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Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources

Issue 9 - Evidence - Afternoon meeting


VANCOUVER, Tuesday, November 29, 2011

The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 1:12 p.m. to study the current state and future of Canada's energy sector (including alternative energy).

Senator W. David Angus (Chair) in the chair.

[English]

The Chair: Good afternoon, colleagues, ladies and gentlemen, and a special welcome to our witnesses, Robert Spitzer and Natalie Poole-Moffatt.

We continue our special session here in Vancouver. So far we have had some terrific witnesses and now we are going to have the Apache experience. We are really looking forward to hearing from you.

Colleagues, we have Rob Spitzer, who is the vice-president of exploration at Apache Canada Limited. With him, you can see Madam Natalie Poole-Moffatt. We have seen her before but in a different movie. She was the special assistant to the Minister Richard Neufeld when he was in another life. Despite his best efforts at arm twisting, he was unable to bring her to the nation's capital. So you are the beneficiary.

Mr. Spitzer, as I say, is Vice-president of Exploration at Apache Canada which is a sub of Apache Corporation. He has 30 years of experience in the Western Canadian sedimentary basin. He joined Apache in 1999 as the manager of exploration, responsible for the exploration and development drilling program. Mr. Spitzer was part of the team responsible for the discovery of Ladyfern, a 6,000 bcf gas field in 2000. Mr. Spitzer led the exploratory and development drilling program until 2008. During this period, he became the VP of exploration and has been involved in the Horn River exploration and development since 2001.

In 2007, Mr. Spitzer, with the cooperation of key industry peers, formed the Horn River Basin Producers Group, which he has chaired since inception. In 2008, the Canadian New Ventures team was created with Mr. Spitzer heading the team, the purpose of which is to buy large, profitable oil and gas accumulations in Canada. In 2010, Mr. Spitzer's role was expanded to include managing and growing Apache's global and conventional effort.

Prior to his employment in Apache, he spent 18 years with Shell Canada. His role there included working on the CO2 flood in Midale, Saskatchewan, exploring throughout Canada and developing and managing Shell's new ventures.

He graduated in 1981 with a Masters Degree from McMaster. He was born in Hamilton, Ontario.

We are delighted to have you here. Over to you, sir.

Robert Spitzer, Chair and Vice President, New Ventures, Apache Canada, Horn River Basin Producers Group: Thank you very much. I feel privileged to actually get an invite to talk to you this afternoon.

I have about 20 minutes of material and then I would be delighted to answer any questions.

On page two, it is really the agenda that I am going to follow so I am going to talk a little bit about the Horn River Basin Producers Group, the basics, how the group defines success, talk about how we do our business, and talk about some environmental stuff that we have done, how we communicate within the community, what activity we have been up to in the last six or seven years, where the future lies, and talk a little bit about the dedicated people that have made it work.

I am going to try to set the stage for what we do and why we do it. I am a geologist by training. I am going to go through 10,000 years of history in 30 seconds, so bear with me because I think it is important to understand the history of where we operate. And it really starts back about 10,000 years ago when the ice sheets were retreating and people from Asia came across the land bridge or followed the coastline and migrated into Canada. For the next thousands of years, First Nations were the only people here and they lived near rivers and hunted and did all that good stuff. Then whether you believe in the Vikings or Christopher Columbus, certainly the Europeans came 500 to 1,000 years ago, depending on who you believe, and that changed things. Explorers came by, Cartier and Champlain, moving from east to west. Eventually there were Hudson Bay traders following the same streams and rivers that the First Nations had done for thousands of years. You had the likes of Alexander MacKenzie, Thompson, Fraser, Henday, all these people using these streams and rivers for trading purposes and setting up forts. I am telling you this because where we work is part of that history.

Then the oil people began to work in North America in the 1860s when the first wells were drilled and spread out west in the early 1900s. Turner Valley was discovered in the 1930s, Leduc in 1947. Then came Clarke Lake in B.C., near the present day town of Fort Nelson, in 1954 where ibe of the first, large gas accumulations was found in this basin I am going to be describing.

More recently, technologies have changed and have brought a lot of additional exploration into the Horn River Basin of Northeast B.C. We are in an area that has been pristine for many thousands of years. We have also had fur traders and all sorts of other people living there. It is important to note that when this new technology comes up, there is a lot of uncertainty associated with that technology and uncertainty with respect to what that development and exploration means for the people who live there. The Horn River Producers Group really in a small way tries to address all that history and in, I think, a positive manner tries to move the development forward and acknowledge some of that history that has been there for hundreds, if not thousands of years. That is the 10,000 years in a minute.

The premise page here, which I think is the third page, is an important one. Fundamentally, the success of major oil and gas projects is best assured by the early definition of success. So we know what success means, what it looks like. It is not just a rate of return for the industry. It is more than that, but I will dabble with that a little more later. It is listening and addressing the concerns of the stakeholders and First Nations and communicating and developing those relationships.

It says here ``in early'' and ``in often,'' which means fundamentally you do it early on in the development. It is probably the most difficult time to do it but it is the best time. You cannot communicate enough. In order to be successful at that, you have got to work with some pretty dedicated people who believe in the cause, so to speak. So that is kind of a preamble.

The producers group was formed back in November 2007, four years ago this month. It consists of 10 active oil and gas companies, all varied cultures, sizes, shapes. They are all very different.

The Chair: You are all public companies.

Mr. Spitzer: Yes. There is probably one that is not, Stone Mountain, but the rest are public companies. I have a list of them.

The companies represent 95 per cent or plus of the Horn River Basin activity. It does not include everybody because not everybody wanted to be part of it, but most of them. There have been monthly meetings for the last four years. We have had a broad spectrum of stakeholders and First Nations that attend our monthly meetings. The group consists of the 10 companies identified here, so ranging from very small, a very small private company to one of the largest companies on the planet, and that is Exxon Mobil, and all shades of grey in between, so quite a diverse group.

The purpose of the group was largely to facilitate cooperation and communication between companies, First Nations, the community, government and other key stakeholders. It was largely based on the fact that if we cooperated and communicated together that that would lead to good things.

The structure of the group is actually fairly simple. There is a chair and then each company has a steering committee member, in yellow there. There are five subcommittees: First Nations subcommittee, operations, regulatory, environmental, and communications. These were derived largely from the fact that these five areas would cover most of the things that we would encounter moving forward with the exploration and development phase.

What does success look like? This is huge in my mind. It does not matter if it is oil and gas, it is almost irrelevant. I think the important thing is that at that early juncture in the development or exploration, it is hugely important to understand and be on the same page as what success looks like. It is not that easy because all companies have different understandings of what success is. Like I say, they vary from rate of return, shareholder value, all sorts of statements. I have seen almost all of them.

It is very difficult to do this. It was probably the most difficult thing we have ever done as a group, define what success looks like. It took us two weeks to figure this out and put it in writing. We have our share of words amongst us so it takes some time. However, it is not trivial because at the end of the day, I think what we came up with here is something that makes the group function very well and is cognizant of more than just pure profit and that is that it fundamentally means the main concerns from each major stakeholder group, the community of Fort Nelson, Northern Rockies Regional Municipality now, the government representing the people of B.C., the First Nations and industry, are understood and addressed while responsibly developing the asset. That is fundamentally how we would measure success.

The Chair: In this group of 10 and on the steering board, are there any First Nations companies or people?

Mr. Spitzer: The group is an industry group, so there are no other companies. There are no pipeliners or anything. It is purely industry EMP companies.

The Chair: No, I thought some of the First Nation bands and organizations across Canada at least, had some resource development companies but they are not involved.

Mr. Spitzer: They do, but this group is an industry group, just EMP companies, for starters. We do invite companies along but that is the structure of the group.

This is a little model that I put together, a pictorial depiction of how ideas elevate to exploration and development on the technical side and how fundamentally on the X axis there is an evolution from an idea, call it shale gas in this case, through to an evaluation stage which says does this work economically. If the answer to that is yes, it proceeds to what is called a development phase. If you play that out a little further, and it is not trivial, there is an end to it, the development ends and how does that occur. That is the X axis.

On the Y axis, there is actually a part in here that talks about the people factors. So it is more than just technical and economic factors. It is the integration of that and people factors.

People factors are something like this, you have the same idea, you have got to go out and identify the stakeholders, you have got to listen to their concerns, you have got to establish a process and values and develop solutions and often creative solutions to those concerned. Then they have got to have an ongoing voice in development and also when the development ends. The people factors and the technical factors have to be integrated. As long as those are both communicated then you have got a chance at being successful. It is a very simple model. This is not complicated. This is straightforward.

The Chair: A lot of players to come together.

Mr. Spitzer: Yes, there are and sometimes that is daunting, but at the end of the day, there is not much going on in the world that is not complicated. I think the key is to make something complicated simple. That is not to say it is simple but if you express it in a simple manner, I think most people I have encountered understand it and are helpful.

It is a continuous process. This chart here with the four orange-coloured circles is mainly to identify the key stakeholders and what their concerns were and still are. So for the community, there was a big deal about local employment, still is, but probably less so than there was four years ago. There are obviously some environmental concerns.

This question came up all the time early on: What does this development look like? What will it look like? We want to know what it will look like because it affects our lives.

On the government side, there was a theme, new technology which is hydraulic fracturing and what are the changes required regulation-wise or in any other sense that the government needs to look at so that they can make any changes that were required.

On the First Nations side, obviously their concerns are significantly on the environmental side and, more specifically, their impact on the traditional lands and way of life and also employment and an inclusion and a voice in the operation, the development.

On the industry side, these are access to land. We cannot do much without access to land. Again, it comes down to things like rate of return and the best way to move the project forward.

It is an interplay of all these types of concerns, and if we are aware of them, we can solve them. We just got to be open and honest with each other and think of creative ways address them.

A good part of the remainder of this presentation is to show some of the things that we have done together to address some of these concerns.

The first one, and probably the most vocal one was local employment. And I will say this, and it is important to say this, I have got to give the town of Fort Nelson a lot of credit for being vocal about it. It is not just the town, there are others, some of which may be in the room, that also express some interest in this topic. It is clear that when you get in front of 250 people in an auditorium and people are saying local employment is deemed important, it behooves the industry to listen and to figure out a way to help solve it.

So as a group, we basically focused on the issues. We heard the concerns. We had a set of principles that were drafted on local employment and fundamentally said, look, we are going to do what we can to make sure that a lot of the people employed our business are from the local base because that is just good business. It is just sensible to do.

Those are our principles. We have had numerous job fairs over the last four years to basically hook up the people who wanted employment with the people that could provide employment. Interaction took place at what were industry sponsored job fairs where the two could get together. If there was not sufficient training that people had then we would figure how to get people some training.

We also contributed towards a local employment office because, to be truthful, most of these companies, if not all of them, are based in Calgary and that is 600 miles away from Fort Nelson. It was important, through Energy Services B.C. and a bit of money from the group, to have a person up there that works full time on hooking up potential employees with the industry, which is a good thing, and also training.

We funded and operated a training program in Fort Nelson because the closest one at the time was in Fort St. John which is a five-hour drive from Fort Nelson. So we funded that through Northern Lights College and operated a training program. There was a long waiting list of people who wanted to be trained. This was largely aimed at the youth of the community because fundamentally, as a parent, you really want your kids to be gainfully employed and preferably close to where you live, that is a nice thing to have.

We funded a training program out of Northern Lights College in Fort Nelson for these kids to learn how to operate in the oil and gas business. I think there was a waiting list of maybe 20 people, 16 of them were enrolled, 16 graduated. Of those 16, 8 received employment so it was a good news story. If we need to, we will do it again.

Many of the companies now have offices in Fort Nelson. As a result, it is a significantly improved local employment picture. It is not perfect but it is certainly a lot better than the days when people were yelling and screaming. They do not do that anymore. In fact, people come and show me their new car and they are pretty excited. So in general, it has gotten better over the years.

From an environmental standpoint, obviously associated with this technology, and I will explain the technology here in the next line, we have done a number of things that I think are innovative that basically appeal to the concerns about the environment. The process uses a lot of water and we work with Geoscience B.C., who are, I think, following me on this panel, to work on non-potable water sources instead of surface water sources. We built a water plant that uses non-potable water from depth. We have used seismic, which is innovative versus the traditional method, and I will expand on that. Also, we have reduced the surface footprint.

Turning the page, I will just talk about this just for one minute, because fundamentally this idea of hydraulic fracturing, multistage hydraulic fracturing, is what has revolutionized oil and gas exploration and development in North America and probably the world. To do this you marry two technologies. You can drill horizontal wells and that is what this picture shows. You drill down vertically and then drill out horizontally. You can drill out horizontally quite some distance, in many instances three or four kilometres. That technology has been in existence for about 60 years.

The hydraulic fracturing is basically this: The rock is so dense and tight that the gas molecules cannot find their way to the wellbore in an economic manner. What was basically invented about 15 years ago is hydraulic fracturing which breaks the rock which allows the molecules to move into the wellbore and be produced on an economic scale.

We, as an industry, have really perfected this in the last 15 years. It is what has caused a lot of gas to be available in North America in the last five to ten years, whereas before there was deemed to be a shortage of gas. Now there is probably a surplus of gas and it is not a small one.

Senator McCoy: Mr. Spitzer, I have not heard this discussed or described as neatly before, and perhaps you could take it one step further for me. I see all these little red lines, hydraulic fracturing.

Mr. Spitzer: Right.

Senator McCoy: Exactly what is that? I mean it is not TNT. It is not an explosion.

Mr. Spitzer: No. It is a 60-year-old process. What you do is you basically pump water with some chemicals into the ground under high pressure and that pressure breaks the rock like a pane of glass.

Senator McCoy: That goes down outside?

Mr. Spitzer: On the diagram, it goes down that central tube under pressure and that pressure breaks the rock. That is fundamentally what it does. It breaks the rock. If you visualize this, it is like having gas molecules down here and until you break the rock, the gas molecules cannot get to the wellbore.

Senator McCoy: I have got that part. So now you have got the water, it has broken up the shale.

Mr. Spitzer: Right.

Senator McCoy: What happens to the water?

Mr. Spitzer: Well, what happens is then you basically produce that well and so what comes back is a lot of the water that you pumped in, that comes back first, and then the gas follows, right.

You hear a lot about hydraulic fracturing and the concern that it uses a fair bit of water, there is no question, and about some of the chemistry that is involved in addition to the water. When you read about hydraulic fracturing and some of the worries, those are the two big worries, use of surface water and the chemicals in the water.

The Chair: Methane.

Mr. Spitzer: Methane is the product, right. With this water, which constitutes usually about 99 per cent of the fluid, you have to add some chemicals so the water can move down the pipe easier without a lot of friction.

Senator McCoy: Soapy water.

Mr. Spitzer: Yes, exactly.

The wellbore here is described as about 8,000 deep. It is usually quite deep. There has been issues in the past in the U.S. where these wellbores are not that much deeper than the surface water and the wells. There are issues associated with that in some cases because of bad practice. By and large, there is easily a mile of rock between where people are drawing their well water and where this activity is happening.

On the right-hand side of this picture, we shoot what is called micro-seismic image where those breaks in the rock occur. You can see from the colour scheme here that basically each individual frac is monitored. Most of them have no further height growth, almost all of them, than 100 metres. So if you are 8,000 metres below the ground and these have open cracks of 100 metres then safety is really not an issue.

I could talk about this for the rest of the meeting but I better not because I want to move on.

On the water management side because these hydraulic fractures use a fair amount of water, we recognized early on that we have to think of some creative solutions to sourcing the water. Since a lot of the water in Horn River is surface water, is there anything else we can do to better understand surface water and are there any other potential sources that we could use.

We formed a partnership with Geoscience BC to monitor surface water, to understand groundwater, both non- saline and saline, and to also work with other producers on recycling some of this water into a tank and using it again.

A number of initiatives were taken fairly early on to solve some of those concerns. One of them is the Debolt Water Facility. This is a big facility that constitutes the left-hand side of the page on this diagram. Instead of draining surface water, we found a saline water source 3,000 feet below surface. Instead of taking that surface water, we use this saline non-potable source, put it through the plant and use it for our fracturing. At the end of the day, no water is drawn from surface in this immediate area.

It is a $100 million plant. It is the only one of its kind in the world. This was the prototype. At the end of the day, it shows that if we put our minds to it, we can do something that is actually beneficial for everyone.

First Nations and other residents up there do not have to worry about water being drawn from surface, which is a good thing, because that was their concern. Drawing saline water from 3,000 feet down actually ends up being cheaper than drawing it from surface. So it is real a classic win-win situation. However, without having a conversation with locals and us putting on our creative thinking caps, it would not have happened because it has not happened anywhere else.

Another example is well pad drilling operations, reducing the footprint. So instead of clearing an area and drilling one well and then doing it 400 metres next door, we end up drilling in one pad 16 wells from surface, so we clear one pad and we will drill 16 wells literally 10 feet from each other, drill the vertical well and then drill horizontally out three kilometres or more so that most of the work that is done is done in the subsurface and not at surface in a traditional sense.

The surface disturbance is dramatically minimized by drilling these pads and only clearing one lease as opposed to potentially 16 leases that historically could have occurred. So it is a big deal.

With regard to low impact seismic lines, this is a photo from Horn River and in this we shoot seismic to basically better image the subsurface so that we know how deep to drill our wells and how long we drill the horizontals.

This is an actual photo of an area in the Horn River, obviously in the winter. Through it, there is a seismic line. Traditionally seismic lines are long, linear lines that are 30 feet wide and may go for 40 or 50 kilometres.

The producers group actually said, well, we have a different way we can do this. We can narrow the width that we cut and we can make it meandering, thus serving two purposes, one is it minimizes surface disturbance, but it also better protects the predator-prey relationship in that a pack of wolves cannot see a moose a hundred metres down the line if it is meandering.

On this slide, there is actually a seismic line that was shot in such a manner. On the next page, it will actually show you where the line is. It would have been hard to figure it out on the previous picture. All the producers in the group said that they would shoot their seismic in that manner and that is what we do.

We also do some wildlife management studies in conjunction with other groups, map habitat, et cetera.

With respect to communications, we have a pretty big group dedicated to making sure we communicate with a singular voice. One of the biggest dangers when 10 companies are working in an area is they have all got their own ideas and they articulate that largely to people who are not oil and gas people and it turns out to be a bit messy. The beauty of having one central focus is the message is uniform and people can understand it. The communications portion to this is to assure that consistent message and to do it often and we have done a lot of things in that regard.

On the community support side, the next page, we also feel that because we are working in the area, we must do a number of things in the community and so we do. I have talked a little bit about the operator course and the procurement desk but we also do public education and awareness. We have had two shale courses. We have had annual symposiums for the last three or four years. We have the trade fairs that we sponsor. We have public newsletters, annual Chamber of Commerce updates, et cetera. We also go and attend the Treaty 8 Annual Summer Gatherings up at the Petitot River, which is really important because you see first-hand where First Nations are coming from. It does not take a rocket scientist to figure that one out.

We have done the Northeast B.C. oil and gas show. This is all stuff that is done above and beyond what individual companies do. The individual companies still do their own thing as well. So it is not all just the producers group stuff.

We also, on the next page, we put out newsletters, frequently ask questions, the workshops. We have gone to the schools. We have an energy in action program that takes place in the last three years and all sorts of things.

In closing, it is important to let you know, and we have certainly let people up in Horn River know, where we have been and where we are going. This slide here has the histogram with the blue and the red that basically shows the activity from 2008 on. The group was formed in 2007. There was relatively little activity in 2007. The bulk of the activity has taken place in the last four years.

You can see that there has been a pretty steady growth in activity. Next year, 2012, is starting to kind of come down. There is a concern that low gas prices will impact the scale of the development certainly in the near future because the gas price is hovering around $3.30 which is pretty low. With the 2012 number here, it would not surprise me at all if the drilling was half or a third of what is depicted here. That is really substantiated by gas price.

If you look at gas price on the next slide, we formed the group in 2007 when gas was between $6 and $7 at MCF. There was a big land rush. I think the company spent over a billion and a half to $2 billion on land. The industry has been very successful extracting gas utilizing this technique and that success has actually led to what is called the economic concerns stage here where fundamentally gas prices dropped into the $3 and $4 range.

Because Horn River is sitting at the end of the pipeline, so to speak, in North America, it is doubly concerning for companies. So in the short term, I think there is going to be certainly some curtailment of activity. It is important that we, as an industry, make sure we communicate that. Just like we communicated early on what a development may look like, we also have to communicate some of the bumps in the road that may be coming up here.

If we look at the future, it is certainly a bright future if we continue to work together and improve those relationships and constantly seek creative solutions to concerns. One thing we do know is there will always be concerns. That is not the issue. The issue is how you can work together with the community and the stakeholders and the First Nations to creatively solve them. I do not think that is a big problem as long as you have gained some trust and understanding and have a passion for it, I think you can just about solve anything.

We have done a lot of good things. The community has helped us, but we always have to be vigilant because we all know that there is going to be concerns in the future.

Whatever we have accomplished, we have accomplished it because there is dedicated people. They are not just dedicated people in the industry, there are dedicated people in the government, in the stakeholders group and in the First Nations communities. Without those dedicated people, we would not have accomplished what we have and we will not accomplish what we think we can in the future.

We have applied this model in New Brunswick under Apache. When we were there two years ago, we set up a producers group to make sure we actually do the same thing. It worked out remarkably well. The wells did not work out but the process was actually wonderful.

We pulled out of New Brunswick because the two wells did not work, but I will say this, in all honesty we applied a similar type of methodology, formed a producers group on a very small scale, but we had all the industry together, the First Nations, an environmental group, and followed the same kind of process. At the end, when it did not work out, we had them all out for dinner and everything was fine. We did not have the associated noise that occurs with a lot of these developments.

As a company, we are now working in New Zealand and we are utilizing much the same model. Going from B.C. to New Zealand is a long ways but the issues are almost identical. I could interchange the Maoris in New Zealand with our First Nations here and their concerns would be almost identical.

That is all I have to say.

Senator Mitchell: Mr. Spitzer, you have a real passion for this and it is interesting to hear a focus not just on making money but on a broader, social impact and consideration.

Where did this idea of a producers group come from? For the benefit of my conservative friends, it almost sounds like socialism, like the Canadian Wheat Board. Was this imposed upon you by government? Was this a condition of the leases or was this just something that you decided as a group of producers that it would work better?

Senator Sibbeston: Do not be modest.

Mr. Spitzer: No, I am going to be kind. I think it comes from a number of different people, not including a senator here, Richard Neufeld. I think he had been thinking about this for a while. I know Liz Logan, Chief of the Fort Nelson Band at the time, wanted to see a singular group voice.

With those cues, all I had to do was knock on doors and try to get those companies together. That is not easy, especially when you are in the middle of land sales. It is very competitive as people understand. I will say this, that there was not a door I knocked on where the person did not respond. The first meeting we had was awful quiet because everybody was sitting there like this and did not want to say a damn thing. In time and with determination, it was pretty clear that despite the differences in cultures between the industry, it is the right thing to do. I do not think anybody can argue that, that working together early on in a big project seems like a pretty simple concept.

Senator Mitchell: Yes, it is very interesting. Of course, I hear all these things about Senator Neufeld that never cease to amaze me. He has done some great things in B.C. on the environmental side and now I learn this too so that is great.

The Chair: He could be a consultant in Alberta.

Senator Mitchell: Yes, we could sure use him there.

You would continue to go out and buy your own leases and bid for leases and all that is independent — but it is just the coordination of the effort with respect to First Nations and environment and shared best practices.

Mr. Spitzer: Best practices.

Senator Mitchell: That is great. All of a sudden, within just a couple of years, this shale gas thing literally exploded, figuratively and literally, I guess, and yet you have explained that this technology has been developing for 15 years. I would be interested in knowing what catalyzed this sudden breakthrough where one day there was not enough gas and the next day, we have got more gas than we know what to do with.

Mr. Spitzer: I will show you two samples that will answer the question. I showed this to some people in Japan about a month ago, and I think it explains things because it is a visual thing. Ignore what I put these rocks in. This is a wineskin bottle. They are actually very good.

Here is the difference. This is the shale gas and this is the host rock. It looks like a hockey puck. No matter how good you think your eyesight is you will not see a hole in that. This is a traditional reservoir. You can see through it. The holes are big, so it is easy for the gas to come out of these rocks.

The technology occurred because there was so little of this rock left that delivered the molecules, the conventional rock. You have a bunch of scientists in the industry working on how to get gas out of this rock.

I will pass them around, just so you can see them. Fundamentally, that is the reason.

Senator Mitchell: It just happened.

Mr. Spitzer: They married these two technologies and asked, ``Will this crack the secret to get gas out of that rock?'' and the answer is yes, it did. That was the thing.

Senator Mitchell: That is what happened.

Mr. Spitzer: Yes.

Senator Mitchell: I notice you have the Frederick Brook shale gas well model here, who is Frederick Brook?

Mr. Spitzer: Frederick Brook is the well that we drilled, the two wells that we drilled in New Brunswick. We held open houses there fairly early on; we had to show the public how this works. On a big scale, we had that so that they could see how all this technology actually worked.

Senator Mitchell: Was there a Mr. Brook?

Mr. Spitzer: I wished I knew the answer to that question. I suspect it is this: As a geologist, you find the rock on the banks of Frederick Brook and that is why it is called the Frederick Brook shale.

Senator Neufeld: I get people asking a lot about how you do not pollute the groundwater. You went through that process a bit, but tell me, is there always — I think you said a thousand feet of impermeable rock below surface, below the water table where people probably get their drinking water from, aquifers, before you get down to where you are working in the Horn River Basin or in Alberta. Is that always there? Explain that a little bit.

Mr. Spitzer: Yes. I think the important thing here is this, and it is real important, it is certainly not in the industry's or anybody else's interest for us to be fracking and causing problems, that is not in our interest. So there are certainly regulations and best practices that defend against that outcome. If you look at it, we generally do not frac within 3,000 feet of a water well. We know where the fresh water resides and generally we are much deeper, in many cases, a mile and a half deeper than that.

There are cases in the U.S. where companies have not followed the regulations, just like there is in any industry. What is a concern and was a concern when we actually formed the producers group is that we wanted to make sure that as much as possible we encouraged the best practices to be shared because it just takes one bad seed to taint everything.

To answer the question, we make sure that there is a very large buffer. The government makes sure there is a large buffer. We measure where the fracs go. On a continual basis, there is a lot of effort on working on frac fluid composition and making it greener through time as well. I hope that helps explain it.

Senator Neufeld: Has there been in British Columbia, or I will use Alberta as a neighbouring province, a problem with that happening where the industry has polluted potable water?

Mr. Spitzer: I do not think there is one example where it has been definitively shown ever.

Senator Neufeld: All right.

Mr. Spitzer: Certainly not with shale gas.

Senator Neufeld: You have done a great job communicating with the public in the areas where you work, but what bothers me is a report I got this off the website here the other day. It says, Fracking Up Our Water, Hydro Power and Climate: BC's reckless pursuit of shale gas. It is put out by the Canadian Centre for Policy Alternatives and the Wilderness Committee. There are a lot of inaccuracies in this unfortunately.

Mr. Spitzer: Absolutely.

Senator Neufeld: It is financed a bit by Canada and by the University of British Columbia. It really bothers me a lot. I can find quite a few inaccuracies. What is the industry doing to try and figure out how we actually get the correct information out to the people, whatever it is, right, wrong or indifferent, so we actually get the message out to the public in the same way that these guys get this on TV for half an hour a night or something to a broad cross-section of people who get very frightened over what they see in this, not understanding that a lot of it is incorrect. What are we doing as an industry?

I will back up to the oil sands. I mean I was always one that said we should have started a long time ago with the oil sands. We do not want to lose this battle. What are we doing there?

Mr. Spitzer: Well, I think the industry probably takes us too lightly. I am just being honest. I think it does by and large. The oil sands are probably a good example of that. We, as an industry, generally go through CAP or the Petroleum Producers Association and that is what we are doing largely on this.

From a personal opinion, I think the biggest thing we can do is make sure we do these kinds of things and then talk about them in public. That is something we still do not do enough of. I mean I do not get to talk about this stuff very often. I mean this is one of the few cases, except when I am up in Fort Nelson, but it is important because it is a way of doing business and I think it is the way of the future. The industry just has to do more of that and get in front of people to educate. We generally do not do that early enough.

Natalie Poole-Moffatt, Manager, Public and Government Affairs, Apache Canada, Horn River Basin Producers Group: Perhaps I can just add to that from a CAP committee perspective. We are also looking at this and we understand. We are hoping that in the next 12 months we are all going to step out. If you have heard Janet Ainslie from CAP, she heads it up, she has been out there. We have to get out there often and we need to talk to you guys, to the general public and make ourselves more readily available. Because there is social media now, you cannot hide things and we do not want to. So it is time that we start talking more.

Senator Neufeld: That is music to my ears.

The last question I have, Mr. Chair, is in respect of the LNG facility. Are you building it? Are there people working there now? Is your target 2015 or 2013?

Mr. Spitzer: I will answer it in the broad perspective and then Natalie can work on it.

I am not really responsible for LNG. I know this: Many people are working pretty hard to make sure that it flies. I think it is very important for the industry. I think Canadians in Canada and as a whole to make sure that there is such a facility built because it would provide a lot of jobs for Canadians.

Natalie can give you an update on where we are at there, senator.

Ms. Poole-Moffatt: The project is in its front engineering and design phase. So what we are doing is we are reviewing it and optimizing it. Once that phase is completed, we are going to go to our final investment decision. It has been very successful so far up in Kitimat. We have got a very positive relationship with the politicians and the people. much of that is thanks to Mr. Spitzer's Horn River Basin Group because we used the same models to get in. So we are excited to be the first LNG shipment in 2015.

We have been to Asia several times, most recently with the premier of British Columbia. She has put her jobs platform out there and LNG is a big part of what she is doing. We were also over there with some of your counterparts federally. Minister Oliver was there as well. Yes, it is going very well.

Senator McCoy: Mr. Spitzer, I wish to congratulate you. Looking at the slide here that says added premise, I was immediately struck by the fact that you said, number two, that listening and addressing concerns of stakeholders and First Nations was number two. In so many presentations we see where they say, oh, environment and stakeholder and First Nation relations are important, they are a footnote or at least they come tenth on the list. I appreciate the fact — I think you are one of the first I have seen — that this is right at the top. I appreciate that.

I look at your definition of success and I quite like that as well. It is obviously an assumption here, while responsibly developing the asset, but I presume everybody has bought into the fact that that is what we are doing. We are developing an asset.

What also struck me is you have got the companies developing the asset industry. You have got the government of Fort Nelson. You have got the Government of British Columbia and you have got the governments, I presume, of First Nations. You do not have the Government of Canada there, and I am curious about that.

Mr. Spitzer: That is a good question. Honestly, we rarely think of the federal government when it comes to the oil and gas business.

Senator McCoy: Is that because you are in B.C.?

Senator Neufeld: No. I think it is a provincial responsibility.

Mr. Spitzer: No. It is just not something we think about. Maybe it is an oversight on our part.

Senator McCoy: You do not need the government.

Mr. Spitzer: I am not saying we do not need the government. It is just that we do not see the federal government in our business day to day.

The Chair: Not even on environmental assessments?

Mr. Spitzer: I do not know.

Ms. Poole-Moffatt: Particularly with Apache right now, we work almost exclusively in B.C., Alberta and Saskatchewan. There is hardly any crossover for us, so it is few and far between.

However with our LNG facility, we have been spending a fair bit more time with the federal government because it is an export facility and it is cross-jurisdictional. Prior to LNG, it was within provinces. The provinces are regulators and they are the ones that do all that work.

Mr. Spitzer: This was aimed at the Horn River. This was not anything broader.

Senator McCoy: I am smiling because I sat at the Alberta government table for quite a while and so I think it speaks volumes.

I have one last question and that is the picture of the Debolt Water Facility. You said that drilling water from 3,000 feet underground and it is saltwater saline and then you put it in a $100 million plant. I have got my zeros right here. It was still cheaper than taking it out of what I presume is a river, Horn River, which is surface water. Explain that one. I am not following you.

Mr. Spitzer: at the end of the day the water is not evenly distributed. There is actually no river. These are all very small five to six foot deep, maybe 10 foot deep lakes in muskeg. They are sprinkled throughout the whole area, mushy, soft. In order to get a reliable source over time, it takes a lot of piping and all sorts of things to access that water. These are not Great Lakes type of lakes. They are very shallow and so a lot of piping would be required. At the end of the day, this is a much more elegant solution. It is cheaper on a per cubic metre basis in the long run.

Senator McCoy: You pumped it up but then you pipe it out to each installation.

Mr. Spitzer: Yes. What we have done is we have these pads drilled within the area here. Yes, we pump it up when we need it, use it for the frac, recycle it, pump it back down, the recycled water that we flow back and then use more as we need it, avoiding the usage of surface water, which I think is real elegant.

In New Brunswick, we wanted to even look at ocean water as a source because at the end of the day there is a lot more of that than there is of fresh water. It is just creative solutions to difficult problems, but if you are thinking about it, you will figure them out.

Senator McCoy: It is elegant.

Senator Sibbeston: I think it is laudable that your company or the group of companies deal with First Nations in an inclusive, involving way. There is a First Nation subcommittee and you deal with the inconclusiveness or voice on employment. What do the First Nations get from this development? It surely must be more than just these things.

Mr. Spitzer: They would get some money from the B.C. government as part of the Treaty 8 benefits agreement that I think is currently under negotiation. They do get some money from the regulator for working up the lands office and working up well applications. They do get those things.

I would say this: On the First Nations front, it is an ongoing, long-term situation. I would say we have been very candid with them. We speak as an individual voice and we have tried to be very helpful. This is ongoing work. You do not solve this situation in three or four years. It is just going to take a lot of time and work, but we are dedicated to it. We will continue working with them and listening to them.

We do have an idea that down the road we would actually consider working on a tripartite concept that would include the B.C. government, First Nations and industry working together on this development and having a voice in it.

Senator Sibbeston: Do you have any business dealings with the First Nations?

Mr. Spitzer: Yes, absolutely. There are individual companies owned by the First Nations that we routinely employ up there, absolutely.

Also on the operator training program, there were two First Nations people involved in that training program.

Senator Sibbeston: The First Nation that you are talking about is really the Fort Nelson Band.

Mr. Spitzer: Yes. There is also a Fort Liard group that is in the area as well as others. The focus has been largely Fort Nelson First Nations because by far, they have the most land, traditional lands in the area. We have to deal with all of them and it has been good but it will take time.

Senator Sibbeston: I have driven from Fort Nelson north to Fort Liard and the highway goes through the heart of this area.

Mr. Spitzer: Yes, it is on the western side, Highway 77.

Senator Sibbeston: I believe I saw construction of a pipeline a couple of summers ago.

Mr. Spitzer: Yes.

Senator Sibbeston: I know the map shows only up to the NWT border, but I would assume that all of the gas and so forth would continue likely into the Northwest Territories but it is not shown here.

Mr. Spitzer: It likely does go into the Northwest Territories, yes. That would be correct. We also dealt with the Fort Liard First Nations whose existing traditional territory extends into B.C.

Senator Sibbeston: I appreciate that there has been some activity in the Northwest Territories, but is your company part of that development in the Fort Liard area?

Mr. Spitzer: Right now there is no land activity in that area. I do not think it is actually possible to post land in the Northwest Territories as it exists right now. I think it is in the works. We have been in discussions with Chief Harry Deneron, but at this point, there is nothing really going on in the southern Northwest Territories. There is historical work done on Pointed Mountain far, far west, but not on this.

Senator Banks: The answer that you just gave answered part of my question because earlier when you were talking about the admirable efforts of the group, to make sure that benefits accrued to First Nations people who were involved one way or another with these kinds of projects, you were talking about hiring and employing them.

Great success was had by Eric Newell, who I am sure you know. I think he is one of the first guys that did it. He made sure that a lot of the ancillary activities that were going on in the oil sands development were not done by companies that hired First Nations people on a quota system, they were done by companies owned by First Nations people, individual private companies as individual entrepreneurs. And you have just said you are doing some of that too.

Mr. Spitzer: Yes. There is not an abundance of First Nations companies for starters up in the area.

Senator Banks: You only need one to start.

Mr. Spitzer: As an industry, we make sure that they can bid. If the bids are competitive, we will certainly hire. It is in everybody's best interest that we spread around that work and we do.

Senator Banks: Mr. Newell, if I understand it correctly and I think I do, made a point of having in place mechanisms by which First Nations people were brought to the point that they would be successful bidders on contracts for all kinds of ancillary things. That is good.

Ms. Poole-Moffatt, you mentioned that you expect export of LNG to happen from Kitimat in 2015, who is going to buy it? Assuming that there is no, and there might be, but if there is no absolute, hide bound contractual agreement by then, is there some spot market someplace that you can take LNG to in the east in Asia and just sell it?

Ms. Poole-Moffatt: I am not a marketer, but my understanding is that it is long-term contracts and that is what we are aiming for and we are aiming to the Asian market, so Japan, Korea. We are two laden days closer than Australia to China so that is beneficial for us, so that is where we are looking. And it is really in everyone's best interest for us to diversify where our LNG and our gas is going.

Senator Banks: The advantage of two days closer is lesser cost of shipping? I mean the time does not make any difference. If I am buying LNG, I do not care if it is two weeks old or one week old.

Ms. Poole-Moffatt: Right. It is cost and it is also speed and timing, because if you say you are going to have it there on a Wednesday, it needs to be there on time. LNG is typically sold on long-term contract.

Senator Banks: We heard earlier today that it is B.C.'s plan to make public all of the component parts, the ingredients that are in fracing substances that are used. Your group is concurrent with that?

Mr. Spitzer: Oh, absolutely.

Senator Banks: Is nobody concerned about proprietary interests in this?

Mr. Spitzer: Well, there has been a bit of a row in the U.S. over that because at the end of the day the service providers have said that they have got secret recipes that they cannot divulge. Fundamentally, we have all agreed to basically divulging the information.

Senator Banks: Period?

Mr. Spitzer: Yes.

Senator Banks: Unrestricted, including the secret, my fracing fluid is better than your fracing fluid and I do not want you to know about my advantage but I am going to tell you anyway?

Mr. Spitzer: Disclosure is required. B.C. requires disclosure. And so the companies have said, okay, through this what is called a frac focus which is the software by which you can compile this data, companies have said yes, they will do that.

Ms. Poole-Moffatt: We are doing it in the U.S.

Mr. Spitzer: Yes. I think now with the scrutiny, and it is the right thing to do, most people, most companies, if not all, disclose on what is called MSDS sheets what the chemical constituents are of the frac fluid.

Senator Banks: Is there any worry about that being a disincentive to research? I mean research in the oil and gas industry is largely driven by trying to gain advantages over your competitors.

Mr. Spitzer: Well, I am not so sure of all the exact concentrations and so on. It is a list of chemicals that is required for disclosure. I am not sure it is exactly all the concentrations as such. We have come a long way from what it was years ago.

Senator Banks: Through this, we will all know what the Coke formula is.

Senator Brown: I was fascinated by your comments about methane gas and 8,000 metres. You asked the question whether anyone knew of any seepage from that shale gas at 8,000. There has been an awful lot of drilling in Southeastern Alberta on 700 metres which puts them much closer to the surface. I wonder if there is any difference between the methane produced in the coal bed methane in Southern Alberta or the 8,000 metre stuff that you are doing to the north.

Mr. Spitzer: For clarity, it is 8,000 feet, not 8,000 metres. The coal bed methane in southern Albert occurs, in general, a lot shallower than much of the shale gas, so there has been some fracturing in southern Alberta on coal bed methane. The issues are more acute in that particular instance because of the proximity of the fresh water and the cold seams, so that discussion continues to go on.

What we are talking about here is fundamentally shale gas that generally is 5,000 feet plus with a heck of a lot of overburden between it and the potable water sources. The coal bed methane thing is an entirely different situation.

Senator Brown: Is it the same technology as what they were using with the shale stuff, with the coil and steel, the only thing that actually drills and moves is the bit itself, not the pipe?

Mr. Spitzer: Yes, the technology is relatively similar. I mean I do not think they use horizontal multistage fracs. They do break the rock a little bit, but coal, in general, it breaks on its own. It has got cleavage that allows gas molecules to come out of that situation much more readily than some of the shale gas, so it is a little bit different.

Senator Brown: Are you encasing the 8,000 feet all the way down?

Mr. Spitzer: Yes.

Senator Brown: I know that there have not been any complaints about that deep stuff, but I had a farming company and I still live on one of the three houses that was there. We had one well go dry and we drilled a well 300 feet. After about three or four years, methane gas started showing up in our water. I was asked to testify at a hearing in Calgary because my neighbours were having somewhat the same problems. I talked to my geologist friend who I went to university with and he said nature actually abhors a vacuum so it tries to fill that in, whether you are taking water out and letting the pressure of the gas come up or whether you are putting a lot of water down and pressing the gas down.

Anyway, it is a fact of life on a lot of the things around the area about 15 miles southeast of the Calgary Airport. I can take a glass of water, like this, out of the hot water tank and it will look milky, unable to see through it, but if you let it sit there for 60 seconds, it will be just as clear as a bell.

Mr. Spitzer: Yes, it is interesting. When we were involved in New Brunswick, we sampled 300 water wells that people used, in advance because I think it makes good business sense to understand what is there beforehand before you start drilling. Of the 300 wells that we tested, 12 of them, fully 12 of them had methane gas in them because there is naturally occurring methane gas. I mean through geologic times, some of this stuff does seep into aquifers.

So some 12 of them had methane gas and more than half of them had E. coli, so it was good that we did it.

To answer your question, there is more than one reason why you can get methane gas in waters. There is natural occurring stuff.

I live on an acreage outside Calgary that the water continually changes without any drilling activity. My neighbour once had no iron in his water and now he has got iron in his water with no well activity. Some of it is a little difficult to explain, I must say.

From what I know and what I have read, if the cement jobs were done properly, I cannot think of any cases where there has been contamination. It is most important to follow the regulations.

Senator Brown: I was just interested in the fact that the deep well stuff does not seem to be causing any problems, but we have lived with the shallow well stuff for a long, long time.

The Chair: That brings this session to an end. I want to thank you, Rob Spitzer and Natalie Poole-Moffatt for coming. This producers group thing is obviously the right model in terms of getting more efficient use of the land, that is for sure.

We were speaking with the minister last night here informally. At the auction or whatever it is called, there was some kind of a condition put, was there not, that all the companies would not be individually freelancing around.

Our next witness is Mr. Donald McInnes.

Mr. McInnes, we are the Standing Committee on Energy, the Environment and Natural Resources. We are trying to make some sense out of the energy sector and find a more efficient and sustainable way forward. We will be reporting this coming June after three plus years of talking energy and trying to get Canadians to understand.

When talking about electricity, interestingly enough, most witnesses today have said it is invisible; they do not know what it is and they do not know how it gets there. Every high school should have ``Thomas Edison 101.'' When you flick the switch, why does the light go on?

I am sure your contribution is going to help us with this whole process, that we are trying this dialogue with Canadians. We are not on the CPAC network today because we are travelling, but we have our own dedicated website which is www.canadainenergyfuture.ca. I understand you probably know all about it.

Senators, Mr. McInnes is the Executive VP of Alterra, a British Columbia based renewable power development company with a broad portfolio of clean energy projects. He currently serves as Chairman of the Clean Energy Association of British Columbia; and is a Director of Prostate Cancer Canada; the Duke of Edinburgh's Award, British Columbia and Yukon division; and is a Governor of B.C. Business Council. He was a participant in the inaugural year, 2010, of the SFU leadership exchange program for the industry council for Aboriginal business; and was bestowed a doctor of technology honoris causa from the B.C. Institute of Technology in 2009. As well, he was a finalist in 2008 and a recipient in 2011 of the Ernst & Young entrepreneur of the year award, Pacific division, clean tech. Mr. McInnes is a frequent public speaker and contributor to the debate on public policy and the integration and value of clean power, right on point on what we are wrestling with. He is here in his capacity as a representative of the Independent Power Producers Association of B.C.

Over to you, sir, and then we will have some questions afterwards.

Donald McInnes, member, Board of Directors and Executive Vice Chairman, Alterra Power Corp., Independent Power Producers Association of BC: It is a pleasure to be here to meet with you and share my thoughts. I have had the pleasure of knowing Senator Neufeld since about 1996.

Early in the Liberal government's first mandate, a program was put in place to get some power built in British Columbia with the participation of the private sector. I created a company from that policy called Plutonic Power. I merged it with another company last spring to create Alterra Power. We employ about 50 British Columbians. We invested just under $1 billion in three years building British Columbia's largest wind farm. We also built the largest run of river hydro plants in the province through a partnership with General Electric.

During our course of construction at the hydro project, we employed about 650 people. We created about 225 jobs during the building of our wind farm. So that is a little bit about Alterra.

The Chair: It is a public company?

Mr. McInnes: Yes, you can buy and sell us every day, sir, on the Toronto Stock Exchange.

The committee no doubt has heard a lot on the need for a Canadian energy strategy. Recently the Premier of Alberta spoke eloquently about the benefits of doing such a thing, especially in the context of the resent Keystone decision and reflecting on the Northern Gateway Pipeline.

I know you will shortly hear from EPIC's co-chair, David Emerson. Plutonic, or Alterra now, is a founding partner in EPIC. We fully support the need for a broader dialogue about energy and, more specifically, electricity because as you are pointing out, people flick a switch, it comes on and that is all we think about it.

There is a huge opportunity and problem facing Canada right now with respect to electricity. We need to think about and not just do thermal or not just do clean. We are going to need a good mix of renewable energy and non- renewables to get a much better approach and ultimately bring more renewables into the energy system.

I think it is interesting the way Danny Williams muscled into an ownership position in Hibernia. He used that thermal opportunity and the revenue from that to help pay for the province's investment in the long-term clean endowment that Lower Churchill Falls will bring to the Newfoundland people. We have an equal opportunity to use thermal to pay for clean here in British Columbia.

Now I want to talk a little bit about a false dichotomy which is that thermal and clean do not work well together and they are dangerous for our country's development. I think they can work quite well together.

I want to respond to Senator McCoy's question that she does not hear the federal government being talked about much in the LNG conversation. I think that really flows from the difference between provincial responsibility and federal. Really energy and natural resource issues are more of the provincial domain.

However, there is a huge opportunity and rationale for federal participation when you look at planning, permitting, and access to land issues. This is why the federal government needs to be a participant in the dialogue to get to a better outcome.

My focus today will really be more about natural gas in Northeastern British Columbia. The scale obviously of the opportunity is massive and unprecedented and we need diversity of markets.

What is interesting and exciting for me in this is that as we build LNG opportunities, we are going to need a lot of energy or electricity to create the LNG and export that to the Asian marketplace. This gives us, as clean power developers, a huge opportunity.

So that is why, as clean energy companies, we are excited about natural gas. It will take tremendous amounts of energy to liquefy the gas and get it to market. As I understand it, there is three or four well thought out proposals for LNG that will, we estimate, require over 3,000 megawatts of power to meet their energy needs.

To give you an idea of what that means to British Columbia, today we have just under 12,000 megawatts of power generation in our province. So this is an increase of 25 per cent of our existing system. It will be an investment of somewhere in the order of $30 billion that probably needs to be spent by 2020. So time is of the essence. Looking at general growth in British Columbia, we will need another thousand megawatts of generation to meet normal low growth, so you are looking at 4,000 megawatts.

There are two options to meet this massive low growth: build cogeneration facilities or look to British Columbia's renewable power to meet the opportunity here. To look at this as an either-or decision is a mistake. It will end up being a mix. The question is what is that mix. If Canada and British Columbia want to continue being portrayed as having a very strong, clean energy brand, then we are going to need a good mix of the renewables to supplement the thermal. This makes sense for our treasury. We want to have our natural gas companies export as much as they can as opposed to using gas for their own generation.

This also achieves a wonderful but different outcome. If we burn gas in British Columbia, this displaces clean energy opportunities that we have today. If gas is burned for electricity in Asia, it is displacing coal. What is a better outcome for the environment? It is probably shipping the gas overseas to displace coal.

The committee seems very interested in First Nation issues. The creation of a clean energy sector in British Columbia is quite new. Today over 125 First Nations in British Columbia are involved in clean energy projects in one way or another. I would assert that our industry being nascent, we are probably the first industry in the history of British Columbia to wholesale embrace First Nations and not fight who owns the land but to form very unique, innovative partnerships with First Nations so that we can all benefit from building our projects.

We are also realistic. Natural gas generation can play an important role in isolated areas where transmission lines are extremely costly or where the source of power can be needed to shape renewables.

While the situation in British Columbia is unique in many ways, the common theme here is felt right across the country and that is we are facing a massive lack of un-investment in electricity infrastructure in Canada. The Canadian Imperial Bank of Commerce recently issued a report on infrastructure. They estimate that over $195 billion needs to be spent on electricity infrastructure to meet existing demand by 2030. This is a scale equal to the industrial growth phases of the 1960s, 1970s and 1980s so it is not like we have not seen this before.

One thing that we need to be clear about in Canada is that because of the tremendous hydroelectric resources in Manitoba, Quebec and British Columbia, we have been spoiled with very cheap energy to meet our demands, but the opportunity to continue to build those big hydroelectric systems is probably not there so we have to think about the future in that context.

In British Columbia, former premier W.A.C. Bennett built nine large dams in a 25-year period ending in 1984. At that time, British Columbia had 3 million people in the province and we had a massive electrical surplus. Twenty-five years later with almost building no new generation, our province's population is up by 50 per cent. We have gone from massive electrical surplus to quite a large electrical deficit if we were to meet our own energy generation needs.

Now we need massive upgrades on that existing system. BC Hydro is talking about rebuilding two of our traditional dams that are falling apart or need significant reinvestment and that is over $2 billion of capital. Our heritage resources, as they are fondly referred to, really no longer exist and will no longer be delivering electricity at those historical rates.

The same story is happening all across Canada. We think the federal government's initiative is helping to guarantee the debt for the power line from Lower Churchill Falls to Nova Scotia is a very innovative approach and that kind of approach on helping to get the cost of debt down for other transmission investments in the country probably needs to be carefully considered.

Moving from this high level, I would like to talk more closely about things in British Columbia that we have been a participant in and I think are worth discussing with the committee and that is really permitting and environmental matters and, more specifically, First Nation issues.

The reality of permitting large projects in Canada is a story of laudable goals gone badly off the rails with process absurdity and poorly defined pathways to meet questionable requirements.

In our company's case, we have taken three projects through the sea of process. It is an unbelievably difficult, cumbersome process. To give you an idea, two acts need to be carefully reconsidered and reviewed, and they affect any natural resource development in Canada, it is not just a clean energy issue, the Navigable Waters Act and the Fisheries Act.

A lot of Richmond, where you probably landed in an airplane coming here for these hearings, would be underwater without dykes. There is a lot of great farmland in Richmond. Farmers routinely dig ditches around their fields. Well, as soon as they have done that and there is any water in it, they have triggered the Navigable Waters Act, if you can float a canoe in it, and the Fisheries Act. This impacts their ability to use their land. Things need to be changed.

To give you an idea, the first project that we permitted, the Toba and Montrose hydroelectric project, this involved two generation facilities where we are diverting water at high elevation into a pipe, the water goes down, spins the turbine and then we put the water back in the river, so we are borrowing the water. We are not creating a reservoir like a traditional dam.

So we had two run-of-river facilities, 55 kilometres of roads from the Pacific Ocean into the project area, and a 155 kilometre long power line. It took me three years from conceiving this company and spending $4.5 million to get through the permit process and do all our feasibility work.

As soon as that project was under construction, we started the permitting process with the province and the federal government for two more of these run of river facilities that would use the same road infrastructure and power line. The first project took three years and $4.5 million including the power line and all the roads. The second project, to get the two projects through the permit process, it took four years and $8 million and it did not involve any of the infrastructure. So there is tremendous scope creep, and I am not talking about doing these two permitting processes 20 years apart. One almost started as soon as the other was finished. So this really is a good example of scope creep that is really not bringing better outcomes.

As the dreamer of this company, I got very excited when we got our first project through this Canadian Environmental Assessment process and I was ready to pop the champagne. My team said no, no, that is just the start. We then had to get 55 permits, authorizations and licences, and then I was ready to celebrate and they said no, there is more to come.

By the time we finished building that project, we had over 1,680 individual permits, authorizations, and licences. I would assert that there was no better environmental outcome than if we had only had maybe 800 individual permits, licences, and authorizations.

Senator Banks: Or eight.

Mr. McInnes: Yes, I would agree.

There are lots of complaints by industry and governments, federal and provincial alike, that there is not enough capacity in some of these departments and ministries for people. Well, why do not we have regulation that makes sense and then those people would have less to do to get projects through the process.

Selfishly speaking, today over half of the projects that are in the Canadian Environmental Assessment process are located in British Columbia. Now we were a very appreciable province, I think, with the share of the federal ship building contracts that we got, but that is federal dollars. If you speed up the permit process, you will unlock tremendous private sector investment in mining projects, the LNG projects, transmission projects, clean energy projects that will help stimulate our economy.

On the First Nations side of things, our story is one of tremendous success. With our hydroelectric project, we have three First Nation partnerships, and our wind farm has four First Nation partners.

I told you about our industry being sort of new at this and so when I started this company up, the day we were applying for our tenures, I called the chief of each affected nation up to say, ``Hey, it's Donald from Plutonic Power, I have got a dream. I do not know if it will be a reality but I would like to explore how we can work with you so that we can build these projects in hopefully a way that benefits both of us.''

I reached out at the beginning to align interests. When interests are aligned, it is probably a lot easier to get things done. I am hoping to the extent that the Senate can influence things, it would be just an absolute tragedy if we went through this process of LNG and energy infrastructure, the way the Mackenzie Valley Pipeline did 20 years later because of cheap gas, there is settlement, but settlement for what. There probably is no project. Maybe that will change over time.

The Chair: You are saying that if it had been a streamlined process and approval was obtained 15 to 18 years ago, we would have a whole different ball game in the gas sector?

Mr. McInnes: Absolutely, sir.

Right and title: I frequently say this is not a right, an opportunity to perpetuate poverty. There are 1 million First Nations people in our country generally living a Third World existence. Industry, governments and First Nation governments, everybody has to do their part and wake up to the reality of working together for the common good.

Ken Brown, the former chief of the Klahoose First Nation, had a great quote at our ground breaking, attended by Senator Neufeld, when he said that we spent the last 20 years managing poverty. Because of this power project, we may spend the next 20 years managing opportunity. This was a young First Nation leader that is not burdened by the residential school disaster. He is trying to figure out ways to advance his community's interests. He leveraged our power project into a130,000 cubic metre a year logging operation. They do all the logistics support for our power project. They ran the 450-man camp.

Peter Kiewit Sons, our contractor, did a great job of setting up with the school board in Powell River, jobs, training and opportunities in welding, heavy equipment, operator programs, maintenance programs, and construction. So there is lots of opportunity out there if we all think about this properly.

I have a quick comment about what I call the ``Indian business.'' It is a very disrespectful term, but I really call the Indian business insidious. I had the pleasure of being invited to the Sliammon Nations treaty signing ceremony attended by Minister Duncan. I found out that this was after a 17-year negotiation. I was asked to drive somebody to the airport at the end of the celebration, which I kindly did because it was at the request of one of the councillors of Sliammon. I said to the person, what is your affiliation with the group today? He was their lawyer. Seventeen years that guy has been working for Sliammon. This is not complicated stuff. Let us share some land, some cash, and get on with things.

Right now in Canada, over $500 million has been advanced to First Nations peoples to pay their legal bills for these ongoing disputes. This is not putting money in the right place.

For the health of the country, we need to align interests. For you as a panel, I think putting recommendations in place in the areas of permitting environmental assessment reform and continuing to work on accelerating First Nations involvement and direct involvement in energy projects, whether it is generation or thermal, are critically important and just ripe for ongoing improvement.

I think there is an opportunity and requirement for more federal, provincial cooperation to unleash these wonderful opportunities. It is not just here in British Columbia. There are great opportunities in energy all across the country.

The Chair: Sir, you spoke straight from the shoulder, which is what we like to hear.

Senator Mitchell: Mr. McInnes, I am interested in the work you have been doing with Aboriginal groups, First Nations, very enlightened but very well explained.

Earlier today, we had a presenter who suggested that there is tremendous opportunity, obviously for liquid natural gas, in China. You have suggested an interesting conundrum which is if we do it here, we displace clean energy; if we do it in China, we displace coal. What is the commercial prospect for displacing coal in China with LNG? Will they buy, or is coal just so much less expensive that they are not going to?

Mr. McInnes: I do not know the specifics of that, I am sorry, but I do know that Chinese, Malaysian, Korean state owned companies — it was announced today in The Globe & Mail that Japan is buying into Nexen's shale gas play. I think they bought 40 per cent.

People are looking for supplies of gas, and my worry is that we are not going to be the place that they get it. We are not unique in that we are not the only country in the world that has tremendous natural gas deposits.

If we are not first mover to market, we will end up with more Mackenzie Valley opportunities than places like Australia. I think they have $160 billion of LNG projects on their books at various stages of construction, and we have not really started building our first one.

The presenter before me, they have started clearing some land and blasting and doing a few things like that, but Shell is just finishing up a $30 billion project in Australia. The head of Shell Canada is competing with her counterpart in Australia for dollars on where Shell is going to build its next LNG plant.

Shell and a lot of these companies are global. LNG does not have a brand. You cannot differentiate between Canadian natural gas and Australian natural gas. It all burns. If we do not do what we need to do to meet the market demand, that opportunity may disappear.

Senator Mitchell: I think all of us are quite sympathetic to the problem of slow environmental processes, duplication and all that, but in the LNG case, at least in some projects, the approvals are quite far advanced if not completed. I mean the company has not picked up and done it. What is the delay and if it is not an environmental process, how can the government facilitate that or who should facilitate it?

Mr. McInnes: The only LNG project that I am aware of that is permitted in Canada is the one that the previous speaker spoke of which is the Apache, Encana EOG project. Shell does not have a permit to build, neither does Nexen or any of the other proponents.

As I understand it, the Apache, Encana EOG project, the boards of the companies that are sponsoring that are going to make an investment decision sometime in the first half of 2012. As I understand it, they are waiting to get a long-term contract before they make that investment decision.

Senator Mitchell: I remember visiting the oil sands in the early 1990s and being told that it was costing $15 a barrel operating to make a barrel that was $10 capital, so that is $25, that it was not economical. Yet somebody had the vision to keep going because it was going to be. Thankfully they did because look at us today.

You are doing run of river projects and wind farms. We have been told over and over again that those are not economical. How is that paying today? Is that feed-in tariffs? What is that and where is that going? When does that get to be commercial all by itself?

Mr. McInnes: I would say those are uneconomical relative to what, first of all?

Senator Mitchell: Yes. I want to encourage you in this, but I would like to hear the argument about how are you doing this within that commercial environment?

Mr. McInnes: In terms of the hydroelectric project that we built, we are selling electricity to BC Hydro under a long- term fixed contract for 35 years that escalates at half of inflation. We are selling that power at about $.09 a kilowatt, which is the new residential rate in British Columbia. Everybody in British Columbia gets a little bit of what is called a heritage rate. If you use more than a certain amount of electricity every month then the extra you pay, about nine cents.

Richard Dunn from Encana told me that if they were to self-generate as opposed to getting grid-based electricity for the LNG plant, the cost of generation would be in the $.10 to $.12 a kilowatt range. The average price paid by BC Hydro in the last call for tender was 12.4 cents.

I think we are pretty much in the ballpark. If you want to throw in any kind of a price for carbon, we are really competitive.

What I find very interesting, the first project in Canada that is a coal power project that is going to have full carbon capture and sequestration is a 450 megawatt plant in Alberta that is going through a refurbishment today. They are spending $1 billion on the carbon capture aspect of this.

Coal typically is $50 a megawatt hour, $.05 to $.06 a kilowatt. The magical thing about this, though, is when they finish this plant and the CCS part is fully operating, 200 megawatts of the 450 is going to be used just to pump the emissions underground. You are going to have to almost double that $50 power. Again, we are getting close to $.10 a kilowatt.

When people say renewables are expensive, I say relative to what?

Senator Neufeld: Thank you for being here, Donald. It is always interesting to listen to your presentations and I appreciate them very much.

Maybe just a little bit of background here. Prior to 2002, which was the first energy plan, BC Hydro built all the energy that was developed in British Columbia other than for two companies that had been around for a long time, one is Fortis on the Columbia; and the other was Tech, also on the Columbia, was a small one; but Hydro built all the rest.

The direction given to Hydro at that time by my first energy plan was you will actually contract to independent power producers for all your new supply, other than you can look at site C and you rebuild the facilities that you have. In fact, Donald was very heavily involved in mining, and probably still is, but jumped into the independent power producers.

Perhaps you could tell us the size of your run-of-river project and your wind farm and where the two are at.

Mr. McInnes: The hydroelectric plant is located in the Toba Valley. If you are a boater, you may have heard of Desolation Sound. This is Southwestern British Columbia on the mainland, just east of Campbell River. It is 240- megawatt plant, approximately and generates enough electricity to meet the energy needs of about 72,000 homes.

Our wind farm is located near Chetwynd up in the Peace River area where the Montney gas play is. We erected 48 wind turbines that are two and a half megawatts each. They generate enough power to meet the needs of over 30,000 homes. So our little company spent about 900 million and we are powering a little over 100,000 homes with that output.

Senator Neufeld: Your quick review of how long it took you to get permits is something that I think we need to actually take to both Minister Oliver and Minister Kent and ask if we cannot get something done in a relatively short period of time that is going to help some of those crazy things. It is not just the federal government. The provincial government has a certain amount of responsibility here, too.

We created the Oil and Gas Commission. Industry pays a permit fee which covers the cost of actually processing the permits. It is kind of a neat way of doing it, although some people say it is not right, it should be just straight government money, but I think it is a good way to do it.

Would you think if, in the federal system, something like this was developed, where proponents actually had to pay a fee to help pay for not the whole R.S. but at least for a permitting process to get some projects like yours or LNG or those kind of things through the permitting process so that we can get on with doing things. I am afraid that we are going to lose because we are not going to be fast enough. We are not going to be nimble enough. I think industry also has to be a little bit more nimble in a lot of ways when it comes down to that. What is your thought on that?

Mr. McInnes: I am all for that, Senator Neufeld, and thank you for the question. I give a lot of these presentations and sometimes I forget to include certain points that are quite relevant and germane.

In our case, we got through the provincial permit process in late December 2007, I think it was. I celebrated and thought great, we can work on it. Oh, no, it was 2006. I estimated we would probably get out of the federal process in an extra six months. In fact, it took an extra year to get through the federal process.

The impact of that, I can quantify for you because interest rates moved in that six-month period and they went up. When we finally put in our debt facility, and we borrowed almost $500 million to build this project, our annual interest rate expense, because of that six-month delay of the feds in not keeping up with the province, was an extra $1.5 million.

I wished I could have thrown a million bucks at any federal department for them to hire more capacity. I am not going to have the audacity to suggest I am going to pick the biologist or whoever, but if we can pay to help the feds buy capacity, I am all for it. Others in the industry would probably argue against that, Senator Neufeld, but personally, if I can buy a speedier process, I would be all for it.

Senator Banks: As a note for later, I have a problem with that, downloading the responsibilities of governments to whoever needs their services. The next thing we will be asking is for people to pay the government fire insurance. There are difficulties with that.

Senator Neufeld: It actually works well, senator, let me tell you.

Senator Banks: Mr. McInnes, you were here when Mr. Spitzer answered the question about federal government involvement in the regulatory process in the Horn River Basin Producers Group projects, and he said there was no problem whatever. We hear that there are problems of that kind a lot, but then we hear occasionally too, as we did from Mr. Spitzer — and you heard him, I presume — say that there was no problem at all. Please expand on that a bit for us because you were, as the chair said, shooting straight from the shoulder. It is true, obviously, that if the regulatory process were less onerous, there would be more investment made faster. It is also true that if we removed all regulatory processes completely, there would be a whole lot of investment and it would be very fast. There is a balance to be struck, and I am wondering where you think that balance ought to be.

Mr. McInnes: I think in our case, Ottawa might as well be a different planet from British Columbia with respect to permitting because the people that seem to make the decisions in the departments that really affect being able to get natural resources projects done are in Ottawa and they rarely come across the Rockies to see what is going on.

There are examples and processes where the federal government can hand over the responsibility of permitting to the provincial government and it is called harmonization. This was used in permitting the port, the container terminal that was built in Prince Rupert. There is precedent where the federal government can say, our process is very duplicative of your process, why do not you do it on behalf of both governments and we will accept your recommendation at the end of the day.

Now with respect to the fed's participation in Horn River, I am not sure exactly what Mr. Spitzer got permitted. Depending on the size of a project, you trigger a sea of process or you do not. In the electricity business, if you are building a transmission line over 200 kilovolts, you trigger a sea of process. If your project is over 50 megawatts, I think, you trigger a sea of process. Then there are three levels of processes within CEA. One is called a screening report, the middle one is a comprehensive review, and the biggest and most involved is a panel review.

If I can comment on the CEA generally, this is supposed to be a process to identify show stoppers. It does not mean that once you have gotten through a sea of process, you have got a permit to build. As I outlined, I celebrated when I got through CEA, but then I had 55 other things to get. At various stages of construction, we needed over 1,600 individual permits for a variety of other things.

With respect to ``scope creep,'' there was a mining project in Northern British Columbia being advanced by NovaGold and Tech. It involved building a road into the project area from Highway 37 for maybe a hundred kilometres. Formerly, you could get through an environmental assessment process with the commitment that, for example, all the roads and bridges would be built to the Forest Act standards and some other things. That company was for some reason asked to get through the CEA. They had to show detailed engineering designs for every water crossing, as opposed to a commitment that before they could commence construction, every road and bridge crossing would have to be done to the right standards.

The use of CEA has changed dramatically from show stopper to it is really project-permitting unto itself.

Senator Banks: It has been pulled back a bit. You mentioned specifically the Navigable Waters Act, for example.

Mr. McInnes: Yes.

Senator Banks: This committee dealt with fairly recent amendments to the Navigable Waters Act which had the effect of removing from its purview what were called minor works. We had a lot of fights about that because some people said define minor works, and you may recall that.

Are you satisfied with the step back that the present government has taken by removing minor works from the Navigable Waters Act as being a step forward in loosening up the regulations a bit because it sounds to me as though what you just talked about, going across each waterway which if they have fish in it, that is a different question?

Mr. McInnes: My project was 2007.

Senator Banks: So is the present application, so far as you know, of the Navigable Waters Act with the removal of minor works okay?

Mr. McInnes: No, because if your project is going through CEA, it is not a minor works. So Navigable Waters is going to be applied and rigorously. The test of the triggering of that as a piece of legislation that gets triggered is going to be present.

Senator Banks: But the Navigable Waters Act now excludes minor works.

The Chair: Also it has the major projects opposite.

Senator Banks: Yes.

Mr. McInnes: I may not be current with the modifications you have made, but I know my permitting people still frequently tell me that it is a difficult piece of legislation. The Fisheries Act is worse, so if the Navigable Waters is looked after, the Fisheries Act is still out there.

Senator Banks: It is. Well, where there are fish, there are feds.

I am going to just drill down one final question here, if I may, along the line that Senator Mitchell asked and I am going to ask you to expand on this a bit. We hear a lot about the export of LNG and doing all these wonderful, good things for our country and its economy and our resources development, as well as for the ecology because, of course, if we could get Chinese coal plants converted to the use of natural gas in whatever form, that is good for the world.

If you are not familiar, the cost of converting an electricity generating plant from coal to gas is very expensive. It costs a lot of money to do it. And you have to allow, as we do in North America, the reasonable length of time for a project to exist, to exhaust a reasonable return on its investment. We have to do that. If I were the operator of a Chinese coal plant that was built within the last 5 years or 10 years, why would I buy natural gas from you or anybody else?

Mr. McInnes: In my remarks I was not suggesting that we are going to displace existing coal, but for new power plants being built. China is reportedly building the equivalent of a 500 megawatt coal plant every year or every week.

The Chair: Every week.

Mr. McInnes: Okay, maybe they are building a coal plant one week and a gas plant the next. The coal plants the Chinese are building are very advanced and far cleaner than mostly installed coal generation capacity in North America which is really quite old.

Senator Banks: That is true. Do we have any good reason to believe that they will build a gas plant if they had access to the gas?

Mr. McInnes: Well, I would think so. I am not in the gas selling business so I cannot definitively say that.

Senator Banks: Okay. We can find that out. Thank you very much. Thank you, sir.

The Chair: Well, we just heard all those people who went over there two weeks ago, tell us that they want to buy our LNG to do it.

Senator Brown: I know that wind farms work to a degree and so do solar panels, but they are not 100 per cent all the time. I have read an article in one of the major newspapers just a month or so ago that said that they had built in Europe four new thermal plants to backstop their wind farms and their solar panels. And so I am trying to figure out where the break is.

To go back to B.C., it is pretty easy if you got a hydro plant, you can shut the power off; but if you have got a coal plant, you cannot do it. If you have got an energy plant that is jet propelled, like the one outside of Calgary, you can shut it down in a matter of hours. How do you answer the question about where the economics come in if you have to build thermal plants to backstop these two solar panels and wind farms?

Mr. McInnes: Yes, that is a question that we get asked all the time. The general answer is renewables generate electricity variably. You cannot count on them 24 hours a day as you are pointing out. We are blessed in British Columbia, Quebec and Manitoba principally that are almost pure hydro systems, that you can shape these renewables very easily.

We have got the world's ultimate batteries and that is the problem with renewables. A fortune is being spent on battery storage schemes all over the place, so we are quite blessed with it. Alberta will have trouble integrating massive amounts of renewables because it is largely a coal jurisdiction. BC Hydro has made a fortune playing the day, night arbitrage with Alberta and their ability to do so is only limited by how much transmission is in place.

Senator Brown: I thought that was what you were going to say because of hydro, but I know in Alberta it is going to be a big problem.

Mr. McInnes: Yes.

The Chair: Thank you, Mr. McInnes. That was fascinating.

I am particularly happy to welcome the next witness here from Northern Ireland, but you have been here since 8 o'clock this morning, 'Lyn Anglin, and I think, David, you as well because I shook hands with you when I walked in the room and, gosh, what patience you have. We must be doing something right to have you here all day.

I was waiting for Senator Neufeld to come back before starting because he was telling me last night, in quite a bit of detail, about the inception of Geoscience BC and the original thinking behind it. He is very proud of the fact that you have brought it into being in such a wonderful way.

We collectively are very pleased to welcome, 'Lyn Anglin, PhD, PGO. She was appointed President and CEO of Geoscience BC in 2006. Prior to that, she was the acting director of the Pacific Division of the Geological Survey of Canada. She has spent over 20 years managing exploration, geoscience research projects in various areas across Canada. You have a very distinguished CV. I will not go into detail, but I do see a masters degree from Memorial University in Newfoundland and Labrador.

You have with you Mr. David Molinski, who is a principal of OnPoint Consulting, founder therefore. And David works with both public and private organizations providing leadership, strategic counsel and effective strategies. You are another one of these policy gurus and the kind of person we need to hear from as we try to shape a framework for a natural energy policy in this great country.

C.D. ( ' Lyn) Anglin, President and Chief Executive Officer, Geoscience BC: Mr. Chair, I am very impressed with your fortitude, all of you. This has been a long day, a lot of information.

After I got the invitation to be a witness to this committee, I checked the website and I have watched a few webcasts and read some of the transcripts. I have learned a lot from the exercise that you are going through. I hope more Canadians take advantage of the fact that all of that information has been captured. I have learned a lot today and it has been very informative.

It is a real pleasure for me to have an opportunity to present. I hope my story of Geoscience BC is broadly similar to whatever Senator Neufeld told you last night.

Senator Neufeld: It is all good.

Ms. Anglin: I am going to try to give an overview of Geoscience BC, what we are and how we came to be, and also why we got involved in water research in Northeast B.C., which is the main reason I am here to talk with you today. I will then give you some brief snapshots of the projects that we have and/or are involved with right now in terms of water research that is related to development of the unconventional gas resource in northeast B.C. Then I will be happy to answer any questions or if there is anything that I say that is not clear, I am quite happy if you interrupt me for clarification.

David has been a really key player in developing our programs. He has really been involved in liaising with industry, with government, with communities, and with First Nations, and we consider that partnership model to be a key part of what we are delivering here in our research through Geoscience BC.

The second page of my presentation is an overview of Geoscience BC. As Senator Neufeld probably explained, we are a non-profit, non-government, applied geoscience research organization. We were created in 2005 with a large grant from the province while Senator Neufeld was Minister Neufeld of Energy, Mines and Petroleum Resources. We are a very unique organization. There is not anything else quite like us in Canada. We are essentially government funded to work in partnership with industry and government and communities and others to deliver geoscience information that helps to attract investment to British Columbia and helps facilitate good development decisions in both minerals and oil and gas.

In 2008, we received an additional $5.7 million that was specifically to help facilitate responsible development of B.C.'s natural gas resources. I should say that that year we also got $6 million for minerals related work. We are not just an oil and gas research organization.

In fact, in that first $25 million grant, $20 million was for minerals and $5 for oil and gas. We have since morphed into a 50/50 minerals and oil and gas research group.

In this past year, the province also granted us another $12 million so we could continue the kind of work that we are doing in northeast B.C. and what we have been doing in minerals research.

As I said, we use a partnership model to develop and deliver our independent research. We consult with communities and First Nations, we consult with government and industry, and so that is how we are delivering our geoscience research.

On the next page, why water research? Well, as I said, in 2008, the province granted us $5.7 million to help facilitate responsible development of natural gas in northeast B.C. One of our first steps was to consult with industry and government about what was the top priority to help facilitate that development of that very large unconventional gas resource. Without question, what the companies, government, and communities were very interested in was the question of water and so that very clearly became the priority for our work. Everybody was interested in working collaboratively on that issue, so that is where we undertook to develop programs.

We have been strongly endorsed, I think, in that the government has provided us with additional funding. Industry has provided a lot of funding. And we have had a lot of interesting engagement with communities and First Nations.

So we started with — and I think Rob Spitzer from Apache representing the Horn River Basin Producers Group mentioned this, our first project was in partnership with them, looking at deep saline, potential sources of water that might be used in the development, in the hydraulic fracturing operations.

From that, we have developed a number of other projects and I am going to go through those and give you a little bit more detail on each, but we feel that we are delivering high quality technical data on water, on water sources, and on potential sites for disposal in northeast B.C. and as I say, we have been doing this through partnerships. I will talk a little bit more on that as I go through the individual projects.

Slide number four gives you a visual of the time lines and the key areas that we have been working on in northeast B.C. We started with our Horn River Basin project in 2008 in consultation and then we launched it in 2009. We believe in a very rapid, such a timely delivery of all of our results to the public, so that project was completed within a little more than a year and the results were published and they are available publicly through our website. We finished that in early 2010.

From that, we developed a project with a number of partners in the Montney and then we go back to Horn River with a phase two project. We have also undertaken some broader regional projects and are now in consultation about what should be the next steps in our work.

Slide five is a brief overview of the Horn River Basin project. As I said, we started developing it in 2008, launched it in 2009. It is a collaborative project with the Horn River Basin Producers Group. I have to applaud Rob Spitzer and, again, Senator Neufeld and others who were involved in establishing that Producers Group. It has been a very effective partnership. It essentially has been a very interesting and effective group for us to work with as a partner in our projects. They have been providing technical data, quite valuable technical data to us, and technical guidance, as well as providing in our phase two a significant amount of financial funding for the work that we are undertaking in the Horn River.

Geoscience BC actually designs and delivers the projects. We are an independent research organization, but we find with partnerships, we are actually able to leverage our funding and much more effectively deliver the results by having a broad range of stakeholders, who are actually part of the project development and delivery.

The Chair: One of the nice things that Senator Neufeld told me last night, might have been the gilding of the lily, but you got the initial 25 million and then you have mentioned a five here and a six there and an eleven there, but he indicated you have actually gone and run with the ball, as you are now describing, and also become self-sufficient and you have a revenue stream, did I misunderstand?

Ms. Anglin: On these oil and gas projects, what we have actually been able to do is leverage that money more than one to one. We do not sell a membership or at this point have an ongoing financing from the industry, but what we have done is we have stretched the dollars that the province has granted us quite substantially with financing from economic development groups in terms of our minerals projects; and from oil and gas companies; and from other funding —

Senator Banks: On a project basis?

Ms. Anglin: On a project specific basis, yes. We are very focused on specific results. And so we design a project and find sponsors, participants, partners, whatever you want to call them. Sometimes we put out proposals to other agencies or they approach us about wanting to be a partner. We have gone from being primarily provincial grant funded to then, in our first project, having a huge amount of in-kind data supplied to us for our — I think it was about $2,5 million worth — work in the Horn River phase one. We got about $5 million or $6 million worth of industry data as part of that project.

In the Montney project, I think we are spending about $.30 dollars because we have partners from oil and gas companies and from the science, community, and environment knowledge fund that is also supported by industry.

Sorry, just getting back to this, did that answer the question of how we are structured?

The Chair: Yes, I have a good sense now.

Ms. Anglin: Phase one of the project, as Rob Spitzer referred to in his presentation, looked primarily at the deep subsurface or saline fluids in the Horn River Basin and the results of that have been already used by industry. I think he mentioned that Encana and Apache have built a water treatment plant. I think in their latest fracturing operations over 98 per cent of the water used in those operations actually came out of that treatment plant.

The work that we were involved in was really consolidating all of the information that the different Producers Group companies had, compiling it so that we have a regional knowledge of the subsurface and where there was aquifers and how much potential was in those aquifers so that the companies could make their own development decisions as to what were their options in terms of reducing their use of surface water. That was what they told us the primary reason that they wanted to do that is their first stage of water research in northeast B.C. was to reduce their environmental footprint to as much as possible, get away from using surface water.

Senator Banks: We did not get this mailed, but I am presuming that the water plant that you are talking about is converting deep saline water.

Ms. Anglin: Yes, it is. We call it Debolt water because that is the name of the rock formation that that water comes out of.

Slide number six gives a nice sort of a colour cartoon cross-section of what those rock units are and why the interest in doing something in the subsurface. Now I do not know how clearly you can see the scale on the side, and unfortunately I need reading glasses now so I have to take off my own. The blue unit that goes across the central part of the diagram is the Debolt Rundle formation, we call it.

At the top, you see an area that is shaded pink. That pink area is where this unit carries a lot of water and because it is well below 500 metres — in fact, on this diagram it says it is up to a thousand metres — I think the Debolt plant that Encana and Apache have draws water from about 800 metres — that water is very saline and it is not in any way connected to surface water.

Part of our analysis involved hydrologic flow testing, drill stem testing of the wells that the producers had drilled. This was some of the information that they provided to us. From the chemistry of these waters and the flow rates, we can tell that if they are connected to surface, it is a long, long way away from the Horn River Basin and there is a lot of water in that unit. The Encana and Apache group were then able to confidently invest in that treatment plant. It is also a place where they can dispose of fluids back underground.

You can also see from this diagram that the shales they are actually accessing are at a depth of 2,500 to 3,000 metres, so they are two and a half to three kilometres down. The saline aquifer is over a half a kilometre down. What we would consider surface water, potable water for human consumption, wells drilled for agriculture, those seldom exceed about 50 to 100 metres. If you get below 100 metres, you start to find the fluids are usually increasing in salinity. By the time you reach 300 metres, they are usually too saline for either human or agricultural use. So we are well below that point and we are quite confident certainly that these aquifers are not connected to the surface environment.

Senator Banks: Does that almost vertical line indicate some kind of geological shear or is that just for the purpose of illustration of the two different make-ups?

Ms. Anglin: On this map, that shear, that actually is a big fault. It is called the Bovie Fault and that is what defines the western edge of the Horn River Basin. And interestingly enough, the Liard Basin over to the west, which I think you have heard mentioned a couple of times today, is very similar geology to the Horn River but it is down deeper with some other units near the surface that do not exist in the Horn River and that is a big fault that has down dropped those rocks.

On slide 7, and I have actually already covered most of this, the results of phase one did show that that Debolt carbonate unit did have very good potential. Waters are saline but suitable for use as completion fluid, which the Encana, Apache plant has proven. I understand that Nexen is also doing a lot of research work on using this same fluid for use in their operations.

However, the Debolt formation is not evenly distributed throughout the Horn River Basin. So it will not necessarily supply all of the different producers that are active in the basin. It is more on the eastern side. So on the western side, the companies there are looking at potentially other alternatives for sourcing fluids, water for their activities.

So phase two of what Geoscience BC initiated in the spring of this year was actually looking at doing a regional surface water monitoring program, with new climatology and hydrologic stations. That will help us to accurately assess exactly how much water is there in the specific areas where the Debolt does not provide a good saline aquifer accessible to the companies. This is helping us to quantify what is the water resource in the basin.

We also undertook a very interesting pilot study using airborne electromagnetic geophysical tools to help determine if we can use those kind of remote sensing tools, essentially an airborne metal detector, detects very subtle changes in the conductivity of the rocks or the materials in the ground. We are using that tool to see if we can actually map groundwater in the basin to help companies figure out if there is a very large groundwater resource that they might be able to use.

We are also spending a little bit of effort in updating the subsurface work that we did in phase one because there is additional drilling results that came available to us from the companies, so that has been phase two of our project. All of the work in phase two, as I said, has been cost shared one to one or better with the companies and the groups that we are working with, in the Horn River.

Another thing I should mention though, just before I leave this slide, is, as Mr. Spitzer referred to, we have been very keen on developing partnerships with First Nations as well. A lot of our work is done with highly technical data that requires a geoscience degree or experience, but in the case of the water monitoring program, this was one where we felt there was an excellent opportunity to do some training and engagement of the First Nations. The surface water was the issue that they were most concerned about.

This has been a key part of what David has been involved with. I am going to ask him to say just a couple of words about engaging with the Fort Nelson First Nation and the Acho Dene Koe from Fort Liard and their involvement in that project.

David Molinski, Principal, OnPoint Consulting: Very often organizations will develop a research project and then approach First Nations and talk about how to work with them in delivering a research project, but we started working with the First Nations when we initiated the project. First Nations joined us on developing the project terms of reference and evaluating the RFP responses. We made sure that all of the companies responding thought very carefully about how First Nations can participate in this project.

One of the key elements to deciding which company would receive this contract was around how they would work with First Nations. So the company that we selected, Kerr Wood Leidal, put together an absolutely excellent response. They are in the process now of delivering the project.

A number of people in the communities have been very involved in getting on the ground and helping to develop expertise around doing water sampling projects. We are hoping that as companies continue to do water research, given that we have helped build up a skill level within the First Nation communities, so they will be able to continue to work on these projects going forward into the future. It is not just around participating in one specific project, it is around building capacity to be working in a continued basis around water research which is really important to these communities.

Ms. Anglin: The next slide is a brief summary of some of the work that we have done in what we call the Montney Water Project and that came about after we published the results of our phase one, Horn River project. We were approached by a number of gas producers who are involved in the Montney Basin and several of them were also in the Horn River Basin Producers Group so were quite familiar with what we were doing but there were also a few others that approached us about whether we could do a similar kind of project in the Montney.

The Montney is the area close to Dawson Creek and Fort St. John. The outline on the map is essentially the outline of the area of interest for our project which partly reflected the companies involved and the areas where we wanted to collect information particularly on surface water. Our subsurface component actually covers a broader area but this surface area was the target for our work.

In this case, we partnered with industry, government, including several provincial government ministries, communities, the City of Dawson Creek, and academia, the University of Northern B.C. Two PhD students are working specifically on the Kiskatinaw watershed, which is the drinking water source for Dawson Creek.

And this project was funded a third by Geoscience BC; a third by the Science Community and Environmental Fund, the SCEK fund; and a third by seven separate companies. Essentially we completed the work on those project activities this past summer, and we are now in the process of writing the final report for public release, we hope, early in the new year.

Essentially this project focuses on a number of different aspects. In fact, on the next page, on slide nine, give a little bit more detail of what we did in this project and that was largely looking at information that was already in some way, shape or form in the public domain but was not well compiled or integrated into one central database so that it could really be used for decision-making.

We were looking at all of the information that we could collect on surface water, the topography, surficial materials. We looked at all the information we could get on shallow groundwater. These components particularly involved the Ministry of Environment, the Ministry of Energy and Mines, Northern Health, and what was then Healthy Living and Sport, and I am not sure what the ministry is called now. They were essentially the different agencies that had all of the data sets that were relevant to surface and near surface or groundwater, any drinking water or potable water sources. They all had very separate databases, and in some cases, they were not up to date.

A major component of our project was really helping to bring all those data sets up to date, to digitally compile them so that they could all be integrated into one major data set and make them all publicly available. Most of that data has already been made available through the websites of the various ministries or through us.

Then we also included a deep saline groundwater component for both, trying to identify if there were any good saline aquifers, like there are in the Horn River, and also if there are good sites for disposal of fluids within the Montney play that the companies could then use for their own water disposal. We found basically that there is a lot of water in the Montney, particularly some times of the year as opposed to others. They do not have in the Montney quite the advantage of a Debolt type aquifer. There are some isolated aquifers that look to be very good. We do not have enough data on them yet to know how productive they would be over a long period of time, but there are some that may be there that the industries might be able to use. They are still assessing the results. Some sites may be suitable for disposal.

We have had good feedback from the companies that they have already used the data that we have provided to help them make some of their development decisions.

The communities have been very interested. People in the communities of Hudson's Hope and Dawson Creek, have been very interested and pleased to learn that we have, in fact, through this project, helped update the groundwater aquifer mapping program of the Ministry of Environment for this area. There is still more to be done but it is definitely improved from when we started this project.

Slide number 10, the Northeast B.C. Regional Hydrologic Modelling slide, grew out of the Montney project. When we started compiling all of this information on surface water, which included rainfall, evapotranspiration rates, the climate models for that region, we were able to essentially through a partner in the oil and gas commission, their hydrologist Allan Chapman, develop a simple modelling program for the watersheds. He then proposed to us that this would be an ideal time to apply that model to all of Northeast B.C. because, as I think you heard earlier from Graham McLaren, the other basins in Northeast B.C., the Cordova Embayment and the Liard Basin to the west of the Horn River, are very high potential gas resources.

In trying to get ahead a little bit of some of the development decisions that are going to need to made by the regulator, and the government, by industry, and communities, we have entered into a joint project with the oil and gas commission, and also then the Ministry of Forest, Lands and Natural Resource Operations provided some funding to this as well, to do a regional hydrologic modelling of the 65 or more watersheds that make up northeast B.C. This information is going to help with, again, providing the context for all these water use decisions that the regulator and the companies need to make in terms of their development — how much water is there. What percentage of the water are we actually using?

OGC just let me know recently that their initial analysis, so this is very preliminary information, of the Horn River Basin suggests that if surface water alone was used as the source for water for development in the Horn River Basin, it is going to be less than one per cent of the annual rainfall in the Horn River basin. If the recycling technologies and the deep saline water sources do pan out the way it looks like they will, it will probably be less than half a per cent of the annual rainfall is what would be required to support, I think, a best case scenario for development in the Horn River.

That gives us some quantification of the amount of water that is there. It will not necessarily answer a specific case by case decision of what are the options for the company developing on that site or what are the questions that the community has about the development decisions or the regulator's decisions, but it really helps put all this in context. The results of that project, again I think are going to be published early in 2012. Again, everything that we do, we make public as soon as possible because we consider ourselves to be a public organization. We are funded by the province.

When companies do partnerships with us, we make that very clear. They may have first access to the data, they might get three months of confidentiality, they might get six months, depending on how much money they have put in, but then that is it, it becomes public information and it is available for everyone.

Senator Sibbeston: Do you think it is fair to say and make the case that only 1 per cent of the rainfall that falls in a year would be used? I am just thinking it may not necessarily be an accurate or fair way because 1 per cent does not seem like a great deal, but for a particular area, it might be everything. It may be that you will use all of the water in that particular region. I am just wondering if that is a fair way to put it and may be a bit deceiving to say that it is not very much, but in a particular area, it may be everything and so it may devastating to the area.

Ms. Anglin: No, and you are absolutely correct. As I said, that is the regional context for the basin, but individual development decisions, the decisions made by the regulator and the companies will have to be made on those area specific, case by case details. To give the context for the amount of water that is being consumed or potentially is going to be consumed, that is the results of that phase of the project.

This is where Geoscience BC's effort has been very much focused is in actually trying to essentially do a resource assessment of how much water is there in these areas that are under consideration for or are under development already. We are not involved in the water use decisions, that is the regulator's responsibility, and it is up to the individual companies to decide what techniques are going to work best for them.

I must say, I find it very interesting to hear from Apache and Encana that although that plant cost them $100 million, they feel that that is going to actually save them money in the long run in terms of their other options, either trucking or pipeline, to try to get water from other sources.

Again, the work that we are doing, we are trying to provide the context for government and the regulator and industry and communities to make the kind of development decisions that they are going to need to make around the natural gas development and those responsible decisions.

Your point is very well taken, senator, and those specific decisions will be made on the specific case by case basis.

I am just going to conclude by saying that I think that B.C. has really been providing a leadership role in terms of water studies related to the natural gas development in the northeast. Both government and industry recognize this is a key issue, it is a key question that needs to be answered and understood in terms of developing the gas resource.

I also consider partnership projects to be probably one of the most effective ways to deal with some of these very complicated issues because, from my experience, when you have a group of industry, and government, communities, First Nations, all around the table when you are designing the program and you are delivering the results, the uptake is then much more effective, much more immediate in terms of the results that you are producing and then that helps communicate the results even more broadly.

Then, as I said just a few minutes ago, we provide our results publicly. We feel it is very important that the information that we generate be independent and available to the public so that is the way we have been set up.

Senator Neufeld was a big part of actually creating Geoscience BC in the first place. As I think I said to him earlier today, I was not expecting that we would be doing so much work on water related to unconventional gas development when we were first created in 2005, but I think it has proven to be a very effective model for delivering this kind of research that is really critical to developing this natural gas resource in B.C.

My last slide gives our contact details. If anybody wants more information from Geoscience BC or from me, our website and my phone number is there.

The Chair: Ms. Anglin, that was super. On the first page of your deck, it shows water coming down a river and it looks like there are a lot of logs. I am from Quebec and we have a lot of rivers there too, similar topography. Do you get log jams in these rivers so that they are literally blocked?

Ms. Anglin: Sometimes you do and you get ice jams as well.

The Chair: Well, ice jams are one thing because they ultimately melt and go away. We have had a couple of our salmon rivers blocked so badly by log jams that are maybe two or three kilometres now long and there is so many ecological reasons why the government is afraid to maybe take action to break it up. It is an extraneous question, but do you have any special mousetrap out here for dealing with log jams in these rivers?

Senator Banks: Dynamite.

Ms. Anglin: Actually I would defer that question to Senator Neufeld who probably knows historically the area better than I do. I have only been involved in these projects in northeast B.C. for a few years now and I do not recall any issues with log jams in that period of time, but, yes, I am not sure.

The Chair: Fine. As an observation before I go to Senator Mitchell, about seven or eight years ago, when Senator Banks was chairman of this committee, at one of my first meetings on the committee, Dr. Peter Schindler come and talked to us about water. I think he was presented as one of the leading experts. One of the things he told us was about how backward we are in Canada in terms of not even having properly mapped our aquifers. I was asking myself at the time whether that was provincial or federal and what initiatives are needed.

You have said that what really has happened here in B.C. because the shale gas and the development thereof has become front and centre, suddenly there is great need to have a mapping of the aquifers. So there is a driver and we need maybe to have that driver identified more nationally because clearly, your evidence speaks for itself.

Senator Mitchell: Before I do begin my question, we were having a little discussion about a relative, a distant relative of Dr. Anglin's, who was a speaker of the house.

Ms. Anglin: Not the first one?

Senator Mitchell: He was not the first one. In 1874, he was the second one and then he came back from 1877 to 1879.

Ms. Anglin: I had part of the story right.

Senator Mitchell: Yes, that was pretty good.

The Chair: You Googler.

Senator Mitchell: Yes, I can Google on this tablet.

It is a very impressive and interesting model of doing what you do with this quasi-independent public entity. Again, it involves another achievement or at least the contribution of Senator Neufeld. Do you have a counterpart in Alberta or Saskatchewan that does the same thing?

Ms. Anglin: Not one that is modelled the same way that we are. I mean some of the work that we have been doing is being done by other agencies in other jurisdictions, but I do not think there is another group that is an independent, nonprofit like Geoscience BC

Mr. Molinski: PTAC, the Petroleum Technology Alliance Council of Canada, I believe they are a non-profit that is funded by industry. They are based in Alberta, and have initiated a number of research projects around water.

One other thing we can highlight is that we know that the Canadian Association of Petroleum Producers has initiated a significant amount of work under the area of water as it relates to shale gas as well. They have published shale gas water best practices guides and other documents to help producers develop their initiatives in a responsible way. We have certainly been working with our industry partners as much as possible to help move that forward.

Senator Mitchell: Maybe you do not do this, but one of the issues in fracking is it will crack and contaminate the water. What we have heard today is that, generally speaking, it is done so far below the water table that it is not an issue. Is there a body of work that is being done or already been done on different kinds of shale and how deeply below the water table you need to be? Are there refined tolerances or we say if you are 500 feet below, you are okay, we never go closer than that.

Ms. Anglin: Not that we have been involved in. There may be other studies. Certainly, I think in B.C., the requirement is to not be within 500 metres.

Mr. Molinski: The regulation in B.C., if I can jump in, is that you can may not frac any shallower, any higher up than 600 metres. And companies are required to install surface casing to a depth of 600 metres that are cemented in place. The intent is to protect the surface aquifer.

Senator Mitchell: Okay.

Ms. Anglin: I will just add to that, but the shales of interest in northeast B.C. are much deeper than 600 metres. The ones in the Horn River are 2,500 to 3,000 metres, so they are a long ways away from the surface water.

Senator Mitchell: To pursue Senator Angus's question about mapping, and I know we have had them before this committee a couple of times over the last number of years, it is a federal government department that gets — I think it is maybe 10 million, maybe 20 million a year for this project to map aquifers. Now are you aware of them and would you be supplying your data to them as part of that effort?

Ms. Anglin: I think you are probably talking about the Geological Survey of Canada, Natural Resources Canada. I do believe they have an aquifer mapping program. I think they have been very focused on — and I am not a hundred per cent sure, I am not up to date on the projects that they are involved with — some major aquifers that do supply some major communities like the Oak Ridges Moraine, north of Toronto, some of the groundwater aquifers in Manitoba and Saskatchewan that a lot of people rely on for drinking water.

In terms of B.C., the group that has been primarily doing the aquifer mapping work is the Ministry of the Environment. They had already been doing aquifer mapping in British Columbia. The work in northeast B.C., yes, we have brought some of that work up to date and added a lot of data through the Montney water project that we have been involved with, but it is primarily been within the ministry that they have done that work. They may very well have some sort of agreements with the Geological Survey of Canada. I am just not sure if they are partnering with them right now or not.

Senator Banks: Following up on what you mentioned, Chair, when we followed that study, the report that was highly, abrasively critical of the government because at the time the government had vacated the field largely of water research. Water research in Canada used to be funded mainly by the federal government. It may have been done by some other people but it was funded mainly by the government. Our committee was rippingly critical of the government for having gone away from that and based on the argument that you cannot fix or manage anything if you do not know what it is.

One of the things that we talked about was the fact that the longitudinal studies had been, for all intents and purposes, ended. The aquifer mapping which had been promised to be done in 1992 was not yet done in 1996. They promised, okay, we will do it in 1999 and they did not do it, et cetera. Has that got any better and do you now have a pretty firm knowledge, at least in B.C., of what the aquifers are, both deep saline and otherwise?

Ms. Anglin: I would say we have a better understanding but there is still more work to be done. I should acknowledge, and I forgot to mention this in my presentation, that a significant amount of additional work, in fact, it is almost a phase two of the Montney Water Project is already underway within the Ministry of Environment and the Ministry of Energy and Mines working with the Forest, Lands and Natural Resource Operations. They have initiated some detailed studies in the Groundbirch area and the Groundbirch aquifer. They are doing follow-up work. They are actually going out and collecting data and are going to be adding to the aquifer mapping activities.

I would say there is a lot more to be done, but I think we have certainly moved the bar forward but there is still an opportunity, certainly in northeast B.C., to complete an aquifer mapping program.

Senator Banks: Those departments are provincial departments?

Ms. Anglin: They are provincial, yes.

Senator Banks: So the province is stepping up to take over what once was done and ought to have been done by the federal government?

Ms. Anglin: To be honest, I do not know the history of the aquifer mapping relationships between the province and the federal government, but to my knowledge, it is the provincial government that is mostly doing that work right now.

Senator Banks: If you happen to look at that report, it is called Water in the West Under Pressure and it deals mostly with the prairie provinces, but its point was, which I guess fell on deaf ears, (a) that the federal government had to get back to the business of longitudinal studies and aquifer mapping in particular; and (b) exactly what you just said, doctor, that there is a whole lot of information out there but there is no one place to which it is required to be sent to which researchers can effectively go, so even though the information is not complete, there is a lot more than can be found by going to one repository, so that is exactly true.

If you find an aquifer of non-saline water, is it okay, in your view, to dip into it by means of wells and other things? I am thinking about the Ogallala aquifer in particular which has been significantly depleted by being drained for sometimes commercial use. What is your view of that as opposed to using surface water?

Ms. Anglin: I am sure in many cases, it is probably really the only source of good potable drinking water for some communities, some rural inhabitants. Drilling a water well, by definition, you are drilling into an aquifer.

Senator Banks: Going continually deeper year after year.

Ms. Anglin: It depends on the aquifer. That is where good mapping is a good idea because, just like the work that we are doing on a very regional scale, you need to understand. Is that aquifer replenishing quickly? Is it a local or very distant source? What is the composition of the water in that aquifer? Is it safe to drink? There are a lot of questions about the individual aquifer. Some of them are very locally resupplied, essentially maybe just the snow melt in the hills up behind your property, in which case it is definitely a renewable resource.

Others may be very long lived. It may be very slow to regenerate, but that is where you need to do the research on each individual aquifer to make those decisions.

Senator Banks: Yes, that is exactly the stuff that we do not know enough of.

One final question because I think I understand, but you said in the section of your report on the Montney water study that you are doing now that you are mainly making use of publicly available data, but do I gather that otherwise in respect of the earlier part of your report, you are doing original research or making use of new original research?

Ms. Anglin: Yes, the Horn River Basin work because there was really no historical data in the Horn River, there is only one community, and that is Fort Nelson, and not a long history of data in that area. The companies had not been active in the Horn River for as long as they have been active in the Montney because — and, David, correct me if I am wrong — but there has been conventional development in the Montney play prior to this unconventional type gas play which is in the Montney.

So in the Horn River, there was very little data to rely on for those deep saline subsurface aquifers so that meant that the companies were the ones who had the information that we would need, plus we collected a lot of new information.

Geoscience BC undertook a number of studies of the actual water flow in that Debolt aquifer, the water chemistry, the porosity and permeability in that unit to try and make an assessment of just how much water was there, how large a resource was it, so that was all primarily original research on data provided to us by the companies who were willing to work collaboratively on that question.

Mr. Molinski: I just wanted to add that with the Montney project, we knew that there was a lot of data out there and that it was in different places. Before we get to a point of asking questions around where to collect new data, we wanted to understand what data is out there and then understand what gaps may exist and what pieces we need to fill in and have a bit of a better picture, so it was really a first step of understanding what we are dealing with before moving into collecting new data.

Senator Banks: It is a very good idea.

Compliments to you, Senator Neufeld, for your great foresight in setting this up. Good for you.

Senator Neufeld: Thank you, 'Lyn and David, for great a presentation.

Maybe I should ask Rob Spitzer this but we were running out of time, and I will use the slide that he gave us on a picture of a well and the horizontal leg and the frac. It was five fracs. Do you know how much water would be used in that frac in gallons? Do you have some sense of what that is and what the recovery rate of that water is because the recovery rate is relatively high? Do you have any idea, either one of you?

Mr. Molinski: The latest number that I saw was 4,000 to 5,000 cubic metres.

Ms. Anglin: That is the Horn River Basin.

Mr. Molinski: That is the Horn River Basin frac. Each play is different. The amount of water that is required is different from the Montney.

Senator Neufeld: That is why I sectioned out the five section frac.

Mr. Molinski: Yes. The recovery rate can be as high as 80 to 90 per cent, we have heard, but it is very variable and it depends on the specifics of the formation that they are going into.

Senator McCoy: I also want to underscore Senator Sibbeston's point about one of your analogies about the amount of rainfall. I too had that question, so I appreciated your frank response on that, it was excellent.

I have a really simple question, and then I am really tempted to be a little bit of an Irish leprechaun and ask a devil question, but, first of all, on slide number eight, you make reference to the Science Community and Environmental Knowledge fund and call it SCEK, which is its acronym. And I am curious about that fund. I have not heard of it. So when was it established, who established it, how big is it, et cetera, et cetera?

Ms. Anglin: All very good questions that I probably do not have an answer for. David probably knows more about it.

Senator McCoy: Grant will Google it for us.

Ms. Anglin: Do you know more about it than I do?

Mr. Molinski: I think the senator might also know a lot about it.

Senator McCoy: I do not know. I am curious.

Ms. Anglin: The one beside you might.

Senator McCoy: It might be a nice model actually, so I was instantly drawn to it because it does talk about the community, as well as science and betterment.

Mr. Molinski: I can take a start at it. The fund was initiated by the Oil and Gas Commission which is the regulator of oil and gas activities in British Columbia. It was created through a fee that was collected from companies when they made applications for permits with the Oil and Gas Commission and their other fees that they pay to the Oil and Gas Commission was topped up to a level of around $5,000 and that is where they like to try and keep the level of funding.

There is an annual process whereby organizations and individuals can make applications to receive funding for different projects. Geoscience BC submitted an application to the fund for partial funding of this project and it was approved, so we were very happy. Again, it is 100 per cent funded by industry.

Senator McCoy: Did you say $5,000? That cannot be the total of the fund.

Mr. Molinski: It is $5 million. Periodically as the fund gets used up, they will go back to industry and top it up again and again.

Senator McCoy: Interesting. My leprechaun question is this: often we hear the claim that government is subsidizing the oil and gas industry and that subsidies are okay but we need to level the playing field, which is a fair request. We hear that from more than one interest around the table, and we hear from corporations as well.

Some of the subsidies, I suppose, are pretty obvious. They are accelerated CC depreciation rate, but others are more indirect. One of them is actually in generating information, data, that the industry can use then for making more money. I am curious about your funding sources, most of it comes from the government, some of it comes from industry. So it is a leprechaun question, I mean how do you answer that question?

Ms. Anglin: I have been asked that question quite a few times in different forums. I can tell you how I answer it. When Geoscience BC was first created, the mandate was to attract investment to the province. It was part of making the province more competitive. We wanted to attract investment in mineral exploration. We wanted to attract investment in oil and gas development to different regions of the province. I really consider us an economic development agency, one that works with industry, communities, First Nations and with government, but I do not really see us as a subsidy to industry as much as we are a subsidy to the people of B.C. in that we are developing and attracting investment to the province for the benefit of everybody in the province.

So it may be perceived that we are somehow subsidizing something that industry would do, but in a lot of cases I think we are doing work that is just good public knowledge generation to help the government, to help the communities, to help industry make decisions, and hopefully those decisions will be to invest in British Columbia, so really that is what our mandate is and that is how we are spending that money.

Mr. Molinski: I just wanted to add, you heard this morning from Graham how much revenue the provincial government has earned. An important part of the government having the ability to invest in these kinds of initiatives, like Geoscience B.C., comes from that revenue, in addition to the education and health support that all of these industries help support in British Columbia, I think that we all appreciate every day.

Senator McCoy: There is no question that those are the traditional answers, so I will not push it any longer because our time is limited.

Senator Brown: Dr. Anglin, I have been looking at your slides. On page 6, does that depict a ground fault?

Ms. Anglin: Yes. That sort of almost vertical line to the left is a large fault.

Senator Brown: That makes my question even more important then. If we go to page 9, where you talk about unconfined aquifers and confined aquifers. If I understand, unconfined aquifers are rivers running underground. In other words, they have a source of water coming back into them; if it is pumped out, they still are refilled, is that accurate?

Ms. Anglin: They are connected to surface water, yes.

Senator Brown: Then the last diagram on that page nine shows one that is confined. If I understand the hydraulics of water, it is about the same as the hydraulics of oil, it cannot be compressed. So my question becomes the opposite, if you start taking water out of a confined aquifer, is it possible that it can cause an earthquake?

Some years ago when I was in university, I visited Yellowstone National park. And at that time, the Americans had been pumping huge amounts of saline water into the ground wells that they had drilled to get more gas to come to the top. All of a sudden, it started a whole series of mini-earthquakes that were not great ones but they were very fast. They came 10, 15, 20, I heard one time, 80 times in a single day. The California plate was trying to crawl up onto the plate, I forgot which one it is, underneath it.

The confined acquifer is holding up the ground level. If you were to use water out of that confined aquifer, what would stop it from collapsing and producing its own fault?

Ms. Anglin: A lot of it depends on the conditions of the rocks themselves and how large the aquifer is. There are a lot of different characteristics of the rock units, just like an oil or gas reservoir. Often it is not a big, open space. Often it is a bunch of tiny little spaces that actually hosts the fluid that is within a rock unit.

So there may be a tremendous amount of inherent support within an aquifer that you are drawing water from, even if it is a confined one. ``Confined'' is also a relative term. When we say confined, it means that it is not immediately communicating with surface water. It is actually removed from communicating, either through a fault or through some other channel with surface or near surface water.

So I think you are talking about a very specific case where there might be just a small portion of a unit that has some water in it. Whether that would trigger seismic activity or not, I think there would be a whole lot of different features that you need to know, whether it was an open space and if it is very deep in the bedrock environment. It is not going to be an open space because the pressuring, overpressure of the rock will certainly close some open spaces, though rocks are very strong.

Rob Spitzer showed the two examples of where the conventional oil and gas play will come from and where an unconventional oil and gas play comes from. In the conventional ones is a whole lot of open pore space, but those are still really, really strong rock materials that are not crushed, whether there is the fluid in that space or not. So I am not sure, there might be some cases where that would happen, there would probably be a lot of cases where it would not, so it would depend on the rock itself and what the structural features were.

Senator Brown: I know you are talking about the rock. I am actually concerned about the water because, from what I understand, water is not compressible. You can take a hydraulic jack and let all the oil out of it and fill it with water and you still have a hydraulic jack which you lift tons and tons but we do not use them because if you put water in a hydraulic jack and it freezes, it will break it open because it expands but it will not contract. It is hydraulic.

Is why I am saying if you made an empty cave in this confined space, what is it that is going to hold it up? I mean, sure, there is lots of rock there, but just a little bit of vibration would let it come down, and that is what I am asking about if anyone has done any research on that.

Ms. Anglin: We certainly have not. I have to admit that is not really my area of expertise. I am not sure how much research has been done in that area. I can check and try and find out for you if you would like to know.

The Chair: Sure, that would be fine.

Senator Sibbeston: In terms of your study and trying to find out about water beneath the ground, you obviously need to drill, do you really depend on all the oil and gas companies for their drilling information to find out as much as possible about water?

Ms. Anglin: That has been a source of a lot of our information about the deeper water sources, yes, that has come from data that the industry has collected. And I think they have to provide that information to the regulator as well. Those are public data sets in much of the province.

In the Horn River, some of those data sets were still confidential when we were involved with the companies but they shared them with us and then they ultimately will also become public.

For the near surface water, those are often data sets collected by either Northern Health or the Ministry of Environment on water wells that have been drilled for communities or for agricultural purposes or for individual drinking water wells. The information that we used in that Montney water project came from a lot of different sources.

Senator Sibbeston: Do you get into the business of drilling and finding out the situation regarding water beneath the earth?

Ms. Anglin: We have not yet. We did actually fund some studies done on water wells that companies had drilled. As I said, the Ministry of Energy and Mines and the Ministry of Environment are involved right now in a project that is going to be drilling some groundwater monitoring wells in Northeast B.C., but so far Geoscience BC has not been involved in actually doing any of our own drilling.

Senator Sibbeston: Would you say that in order to know the situation with respect to water beneath the earth, you really need to have some drilling done and so otherwise you would not know what was way beneath the earth, so you really depend on the industry as it were to drill in order to find out what the situation with water is?

Ms. Anglin: The industry's data and any information that we can get from anybody who has drilled a water well, that is where our information has come from, yes.

Senator Sibbeston: When I think of water wells, I think in the North where I live, you just dig down 20, 30 or 40 feet, that is the extent to which water wells go. We do not have the type of water wells that exist in the South where it is done by machines and little pipes. So in the North anyway, there is no knowledge beyond 20 or 30 feet into the ground so there is no knowledge with respect to water beneath the earth.

Ms. Anglin: Yes, then in that context, I would suggest that if you did want to get some accurate aquifer mapping done of the drinking water aquifers then you probably would want to drill some deeper water wells. If you were looking for the deep subsurface saline aquifers, that really will require information coming from the industry or a lot of money for research drilling because they are deeper, much deeper wells.

Senator Banks: I presume that when you get grants for projects that are specific, you spend all that money on that project. The $25 million that you got when Senator Neufeld was the minister, did you spend it? Are you spending it or did you put it away and you live on the 1,075,000 you can get from —

Ms. Anglin: No, we pretty much spent it, which is why we have gone back to the province a couple of times to say if you like what we have done, we are happy to do more but we will need some more funding. We have been very good at spending the money. I am trying to remember exactly how much we spent, very close to, I think, $35 million or $36 million and then we are just about the end of the initial two grants and that is why we got an additional 12 million this year to carry us forward another couple of years so we can continue with another two years of projects in northeast B.C. and continue with our mineral exploration and geoscience projects as well.

The Chair: Dr. Anglin and David Molinski, thank you. It was really interesting.

We have one witness left, a gentleman who has been very patient.

Mr. Weedon, if you would like to come forward, sir.

Michael Weedon, Executive Director, B.C. Bioenergy Network: I have a daunting task because I am last on the program here.

The Chair: Well, you may be last but you are not least.

Senators, we welcome Michael Weedon, Executive Director of the B.C. Bioenergy Network. He has held senior finance and general management positions in industry with over 25 years experience with large corporations including BF Goodrich, Sherritt Inc., and the Loewen Group, Inc. He has a BA from the University of Toronto and an MBA from the University of Western Ontario. More recently, as a consultant in the environment sector, he has evaluated a number of alternative energy technologies including many in the bioenergy area. In addition to being executive director, Michael is also a member of the board of the B.C. Bioenergy Network.

Mr. Weedon: I would first like to thank the standing Senate committee for inviting me to appear at this hearing as a witness. You have described my background.

About 10 years ago, I left the world of large corporations and have since exclusively worked on environmental and clean energy technologies. Three years ago, I joined the B.C. Bioenergy Network as its Executive Director.

I am passionately committed to the rapid transition to clean, sustainable energy sources. I am seriously concerned about the impact of carbon dioxide, sulfur dioxide, nitrous oxide, mercury, and other pollutants released into the atmosphere by our fossil fuels. We must change our ways.

Senators, I wish to accomplish three objectives in my formal remarks. First, I would like to outline the activities of the B.C. Bioenergy Network, as we are a living example of clean energy development in B.C. Second, I will outline five high level problems associated with energy production and use and then describe to you 10 opportunities for action. Finally, I will conclude with an appeal for additional funding for this sector and be so bold as to request your support and influence for federal funding to match provincial funding for our not-for-profit already committed to by B.C.

If we move to slide two, developing B.C.'s and Canada's bioeconomy and sustainable clean energy is a huge challenge. It requires assertive companies, creative communities and visionary policy, leadership and support. It is not without challenge and some risk but the benefits are numerous: jobs, economic and social development, environmental benefits, clean energy exports and income in rural communities.

I am privileged to be part of accelerating the clean energy industry in B.C., to rapidly reshape the energy industry. We have proven to be an effective catalyst in providing strategic leadership and support to the sector here in B.C.

Slide 3, the emerging bioeconomy relies upon development, integration, and the best utilization of feedstock. We now realize that cheap, abundant energy is a luxury of the past. And pollution and greenhouse gasses cannot be permitted to continue to be emitted unabated. In fact, they need to be reduced. We need to act now.

To compete in this industry in the future, you will need low cost feedstock and clean emissions. The bioeconomy will first flourish using the lowest cost feedstock, in some cases those with a negative cost such as municipal wastes. Other low cost nearby and easy to collect residues, by products of other activities, agricultural, animal and crop wastes, solid wood residues at mills, pulp and paper sludge, and forest residuals will next be utilized to generate energy.

Here in B.C., we have to be very creative, given the abundance of energy resources and the very low cost of electricity and natural gas that we enjoy so that only the very best technologies, infrastructure and feedstock are combined to be economically sustainable, competitive and affordable.

Slide 4. Let me, please, tell you about the B.C. Bioenergy Network. It is an organization, a direct result of the B.C. province's energy plan and bioenergy strategy. It was founded in March of 2008. It is a not-for-profit society with a specified bioenergy mandate built into its governance structure. The society was started with a $25 million grant from the B.C. Ministries of Environment and Energy, Mines and Petroleum Resources.

We have been effective because we have had a clear mandate, a small industry led board and real resources to deploy. We use the discipline of the investment banking industry in assessing competitiveness that combines financial and environmental returns with partnering and collaboration in our decision-making. We believe, as you will soon observe, that we delivered great value for money, leveraging and partnering our resources in projects with teams and collaborations capable of expansion and replication.

Slide 5. In terms of our mandate, we focus upon three activities. The first and where the majority of our capital is deployed is in high quality bioenergy investments. We now have 10 large projects averaging $1.1 million each.

We also invest in capacity development, co-investment with other organizations, 11 projects where we work to develop projects, conduct research or establish platforms.

Finally, we support education and advocacy, holding and sponsoring conferences and regularly speaking at various forums and workshops.

Slide 6. In three years, BCBN has made strategic investments, fulfilling its mandate and stimulating the bioeconomy in B.C. BCBN support of these projects has also encouraged other organizations to become partners or co-investors. Every dollar committed by BCBN has brought in almost $6 in additional funding. In all we have invested 12.5 million by way of grant, loan or equity, a total of 74 million in capital projects. Of note, we have a strategic memorandum of understanding with Sustainable Development Technology Canada and work with Natural Resources Canada where we have joined forces in conjunction with the private sector in funding five of these projects, of our larger projects involving 50 million in spending.

Slide 7. The next chart highlights the names of these larger investments over time. We can turn to these projects later if there are any questions.

Slide 8. In summary, BCBN is creatively building on its strengths and successes to date, addressing issues and opportunities that have global significance by way of local action in B.C.

Slide 9. As the Senate committee knows, our society in Canada and globally has many big problems and challenges and here we have identified five large ones related to energy. We focus upon and need solutions to these problems.

Slide 10. Fortunately, these problems can be and are being addressed by innovative companies and communities in B.C. These projects provide opportunities for BCBN to support and promote the valuable work in which these companies and communities are engaged. We have listed five such solutions for your consideration. We need to aggressively act upon and support solution and investments which address these problems.

Slide 11. We have identified 10 opportunities for action for your consideration. These are not necessarily listed in priority but we have characterized each for your review.

Slide 12. The first opportunity, the most important initiative today, is to utilize waste streams to displace fossil fuel. The installation pictured is Cedar Road Bioenergy Centre at the regional district landfill in Nanaimo on Vancouver Island. The district was previously flaring landfill gas destroying a greenhouse 21 times more potent than carbon dioxide. B.C. Bioenergy supported a local entrepreneur who is now using this gas as a fuel for two G.E. Jenbacher reciprocating generators to produce electricity for B.C. Hydro, enough for 1,200 homes in the community. Twenty municipalities can benefit from this landfill gas utilization technology in B.C.

Slide 13. The second opportunity is promoting torrefaction, the pre-processing of wood at elevated temperatures in the absence of oxygen to increase energy density and reduce logistics costs. This is a very promising technological development with huge potential, in particular for B.C. which has been described as the Saudi Arabia biomass capital of the world. Currently B.C. is the host to 17 wood pellet plants involving 2 million tons of capacity, largely shipped to Europe. This industry is closely following the development of torrefaction technology for a more efficient and competitive form of solid fuel. Commercial torrefaction plants are currently being commissioned in Europe, Canada and the United States. We understand 15 sites and 2 million tons of torrefaction capacity are being considered at a capital cost of $50 million in B.C. to replace coal used both domestically and in export markets.

We have recently been exploring joint efforts to develop the torrefaction industry with interests in Korea and China given these nations' appetite for coal and ironically clean technology. Such interest is greatest with Korea who has legislated renewable energy standards for its coal utilities.

Slide 14. B.C. and Canada have few operating district energy systems. This situation will change dramatically over the next few years. We are just getting started with this very appropriate distributed biomass energy heat solution in resource and residual abundant communities. We are aware of 25 district energy projects in B.C. progressing or being considered at this time at a capital cost of approximately 150 million.

Slide 15. Opportunity four. BCBN is working with the Kwadacha First Nation to help them select, install and commission a woody biomass combined heat and power system to displace diesel and propane consumption. This project will be a model for similar off-grid communities throughout B.C. and across Canada. We have 60 communities in B.C. alone where a CHP can be built at a capital investment of at least 160 million.

Slide 16. There are several ground-breaking thermochemical biorefining projects underway in B.C. These projects are extracting high value chemicals and fuels using woody biomass instead of hydrocarbons as feedstock. These technologies hold tremendous potential.

We may very well be at the very early stage of an energy revolution as both thermochemical and biochemical energy development progresses. As we saw Steve Jobs and Apple develop the personal computer and create a new revolutionized, distributed and portable computer industry, we will see small scale distributed energy systems evolve rapidly. We urgently need and must support the development of stand-alone distributed energy systems. In addition, we need to ensure these developers have access to our electricity, transmission and gas distribution systems on an easy and open basis and eliminate bureaucratic and institutional barriers to assess existing public owned infrastructure.

Slide 17. Biochemical pathways, using microorganisms to generate energy and specialty chemicals offer promise and here are two outstanding projects underway in B.C. These technologies can build upon the existing infrastructure, such as the assets and waste residuals that are part of the pulp and paper industry. These are game changing, large scale industrial opportunities.

Slide 18. Opportunity 7. One of the most important aspects of bioenergy is the feasibility of systems that are relatively small in size. This makes community-based distributed energy projects, biofuel processing and biorefining both viable and attractive. Here are two projects, one small scale and a larger scale facility where manure and high value food processing waste is anaerobically transferred into biomethane for local heat, electricity generation or gas distribution.

Slide 19. Opportunity eight involves the promotion of low cost drying best practices and technologies to enhance feedstock supply and reduce costs. It's sad to say but we waste a great deal of energy in terms of our energy systems and their feedstock usage. We must focus on using energy wisely. Wasting energy and energy resources is inexcusable.

Slide 20. Climate change has already had a major negative impact upon B.C. Perhaps this has been one of the reasons B.C. is a North American leader in its carbon policies. It is not too late to exploit the abundant under-utilized woody biomass with attention to wasting stands of mountain pine beetle, integrating fire mitigation and suppression strategies for community energy or solid fuel opportunities. Then we must reforest to generate a renewable resource.

Opportunity 10, the next slide, the name of the game when it comes to bioenergy is integrated resource management. This type of thinking is required for long-term success. The integrated energy and chemical industries are masters here. But others can copy this thinking as evidenced by British Sugar, an agricultural food producer, who extended its sugar beet factory in the U.K. to include a bioethanol unit, as a model for its plants around the world. I am told they optimize and utilize everything in this facility, an engineer's dream, including utilizing pebbles found in the incoming sugar beet for resale.

I am pleased to see the recent embrace of this thinking by the forest products and municipalities in B.C. where a recent survey we conducted identified 1.1 billion in planned spending in bioenergy in B.C.

Slide 22, well, we are off to a good start. However, much more needs to be done, larger amounts of money will be required and there needs to be stronger cooperation between the private sector, communities, all levels of government and the emitting industries responsible for the big five problems. This is the motivation behind the clean sustainable bioenergy initiative, the collaboration of several sectors of society to develop solutions. This effort should be part of an integrated strategy, both national and international in scope, involving producers, consumers and those with a passion to develop a clean energy future.

Slide 23. In closing, I thank the Government of Canada and the standing Senate committee for this comprehensive investigation on the current state of the future direction of Canada's energy sector. We pledge our full support in helping this committee complete its evaluation and hope to be a recipient of funding which can further develop and build upon the leadership and financial commitment already made by the B.C. government.

The Chair: Mr. Weedon, you certainly went through a wealth of material in record time. You started off by saying, and I want to ask you about this, after all these years you spent in industry and big companies and business background, you got the message. You became a passionate believer in the need to convert to a sustainable and clean energy system. There is a colloquial term about drinking the Kool-Aid but I am not interested in that, but when and how, what turned the light on for you?

Mr. Weedon: Well, it really was in my last assignment in the chemical industry where I was responsible for dealing with a heavily contaminated site. We spent millions of dollars in this site to meet the Alberta regulatory requirements. We did it well, but it was a very expensive process. At the end of the day, we met the regulatory limits and we were putting back water into the Fort Saskatchewan River and it met all the requirements, but there were still a little bit pollution in what we were putting back. It was not down to zero.

I approached our chairman at that time and I said let us do something better than the minimum. Let us try to go beyond this. We put a quarter of a million dollars into a little experiment. We put a greenhouse in the back of the chemical plant and we polished the water that we had already treated and it was meeting standards. We could polish it completely, no pollution. We, at that time, ended up discharging water into the Fort Saskatchewan River that was cleaner than we drew from the river as a coolant.

So I learned, through that experience, that the environment and nature can be your friend if you treat it right. In fact, in many of these technologies that we are looking at now using woody biomasses and torrefaction material, the pollution from that as compared to coal, it is miniscule, so you do not need the big expensive clean ups. Those are some of the things that are going to drive the change of the industry forward.

So I had it first-hand and fortunately, I passionately am concerned about the atmosphere and what we are doing to it and so I decided to devote sort of the remainder of my career to that task.

Senator Banks: In that respect, would you tell us, were you at Dow or were you at Sherritt?

Mr. Weedon: I was at Sherritt.

The Chair: I want to congratulate you for that, sir. I think it is a great thing. We have been seeing, as we have gone along, that most businesses that do take steps to become more sustainable and have more green processes are finding that it flows directly to the bottom line and that the payback is quick.

Mr. Weedon: Absolutely.

The Chair: You have found that and you see that regularly?

Mr. Weedon: Yes. Not in all cases. We do not tax pollution right at the moment or not in very many jurisdictions around the world.

Mr. Weedon: I believe that all the countries in the world need to band together. We have to put a price on carbon or a price on pollution because it is not right that we continue to undertake these harmful practices.

Senator Mitchell: I am pushing this climate change action every waking moment, and I really believe that we are just not doing enough. We just have not had the leadership at the levels that we need it. Why do you think that is? Why is it that we cannot seem to get the attention of government to really be aggressive about dealing with climate change?

Mr. Weedon: It is because there is not the collective will to do it yet. In B.C., we have stepped out with policies and I applaud the government for the leadership that they have taken and it has prompted a lot of change. When the rest of the country or North America does not participate in that process, then you got to worry about jobs and you can push it only so far.

So what that means for us, agencies like us, we just have to look for the very best opportunities and sit on the sidelines until someone wakes up.

I went to Korea and Beijing to test the waters there and to investigate whether there was the will to adopt this new torrefaction technology from some of the coal utilities. I had some meetings and I was reasonably aggressive, and I am sure 10 years ago I would have been thrown out, but I got an audience. I mean those countries know that there are big problems.

When I was in Beijing, you could not see across the street and not all that is CO2, it is other factors that they face, but they know they need to find solutions. I talked to a school teacher in Beijing who said that often the particular count is 200 parts per million. The regulatory limit for exhaust emission for a bioenergy plant in the Lower Mainland is 18 parts per million. They would shut down the schools.

So there is an awareness in these emerging nations. I guess they are not there yet and they are trying to catch up to our standards of living and maybe they deserve some.

We really need to collectively find a framework where we can invest in these things. We need some leadership at the U.S. federal level, the Canadian federal level and we need China and India to be part of it.

Senator Mitchell: You can certainly make the case that we would not have had the oil sands or we certainly would not have had them as quickly as we had them if it had not been for government investing in them seriously and in an ongoing way. They have and they do.

I am intrigued by your point about district energy getting more attention. You are saying it is not getting very much, but I think the word you used is that is going to change dramatically. That is music to my ears. Is it because it is becoming commercial, biomass driven district energy systems or is it because people are just going to see the light and say we have to do something?

Mr. Weedon: Well, it is moving ahead in B.C., partly because of the signals that have been provided by B.C. and the climate action plan and the community planning that has gone on. We have tried to support that with a lot of education and development.

Before using biomass as heat, this technology is all developed. Advanced combustion is available and is cost effective. They have been doing it in Austria for 30 years where they have over 1,600 district energy systems, now slightly more compact communities and so on, so you cannot apply everything across the board, but 30 per cent of their heat needs in that country are made from woody biomass. They have sustainable forestry practices. They cultivate their forest and every piece of wood waste is seen as a valuable resource.

We can do these things if we have the will. We have to educate, we have to share information. We have got a nice start here in B.C. and some of the signals that we have had in terms of carbon tax. I know that cement companies now have to look at alternatives because they want to lower their costs. Well, that is great. It helps these projects and it opens people's eyes.

Five years ago, I would not have believed that you could have a torrefied wood product that actually would be a potential coal substitute but it is. It is viable in certain circumstances and we are going to see that. We are going to see a new industry, in my view, but they all take money and everyone wants to be first to be second when it comes to new technology development.

, I am very grateful for the money that we have, but in the total scheme of things it is small potatoes. We need to have people that are more aggressive and putting more resources to these things, which, in my view, we should not be hanging our hat on carbon C frustration. That ultimately may be another subsidy to the traditional fossil fuel industry because what are you doing, you are producing CO2, where are you going to put it? Well, I am going to get more oil out of the ground. I mean I think that we need to do research in that area but we should be doing a lot more research in other areas in my view.

Senator Mitchell: I think so too. I supported the government's ethanol fuels bill several years ago. And there was a lot of criticism of that bill because it was burning food, but I have always believed that we have got to start, we have got to start doing things. We would kick start that and then we would move on to not burning food to create ethanol and other fuels. You have listed ethanol here. Have we made some progress in that respect?

Mr. Weedon: Well, first of all, the agricultural debate, we should be using the residuals. We need to be thinking about this on an integrated basis. There is going to be a limit to the use of agricultural residuals as compared to forestry residuals. There is a lot more carbon, a lot more energy value locked up in woody biomasses. It is more efficient to be able to collect.

So there is work underway in cellulosic ethanol. We have made one investment, one major investment in a company called Lignol. There are others. I am aware of technological development that is very promising. So I think it is coming, but I think it will be on maybe a more strategic application and use of residuals and waste materials.

With regard to some of our farms that produce wine, and so on, sugar-based materials or waste materials can be utilized to make ethanol. Let us start where it is easy and develop the technology and then go to the hard stuff.

Senator Massicotte: Mr. Weedon, you received $25 million.

Mr. Weedon: Yes.

Senator Massicotte: When was this?

Mr. Weedon: March of 2008.

Senator Massicotte: You have invested approximately what percentage?

Mr. Weedon: Twelve and a half.

Senator Massicotte: So half approximately. You are basically doubling the investment with copartners.

Mr. Weedon: More than six times.

Senator Massicotte: All of these are profitable investments?

Mr. Weedon: It is early days, it is three years. I would say of the 10 projects, we have got 10 successful prospects, a couple are proven projects, highly successful that have achieved their objectives and have moved on and built companies. Others are still commissioning and developing their projects. I mean we try to invest in the most promising technologies, but I would say of every one of our projects, there has been a risk element in each. What we try to do with our board is inform them of the risks and then the money is there to be spent. It is not there to be locked up in a bank. It is to be used for a useful purpose.

Senator Massicotte: Your co-investors obviously are interested in the profits. I presume the next phase is for private companies to do this fully on their own. If it is profitable, I presume capital will be allocated to it by the private sectors, is that the next step?

Mr. Weedon: Yes, that is the model that we have selected. We will take the demonstration phase. Our investment criteria sort of straddle STTC's model which is demonstration phase projects. The B.C. government's ICE, Innovative Clean Energy Foundation, deals with full commercial demonstration projects. We straddle both of those investments. Our idea is to support a project that will prove out its financial and environmental efficacy so that it will grow up on its own and that requires attracting private sector capital after the day and investing in good teams and good technologies.

Senator Massicotte: Talk about biomass, I do not know much about this, but the reason biomass is deemed to be green is because over its full life a tree will absorb and release as much CO — it is an equation that comes out to zero. In other words, when it grows up, it absorbs. But the biomass you are talking about, it actually releases CO. It is a zero sum gain over its whole life, so we are saying that is green because over its whole life it is back to zero, is that my understanding?

Mr. Weedon: That is correct because you will replant or reforest and you will have a sustainable renewable process.

Senator Massicotte: I read some articles a couple of weeks ago from some environmental experts, I forget who it was, they were basically saying is that is okay we agree with that, what you just said at zero, but only if it is used in a plant nearby. In other words, they seem to be changing their opinion on the issue. It is only good if it is used by the plants that is near creating it and not the case when you are transporting the biomass, say, to Europe, which is, I think, nearly your most significant customer for biomass in your province, is that correct?

Mr. Weedon: That is correct. Most of the pellets industry goes to Europe. You need to do a full life cycle analysis on all these projects.

Senator Massicotte: Why do they have that opinion? Is it because of transportation cost and the pollution from that transportation?

Mr. Weedon: Those are both economic barriers and environmental, it makes it not as environmentally appealing. That is why we focused on this torrefaction because we can increase the energy density, move double, almost double the amount of material. If you are doing it in the ocean, it is a pretty efficient way of transport, believe it or not, as compared to a truck. So you have to do the full life cycle analysis.

In terms of our decision-making criteria, we will look at the economic factors of a project but we also look at the environmental project aspects. And if there is not an environmental improvement, we will pass on that investment. I mean that is for someone else to take.

Senator Massicotte: Biomass that is shipped to Europe is very favourable to the environment, even in consideration of the full life cycle.

Mr. Weedon: Yes, it is today, but it will be far more favourable if we work on advancing the technologies further. However, if you use that energy source locally, you have got a superior environmental output.

Senator Massicotte: On that question, why is there no significant customer in Canada and why is Europe the customer?

Mr. Weedon: Europe has adopted a number of enabling technologies, feed and tariff technologies, regulation and badgering. I mean they have a very favourable environment. If we had the pricing regime that existed in Europe, we could do a lot more here in B.C. and sort of one of the challenges that we have with our organization. But electricity is far more expensive, 22 euro cents a kilowatt in Europe. We are dealing in B.C. here with nine cents, ten cents is the rate and sometimes it gets a little bit higher. But they have a far more favourable environment.

They have taken the leadership position that we need in North America. All those European countries have bound together and they have made a pact that they will advance and develop these technologies so that they are not putting their industry at risk. They have to make action and that is what we need on a global basis.

Senator Massicotte: But in that case, the reason it is profitable is because the comparative pricing is so much higher. There is no subsidy directly to the biomass producer in B.C. even if they export it to Europe, is that accurate?

Mr. Weedon: That is correct, not a subsidy. I mean there is this emerging cap and trade market, small dollars at the moment. It really is not going. There is some potential access to those values that will help these new technologies.

Of course, we have the carbon tax here in B.C. that works for consumption of displacement of fossil fuel intensive or carbon intensive fuels like coal 2.7 times. The time you can replace a torrefied product for coal, there is 2.7 times the CO2 admitted, and there are other environmental benefits. Using wood biomass, it is far less sulfur and far less mercury. I mean there are trace elements of metals that have uptake in the bark of wood but minuscule compared to coal.

Senator Neufeld: Thank you, Michael, for being here. This was another part of the 2007 energy plan, the bioenergy strategy that we started.

I am going to take you back to slide 16, and maybe I misunderstood you, I am very familiar with Nexterra syngas and those kinds of things. In fact, many of the things that you brought up here, I am familiar with. You said there was some difficulty with utilities or regulations. You went on a little bit there and I am just not quite sure what you mean. Maybe you could explain that a little bit more for me, please.

Mr. Weedon: Well, the two major distribution systems in B.C. are BC Hydro for electrons and Fortis B.C. as it turns to natural gas distribution. It is about being able to enter into contracts in a timely basis; many of these new technologies are small. You heard Mr. McInnes talk about some of the bigger projects that he is involved in and they took four years and $4.5 million. These new technologies cannot afford that slowness in decision-making, not if you are going to do it on an efficient basis.

Most of the technology and innovation are being developed by smaller companies with limited access to capital and that is why the B.C. Bioenergy Network, the ICE fund and the STTC, they really help these, and Arcan does as well. So it is just we are working with Hydro, we are working with Fortis B.C., we have MOUs with both. When it comes to these projects, we want to make it like hooking up to BC Hydro, like plugging into the wall, very easy and simple, right.

Senator Neufeld: Why do you not go in the feed-in tariff; that is what it was designed for? In fact, I was there to design it. That feed-in tariff is up to 10 megawatts where you can get the best price from the last bid by people like Donald McInnes. You can get that price and you can feed right into the system if you are by the system. If you are a long ways away from the system, that is a different story. I know where Nexterra ran their initial things in Kamloops and they are right close to the grid. Tell me what is the problem there because that reduces hugely. I mean you do not run into that four year stuff, so tell me, what happens there? Why not?

Mr. Weedon: Why not? You need to focus on the technologies that have access to a distribution system and can hook up on an economical basis. One of the reasons we have been focusing on First Nations communities, they are generating energy at 50 cents a kilowatt. These technologies can work in that economic environment. They cannot work at a two cent kilowatt historical legacy rate at UBC.

Senator Neufeld: It is not two cents, so do not confuse the issue. It is more like about nine cents.

Mr. Weedon: Well, nine cents works. Nine cents is good if it is working.

Senator Neufeld: Well, nine cents works because that would be the last bid. In fact, Don McInnes just confirmed that. So I think there is a way forward there that I am surprised you have not looked into because that has been there for quite a while.

Secondly, when you talk about leadership, you have to get better leadership to get some of these things happening. I will give you an example, municipal waste, and you talked about municipal waste. Vancouver, the Lower Mainland, creates a huge amount. They haul it all the way to Cache Creek through the Fraser Canyon by truck to bury it for future generations to look after because it will be a problem.

I mean when you talk about leadership, I tried for years to get Vancouver to look at burning it and generating electricity. They have a small plant in Burnaby. The public will have nothing to do with it, so it is not just the leadership. It is the public that says no in that particular case. A huge amount of electricity could be generated with municipal waste. With today's technology, and you know this better than I do, you can have almost zero emissions from that.

It is not just leadership from on top, you can provide that, but you also have to get the buy in, do you not?

Mr. Weedon: There is no question that there needs to be public consultation with the use of all this technology. The technology selection needs to be appropriate as well. I do not think you can get a combustion system in the Lower Mainland past the public at this point. I have been at the meetings.

Senator Neufeld: You can make the regulations but you cannot make the public.

Mr. Weedon: Right. However, Senator Neufeld, there are technologies and we have just invested in one, we have brought in a best in class technology from Europe through a private sector provider. He is going to take food waste and some wood residuals and they are going to make biomethane from that in a controlled, environmentally responsible way so that we do not have to deal with the concept of incineration.

However, we do need to educate the public a lot more and that is starting. UBC has been helpful. UNBC is another in the north. Pollution abatement technology for the advanced technologies have improved a thousandfold over the last 30 years. So when the public here thinks of, oh, that particular matter, smoke in the sky, you do not need that. These are affordable technologies today. So it is a big job. It is a big job. Many people need to be involved.

Senator Neufeld: One last thing, you never mentioned anything about UNBC. Can I ask why? UNBC with its whole bioenergy effort, or maybe I missed that. If so, I am sorry.

Mr. Weedon: I am very familiar with UNBC. We, in fact, supported some activity in Prince George and have a relationship with UNBC. We have not invested in a physical project at UBC yet but we have invested in other support mechanisms and we are working with them.

Senator Neufeld: Good.

Senator Banks: You will recall when we were in Yukon when Senator Lang was with us and we saw what I think was for the most of us, excepting him, for the first time the commercial common domestic use of wood pellets and home heating.

The Chair: That was in Halifax. I have never been to the Yukon.

Senator Banks: Oh, you were not with us. When we were there, we saw for the first time that normal people were heating their houses using wood pellets. Yes, that is right. That had never occurred to me before in my life. What is torrefaction? They may have explained it to us at that time but I do not remember. What do you do to wood to make it do what you said it does?

Mr. Weedon: When you torrefy a material, you put it into — and there is 30 different ways to do it, but you raise the temperature of a material between 200 and 300 degrees in the absence of oxygen. What will happen is there is three fractions. There is lignan, cellulose and hemicellulose. The hemicellulose starts to turn into a gas. That gas can be used as the heat source for heating the temperature up.

Senator Banks: It gets captured in there somehow.

Mr. Weedon: Yes, you will use that as the gas to heat your device, to raise its temperature and it turns into a char. You can have lightly torrefied product or heavy. It is like coffee, different blends. The most promising technology is a light torrefaction. It turns the wood into a plastic type material and then it becomes hydrophobic and you can ship it like coal. It will darken. It loses a little bit of its energy value because you use it up to transform the product.

But if you look at the oil industry, we do not use oil right out of the ground. We do stuff to it to increase the energy density and make it appropriate and we need to do that.

Senator Banks: Well, it is certainly better than burning wood.

Speaking of cellulosic stuff, Iogen is another company in which the federal government has invested a lot of money. I think the bloom has kind of gone off ethanol as the be all and end all answer to everything, but do you agree that if we are going to bother with ethanol at all, it ought to be cellulosic ethanol as opposed to the other kind?

Mr. Weedon: I think that is where it will first develop, but if I am a province and I do not have any wood resources but I have got agricultural resources, there might be an appropriate solution for that province to use those residues.

Senator Banks: There is. I mean with straw, there is leftover after a wheat harvest.

Mr. Weedon: That is great as a residual. Then it just comes down to economics, the cost to collect and then to transform.

I have read a recent report on a study in Minnesota done on corn stover, which is the husks.

Senator Banks: The husks are cellulosic.

Mr. Weedon: Yes, the husks are, and that was for torrefaction. I am just saying there is another solution. Your question was ethanol.

Senator Banks: Yes.

Mr. Weedon: I think there will be solutions with agriculture residues but I think other applications will get there first and other biomass sources.

Senator Banks: Yes, you are right about the distance thing. Somebody is building a working ethanol plant and they determined that they can only afford to collect stock within, I think it was, 60 K or 100 K or something like that.

You said that you are going to continue to make major capital investments and then you said you are going to make formal request to the provincial government for an incremental of $25 million, I presume that the first thing is conditional upon the second thing?

Mr. Weedon: Well, we have received $25 million and our board has asked for a plan to deploy that capital over a four to a six year period so we will do that.

If the province or federal government wants to continue this type activity, it requires funds. We are saying if you like what we do, please provide us the support before we get to the very end and then dismantle the model that we have put together.

Senator Banks: Your last note is the most courteous ask I have ever heard, the federal government is welcome to match funds committed provincially.

Thank you very much for that invitation, Mr. Weedon.

Senator Brown: I agree with the experiments that you are doing and the fact that they will make a difference. Members of this committee went to a place just outside Ottawa. They were using a form of pyrolysis. You start a fuel cell with propane and you heat it up until you get it to 500 degrees and it takes all the plastic and the paper and it makes it into methane. It is a kind of gas. Then it takes crazy things that people put in their garbage, like washing machines and barbecues and old washers and refrigerators, and they actually take them and they grind them up into small pieces of metal and then they put them into — if I remember, the fuel cell, which was well over a thousand degrees. They are vaporising everything in there. The products they use for pavement and stuff that come out. The only thing they cannot get rid of that is useful, they put the sulfur back to farmers to use it for fertilizer, but they end up with a little tiny bottle about the size of this glass that is particles that come from the batteries we throw away, whether it is our cellphones or batteries for things. So it is very successful.

My point is that maybe we cannot push things but we can use them and it is kind of a see it and believe it. We took that to Alberta and I think the plant is being built right now in Red Deer, unless I am mistaken, I know it was supposed to be. Last time I talked to the fellow that sells them said that it was starting.

Then we have examples like the ethanol thing that went big time in America, a lot of corn people started using corn for ethanol fuel. The mistake they made was they said, well, if you put a couple of per cent of ethanol in, we will call it ethanol. So they were pretty ingenious. They were putting maybe a gallon of ethanol into a 500 gallon tanker truck. Then it got word out that they were using, like somebody had already mentioned, using it for food and so that thing has kind of faded into the distance.

We had another thing in Red Deer where the farmers were going to supply all of their residual to this plant. If you use all the residual and you do not put it back in the ground, you end up with a dust bowl, so that one kind of went down too. Now we are seeding directly in the refuse that is still left.

I think my whole point is do you not think we can experiment with it and show that it works and we can make it happen better then we can try to force it? My question is, how can we force something like that? I do not think it works.

Mr. Weedon: There are two options and you probably need both. Corporations typically focus on the bottom line and returning dividends and profits to shareholders, that is their mission in life. Now they do have a conscience or some of them do. If you have a rapid need for change, sometimes you need to have a regulatory tool to force it.

Senator Brown: I will not debate it with you. I just see that the car manufacturers, for one thing, they are going almost 50 per cent better on fuel in the last three years. It is all over North America and all over Europe, where all those cars have got mileage that we would have said was unbelievable just about three years ago. I do not know that anyone forced that on them but it sure pointed to them that it needed to be done.

The Chair: Thank you very much for a fascinating discourse. It is really nice to see your enthusiasm and your commitment. It is inspiring to all of us.

Colleagues, we are just concluding more than nine hours of focused attention on a subject that is dear to our hearts. I want to thank all of you for your focus and your attention.

I especially would like publically to thank Senator Neufeld, who, as we have heard from many witnesses, was a much more significant driver of progress in this province than many of us had been told before, and the leads you gave us and the influence you exercised to give us such a wonderful day of useful stuff for the committee.

I would also like to thank all of the staff, the interpreters, the reporters and everybody else and especially our clerk, Lynn Gordon. It has been a tour de force.

(The committee adjourned.)