Canada and the United States. First, are you seeing that state of affairs on the ground right now? Second, do motorists really have to fear not being able to find gas as we approach 2035?
[English]
Mr. Espey: Senator, thank you for the question. It’s interesting. We’re definitely seeing a change and in the way that it affects demand with consumers.
I would say through the transition — and, again, from Parkland’s perspective, it’s important that we meet the energy needs of our customers. What we have seen, and it’s an ongoing trend in the industry that we’ve actually seen for decades, is that smaller, weaker sites end up falling out of the market, because they just don’t have the profitability to sustain.
One of the things we need to keep in mind is that as energy transition happens, we need to make sure that the infrastructure remains in place. How does that happen?
First and foremost, we start to provide a good alternative for electric vehicles, or EVs, to charge, which helps the profitability of those sites. As I indicated in my opening statement, Parkland is a leader in ultra-fast charging, which the consumer likes, and we’re seeing good utilization of that in communities where there is high EV penetration.
The second thing is that diesel applications or what we call “high-power applications” are difficult to electrify, and the best way to reduce carbon emissions is through renewables and ensuring that we have a healthy renewables value chain in Canada. That’s one of our concerns: Without the right incentives in place, a lot of that production will go into the U.S. particularly, and we’ll be an importer into the country where we currently manufacture and provide those fuels domestically.
[Translation]
Senator Verner: Thank you.
[English]
Senator D. M. Wells: Thank you, Mr. Espey, for appearing today. I want to ask about the economic footprint of Parkland, to the degree you can. How many people do you employ, and how many spinoff companies are associated with the activities of Parkland and that sort of thing? Could you give us an idea of your economic footprint in the region you operate?
Mr. Espey: Yes. We employ roughly 6,500 people in Parkland, and that is throughout our operating areas, which is Canada, the northern part of the U.S., the Caribbean, South America and Central America.
In Canada, we have roughly 2,000 employees, and that’s in our direct business. If you were to include the service stations that we supply or own on top of that, there are roughly another 20,000 people that would be directly employed or depend on Parkland. The industry in Canada employs about 200,000 people.
Senator D. M. Wells: Thank you for that.
With the transition that’s taking place from petroleum to renewables or non-petroleum, what are some of the positives that you’re seeing in the sector, and what are some of the challenges that you’re seeing?
Mr. Espey: Yes, one of the things is that we provide energy for people to move. People are still going to move, independent of the fuel that they’re using. We do see a future for convenience and energy tied together.
One of the things that we are fortunate in is that we have locations with proven traffic patterns in communities, which are locally run, and those will be relevant through the transition, because people will still need to either charge their vehicles or buy renewable fuels at our sites. That part we look at and see as positive.
Again, for us, the bigger worry is the value chain to support the ecosystem and making sure that we continue to be able to manufacture and provide these fuels in Canada with Canadian natural resources going to the consumer, and we don’t end up outsourcing that which will lead to a large movement of jobs out of the country.
Senator D. M. Wells: Thank you for that.
One more question: With that transition, I assume — and maybe I shouldn’t assume — are there more users for renewables? Is that trend line going where you thought it would go?
Mr. Espey: Renewables will get adoption through government mandates, so when the government mandates are there, renewables will start to get traction.
Ultimately, the cost of a renewable, if you look at a litre of diesel that is purely renewable versus a litre of conventional diesel, it’s about five times the cost. That’s the ongoing challenge with the energy transition. You’re moving from energy that’s cheap and readily available to energy sources that will be more expensive, and, ultimately, that’s the challenge that the consumer will have is who pays for that?
If we look in the U.S., the government is stepping in with direct subsidies to manufacturers, and there is no incremental cost to the consumer. Whereas, in Canada, particularly, we see a lot of that flowing through to the consumer and, ultimately, to the user, who has to pay for it.
Senator D. M. Wells: Thank you very much.
Senator Fridhandler: Thank you for sharing your time with us today, Mr. Espey. I would like to understand a little bit more about your charging networks and what you see as impediments to a broader deployment around Canada, particularly in remote areas, so that people outside of major urban centres might be less likely to move toward the EVs.
Can you comment generally on that situation?
Mr. Espey: Yes, the biggest barrier to putting in EV-charging infrastructure is adoption of EVs.
Now, what I do think the government has done well is to try and incentivize through three mechanisms: One is that we get grants at times in communities where demand isn’t there and it’s hard to justify putting the capital in.
Second, we were fortunate to be a recipient of some financing from the Canada Infrastructure Bank, which gives us a lower cost of capital and also has some features on it that ties repayment to utilization. That helps reduce the risk and also helps us deploy quickly into communities where we may not see demand early on.
The third thing is that we can monetize carbon credits to help assist with the investment. That being said, the investment in an EV-charging network is still early days, and we do recognize that we won’t see returns here until the future.
Senator Fridhandler: On another matter, it was interesting to see on your website — and I think you also noted today — that Parkland are leaders in low-carbon fuels.
I’m interested to hear a little bit more about where you’re at in terms of what is already in place and what you see happening in the future in terms of your role in this area.
Mr. Espey: Yes, we have a refinery in Burnaby, B.C., and we were one of the first companies in North America — and potentially globally — to use a technology called “co‑processing.” This is where we use the existing infrastructure, the existing refinery, and basically we have started to push renewable feedstocks. We’re displacing crude with things like tallow or tall oil, which is a waste product in the forestry industry, and some canola as well. We start to displace crude, and, basically, we lower the carbon content of the fuel.
As I talked about in my opening statement, you can lower that by about seven eighths. It is a pretty remarkable reduction.
The benefit of that is that the capital to convert the equipment is very low. We spend in the neighbourhood of $50 million to $70 million to produce 3,500 barrels a day. A new renewable diesel plant would cost in the neighbourhood of $600 to $800 million, so it gives you an idea of how we’ve been able to use the existing infrastructure to lower carbon emissions.
Then from the consumer’s perspective, it’s not an incremental cost to them, so they are buying gasoline at the same price that our competitors would sell it, but ours has this renewable component. The way we offset that is that we are earning carbon credits that we can sell into the marketplace. That has been a very successful method for us to help reduce.
In other jurisdictions, we’re an importer, so we would import renewables into Canada, because the production capacity doesn’t exist yet.
Senator Fridhandler: Do you see opportunities beyond Burnaby to retrofit other facilities so that the consumers are burning more efficient, less emitting fuels?
Mr. Espey: Yes, we only have one refinery, and we’re fortunate in the configuration. It allowed us to do that very economically.
I can’t speak to other refiners and their ability to do that as economically, but it is certainly a pathway that we’re seeing in other jurisdictions, particularly in the U.S. and in the western states where mandates are pretty aggressive.
Senator Miville-Dechêne: To follow-up on this Burnaby plant, can you give me an idea of the percentage of fuel that contains feedstock as a percentage of your overall fuel sales? Is it a small part? Is it a medium part? How much does it account for your whole commerce?
Mr. Espey: It depends on the fuel, but if you think about it, for a litre of gasoline, roughly 10% to 15% would be ethanol, so that’s blended in, and on top of that, we’re in the 10% to 20% renewables. As a rule of thumb, it’s about a quarter that would now be renewable content for the consumer.
Senator Miville-Dechêne: You don’t have plans to expand on that?
Mr. Espey: We do have plans. This is leading technology, so it does take some experimentation. We do a lot of experimentation within the existing facility, so we’re very careful as to how we push that forward.
Currently, as I indicated, we are about 3,500 barrels a day. Our goal is to increase that to 7,500 barrels a day by the end of the decade.
Senator Miville-Dechêne: Can you dig a little deeper in the problem of having sustainable fuel for planes? Can you explain to me why we’re lagging, if I understand, in Canada, because of our laws?
Be a bit more specific. I’m sorry; I don’t know this file very well.
Mr. Espey: Aviation fuel is basically diesel, and it’s a higher-refined diesel and has higher-quality specifications, because of the safety requirements. The industry, quite rightly, is very conservative about converting to Sustainable Aviation Fuel, or SAF, and needs to work with engine manufacturers to do that.
Those engine manufacturers are now comfortable with Sustainable Aviation Fuel, which has the same chemical properties as normal jet fuel. The challenge, initially, has been that there is no mandate for airlines to use Sustainable Aviation Fuel. Why is that? It is because they need to compete globally, and without a global mandate, it is hard for a country like Canada to initiate its own mandate, because our airlines will lose competitiveness in a global market. That’s always the challenge.
On the flip side are the incentives. They aren’t there from a production perspective that would mitigate the extra cost to the airlines. If the government wants to assist there, it would require some capital and also some short-term subsidies until a global mandate is in place so that we can justify putting the capital in.
That being said, in our refinery in Burnaby, again, using existing equipment, we can make Sustainable Aviation Fuel. We’re running a pilot with one of our largest airlines in Canada, and we’ll be able to deliver a blended Sustainable Aviation Fuel to them at the Vancouver airport, and they’re going to start to run test flights, which is quite exciting for the industry.
Senator Miville-Dechêne: You should have more than one plant in Burnaby. I think that’s the conclusion of this —
Mr. Espey: Pardon me?
Senator Miville-Dechêne: You should have more than one Burnaby plant, so you would be going faster on a sustainable track.
Mr. Espey: It’s a good point. We’re fortunate that the configuration of the refinery we have lends itself to this sort of production.
Again, though, without the right incentive structure in place, it will not drive building a capability in Canada, whether that’s at Parkland or other refiners.
Senator Arnot: Thank you, Mr. Espey. Obviously, Parkland, during your leadership, has shown significant diversification of revenue streams and sustainability leadership. It’s known, and your innovation in low-carbon energy is remarkable. However, I have a question concerning this issue.
With Parkland’s roots in traditional petroleum products, how do you respond to criticisms that your company’s renewable initiatives are not sufficient to meet long-term goals by 2035 and maybe not even 2050?
Mr. Espey: Again, we are there to meet the needs of our customers, ultimately, and the customers will drive the change and our ability to invest.
I’m quite proud of what the team at Parkland has done in terms of standing up an EV-charging network. In record time, we stood up the second-largest ultra-fast charging network in B.C. We are now rolling that out into other jurisdictions. Without the demand, it’s very difficult for us to justify the capital.
We get measured on returns by our investors. We are a publicly traded company, and they expect us to deploy capital which will get the best returns.
Senator Arnot: Just on the EV charging, I understand that the consumer is not as enamoured with electric vehicles now as they might have been even a couple of years ago. Do you have any comment on that? In other words, the demand isn’t there, because the consumers are reacting. They don’t have confidence in electric vehicles for some reason.
Mr. Espey: I think it’s jurisdictional. I think what you’re seeing in urban markets, where access to charging and where people aren’t driving as far, is that an EV is a substitute for a gasoline vehicle.
Canada is a big country with a lot of distance, and we have a lot of people that need to drive to live. We also have a cold, harsh climate for which the technology is not, in some cases, well suited for. That’s the part we all need to make sure we’re cognizant of and, again, giving Canadians choice so that they can live their lives and contribute to the economy.
Senator Arnot: Do you have any comment on the government’s role in educating the public on why they should be demanding more green technology? In other words, is government leading this in a way that would get to a good result in a shorter period?
Mr. Espey: I can’t comment specifically on the effectiveness of education. What we would see in our business is that there is a high consumer awareness of the environment and the need to protect it. Where the demand is there, we will run at that and stand up infrastructure. With the help of the government, we’ve been able to deploy capital in areas with less demand to, hopefully, stimulate demand.
I would say that there are some challenges or practicalities around electrification versus conventional fuels. If you look at large parts of our country, which are cold, and people drive far, the practicality of an EV can be questioned just in terms of range, time to charge, and then a fall-off in range as temperatures get colder.
Senator Arnot: Thank you.
[Translation]
Senator Youance: Mr. Espey, my question is about your production. I would like to know what percentage of the products you sell are refined in Canada. I wanted to know the proportion of exported refined products versus imports.
[English]
Mr. Espey: Again, we’re not a producer of crude oil. We are a distributor, predominantly, and then in B.C., we do have a refinery.
In the gasoline market, we’re roughly in the area of 17% to 18% of that market, and in the diesel market, we’re a little lower; we’re 15% to 16% of that market.
We do have a large market share. We predominantly resell products from other refiners — other than in B.C., where we supply ourselves through our own refinery.
[Translation]
Senator Youance: In a different vein, you talked about convenience and charging time. Will you be forced to set up incentives so that people can use your charging stations? Are there other activities at your sites, or will you be forced to have them to ensure the sustainability of your electric charging facilities?
[English]
Mr. Espey: When we talk to our customers, what their fear is with an EV — or their hesitation — is, one, performance, and can I get the performance that I would out of a conventional vehicle? The second fear is the range, and people often talk about range anxiety.
As a strategy, what we’ve done is go into markets and make sure we can give people choice along major arteries. In B.C., we’ve put a network in place that allows consumers to rely on us every 100 to 150 kilometres along major highways.
Then the third thing is time. To give an example, we have an EV. If we drive from Calgary to Vancouver in my internal combustion engine, or ICE, vehicle, I stop once, and I buy energy, and it takes me about three minutes. When I drive an EV, I stop four or five times, and it takes me, on average — if you accumulate all of that — two-and-a-half hours. People want quick energy, and our response to that is to invest in ultra-high fast charging.
The higher the charge rate, we think that that is what consumers are looking for. Again, the second thing is network density, and we’ve been able to tie that together to make sure that you can drive your car from Vancouver to Calgary or Calgary to Vancouver and stop at Parkland sites along the way. By understanding the consumer, we’re building the network to make sure that this fits.
One of the limitations in speed is the vehicles. While the technology is there to charge faster, a lot of the vehicles can’t take it because of the impact on the batteries. Generally, what we’re able to provide is in 20 minutes, an 80% recharge of your battery on average sized battery. The benefit that we have is we are on major routes, and we do have good sites with good amenities and proven traffic patterns. What we’re seeing is that as we put EV charging in, people are, in fact, using it.
Senator Anderson: Thank you for your testimony.
I have a question in regard specifically to — there is a lot of talk about EVs. The most expensive electricity available in Canada is in the Northwest Territories. Our costs are at 41 cents per kilowatt. Nunavut is at 35.4 cents per kilowatt, and the Yukon is at 18.7 cents per kilowatt. The lowest is in Quebec at 7.8 cents per kilowatt. The Northwest Territories is almost five times higher than the costs in Quebec.
The Northwest Territories will also be increasing their electricity costs. The Government of the Northwest Territories, or GNWT, is — and will be — subsidizing electricity to the cost of $48 million over the next 4 years at $12 million per year. This subsidy will reduce the average rate increase — and we are still having a rate increase on top of this — across the Northwest Territories anywhere from 28.4% to 15%.
Now, when you’re talking about the use of EVs and the cost factors, how are these cost factors factored into the reality in the Northwest Territories when a lot of what happens in the southern provinces impede and affect us in the North, when the costs for us in the North are far more expensive. For electricity, it’s five times higher. There is the fact that we also have colder temperatures, and EVs are not as effective, and we have other factors that come into play in the North.
How would you account for decisions that are made nationally that affect the North?
Mr. Espey: I can’t comment specifically on how the government supports people that live in the North.
What I do know is that we have a value chain or a supply chain that goes and services northern communities. We do that as efficiently as possible by making sure that we’re having local storage in local markets so that we can drive full-truck loads of fuel into the market and then redistribute that.
I would say, in terms of EVs, one of the challenges with a lot of northern communities are they generate their power from diesel fuel, and without changing the source of power generation, it would question the drive to change to EVs.
Again, I think that’s a larger issue around how that power is derived, and, unfortunately, it is very costly, because it’s generated locally and mostly with diesel fuel, except for some of the larger urban communities.
That’s a challenge. We’re there to service. We do service customers in those markets. Certainly, it hadn’t been an area of focus from an EV-charging perspective because of the cost challenge.
Senator Anderson: Yes, just a quick follow-up to let you know that they have used hydro; however, with the effects that have been happening with climate change, the water levels are too low, and they’ve had to resort back to diesel. I don’t think that those factors are actually taken into play when decisions are made.
Just to put that out there, I think when companies are making decisions, and Canada’s making decisions, they need to understand some of the realities that are happening in the North and not make their decisions based on the South.
Thank you very much.
Mr. Espey: For sure. That’s great input, and, again, we’re proud to service a lot of those communities with energy today.
Senator McCallum: I’m sorry I missed your presentation. I came in late, so I apologize.
I wanted to comment and ask a question on electric vehicles. I went to look at buying a new car about a month ago, and I spoke to the guy that was selling the cars. He said for charging at homes, the grid won’t be able to take it, and only four on his street will be allowed the fast charging.
When we look at moving into electric vehicles, how sustainable is that for the whole country? I look at the environmental footprint, because I understand your batteries are made from lithium, and the cost ranges from $5,000 to $16,000 for a new battery. How available are these batteries right now? There is a significant environmental footprint through the mining of the lithium and through hydro on First Nation’s communities through the air, water and soil contamination. That now includes water scarcity. Would you comment on that?
Mr. Espey: Our business is not involved in the production or fabrication of batteries, and it’s not an area that I really have a lot of expertise in.
Again, the challenge is that batteries have a much lower energy density than conventional fuels and hence are more expensive, which ultimately leads to the higher cost of an EV. That’s ultimately the challenge. If you look at consumers, under the conventional energy system, it’s just more affordable. This goes back to the question: How does the government want to incentivize changes? Quite frankly, for most Canadians, the only way to do that is with direct subsidies when it comes to EVs.
I can’t speak specifically to the environmental impacts of lithium and how that affects local communities. That’s not an area that we’re actively involved in.
Senator McCallum: You are involved in it because you are buying the lithium batteries. You are indirectly contributing to environmental damage, especially in First Nations communities.
How available are the batteries?
Mr. Espey: Again, in terms of electric vehicles, I can’t comment on availability of the batteries. What I would say is that Parkland as a business is focused on meeting the needs of consumers and customers. If our customers are moving to electric vehicles, we’ll be there to support them.
Senator Massicotte: I would like to ask you a couple of questions, Mr. Espey. It’s not directed at your business, but you are a participant or bystander of great importance. You obviously see what is happening in the industry, and you are an intelligent person. You’ve developed opinions. We are faced with a conundrum, if you wish, where the government is trying to find a way to align the interests, and right now, it is not working.
Some producers have said, “I don’t care about the subsidies. I just want to produce oil and gas. I just want to produce it completely. That’s my job.” But it’s not happening. We’re not meeting the objectives environmentally. We’re not meeting the objectives of many producers. Yet we’re at a standstill. We’re talking about a cap on price, and a lot of people don’t like it. Yet we’re going nowhere. Could you comment — because you’re a bystander and know the industry very well — on what is wrong and how can we make it right.
Mr. Espey: As you indicated, we are a distributor, so we predominantly manufacturer a very small amount of our own usage. We are not an integrated oil company so we don’t participate in the upstream.
As someone who is involved in the energy industry and who, as a company and as an individual, believes that climate change is an issue and we need to change, I would say in Canada we are blessed with a tremendous resource. Outside of Canada where we can control our behaviours and how we use energy, there is a global market that we have a great opportunity to continue to supply to. That industry contributes vastly to the productivity and the wealth of the country, and it allows us to afford a lot of the changes that we need to make, whether that’s in our health care system or how we use energy.
From my perspective, we need to let the energy thrive so that it can export and provide energy to the global market, but at the same time, as Canadians, we need to demonstrate that we’re doing the right thing to protect. Ultimately, the only thing we can control is what is within our borders.
Senator Massicotte: If you look at world trade from an oil perspective, in fact, the prices have basically softened from the demand side and the Organization of the Petroleum Exporting Countries, or OPEC, is delaying any further cuts. In five to six years, we’re going to have an oversupply, and therefore, prices may go down. How do you manage that? If you were the adviser to the Minister of Environment, how do you deal with these issues.
Mr. Espey: From a demand perspective, it has levelled off. I think there are a number of factors there. One is that we are seeing EVs make a difference. Two is that we are seeing energy efficiency make a difference, and that’s probably the bigger contributor to demand. The third factor is economic activity, particularly in Asia — and China specifically — where the economic activity hasn’t been there to drive the ongoing growth in demand for oil.
Again, it’s hard to pull apart the extent to which each of those impact it. The price of energy will come down if supply exceeds demand. I would say there has been under-investment on the supply side for the last decade, and every year, there is a certain depletion in the supply. As OPEC is doing, others will make sure that the market is balanced so that they can put the capital in to continue to supply their customers, whether they are in Canada or around the world.
Senator D. M. Wells: Not just as an industry watcher but also an industry insider, I recognize that much of Parkland’s customers and clients are based in Canada. What opportunities or challenges do you see with the new administration coming in the United States?
Mr. Espey: We have a large U.S. business as well. The value chain, or supply chain, in our business is very domestic in each — certainly in Canada and the U.S. We do a little bit of export/import across the border, but it is not really material to our business.
Now, in other jurisdictions like in the Caribbean and South and Central America, there isn’t local supply or local manufacturing, and we move products mainly from U.S. refineries into that market to supply local communities.
It’s hard to say. On the one hand, if the new administration stimulates economic growth, we’ll see the benefit of that. Certainly, tariffs would be detrimental to Canada, to Canadian oil and to Canadian economic activity, which would affect our business negatively.
Senator D. M. Wells: Are Parkland’s operations primarily based in Western Canada, or are they pan-Canadian?
Mr. Espey: We are across the country. As I said in my introductory comments, one in five Canadians visits our facilities on a daily basis, and we’re really proud to service them in all jurisdictions across the country.
Senator Fridhandler: Thank you, Mr. Espey. We have circled around the issue of what you call “meeting customer needs” or that “where demand exists, you will address it,” but I wonder if you could give me some specific concerns or where you need more support or where you believe consumers should receive more support from government in order to achieve the goal of net zero.
Mr. Espey: I would say two things.
One is on the price to consumers. This energy transition will cost money, and the question is: Does it come from the consumer, does it come from industry or does it come from government?
Ultimately, particularly where we’ve had an inflationary environment, we’ve seen Canadian consumers stretched. We’ve seen that in our network. We’ve seen that in demand. We’ve seen that in how much they spend. Higher energy costs, which could get driven higher, either through carbon taxes or carbon charges, will further put a strain on consumers. The other challenge is, then, substitutes — EVs are expensive.
The role that government can play is again making sure that there are either subsidies or the cost of the transition is not borne by the consumer because, ultimately, it hurts. The people it hurts the most are the folks who don’t have the disposable income that a portion of Canadians enjoy. It’s making sure that we help those who can’t afford it to be able to afford cheap, reliable energy so they can lead their lives.
On the other side, on the production side of fuels, the refining side is making sure that we incent a healthy renewables manufacturing capability across the country — not just in Alberta — to make sure that, again, we can give Canadians great-paying jobs in the sector and we don’t export those jobs into other jurisdictions. That’s where we’re at risk, I would say, certainly in the short term. We become an importer of these products, which benefits Canada because we lower our carbon emissions, but it comes at a cost to the economy and to Canadian workers.
Senator Fridhandler: Just a short long-shot question on Parkland’s views on nuclear and how that might fit into your picture.
Mr. Espey: Again, we’re not a producer of energy. I would say nuclear seems to me to be a good transition step as other technologies that are potentially more affordable catch up. That would certainly help with the electrification of the transportation network where demand will climb.
Production is one, and one of the other senators asked about the distribution network. Obviously, capital has to go into that to make sure that we can deliver energy to Canadians so they don’t experience any disruption.
The Chair: Mr. Espey, thank you very much for being with us this morning. It is much appreciated. You’re obviously very informed, and we got some good information from you that makes us a little bit smarter. Thank you for being with us this morning.
For our next panel, we welcome, from the Canadian Association of Petroleum Producers, Lisa Baiton, President and Chief Executive Officer, by video conference. From Cenovus Energy, Jon McKenzie, President and Chief Executive Officer, also by video conference.
Welcome and thank you for being with us this morning. Early morning for you, especially. Five minutes is reserved for your opening remarks. The floor is yours, Ms. Baiton, followed by Mr. McKenzie.
Lisa Baiton, President and Chief Executive Officer, Canadian Association of Petroleum Producers: Thank you, Mr. Chair, and good morning, honourable senators. Thank you for the opportunity to speak with you today. My name is Lisa Baiton, and I am President and CEO of the Canadian Association of Petroleum Producers, also known as CAPP.
CAPP represents upstream oil and natural gas companies from coast to coast. Our members produce nearly three quarters of Canada’s oil and natural gas and operate across the country in the oil sands, conventional and offshore sectors. CAPP is a non-partisan, research-based and solution-oriented partner that works with all levels of government to ensure a thriving Canadian oil and gas industry and a thriving Canadian economy. Because Canada’s economy is built on a foundation of natural resources, by developing these resources, we help provide the essentials of modern life. But today, we are not truly leveraging our resource advantage to improve Canadian standards of living, which is why the Senate study on the benefits of the Canadian oil and natural gas industry is incredibly important.
Allow me to share more information on what we’re seeing. Polls around the nation show that Canadians are worried about the rising cost of groceries and gas for their cars and whether they are going to have a job next month. They are worried about being able to pay their mortgage or if they will ever be able to afford a home. They are worried about whether our health care system will be able to support them when they need it most.
Outside of Canada, our world is growing more and more unpredictable. Violent conflicts in the Middle East and Russia’s continued war against Ukraine are an increasing threat to global security and are realigning historical trading relationships.
Following the recent U.S. presidential election, Canada faces considerable challenges. NATO funding, borders and immigration aside, it is expected that the new Trump administration will ensure that their U.S. corporate tax structure and their U.S. permitting processes are globally best in class.
We, as Canadians, need to be eyes wide open on the president-elect’s very real promise for 25% across-the-board tariffs, including oil and gas. Canada’s natural resources industry plays a pivotal role in solving the country’s significant productivity and competitiveness challenges but only if supported and leveraged properly.
Here is how the Canadian oil and gas industry is helping support Canadians’ standard of living today: Industry revenues to governments across Canada over the past two fiscal years have cumulatively reached over $75 billion, and these dollars help pay for our doctors, nurses and teachers, as well as support the arts and deliver the social programs upon which many Canadians rely.
The industry’s supply chain stretches across the country, reaching thousands of businesses and directly and indirectly support nearly 450,000 jobs in every single province from coast to coast. When you consider induced jobs, that number grows to about 900,000 Canadian jobs.
These jobs are high quality and high paying. The average wage within the conventional sector pays about $47 per hour more than the national average. Our industry is also one of the largest employers of Indigenous peoples in the country, employing nearly 11,000 people of Indigenous descent.
Additionally, hundreds of Indigenous-owned businesses make up a significant part of our supply chain. For the past two years in a row, capital investment from the oil and natural gas industry is expected to reach about $40 billion annually across Canada. That is in addition to what Canadian producers spend in operating expenses, about $70 billion annually.
Oil, natural gas and related petroleum sectors, such as refining and pipelines, together contribute over $200 billion to Canada’s nominal gross domestic product, or GDP, and the oil and gas industry make up the largest part — or about 25% — of Canada’s exports, exporting some $177 billion worth of product last year.
In light of Canada’s significant productivity and economic challenges, and in light of a Canada-U.S. bilateral relationship, can you imagine where we would be without the Canadian oil and natural gas industry?
I know I’m probably close to time, but if you would just permit me one more minute, I would like to briefly touch on our industry’s track record on emissions reduction. The federal government’s own national inventory data shows that our industry has a decades-long track record of meaningfully reducing greenhouse gas emissions.
While reaching record levels of production, the oil sands emissions flatlined from 2021 to 2022. From 2013 to 2022, emissions from natural gas production and processing fell by 17%, while conventional oil production emissions declined by 27%. Today, Canadian oil and natural gas production is at record levels, while emissions peaked back in 2015.
In closing, let me say that Canada’s oil and natural gas industry can continue to be a critical part of the solution to Canada’s domestic productivity, affordability and security challenges, and Canadian oil and natural gas will be essential to preserving our binational relationship with the United States.
If we properly leverage our energy resources, we can create more prosperity for Canadians, while enhancing our country’s influence on the global stage.
Thank you for giving me the opportunity to participate in this important study.
The Chair: Thank you very much. Much appreciated.
Mr. McKenzie?
Jon McKenzie, President and Chief Executive Officer, Cenovus Energy: Thank you very much and good morning.
My name is Jon McKenzie, and I am the President and CEO of Cenovus Energy.
I’d like to start by acknowledging that I am in Calgary in Treaty 7 territory, which is also home to the Métis Nation of Alberta Districts 5 and 6. I acknowledge these nations as the current and original stewards of the land.
Mr. Chair, I appreciate the opportunity to speak with the committee. Cenovus Energy is an integrated energy company with headquarters here in Calgary producing oil and gas in Western Canada, offshore Newfoundland and Labrador, and in the Asia-Pacific region. We also have upgrading and refining operations both in Canada and the United States.
We’re a founding member of the Pathways Alliance and a member of the Canadian Association of Petroleum Producers.
In your letter of invitation, you raised questions about our industry that I will address. You asked about the relevance of the oil and gas industry to the Canadian economy. The oil and gas sector help drive the entire Canadian economy. Our products make up about one quarter of the country’s exports. Without them, we would face a trade deficit of approximately $120 billion.
A deficit of that size would result in a weaker Canadian dollar and increase the cost of all imported goods, including fresh produce, clothing, construction materials, electronics and almost everything that we rely on in our daily lives.
We are a major employer, providing about 450,000 direct and indirect jobs across the country, and we are proud that a significant number of them are for Indigenous Canadians.
Cenovus and the oil and gas industry pays billions of dollars every year in royalties and taxes. Typically, about one half of what we make goes to governments. In the last two years alone, that totalled more than $76 billion. Our annual contribution is roughly equivalent to the entire budget of the Department of National Defence or half the entire payroll of the federal government.
You wanted to know our record on reducing our carbon footprint as well as how we plan on transitioning to a more sustainable future. Over the past 20 years, the oil sands producers in Alberta have reduced carbon intensity — or how much carbon is emitted per barrel — by about 23%. We continue to lower emissions, and we founded the Pathways Alliance to further innovate the oil sands industry in a collaborative way.
You asked about the industry’s response to risk and world trends and our positioning vis-à-vis international competition. As the world strives to move to a lower-carbon future, people will continue to need access to a reliable, abundant mix of affordable energy. Hydrocarbons have comprised about 80% of the global energy supply for the past number of decades and will continue to fuel global economic growth, our quality of life and our standard of living well into the future.
All credible forecasting agencies predict global oil and gas demand will continue well through 2050 and beyond. We firmly believe the world will need all forms of energy in increasing quantities in the future. The growth and diversification of our energy supply will include continued demand for responsibly produced Canadian oil and gas for the foreseeable future.
That is why we need to keep the Canadian oil and gas industry competitive. If we create a policy environment which hinders production, global demand does not disappear — it just pushes buyers to other suppliers, the majority of which are in countries that don’t have the same environmental standards nor care about human rights.
The proposed emissions cap threatens to reduce oil and natural gas production and restrict our exports, especially when combined with an increasingly stringent industrial carbon tax, ambitious methane reduction targets, and lengthy regulatory approval processes for major energy projects.
I also want to take a moment to highlight a critical part of our industry that we believe needs to be maintained — the continental free market. Cenovus is in a unique position of having a robust upstream business, producing oil and natural gas in Canada directly connected to a downstream refining business in the U.S. Any trade barriers that might be imposed on this free flow of trade could have a serious negative impact on both sides of our borders. A reduction in exports will inevitably lead to reduced revenues for industry and governments, and it will also increase the price Americans pay for finished products, such as gasoline, diesel, aviation fuel and asphalt, all of which Cenovus is a leading producer of.
In summary, Canada supplies nearly 5% of global oil production. Cenovus alone supplies nearly 1%. This allows our industry to make outsized contributions to our country’s prosperity.
We face extraordinary pressures to remain competitive, and we’re up for the challenge. We hope the government not only recognizes that but helps us rise to meet it on behalf of all Canadians.
With that, Mr. Chair, I’m happy to take your questions.
The Chair: We’ll start with questions. Given that we haven’t been introduced to our witnesses, senators, when you speak, mention your name and where you come from. Thank you.
[Translation]
Senator Verner: Josée Verner, from Quebec. Thank you for being here this morning.
The fifth objective of our study consists in seeing how your industry can deal with foreign competitors that benefit from different taxation and levels of subsidy. We’ve heard different opinions on the relevance of having subsidies to support your industry, help you reduce carbon emissions and maintain Canadian competitiveness. Do you have recent data about the amount of federal subsidies you’ve been granted?
[English]
Ms. Baiton: I think Jon McKenzie is probably best placed to answer questions on subsidies.
Mr. McKenzie: Sure.
I get this question a lot, and I’ve never really been able to put my finger on what federal subsidies people are talking about or what they’re quoting when talk about federal subsidies. Of the top 10 global oil producers, of which Canada is number 4, producing oil and gas is something that we do on a global scale, and we do it very well. We are the only country on that list that has a carbon tax, and we are the only country that is on that list that is contemplating a carbon cap. These are taxes and costs upon the industry that none of our competitors bear.
So when we talk about subsidies, I’m not sure exactly what we’re talking about or what people are including in that “subsidy” bucket. I can tell you we pay a significant amount of taxes and royalties back to both the federal and provincial governments, as well as local governments where we do business.
I’ve never been able to put my finger on what people are talking about when they talk about subsidies for the oil and gas industry.
[Translation]
Senator Verner: Last year, the government announced that it would begin a process to eliminate so-called ineffective subsidies in 2025. Were you consulted about the process the government wants to set up? If so, what is your position on the initiative?
I understand that at the moment, you are unclear about what constitutes a subsidy. I imagine that you are also unclear about what a so-called ineffective subsidy is.
I was wondering if you had been consulted about the initiative.
[English]
Mr. McKenzie: I’m not aware of any consultation that has happened with the federal government on the elimination of inefficient subsidies.
Senator D. M. Wells: Thank you, Ms. Baiton and Mr. McKenzie, for appearing today. In particular, I want to thank Mr. McKenzie. We’ve struggled a little bit to get senior leadership of the major oil and gas companies to appear. We’ve received some written submissions, but it’s rare and welcome to have you appear directly with us.
Mr. McKenzie, you mentioned emissions cap, the carbon cap and the lengthy approval process being part of the robust, continental free market. What are the two or three policy or regulatory things you would like to see that would allow Cenovus and perhaps the industry, generally, flourish and compete in the global commodity market and provide low-cost fuel to Canadians?
Mr. McKenzie: Our position on this has been clear. We are of the view that Canadian energy is some of the most responsibly produced energy in the world in as much that we have some of the tightest regulations as they relate to things like flaring, carbon, land use, water and the like.
We think some of those are appropriate, but we also have to recognize that we are a major global producer and contributor to our standard of living and quality of life. An increased and highly complex regulatory burden only serves to drive investment out of this industry, to the detriment of the Canadian economy.
When we talk about being competitive, we would just ask that federal policy-makers have a look at the industry that we compete within and make sure we are in a position where we can be competitive. We’ve clearly said we need to be part of the solution as that relates to the environmental concerns, and we will certainly do our part, but it has to be within the context of the industry that we compete in.
Senator D. M. Wells: Thank you so much.
Ms. Baiton, what would you suggest would be helpful to reduce the lengthy approval process, which could sometimes be used as something that would stymie the industry when they look at the business case? What kinds of things would you want to see regarding the approval process for major projects?
Ms. Baiton: If you allow me, I will add to Mr. McKenzie’s comments regarding the emissions cap. It is really a bad policy at a bad time, particularly in the face of growing global oil and gas demand and the challenges with our binational relationship with the United States, our largest trading partner. As Canadians, we need to have our eyes wide open on the president-elect’s very really promise for a 25% across-the-border tariffs. The emissions cap adds an unnecessary layer on top of an already complex web of energy and climate regulations across the country. The introduction of this draft regulation will come with the high probability of not just negative impacts to the Canadian economy and a high probability of production shut-ins, but it will have no guarantee of emissions reductions.
Before I pivot to the major projects from your question, I would just recommend that the Senate committee review Peter Tertzakian’s paper that he published in The Hub last month. Mr. Tertzakian is one of the leading authorities on energy and energy policy, and he has a well-thought-out and detailed review as to why adding an emissions cap to Canada’s already complex layer of carbon policy and regulations will deter investments in our oil and gas industry.
On your question with respect to market access, we certainly support the Government of Alberta’s recent constitutional challenge to the Impact Assessment Act. We were an intervener to the prior legal dispute that agreed with the Supreme Court of Canada’s 2023 judgment that provinces are best positioned to review and regulate resource developments within their own borders and a more cooperative federalism is necessary to ensure that projects that are in the national interest are proceeding in a timely manner.
The recent amendments that came after the Supreme Court judgment last year did not go far enough to address some of the key issues. Canada really needs to fix its approach to major projects. The current form of the Impact Assessment Act is, again, a very significant barrier to attracting investment into the country. We should be taking guidance from the Supreme Court of Canada’s decision of urging governments to take a cooperative federalist approach. We are urging governments to strive for a one project/one assessment, expedient, and competitive process. Particularly, as I said in my opening comments, the U.S. is looking to change both its tax structure as well as its permitting and major projects process to be best in class in the world.
It’s time to build, and the sooner we can fix the review and approval process, the sooner we can get to building projects of national interest and the major energy and export and decarbonization projects that Canada needs.
Senator D. M. Wells: Thanks very much.
[Translation]
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec. I will ask my question in French, since you have interpretation.
This study is about climate change and the oil and gas industry. In your opening remarks, you said that emissions are not going up, whereas your CO2 emissions make up 31% of emissions in Canada. That makes you the biggest polluter, the biggest emitter of CO2.
That said, we need to reduce emissions and not just keep them from increasing. I would like to know where you are in your carbon capture efforts. At our recent meetings, I tried to get a clear idea of where the oil industry was in terms of carbon capture. I didn’t always get that information from the government.
However, it seems that only one oil company, Shell, has signed a contract for a refinery that is related to the oil sands extraction process but is not exactly extraction. Of the entire industry, only one company has got there. To reach the ceiling and continue selling more oil, as you do, you need to reduce emissions. Otherwise, our ailing planet will continue to suffer.
I would like to know what solution you propose. I understand that you don’t like regulation, but it seems to me that at the very least, carbon capture should become more widespread. Even if it’s not very profitable, you’re still making profits. Is there a way to reduce your profit margin and increase the number of carbon capture facilities?
The Chair: Who is your question for?
Senator Miville-Dechêne: First for Ms. Baiton, the representative of the Canadian Association of Petroleum Producers, who knows the industry overall, but Mr. McKenzie might want to answer too.
[English]
Ms. Baiton: Thank you for that question. I will talk a little bit about the record on emissions reduction, and I think Mr. McKenzie is better placed to speak about the carbon-capture aspect of your question.
Let me just start by saying for well over a decade, Canada’s oil and natural gas producers have been investing in and implementing technologies to lower emissions with really tangible and meaningful results.
I will cite the federal government’s own data, the Alberta government’s data, the Newfoundland government’s data and Statistics Canada data.
According to the federal government’s own national inventory data, emissions from oil and natural gas production peaked in 2015, and over the past decade, from 2013 to 2022, we have grown a total production from the conventional sector by 20% while carbon dioxide equivalent emissions have gone down by 27% and methane emissions are down by 30%. The conventional upstream sector is also on track to succeed the current federal government’s methane-emission reduction target of 40% to 45% by 2025. That’s the federal government’s own national inventory data.
[Translation]
Senator Miville-Dechêne: Given that you’re producing more, you are continuing to pollute. Your production is increasing and your emissions are not going down at all.
[English]
Ms. Baiton: Actually, that’s not correct. We have proven — and the federal government’s own data bears that out — that we are able to increase production while meaningful reducing both GHG and methane emissions.
Let me just pivot now to the Alberta government’s data. They just announced methane emissions from the oil and natural gas production have been reduced by 52% since 2014, exceeding the 45% goal well ahead of the 2025 deadline. Pivoting now to the Government of Newfoundland’s own data, Canada’s offshore industry produces some of the lowest emission-intensive oil in the world.
The largest oil sands companies have joined forces with the Pathways Alliance to invest in the largest carbon capture and storage production, and Mr. McKenzie will speak on that in a moment. Statistics Canada shows the upstream oil and natural gas sector spends more than any other industry in Canada on environmental protection, $3.2 billion in 2021, and that accounts for one third of all environmental protection expenditures made by businesses across Canada. That includes soil remediation and water management, along with biodiversity and habitat protection, among other expenditures.
Rather than being called a laggard, I think these statistics from various governments bear out the fact that Canada’s oil and natural gas industry should be recognized for its leadership and its potential to help the world lower its emissions. Creating a growth environment that further incents large-scale investment into emissions reduction while increasing Canada’s capacity to export our lower-emission energy is how we can make an outsized role in the race to reduce global emissions.
I’ll pass it to Mr. McKenzie.
Mr. McKenzie: Thank you. I would start my comments by acknowledging that we as an industry are probably the largest emitter of CO2 in the country. I think that’s rivalled by transportation. The reason that we are the largest emitter is because of the magnitude of the industry that we have. We actually export almost everything we produce. We produce about 5 million barrels a day and about 4 million to 4.5 million of that goes for export. So it’s the sheer magnitude of the industry that results in the emissions profile that we have.
I would agree with Ms. Baiton that we have made some significant headway on reducing our emissions. If you look at our record on methane and emission intensity, as well as overall reductions, I think the industry has done what it can and continues to do what it can, recognizing the profile that we have.
As it relates to carbon capture and sequestration, we have two projects that are live in Alberta. You mentioned the Shell project, which is one of them. The issue that I would raise as it relates to carbon capture and sequestration is that we as an industry actually came to the government and recognized that we could be part of the solution in terms of meeting their climate goals as an industry.
We had a unique opportunity because none of us could reach as an individual company but as an oil sands industry, I think we can make significant headway. That was the genesis of the Pathways Alliance, where the six largest oil sands companies got together — we produce about 95% of oil sands production — and suggested that our geography and our geology were conducive to large-scale carbon capture and sequestration. That investment or that expense entails tens of billions of dollars that no country, company or industry can bear on its own and remain competitive. What we’ve proposed is a partnership with the federal and provincial government, of which we will pay a portion, to come forward and build a large-scale carbon capture network that would move from Fort McMurray all the way down to Lloydminster.
I think there has been a general —
Senator Miville-Dechêne: What is the portion you are proposing to pay on the overall cost of this?
Mr. McKenzie: Yes, we as an industry have proposed somewhere around 25%, and then we would also pay a significant portion of the operating costs on top of it. We have asked for investment tax credits, and we have asked for some certainty on the operating costs. Certainly, we will pay a percentage and our proportion of this.
That is something that we continue to work with the federal and provincial governments to advance. We have spent a significant amount in advancing that project to date, both as an industry group and as Cenovus Energy. We think that remains a significant opportunity for Canada.
I would, again, point out that we are the only ones doing this. We are the only country that is a major oil producer that is proposing to do this level of carbon capture and sequestration to decarbonize our production.
Senator Miville-Dechêne: As a subquestion, why should the government provide more grants to the industry or tax exemptions while the industry is selling more and making more profits? It seems like a difficult proposition for Canadians to understand.
Mr. McKenzie: Yes, and I think that’s probably a fair comment. What I would respond to that — and I mentioned this in my opening comments — is that about half of what we make in profits we pay back to different levels of government, whether it be in taxes or royalties. When we as an industry do better, Canadians do better and levels of government do better.
I would also point out that this is a very cyclical industry. While we have had three or four years of better profits, from 2021 through 2024, the period from 2015 to 2021 was one of negative commodity price environments in this business.
We use our profits for a number of different things. First, we pay taxes out of our profits. Second, we keep our companies viable by paying down debt on our balance sheet. Third, we invest in our business with profits. We invest about $5 billion a year at Cenovus. Finally, we have to pay our shareholders. Nobody would invest in a company that doesn’t generate a return for its shareholders.
There are a number of calls on our profits, of which this one. I think we’ve been clear that we can pay something, but we also need the help of the federal and provincial governments to make this work, surely due to the size and magnitude of it.
Senator Arnot: Thank you, witnesses. I have two questions, and I would like both witnesses to address them. I’m from Saskatchewan, an oil-producing province.
Ms. Baiton: I’m from Saskatchewan too.
Senator Arnot: We’re all in this together. I do have a question that I would like both witnesses to answer, if possible.
Ms. Baiton, you talked about cooperative federalism. I see that as seeing collaboration, compromise and constructive solutions generated for the benefit of all Canadians in the best possible manner.
Do you believe that public conflicts between the Province of Alberta, the Province of Saskatchewan and the federal government create an uncertainty in the marketplace and really provide an impediment to investment? Is that a big problem right now in your industry?
Secondly, with respect to carbon capture and sequestration, I wonder if CAPP has a view on those strategies being sufficiently established to make a significant difference for the next generation. I recognize that Cenovus has a really aggressive policy of trying to hit a 35% reduction by 2035. I would like you to comment on those two questions, please.
Ms. Baiton: Well, maybe I’ll take a crack at your cooperative federalism one, and maybe Mr. McKenzie is better positioned to speak to your carbon capture question, if that’s okay.
In terms of your question of cooperative federalism and some of the actions taken by provincial governments, I think you cited Alberta and Saskatchewan. I talked about the Impact Assessment Act and the action that the Alberta government took with the Supreme Court of Canada. Again, we were interveners on that. I think it was a really important action by the Alberta government. We, as industry, were very happy to intervene on that because as I noted in my opening remarks, the Canadian oil and gas industry is absolutely pivotal to our Canadian economy. A full one quarter, or 25%, of everything we export from this country is Canadian oil and natural gas. Particularly with a new president-elect, it is going to be critical to our soft and hard power on the world stage.
I think that the Impact Assessment Act, the Supreme Court of Canada decision and the ultimate judgment that came out by the Supreme Court really bore out the fact that the actions by provinces were important and I believe is taking Canada to a better place.
Alberta recently took forward another initiative last week on things like the emissions cap. As I have stated publicly, CAPP really appreciates the ongoing support for the oil and gas industry from the Alberta, B.C. and Newfoundland governments. That most recent initiative by Alberta against the proposed emission cap is important because it does threaten to reduce the production of oil and natural gas in Canada, and it will restrict cross-border trade of our products, 25% of everything we export.
I would just say that I think, generally speaking, we need to have a cooperative federalism that really incorporates not only the voices of the provinces but the voices of industries like ours. We’re one of the biggest GDP generators. I cited some of the job numbers at the beginning of my comments, indirect, direct and induced. My industry alone is accountable for 900,000 jobs in every single province from coast to coast.
I think there needs to be a lot more inclusiveness, not just of provinces but of really important industries like ours, which are critical not just to the Canadian economy but to ensuring that there are high-quality, high-paying jobs for Canadians, and we underpin with 25% of all of our exports a really meaningful share of Canadian standards of living.
Senator Arnot: Mr. McKenzie, I would like you to comment on that same question I raised with Ms. Baiton.
Do you feel that the oil and gas industry is not given enough of a hearing or has enough influence on federal government policy in Canada? Is that a big impediment to your industry? Are you in agreement with that?
Mr. McKenzie: Generally, I am. I think as a country, when we look at the rising demand for oil and gas globally and recognize that we have the third- or fourth-largest reserve of oil and gas available globally, I think we have to ask ourselves whether we’ve gotten full value from that and how the national-provincial juxtaposition has played out in the development of this industry.
I think one of the places we look at is probably, case in point, our ability to build pipelines in this country. What really stops us from growing this industry and providing more of the global supply is our ability to build pipelines. I think that’s the focal point of where federal-provincial politics meet.
I think you would know that over the past decade, we have cancelled the Energy East pipeline, the Northern Gateway pipeline and the Keystone XL Pipeline. Admittedly, the Keystone XL Pipeline was a U.S. issue, not necessarily a Canadian issue. Those pipelines would have allowed our oil and gas to get to global markets both off the West Coast, the East Coast as well as into the United States. One of the things we have to ask ourselves as Canadians is what did we get for cancelling these pipelines? What was the benefit to Canada? It’s very clear what the loss was in terms of the economic benefit to Canada, and it’s very clear what the gain was in terms of the economic benefit to the United States. Almost all of the growth in global oil and gas has really been filled by the United States over the last number of years, and part of the reason for that is because we have a country that has advocated from that growth profile.
Senator Arnot: Do you agree that this kind of uncertainty or non-cooperation between provinces, territories and the federal government creates an uncertainty which is negative and a real impediment to the kind of investment that you think should be made in Canada in the oil and gas industry.
Mr. McKenzie: I do. I think that if you look at the amount of foreign investment that’s been made in our industry over a number of years, you can see that it’s declining. The number of foreign oil and gas companies that invest in Canada is declining. What we’re really left with is a Canadian industry, the Canadian oil and gas majors and independents, but the other foreign companies typically have other alternatives to invest outside of Canada. They look at returns, and their returns in Canada are probably not as competitive as other options that they have.
Senator Arnot: You spoke earlier in response to other questions, Mr. McKenzie, on carbon capture, sequestration, et cetera. I know that your industry and your corporation are involved in some of that. Can you elaborate a little bit more on the specific strategies you’re using or how you see carbon capture sequestration as an avenue that should be pursued by industry?
Mr. McKenzie: One of the things that we look at as a company and as an industry is how we contribute to a reduction in carbon. I think carbon capture and sequestration is something that I mentioned we have a unique opportunity to pursue. It’s related to our geography, and it’s related to our geology.
If we look at the oil sands industry in particular, we have a number of plants that all exist within a very tight geography, and the CO2 emissions come from high sources that are much more conducive to being captured. Similarly, we have geology where we have floor space in which we can put the CO2 underground and keep it sequestered there for a long period of time within that geography. The nature of the industry being as concentrated in the geographical footprint as it is, together with the underlying geology, gives us a unique opportunity to do something that no other oil-producing nation can do.
The issue we have is that it doesn’t come without cost. We need to ensure that the cost is equally borne across the layers of government and industry in an equitable way.
Senator Arnot: Thank you very much for those answers. That has been very helpful.
Senator Fridhandler: Hello, I’m Daryl Fridhandler. I’m from Calgary, Alberta. I want to make one observation and perhaps get feedback from both of our witnesses on the question of incentives, which was raised earlier in our discussion.
I constantly hear, since my short tenure in Ottawa, a challenge to the incentives received by the industry without a wholesome look at the benefit side, and I think we need to understand it. We’ve heard comments of taxes paid, royalties paid and jobs created, but from an industry perspective, I think it’s important that we all better understand the full picture of grants, subsidies and tax credits relative to what these generate.
I know it’s hard to tie the line, but can you comment? Is this something that I need to rely on the federal government officials to get something, or has the industry actually produced the full picture?
Mr. McKenzie: One of the things that we do as an industry is we produce an estimate report on an annual basis where we file with NRCan exactly where we have paid money to as it relates to all levels of governments, payments to First Nations and the like. We do that on an annual basis. That sits on our websites, and it’s publicly accessible information.
Honestly, I mention this, I don’t know what we mean when we talk about oil and gas incentives. When we talk about things like investment tax credits — [Technical difficulties]
The Chair: We’re having a sound problem.
Mr. McKenzie: As it relates to subsidies, I’m not aware of any unique subsidies to the oil and gas industry. We often talk about investment tax credits as it relates to carbon capture and sequestration, that is available to any industry in Canada. Accelerated tax depreciation is available to any industry in Canada. The CERB payments that were part of the COVID-19 support was available to any industry in Canada. I have yet to see a report that details the subsidies that people talk about. I am genuinely not aware of subsidies. I’ve been in the finance role in the oil and gas industry for the last 30 years, and I have not seen any kind of subsidy or support that comes from any level of government in the order of magnitude that people talk about.
Senator Fridhandler: Turning now to the emissions cap regulations that recently came out, I’ve been through them briefly and they are relatively complex. One thing that is set out in the formula is that (a) is the emissions, but the letter (b) stands for the carbon capture generally, I think, relative to the facility — which is broad definition — creating those emissions.
This brings CCUS and other carbon reduction and uses into play on the emissions list. I will acknowledge that any regulation is costly, but I think there’s certainly ways to address the (b) item in that formula, including what you’re doing with CCUS and perhaps other methods of reduction or utilization of carbon that is emitted from your facilities. Can you comment on how you might address the letter (b) in that formula?
Mr. McKenzie: Sorry, and just to be clear, (b) is standing for the carbon credits.
Senator Fridhandler: The letter (b) in the formula is the quantity of CO2 that is injected into a geological site or a reservoir or stored for other purposes that are submitted. It is not the gross emission that counts. Within the emissions cap, you get a credit for the capture side of it. These things are very intricately linked. Who needs another layer of complexity? I acknowledge that. When I look at it, and certainly the industry is up in arms about the emissions cap regulations, but perhaps it’s a one-for-one credit, but if you got a CCUS or other approaches to the reduction, capture or utilization of carbon, an accelerated or super credit in that formula that might incentivize certain types of activities — I look at this and think there are ways of constructively dealing with this and achieving the end that the government is looking for and that, perhaps, industry is also looking for reduction of emissions.
Mr. McKenzie: Senator, I think what you’re referring to is that there are costs associated with carbon catch. In this case, it is carbon capture and sequestration and the “U” doesn’t really apply in that the Investment Tax Credits, or ITCs, are only available for carbon capture.
I think the question you’re asking is what is the quid pro quo in terms of the carbon market that you then generate a credit for and how do you drive value for that? I think that is an area that requires much debate and discussion. What we’re talking about is generating a number of credits that are well in excess of any carbon market that exists today. I think one of the key questions we have is how we ensure that there is value in that carbon market and there are buyers on the other end.
If we are moving to a world where we are sequestering anywhere from 30 to 75 megatonnes, that is a market that will dwarf anything that is being done today. Making sure that we have a robust market on the other side to guarantee the value of the credits generated so there is an incentive to do it is something that is top of mind for industry.
The Chair: We have eight minutes left. Short questions and even shorter answers, if you could.
Senator McCallum: I’m Senator McCallum from Manitoba. I wanted to comment on the improvement of standards of living and comment that it comes with costs to be borne by society. I’m looking at the environmental footprint on First Nations lives and lands. In the book Engraved on Our Nations, it says:
Without a doubt, capitalism is the dominant economic system and possibly the number one threat to Indigenous community health.
The author then goes on to add that:
As First Nations, we are looking at sustainability of life forms and a good life on this planet.
The author continues:
Capitalist economies require incessant growth and profit maximization, which depletes finite resources, and in resource-intensive economies like Canada, is harmful to ecosystems.
I look at the environmental footprint. I was in Fort McMurray this summer. It destroyed the culture of First Nations and their traditional lifestyle, and there continues to be toxins in the water. There is an increase in water usage because of the artificial intelligence-run vehicles that are run there, which have increased the water usage. I know at Suncor they use hydro and gas energies as well as oil. There is an increase in cancers. It just seems that shareholders are much more important than First Nations. You commented this is a cyclical industry, but the effects on First Nations life, lands and water remains a reality year after year.
On Tuesday, the Athabasca chief was there, and he talked about the contamination that was just revealed to them. It’s been there for two years, contaminated with arsenic, nickel, hydrocarbons and other chemicals. They were in front of the Department of Transportation, and it is coming from the oil sands.
I have brought it up numerous times that First Nations would support the oil industry if they didn’t have to bear the burden all the time and continuously. So how can you be part of the solution to this issue that has existed forever?
Ms. Baiton: You mentioned a couple of companies, and I’m not able to speak to a company-specific issues, but I can say that my members in the Canadian oil and gas sector do operate with among the highest environmental standards in the world.
I would suggest that if you want more perspectives on how Indigenous communities are working with and benefiting from our industry, if you haven’t already, I would invite you to call John Desjarlais from the First Nations Major Projects Coalition, Chief Crystal Smith from the Haisla Nation and Cedar LNG, Stephen Buffalo from the Indian Resource Council, or Karen Ogen from the First Nations LNG Alliance.
What I can tell you is that the meaningful participation of Indigenous people in decisions that impact them, their rights and communities is part of a practice that has evolved in Canada for the past 40 years. That is keeping with Crown responsibilities under section 35 of the Constitution Act. For our industry, it just makes good business sense to have great relationships with our neighbours, and that absolutely involves consulting with Indigenous rights holders as well as seeking to develop and grow shared opportunities with Indigenous partners.
I can just provide a few statistics. There has been growing private equity ownership by Indigenous people in major energy assets. That provides them with not only meaningful economic reconciliation, but an ownership voice. Since 2017, over $5 billion of Indigenous equity positions have been taken in oil and gas projects, in pipelines, tank farms, power plants and LNG terminals, and that number is growing really fast. Some examples include a 10% equity stake in the Coastal GasLink, which was purchased by Indigenous communities across the project corridor. The Cedar LNG and Ksi Lisims LNG export facilities are both being led by Indigenous ownership. The Nisga’a Nation has taken the lead role in purchasing the ready-to-be-built Prince Rupert Gas Transmission Project, which will potentially supply some of the proposed West Coast LNG facilities. There have been loan guarantee programs — great models — with the governments of B.C., Saskatchewan and Alberta, which are creating even more opportunity for Indigenous ownership.
I will also provide some additional statistics based on Statistics Canada data. Oil and natural gas extraction and pipeline transportation offers the highest wages in Canada for Indigenous persons. In fact, Indigenous people make almost three times more in the oil and gas extraction sector than on average Canada at about $140,000 a year. Our sector is also making considerable efforts to ensure Indigenous women have even more opportunities for their careers. The top three highest-paying sectors for Indigenous women in Canada are all in the oil and gas-related sectors. In a study that CAPP completed with —
The Chair: Can I get you to summarize? A short answer.
Ms. Baiton: My short answer is that we think Indigenous communities are important rights holders and partners, and we will continue to honour and respect that. We invite to have other representatives from the Indigenous community who could speak to that.
The Chair: We’re running out of time, but I have two senators that didn’t get a chance to ask a question. If I can have the cooperation of your witnesses, I would ask the two witnesses to cite the questions, and if we can get a written answer from you, addressed through our clerk, that would be very much appreciated.
[Translation]
Senator Youance: Suze Youance from Quebec. My question will be very brief, and you can send us your answer in writing.
I’m referring to Norway’s sovereign wealth fund, which is funded directly from oil and gas revenues. Do you think that if Canada had adopted that approach, we would still have a public deficit? Is it reasonable to think we could set up a fund like that?
[English]
Senator Anderson: I have a very targeted question for Cenovus. I have in front of me an environmental inspection report from the Northwest Territories government in regard to a site on Sahtu First Nations land. You were touting the importance of environmental impact and the geographical footprints. I want to read this and ask for a response in writing:
Condition 66 of Land Use Permit S20X-006 states “The Permittee shall submit to the Board and the Inspector, for approval, in writing an Annual Closure and Reclamation Monitoring and Maintenance Progress Report documenting all monitoring, progressive reclamation and/or winter monitoring cycles, with the first report due on November 15, 2021”.
This report was written on July 5, 2023.
To the current Inspector’s knowledge, the reports requested by the Board have not been received. As a result, the Inspector has determined unacceptable conditions relating to the restoration of lands for Quarry B as per the terms and conditions outlined in the existing Land Use Permit. Until Cenovus Energy Inc can produce the annual progress reports requested by the Board, and the information they committed to producing in the Quarry B Reclamation Plan this project will remain in non-compliance for the Restoration of the Lands section of Permit S20X-006.
I would like an update as to whether this letter was ever followed up on and what Cenovus intends to do in future to ensure timely compliance with the request of the sites located in the Northwest Territories. Thank you.
The Chair: Thank you very much.
To our two witnesses, Lisa Baiton and Jon McKenzie, thank you to both of you. This has been very useful. We have learned a lot. We still have a lot to learn, but you made significant contributions. I think we heard you loud and clear. We may differ, but I think we are making progress.
To leave you with my own question for a written answer, you made reference to CCS projects whereby the subsidy is such that you put 25% of the ownership. Who gets the other 75%, and how is that spread? If you could take a look at that and back to us, that would be appreciated.
Thank you again for participating today.
Colleagues, our next meeting is scheduled for Thursday, December 12, when we will be receiving a science briefing on extreme weather in Canada from government scientists and officials, one, addressing climate change and how extremes are changing, two, examples of extreme events and how we provide warnings, and three, the implications for stakeholders like banking, insurance and others.
Thank you all very much.
(The committee adjourned.)