THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, May 1, 2014
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8 a.m. to study non-renewable and renewable energy development including energy storage, distribution, transmission, consumption and other emerging technologies in Canada’s three northern territories.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia in the Senate, and I'm chair of the committee.
I would like to welcome honourable senators, any members of the public with us in the room and viewers all across the country who are watching on television or the Web. As a reminder to those watching, these committee hearings are open to the public and are available via the webcast on the sen.parl.gc.ca website. You may also find more information on the schedule of witnesses on the website under "Senate Committees."
I would now ask senators around the table to introduce themselves. I will begin by introducing the deputy chair, Senator Grant Mitchell from Alberta.
Senator MacDonald: Michael MacDonald, Nova Scotia.
Senator Massicotte: Paul Massicotte, Quebec.
Senator Patterson: Dennis Patterson, Nunavut.
Senator Seidman: Judith Seidman from Montreal, Quebec.
Senator Wallace: John Wallace from New Brunswick.
Senator Black: Douglas Black from Alberta.
The Chair: I would also like to introduce our staff, beginning with the clerk, Lynn Gordon, and our two Library of Parliament analysts, Sam Banks and Marc LeBlanc.
On March 4, 2014, the Senate authorized our committee to undertake study on non-renewable and renewable energy development, including energy storage, distribution, transmission, consumption and other emerging technologies in Canada's three northern territories.
Today marks our third meeting on this study, and I'm pleased to welcome during the first portion of our meeting the following witnesses — and you will excuse me if I mispronounce your names. From Environment Canada, we have Mark Cauchi, Executive Director, Oil, Gas and Alternative Energy; and Lynne Patenaude, Manager, Natural Gas and Crude Oil. From the Canadian Northern Economic Development Agency, Sandra LaFortune, Director General, Policy and Planning; and Matthew Spence, Director General, Northern Projects Management Office. From the Department of Foreign Affairs, Trade and Development, Susan Harper, Director General and Senior Arctic Official; and Marc Tessier, Head, Energy Secretariat and Deputy Director, Circumpolar Affairs and Energy Division.
I understand that Mr. Cauchi will lead with a five-minute presentation on behalf of Environment Canada, to be followed by Ms. LaFortune, and then Mr. Hardin from Foreign Affairs.
Mark Cauchi, Executive Director, Oil, Gas and Alternative Energy, Environment Canada: Good morning, everyone. I'm the Acting Executive Director of Environment Canada's Oil, Gas and Alternative Energy Division. Joining me today is Lynne Patenaude, Manager of Natural Gas and Crude Oil group. We are pleased to be here to present to the committee.
Let me begin by reminding everyone here of the interesting jurisdictional side of this particular area. Environment Canada has a mandate, as you know, to protect the environment, conserve the country's natural heritage and provide weather and meteorological information to keep Canadians informed and safe. The environment is a shared area of jurisdiction, so it is a complex area in the North that we're talking about.
Environment Canada administers environmental legislation and regulations such as the Canadian Environmental Protection Act, pollution prevention provisions of the Fisheries Act, the Migratory Birds Convention Act and the Species at Risk Act. We also work jointly with our partners at Health Canada on the Chemicals Management Plan. Among other things, these instruments provide authority to address releases of substances to air, water and land from the energy sectors or their impacts on ecosystems and wildlife.
A key initiative that is important for Northern ecosystem protection is the CEPA regulation pertaining to petroleum storage tanks on federal lands across the Northern territories, in airports, defence installations, et cetera.
As with other federal departments, Environment Canada provides expert advice to Northern environmental assessment and regulatory co-management boards established as a result of the settlement of comprehensive land claim agreements.
With respect to environmental emergencies, Environment Canada is ready to provide science-based expert advice 24/7, and its scientific advice informs actions aimed to reduce the consequences of environmental emergencies, including in the North.
During an emergency pollution incident, Environment Canada science can include weather forecasts, contaminant dispersion, trajectory modelling, the fate and behaviour of hazardous substances, the establishment of clean-up priorities and techniques as well as the protection of sensitive ecosystems and wildlife, such as migratory birds and fish. We also conduct environmental baseline surveys to map environmentally sensitive areas along certain Northern coastlines.
Environment Canada is also leading two of the Arctic Council initiatives as part of Canada's chairmanship from 2013 to 2015. The first one is addressing short-lived climate pollutants, and the second initiative pertains to migratory bird conservation. Canada will also contribute to some other initiatives, depending on their scope. The oil and gas sector is actively exploring for crude oil and shale formations in Sahtu Region near Norman Wells, N.W.T. Environment Canada is one of several departments participating in research to develop baseline data for these central Mackenzie Valley developments. Environment Canada recognizes that Canadians want more information about the environmental impacts of shale gas exploration and development and other related activities that use hydraulic fracturing.
We welcome the scientific assessment conducted by the Council of Canadian Academies, at our request, which was released today. Senators may not have that report yet, but it's interesting and over the coming weeks and months, officials will review the assessment and determine the implications for the Government of Canada of the findings of the CCA.
Under the government's sector by sector approach to reduce greenhouse gases, Environment Canada is responsible for developing regulations for sectors, and we have already published greenhouse gas regulations for electricity and transportation. We are working on other sectors, including oil and gas.
Good progress has been made through discussions with industry, provinces and other partners, developing an approach to reduce emissions while continuing to create jobs.
Environment Canada has published final regulations to limit CO2 emissions from coal fired electricity generation in September 2012, which encouraged phase-out of traditional coal fire units. There is, however, no coal fired electricity in the North. Environment Canada plans to regulate natural gas, fired electricity generation as well
On energy use issues related to transportation, we are active on many regulatory fronts and have published several transportation regulations aimed at reducing air pollutants and greenhouse gasses in alignment with the U.S. One of the most important ones is greenhouse gas regulations for passenger cars and light trucks, but also heavy duty vehicles were recently gazetted as well.
Environment Canada takes unique northern issues into consideration while developing fuels regulations, and this is an important point. For example, the Renewable Fuels Regulations, which require renewable fuel content such as ethanol or biodiesel to be in petroleum gasoline and diesel fuel, allow fuel for use in the North to be exempt.
Another example is the Benzene in Gasoline Regulations, which accommodate a different summer season in the North than the rest of Canada.
We can expect increased tanker traffic as a result of development, including energy development in the North. Environment Canada and Transport Canada are evaluating the potential impact of air pollutant emissions from marine shipping on Arctic ecosystems. The current fuel sulphur limit for vessels in the Canadian Arctic is consistent with the International Maritime Organization's global limit, and higher than the limit in the North American emission control area for ships operating south of 60.
In conclusion, I would like to end by highlighting that Environment Canada is a science-based department and that our research and monitoring activities support Environment Canada's regulatory responsibilities as well as many other federal regulatory decisions that are taken regarding the North.
[Translation]
Sandra LaFortune, Director General of Policy and Planning, Canadian Northern Economic Development Agency: Mr. Chairman, members of the committee, my name is Sandra LaFortune, and I am the Director General of Policy and Planning at the Canadian Northern Economic Development Agency or CanNor. Joining me today is Matthew Spence, Director General of CanNor’s Northern Projects Management Office.
I am pleased to have an opportunity to attend today’s committee meeting on behalf of CanNor to discuss some of the issues related to energy in the northern territories.
CanNor was established in 2009 as part of Canada’s Economic Action Plan to foster a diversified, sustainable, and dynamic economy across Canada’s three territories, to help create jobs and growth, and to contribute to prosperity for all Canadians. CanNor recognizes that access to reliable, secure and affordable energy is integral to fostering northern economic development for the resource sector, for business development, and to ensure long-term sustainability of northern communities.
[English]
The agency works with partners and stakeholders, including federal and territorial departments, Aboriginal organizations, non-governmental organizations and the private sector, to develop approaches to address the power needs in the North. These approaches must include innovative energy solutions that increase efficiency and diversity while at the same time balance the need for power for communities and development with the need to protect the environment.
Each territory faces a different situation. In the Yukon, hydro provides most of the electrical power but the system has reached capacity. In the Northwest Territories energy is more diversified. Many of the communities continue to rely on diesel generators while others, such as Yellowknife, rely almost exclusively on hydro. Wood pellets, biomass, solar and wind have been added to the energy mix but overall capacity remains limited. Electrical energy in Nunavut is supplied by diesel generators and the fuel is brought to the territory by marine or air transport, which is very expensive.
CanNor is involved in addressing the challenges around energy in some key ways. First, we have contribution programs that provide investments in specific initiatives for energy infrastructure, power generation, and alternative and innovative energy projects. Second, our Northern Projects Management Office leverages its network with the resource development industry to ensure that communities benefit from development, and this can include energy and infrastructure.
Let me begin by providing you with some examples of investments we have made through our contribution programs to address the energy challenges of the North.
CanNor has invested $2.5 million over three years to help develop biomass energy through the Northwest Territories forestry and biomass initiative. The N.W.T government has installed wood chip heating systems in several territorial government buildings and is supporting the development of wood chip production in a number of communities.
Last year, CanNor announced $124,000 in funding to help the Kaska First Nation explore the potential for tapping into geothermal resources on their land. We also invested over $100,000 for energy development on the Champagne and Aishihik First Nations traditional territory in Yukon. CanNor is funding a feasibility study to allow the Dakwakada Development Corporation to assess the economic and commercial viability of a mini hydro project on the Kathleen River and explore possibilities for other rivers as mini hydro sources.
Our agency has invested over $130,000 in a cold climate innovation pilot project at Yukon College, which converts plastics to crude oil, enough to heat the recycling centre it is housed in.
Just this month, Minister Aglukkaq announced funding for a pilot project that could change the way waste is managed in Nunavut. The Micro Auto Gasification System is new, state-of-the-art technology that significantly reduces the volume of processed waste by thermally decomposing solid waste and oils. As well as reducing waste, this system produces enough energy to run itself and heat nearby buildings. We have also invested $500,000 for a more efficient diesel generator in Qikiqtarjuaq, Nunavut.
Next, I would like to talk about the Northern Projects Management Office, or NPMO, which was established to improve the environmental review and regulatory permitting processes for proposed major resource development and regional infrastructure projects in northern Canada.
The NPMO has proven to be an effective agent in bringing together partners and stakeholders on many aspects of resource development, including helping companies work closely with communities to ensure they benefit from the development.
Let me provide some context around resource development in Canada's North.
Energy continues to be a significant cost driver for resource development projects, thereby challenging the financial feasibility of these projects. Power grids in most communities have limited capacity and are not connected to any sort of regional or territorial grid, which leaves large portions of the territories with no or very limited capacity to generate electrical energy. Resource developers are generally forced to generate their own power.
As the committee is aware, energy costs are high in the North. Electricity prices in Nunavut are more than five times what people pay for electricity per kilowatt hour here in Ontario.
Space heating costs per unit of energy in Sachs Harbour, Northwest Territories, is seven times the price of natural gas sold in Edmonton. The annual spending on activities related to energy represents 20 per cent of the annual budget of the Nunavut territorial government.
High energy costs are felt everywhere, including by small businesses across the North and, of course, in the resource industries that hold so much potential for the future of the northern economy. Mining, oil and gas, and pipeline projects are among the largest consumers of energy in the North, and the cost of energy is a critical factor in determining whether a project will be viable.
Mining companies are looking at innovative and alternative means of producing energy at lower costs. As well, they want to explore how the investments they make in energy infrastructure could also help solve challenges for surrounding communities. This has led to some innovative practices.
For example, Diavik Diamond Mines recently invested in wind turbines, reducing their overall diesel-generated power. Iqaluit is doing some work on developing hydropower, with a view to providing some of that power to a potential diamond mine north of the community. Companies such as Kivalliq Energy that are in the uranium exploration business are promoting the use of nuclear power. There have also been recent discussions of how Manitoba might be able to provide less expensive hydroelectricity in the Kivalliq region.
Domestic energy production, while in its infancy, has the potential to increase with one company in the Yukon. Northern Cross is looking at producing and refining hydrocarbons that would be supplied to Yukon and Northwest Territories customers from the Eagle Plains area of the Yukon.
[Translation]
As you can see, CanNor leverages its contribution programs, the services of NPMO, and its partnerships with clients and stakeholders to address key issues facing the north in the energy sector. We have only had time to touch on a few examples of what we are doing. Mr. Spence and I would be happy to take questions to elaborate more on CanNor’s activities.
[English]
The Chair: Thank you very much. Next we'll go to Susan Harper, please.
Susan Harper, Director General and Senior Arctic Official, Department of Foreign Affairs, Trade and Development: Good morning, Mr. Chair and honourable senators. Thank you for the opportunity to appear before your committee. My name is Susan Harper, and I am Director General and Senior Arctic Official in the Department of Foreign Affairs, Trade and Development.
I would like to start by mentioning that most of the issues that the committee plans on examining fall within the mandates of other government departments that the committee has also invited to appear before them. Each of the territories has produced action plans for their future energy supplies, and I understand that they will also be appearing before the committee.
I will therefore focus today on the key issues relating directly to the role my department plays in addressing energy development in our northern territories. As well, as the Canadian Senior Arctic Official, I will briefly touch on the importance of the Arctic Council's work in this context.
[Translation]
The role of the Department of Foreign Affairs, Trade and Development in the scope of the committee’s examination is twofold: first, based on our core departmental mandate Ministers Baird and Fast actively work to promote Canada as a secure and reliable investment and trading partner, with a particular emphasis on diversifying Canada’s future energy trade and investment relations.
Second, DFATD is the lead department for Canadian engagement in the Arctic Council. We support the Minister of the Environment, Minister of the Canadian Northern Economic Development Agency and Minister for the Arctic Council, Leona Aglukkaq, on work in the council.
Canada is currently the chair of the Arctic Council, until 2015, and the core theme of our chairmanship is "Development for the people of the North."
[English]
Mr. Chair, the first point I want to bring to your attention relates to your committee's plan to examine ways of enhancing and diversifying energy production for domestic needs and export markets.
Canada is fortunate to be endowed with abundant energy resources and has world-class clean energy and energy services sectors. As the department responsible for international trade, we fully understand the vital importance of the energy sector to Canada's economy. For example, it is vitally important in terms of GDP value, export revenues and employment for Canadians. Moreover, the energy sector is also responsible for attracting some of our largest sources of inward foreign investment.
The International Energy Agency projects global energy demand will increase by one third by 2035 and that over three quarters of the demand by then will still be met by fossil fuels.
In this context, Canada's energy resources and energy services are expected to continue to contribute to market stability and to overall global energy security, and this will include energy resources in our northern territories that are currently stranded from markets.
At the same time, however, unconventional energy developments are making the U.S., Canada's primary energy customer, increasingly energy self-sufficient. We therefore need to diversify our energy markets.
Mr. Chair, our ministers are thus working with provincial, territorial and industry partners to promote market solutions to diversify Canada's global energy trading profile, particularly towards the fast-growing markets of the Asia-Pacific region. Canada clearly needs to develop the necessary infrastructure to connect our energy resources to world markets, and this includes those resources in Canada's northern territories.
I understand that our colleagues from Natural Resources Canada and Aboriginal Affairs and Northern Development Canada have covered resource potential in the North in their appearances before this committee earlier this week.
The second point I would like to bring to your attention is the role of the Arctic Council and Canada's chairmanship of the council from 2013 to 2015.
Canada's Arctic foreign policy is based on the Government of Canada's vision for the Arctic as articulated in Canada's Northern Strategy; namely, a stable, rules-based region with defined boundaries, characterized by dynamic economic growth, with vibrant communities living in healthy ecosystems.
This strategy underscores the government's commitment to working with all stakeholders, including provincial and territorial governments and Aboriginals groups, to balance economic, social and environmental considerations in the development of Canada's North. That same vision has informed the core theme of Canada's tenure as Chair of the Arctic Council, which is development for the people of the North.
Specifically, in the Arctic Council there are two distinct work streams relating to Arctic oil. The first led to the legally binding agreement on cooperation on marine oil pollution preparedness and response in the Arctic, which was signed by the eight Arctic states at the Arctic Council ministerial meeting in Kiruna, Sweden, on May 15, 2013. The agreement's main purpose is to provide mutual assistance in responding to oil pollution incidents in the Arctic region that are beyond the capacity of one state acting alone to respond to effectively.
The second related work stream was to develop recommended oil spill prevention practices for the Arctic, and advancing this work is a priority during the Canadian chairmanship of the Arctic Council. Ministers in Kiruna established a task force to develop an Arctic Council action plan on oil pollution prevention, and its work will be submitted at the next ministerial meeting in Canada in 2015.
[Translation]
In addition, under Canada’s chairmanship, recognizing the central role of business in the sustainable development of the Arctic, Arctic states and indigenous permanent participant organizations are facilitating the creation of an independent business forum called the Arctic Economic Council.
[English]
The goal of the Arctic Economic Council is to foster sustainable development, economic growth, environmental protection and social development in the Arctic region. We anticipate it will do this by enhancing regional economic cooperation and by serving as a forum to convey the views of business on the work of the Arctic Council. The Arctic Economic Council will also strive to ensure that economic activity takes environmental protection into account and positively impacts the communities, lives and cultures of Arctic indigenous peoples. An initial area of focus for the AEC will be on responsible resource development as approved by ministers in Kiruna last May.
I look forward to answering any questions committee members may have regarding our role.
The Chair: We will begin questions with Senator Mitchell, the deputy chair.
Senator Mitchell: Thank you to all of you for being here. One of the key issues is cost; it always comes down to cost, even though we don't factor in the environmental costs of renewable energy and the cost savings of renewable energy, because that's very controversial and we're not there yet — let's set that aside.
Do any of you or your departments have actual numbers of what it costs to produce a kilowatt of power from however it's being produced now, largely by diesel, versus wind — and I know this is geographically or situationally specific — versus hydro, as in run-of-river, versus geothermal? Is anybody doing that kind of analysis, and can we get those numbers?
Matthew Spence, Director General, Northern Projects Management Office, Canadian Northern Economic Development Agency: A hydroelectric project near Iqaluit is being developed, and the QEC, the electrical generation corporation there, has done some preliminary numbers. Right now we have kilowatt prices between 52 cents and $1.17 per kilowatt hour in Nunavut for electricity.
Senator Mitchell: How does that compare to diesel?
Mr. Spence: That's thermal diesel. In terms of the actual project, that would reduce it to 26 cents. So the hydroelectric project would reduce power costs from 52 cents for Iqaluit to 26.
Senator Mitchell: Anything for wind?
Mr. Spence: We don't have good numbers on wind. We do have Diavik, but Diavik's interest is more in reducing the amount of fuel they consume, so I don't know that they see a net reduction in their electrical costs; they just see a net reduction in the fuel consumed.
Senator Mitchell: And in pollution.
Mr. Spence: Exactly.
Senator Mitchell: So they're doing it for environmental reasons.
Mr. Spence: Yes. And they don't have to transport as many trucks full of fuel up to the site. It's a seasonal resupply for them. A lot of trucks go up that road; 8,000 trucks in three months to fuel the diamond mines.
Senator Mitchell: So if you factor that cost in, does wind start to become competitive?
Mr. Spence: It does, but there is a high capital investment initially to produce that wind power.
Senator Mitchell: What about wood pellets?
Mr. Spence: The interesting thing in the territories is that we import most of our wood pellets. We're looking at trying to build a wood pellet industry, but it inors waste product from southern saw mills, so for them it's relatively cheap. For us, it would be producing that wood pellet not as waste but as a product. There is probably a higher cost to that, but it still should be lower than diesel fuel.
Certainly the Government of the Northwest Territories is very interested in developing a wood pellet industry and have converted a number of the buildings in Yellowknife, including the legislative assembly, to wood-pellet boilers.
The Chair: I have a little response. It's easy to say, "We should just change to wind," but wind is not firm. You still need firm power on sites, so you would still require the diesel generators to make sure you have power 24/7.
Mr. Spence: Absolutely.
Senator Seidman: It's a lot of material to respond to in a short period of time.
You all spoke about fostering sustainable development and economic growth with environmental protection and social development in the region as key partners with the development, and they have to be. I was especially pleased to hear that mining companies, while they're looking at innovative alternative means of producing energy at lower costs, also want to explore how they could make the energy infrastructure to help solve the energy challenges for surrounding communities. That's a good way to look at it, and the cost of beginning this could have very profound impact.
I want to ask you whether you have looked at Nordic countries that clearly have the same kinds of serious problems in trying to manage and create cheap energy for less dense populations in very cold parts of their country. Finland, for example, actually burns waste and uses the product for energy, and they have large burning facilities to do that. I'm sure you must have looked at practices in other countries to give you ideas.
Ms. Harper: I'm not aware of work specifically in that area. It's clear that the Arctic Council exists to foster cooperation among the eight states that are geographically located in the Arctic. There are approximately 90 projects ongoing in the context of the Arctic Council.
I could certainly look into this and report back on anything that exists of that nature, but I'm unaware of any ongoing work at the moment.
Senator Seidman: I find that surprising. Here we have an opportunity to look at how other countries in the Nordic regions deal with these very same issues, and I would like to hear that we're looking. They may be more advanced than we are in this dealing with these things, because they may have denser populations.
So I'm surprised to hear that you can't say, "Yes, we looked at this country's best practices and they have this to offer in our future development of progress up north."
Mr. Spence: There is an example, I think, in Yellowknife in that there was a German company that came over and was looking at developing a waste-heat project with the landfill there.
The problem is that it's economies of scale. The problem in many cases is that we can explore those opportunities, but we don't have the same population in our North that Finland and some of the countries have. Our population is much more dispersed and there is still a limited amount of infrastructure. We're going to get there, but I don't think we're there yet, and we're not there yet just because it hasn't really proven viable in terms of the limited amount of work we've done so far. Part of it is that we face the same challenges as with any resource development project or anything: its high costs, limited infrastructure and a limited population base.
Senator Seidman: I would really like to hear from the Arctic Council — if you look at your projects, I'd like to hear whether there are studies going on that look at best practices in Nordic countries and try to use those as bases for what we might do up there, since we are just at the initial stages.
Senator Black: Thank you for the tremendous presentations. I'm cognizant of the "whip" at my right, so I will ask tight questions and I would ask for tight responses.
My first two questions are for the folks from Environment Canada. Can you comment on what assets you currently have in place in the North to manage an environmental incident?
Mr. Cauchi: As I said in my remarks, Environment Canada is ready 24 hours a day, seven days a week to provide science assets to companies on the ground, territorial governments et cetera, who might be implicated. There are specific Environment Canada installations, offices in the North that are ready to provide support. We could provide that to the committee.
Senator Black: That would be helpful. I'm looking for physical assets not research, support and telephone numbers. And you might liaise with Coast Guard or whatever agencies you wish.
Mr. Cauchi: We can provide that.
Senator Black: I'm asking for your response to this, recognizing my background is that I'm an energy lawyer from Alberta. Some folks — not me — would suggest that rather than being seen as a partner, your department is often seen as an adversary to development. Can you discuss that or comment?
Mr. Cauchi: I'm not going to comment on the general remark. Environment Canada, as I mentioned, is aiming to do the best job it can in protecting the environment, conserving our natural heritage, providing weather services to Canadians. But whether it's under our regulatory authorities or legislation, I think we are activity playing a positive role in the North.
Senator Black: Thank you very much.
For CanNor, there is another matter of conversation. There are approximately 100,000 or so folks across the North and we have several million square miles of territory. You have shared with us that various specific companies are involved in energy development and are addressing their energy needs specifically on a case basis, so they're taking the money from their wallet. Is the answer in the short term to perhaps provide support for consumers and individuals in the North around energy costs rather than focusing the time and the money that you are on project development, infrastructure development? I would ask you to comment on a redistribution of the monies that are going to the North.
Ms. LaFortune: The thinking behind supporting resource development in the North is that it is, at the moment, the best potential driver to improve the economy overall. So once some of the resources start flowing to the territorial governments, the federal government, to Canada and Canadians in general through some of these projects, there will be more resources, and a lot of the infrastructure that's required will be begin to emerge more on its own. It's like giving a man a fish versus teaching a man to fish. It's a more an ongoing thing. But as far as the priority for federal contribution, I don't make that particular decision.
Senator Black: Very well. I just wanted that question on the record as to what the priority should be.
For our friends from DFATD, could you please discuss your department's strategy to encourage Asian investment in the North; and, second, could you please outline the obstacles that, in your view, exist in your department to encouraging this development?
Ms. Harper: I'm aware that our work on the international trade side of Foreign Affairs, Trade and Development deals with some of the issues relating to negotiating international agreements, which removes obstacles to trade and investment. And that has responsibilities in both directions. I would have to consult with my colleagues on that side of our department to provide further information.
Senator Black: Would you?
Ms. Harper: I would be glad to. If you could give me the exact parameters of what you'd like me to come back with, I would be glad to do that.
Senator Black: I will do that.
Senator Patterson: If I may give a bit of background to this question, CanNor mentioned the holding of a recent meeting in Manitoba to discuss the potential hydro transmission line expansion. I was at the meeting. We heard that there were two mines in the Kivalliq region. One was a potential gold mine near Rankin Inlet that I hope the committee will have chance to see, a 25-megawatt demand and a 12 to 15-year or longer mine life. Another is a uranium project 200 kilometres from Rankin Inlet, AREVA, potential 20 to 30 year mine life, 27-megawatt electrical requirement. They forecast they will burn 140 million litres of diesel a year and a billion litres over the life of the project. So there is a keen interest in getting cheaper energy from Manitoba, which goes all the way to Churchill right now.
A working group was formed of stakeholders, the power corporations from Manitoba and Nunavut, the Governments of Manitoba and Nunavut, mayors and chiefs from the region, and industry as well. They want the federal government to participate.
I asked officials from Natural Resources Canada at a recent meeting of the committee if the federal government was willing to participate in the working group and they want to develop a business case. It seems to befit our northern strategy of social and economic development and environmental protection and maybe sovereignty. If the feds were willing to participate in such a working group, who would bring together the federal family? We were told there is Infrastructure Canada, Natural Resources Canada, many departments have mandates. The answer kind of overwhelmed me.
Would you provide any guidance on how a federal family could participate in a major project like this?
Mr. Spence: The Northern Projects Management Office is a coordinating body so we coordinate federal participation in environmental assessment and regulatory permitting up there. It seems like it could be a natural fit, in terms of already having the relationships with all those federal governments except Infrastructure Canada, although we did work with them on the Inuvik to Tuk road, so that was a big federal investment in terms of infrastructure recently. I could see that we would play a facilitative role, from the federal side, to bringing the federal departments together and figuring out who might be the federal lead. But we would certainly take a lead role in facilitating that discussion and would be happy to do so.
Senator Patterson: CanNor, you mentioned your involvement in a potential hydro project in Iqaluit, which burns 30 per cent of the diesel consumed in Nunavut to generate power by the power corporation. It's a huge emitter of greenhouse gases and carbon particulate. Can you describe what CanNor's role was in that project? I think it was a feasibility study.
Mr. Spence: That is right. Of course, CanNor has funding programs so it provided some support, roughly around $150,000, to look at the actual hydro potential of some of the sites. We're looking at the feasibility work at both Jaynes Inlet and Armshow South.
On the project management side, the project was referred to environmental assessment at the Nunavut Impact Review Board, so we facilitated discussions between the project proponent and the regulators in order to facilitate a better project review. If you talk to them before they submit their project proposal to the NIRB, and you have that interchanging between the federal experts, the regulators and the project proponents, it leads to a more efficient and hopefully less costly project review. Any way we can reduce the cost of that hydroelectric project I think would be beneficial to both the government in Nunavut and Canada in general and would hopefully facilitate it being built sooner and thereby reduce the greenhouse gas emissions.
[Translation]
Senator Massicotte: I would like to thank you all for being here today. This is most important and quite interesting. I will follow up on the same questions that were asked of the people from CanNor. I am trying to understand the situation in its entirety, including your strategy and business plan. We are told that we possess important, huge, available and lucrative resources in the north. We are told that the cost of energy is very high, probably five to six times what it costs in the southern part of the country. It is clear that these costs are too high and that there are certain realities to face in this region: the cold and infrastructures that are probably neglected or are unavailable. What, however, is the plan, what priorities and solutions should we be considering to benefit from all these resources in an affordable way? How can we reduce electricity costs? What initiatives should Canada implement in order to develop northern resources over the next 10 years? Upon which two or three priorities should we be focusing?
[English]
Mr. Spence: I'm not sure I quite understand the question. You want the two or three things that would be done to facilitate resource development in the North?
Senator Massicotte: To deem it to be a success while respecting the environment. It's not going to make it warmer — maybe slightly with global warming — but the constraints are there. We can bitch and complain about high energy costs, but that's probably a reality. So what do we have to do to make it right and to achieve relative success?
Mr. Spence: I think the first thing we need to do is ensure we're including the communities. There are a number of small Aboriginal communities in the North, and all of them face challenges in terms of economic development. Many of them have very high —
Senator Massicotte: Good. You've done that. Next.
Mr. Spence: The next one would be infrastructure development throughout the North, so looking at strategic investments in infrastructure. As an example, if you have a cluster of mining projects in an area, is there a way of producing or investing in infrastructure that will benefit more than one mine so that you have an opportunity, as well as maybe benefiting the communities?
Senator Massicotte: On that point, if that was not possible, someone wants to build a mine and it's not doable, does that mean he won't build? Is the profitability so sparse, so unimportant, that the person won't find a solution? If it's feasible, I'm sure they will find a solution, but maybe it's not feasible. Maybe it's too costly. Is that what you're saying?
Mr. Spence: I think that's what we're saying. Basically, the hurdle rate for northern resource projects is high, and that means that they have to be world-class. We do have a number of world-class deposits. Right now, a number of them are facing —
Senator Massicotte: They are few and far between.
Mr. Spence: Pardon me?
Senator Massicotte: World-class are few and far between. Most projects are smaller in scale.
Mr. Spence: Most of the ones on the map that you have there are fairly large and world-class deposits.
Senator Massicotte: Having said that, we talked about all of these assets, an immense number of assets, but what you're really saying is that in today's reality, with today's constraints, most of them are not doable or feasible. Is that what you're saying?
Mr. Spence: No, I am not saying that. I think a lot of it will depend on the project proponents themselves. Certainly the base metal mines are facing a problem right now in terms of lower base metal prices. Gold mines are still producing and proceeding. Diamonds are forever; diamond mines seem to keep their prices up.
So we're relying right now primarily on oil and gas, diamonds and gold as the near-term prospects, and hopefully the investment in infrastructure by those mining companies will help reduce the cost and then the base metal mines will hopefully start to proceed.
Senator Massicotte: With most of the sectors you mentioned, commodity prices are roughly low. It has nothing to do with you or us or with the cold; the market is going to exist forever.
Mr. Spence: Absolutely, and we're competing worldwide. Many of those deposits are owned by big multi-nationals, so they're competing in the boardroom for resources. They can go to Brazil, Argentina or elsewhere.
Senator Massicotte: In that form, though, how much are energy prices — they're always going to complain it's too expensive. They always want somebody else to pay. How big is that?
Mr. Spence: Thirty to 40 per cent of the operating cost is energy.
Senator Wallace: Mr. Cauchi, my sense of it is that most people would believe there is an overdependence on diesel fuel generated electricity in the North, which leads to increased cost in electrical generation, but there is also the environmental side of it, the adverse environmental impacts from diesel generated electricity.
As you point out under the Renewable Fuels Regulations, which require the use of renewable fuel content — ethanol and biodiesel — to be in diesel, the North is exempt from that requirement. I'm wondering that if the environment is such a concern in the North, why would the North be exempted from that higher quality diesel fuel?
Mr. Cauchi: In response to that question, there are some technical issues that can prevent the effective use of renewables of ethanol, for example, in extreme cold. So it can be problematic for the operation and the functioning of an engine when you have extreme cold. Our regulations take that into consideration and account for that.
We can provide this committee with the details of that, but it's not a major issue in the North because we don't require it in the gasoline pool.
Senator Wallace: To do with the environmental impacts of using diesel fuel, aside from using ethanol or biodiesel, are any other improvements being made to diesel fuel in the industry which could improve the quality of diesel fuel being used in the North?
Mr. Cauchi: I would say not specifically in the North but across Canada. For example, our department recently published low sulphur and diesel regulations. That's a positive thing for the environment.
Senator Wallace: Is that required to be used in the North, the low sulphur?
Mr. Cauchi: I believe it's a national regulation. This is a very important area. Our department is also looking at the environmental and potential environmental health impacts associated with diesel electricity generation. As part of that work, we are looking at options for future mitigation of the impacts.
There is some discussion, as you know, of clean diesel, and we have world-class diesel standards already in place for vehicles in Canada that are in line with U.S. EPA standards. That does mitigate the impacts of diesel from transportation, but we're still looking at options for stationary diesel sources.
Senator Wallace: You also mentioned that your department conducts environmental baseline studies of environmentally sensitive areas along northern coastlines. Can you give us a sense of how complete and comprehensive those baseline surveys are at this time? Obviously, there is quite a move afoot to increase exploration activity in the North and to encourage that. Is your department ready for it?
Mr. Cauchi: I'm not the person undertaking those studies.
Senator Wallace: I'm just wondering if you could give us an idea of —
Mr. Cauchi: We'll get you that information. I appreciate the interest in that particular area, but I don't want to speak out of turn and mislead the committee as to how far along that work is.
Senator Seidman: A couple of you talked about emergency protection plans if there were oil pollution incidents and things like that. Ms. Harper, you specifically talked about agreements. Who would lead if there is some kind of incident up North, such as some emergency oil spill? That's always critical, as we've discovered in much other work we've done on this committee, to know who is in charge. There are lots of countries perhaps involved here; it's very nice that you're working together, but I'd like to know who would lead.
Ms. Harper: Just to be clear, when our agreements are international, there's a lead role for our department on the responsibility for an international treaty. But I believe you're asking who would lead within Canada; is that right?
Senator Seidman: If there's an oil pollution incident up North, and one can expect that there would be with increased work up there, you say that you have an agreement, and there will be cooperation among a lot of countries in providing mutual assistance in responding to oil pollution incidents; you say that in your presentation to us. What is the chain of command, and is it predetermined in advance as to who is responsible for what and when?
Ms. Harper: Could I provide you with additional information? I know it's a interdepartmental team and I believe I know the lead, but I want make sure I have exactly what you're looking for; namely, within Canada, what is the chain of command; which departments are involved; and what are their roles in an oil pollution incident — that's what you're asking for?
Senator Seidman: Yes.
Ms. Harper: I can bring that information.
Senator Seidman: That would be great.
Related to this, Main Estimates were tabled in the House of Commons in February, and there was an $8.5 million increase in spending for a first phase of a strategy to implement a world-class prevention, preparedness and response regime for oil spills from ships.
The Chair: I'm going to have to move on.
Senator Seidman: It's important to know whether any of those resources were specified to be dedicated to oil spills in the North.
Senator Black: Ms. Harper, for the benefit of the record, would you please discuss the role that you believe resource development and development in the North, generally, plays in respect of Canadian sovereignty issues?
Ms. Harper: As it would be the case anywhere in Canada, while you are on Canadian territory, you have the responsibility to work within Canadian laws and regulations, so —
Senator Black: No, I'm sorry. I'll just clarify, if I may, so we're clear on this. From your point of view as the Department of Foreign Affairs, Trade and Development, do you believe it is helpful that resource development continue to assist you in making your case on Canadian sovereignty in the North?
Ms. Harper: I don't believe there is a question about Canadian sovereignty in the North in terms of our land. Therefore, while resource development obviously contributes to other aspects of Canada, I don't believe there's a question about the sovereignty of Canada's landmass.
There is discussion about the continental shelf, which is outside of my personal responsibilities, although it does relate to our department. You're probably aware this is a matter of international discussion at the moment. But within the Canadian landmass, that is not an issue.
Senator Mitchell: Ms. LaFortune, you mentioned geothermal resources in the Kaska Dena First Nation. The Canadian Geothermal Energy Association is sensitive about this term. They refer to geothermal drilling — drilling down often kilometres — to find hot water, and there is geo-exchange going down — well, not in the North necessarily, but in my city of Edmonton — eight feet and finding enough heat to exchange to heat your house and ultimately cool it as well. What are you referring to when you refer to "geothermal" — which of the two?
Mr. Spence: We actually don't have that information with us right now. We'd have to get back to you.
The Chair: I'd like to thank the witnesses very much for their presentations and their answers. I think it was very interesting.
Anyone who has answers to respond with, please send them through the clerk, then each one of us will get those responses. Thank you for being here.
We are now hooked up to Calgary for our next witnesses. We are joined by video conference by the National Energy Board. I would like to welcome Shelley Milutinovic, Chief Economist; and Jim Fox, Business Leader, Strategy and Analysis.
Thank you for joining us from Calgary. We look forward to your presentations, and then we'll have some questions. The floor is yours.
Jim Fox, Business Leader, Strategy and Analysis, National Energy Board: Good morning, honourable senators. It's a pleasure to be here today with you to talk about energy issues in Canada's North. I will be covering the National Energy Board's role in the North and Ms. Milutinovic will be giving you an overview of northern energy resources.
The National Energy Board is an independent federal regulator established in 1959 by Parliament to promote safety and security, environmental protection, and economic efficiency in the Canadian public interest in the regulation of pipelines, energy development and energy trade.
Under the National Energy Board Act, one of our main responsibilities is to regulate pipelines that cross provincial, territorial or international boundaries. In the North, examples include Enbridge's Norman Wells Pipeline or the proposed Mackenzie Valley project.
The bulk of the NEB's regulatory responsibilities in the North are set out in the Canada Oil and Gas Operations Act, referred to as COGOA, and the Canada Petroleum Resources Act, referred to as CPRA.
Under COGOA, the board's responsibilities include the safety of the public and workers, protection of the environment, conservation of oil and gas resources, efficient energy infrastructure and joint production arrangements. The board's responsibilities under CPRA relate to the technical evaluations of the extent of oil and gas resources in a given area, conducted when a company applies for a significant discovery or commercial discovery declaration. This act also lays out certain limitations on how the board can publicly disclose information filed in applications under COGOA and CPRA.
I believe the committee has a map we sent, because the geo-spatial explanation is quite complicated about our regulatory responsibilities.
In the North, COGOA and CPRA apply in the Arctic offshore, in the Norman Wells Proven Area and in the entire Territory of Nunavut. This means the National Energy Board is responsible for regulating oil and gas activities in these places.
Land tenure or rights issues, benefits plans and royalty management issues in the North that are not devolved to one of the territories are administered by Aboriginal Affairs and Northern Development Canada or Natural Resources Canada. Some years ago, the Government of Canada devolved responsibility for managing oil and gas resources in the Yukon to the territorial government, and last month, the government devolved responsibility for managing oil and gas resources in most of the Northwest Territories to the Government of the Northwest Territories.
The board remains responsible for regulating in the Norman Wells Proven Area and, in accordance with territorial legislation that mirrors COGOA, we will be responsible for regulating in the onshore part of the Inuvialuit Settlement Region for a period of 20 years.
The NEB is committed to supporting the government in the NWT to facilitate a seamless transition of the oil and gas regulatory responsibilities. To this end, the board and the GNWT have developed and executed a services agreement. In addition, the board has responsibilities under the Canadian Environmental Assessment Act, 2012 in some areas such as in the ISR in the offshore where COGOA applies. Where CEAA 2012 does not apply, the board still undertakes environmental assessments as part of its integrated review processes.
In addition to our regulatory functions, the board monitors energy markets and provides its view of Canadian energy requirements and trends in the discovery of oil and natural gas. The board periodically publishes assessments of Canadian energy supply, demand and markets in support of its ongoing market monitoring. For example, last year the NEB published a publication we call Canada’s Energy Future, which is a major report projecting Canadian energy supply and demand trends out to 2035. All of these publications are available on our website.
With this context about the NEB's role in the North, Ms. Milutinovic will now provide an overview of Northern energy resources.
Shelley Milutinovic, Chief Economist, National Energy Board: Good morning, honourable senators. It's a pleasure to be here with you today to talk about energy resources in Canada's North.
As noted by my colleague, the board has been monitoring and assessing the North's potential for oil and gas resources, and we know it's large. Industry has drilled numerous wells, searching for conventional oil and gas over the past several decades and has made many discoveries, though production has been very limited so far. To date, the production has mainly come from the Norman Wells oilfield, which has produced 274 million barrels of oil since 1932.
Overall, the marketable conventional gas resources in Canada's North are expected to be 117 trillion cubic feet. To put that into context, Canada consumed 3.1 trillion cubic feet of natural gas in 2012. There is less information about recoverable conventional oil in the North, though recent studies by the U.S. Geological Survey indicate there could be over 10 billion barrels.
Meanwhile, industry interest has shifted toward unconventional oil and gas resources in the North as it has elsewhere in North America. Some producers are evaluating shales of the southern Yukon and Northwest Territories for gas and shales in the central Mackenzie Valley for oil. However, the magnitude of these resources remains unknown.
Although the potential is significant for both the conventional and unconventional resources, large commercial hurdles exist; namely, expensive wells, challenging physical conditions, limited infrastructure and very competitive North America markets.
Given the scale of potential resource supply, there has been an increase in industry interest in the North. For example, industry interest in the central Mackenzie Valley, now regulated by the Government of the Northwest Territories, has ramped up significantly in the past 5 to 10 years. Between 2011 and 2013, there were 14 successful bids for parcels for work commitments, totalling over $600 million.
In the Arctic offshore, there are currently 13 active exploration licenses issued by Aboriginal Affairs and Northern Development Canada, worth a total of approximately $2 billion in work bid commitments.
While there are no active applications before the board for offshore drilling, we are anticipating some in the coming years. For example, Imperial Oil, as the representative of the Beaufort Sea exploration joint venture, has indicated its interest in drilling one or more offshore exploratory wells in the deep waters of the Beaufort Sea. The regulatory review process began with their submission of a project description to the Inuvialuit Environmental Impact Screening Committee in fall 2013. This has since been referred to the Environmental Impact Review Board. ConocoPhillips has also expressed interest in developing the Amauligak offshore field.
Engagement is a key component of our work in the North. Over the past 15 years, the NEB has been increasingly active in the North, working with Northerners to help them better understand the NEB's roles and processes, and sharing knowledge and best practices. We have also been listening to Northerners and gathering information and knowledge through meaningful community engagement and dialogue.
Following the BP/Macondo Deepwater Horizon incident in 2010, the NEB initiated the review of offshore drilling in the Canadian Arctic. This was known as the Arctic Offshore Drilling Review. This was a comprehensive review of the safety and environmental requirements for offshore drilling in Canada's Arctic environment. Learnings that the board gathered through the Arctic review have been incorporated into the board's regulatory requirements for Northern oil and gas activities. The Arctic review report can be found on our website.
In conclusion, the board has been working to strengthen its regulatory framework, particularly given the increasing interest in the North. This has included new filing requirements developed in response to input received during the Arctic review and for drilling activities that involve hydraulic fracturing. We are also preparing to implement the changes proposed in Bill C-22, if they are passed by Parliament.
In addition, the NEB has developed partnerships with federal, provincial, territorial and land-claims-settlement organizations to clarify roles and responsibilities and address common regulatory objectives. We are committed to enhancing and developing cooperative agreements with regulators and land claim organizations. For example, the NEB has provided expert staff to the Environmental Impact Review Board to enable it to plan its hearing processes and assist on technical analysis for the Beaufort Sea joint venture.
The NEB will also build on what we have learned in our engagement with Northerners and Northern institutions. We will continue the dialogue in support of shared safety and environmental protection objectives.
Thank you. Mr. Fox and I look forward to your questions.
The Chair: Thank you. We have a little more time this panel for questioners. I'll begin with Senator Mitchell, the deputy chair.
Senator Mitchell: With respect to drilling offshore in the North, what kind of progress has been made in dealing with under-ice spills, emissions or blowouts?
Mr. Fox: From a technical standpoint, very little. The NEB's Artic review talked about the board's expectations in terms of an offshore Beaufort Sea drilling application that the company would have to demonstrate the capability to drill a same-season relief well, or an equivalent capability, to stop the flow of oil from an out-of-control well in the season that they're drilling in, so that we would not have an under-ice well blowout.
Senator Mitchell: So much has been made — obviously correctly — of the necessity of remaining competitive if we're to exploit oil and gas resources. Clearly it's much cheaper to do that in the South than the North, yet companies continue to pursue the responsibility of developing northern oil and gas resources — much more expensive — ergo, the question of competitiveness arises immediately.
Are they doing this because they think they can find ways to make it more competitive and reduce their costs, and, ultimately, is that same kind of consideration being applied to the generation of and development of renewable resources in the North? Do you in the NEB work on that comparison?
Mr. Fox: We actually don't deal with renewable resources except to the extent that a renewable resource might flow through a pipeline that we regulate. On the oil and gas exploration and production side, it's only petroleum, obviously.
What I would say about why companies continue to explore in the Arctic is a phrase used by one of our experts yesterday: They're hunting big elephants. There are very large finds potentially to be had, and finding a major new oil field would make it economic. It's not an issue of bringing down the production cost like you could in the south or other areas.
Ms. Milutinovic: And they have very long time horizons.
Senator Mitchell: There have been some suggestions of hooking northern communities up to electric grids. Questions have been raised in this committee recently about that. Is that on your screen at all or is that not something that you consider?
Ms. Milutinovic: That doesn't fall within the board's mandate.
[Translation]
Senator Boisvenu: Thank you very much for being here today. I would like to discuss the environment with you. I am trying to understand the role of the National Energy Board as compared to that played by the Environmental Impact Review Board. Does the review board fall under the jurisdiction of the National Energy Board?
[English]
Mr. Fox: To set conditions for projects that are regulated by the National Energy Board, yes, we consider environmental issues in those projects.
[Translation]
Senator Boisvenu: How do you manage both your role as a promoter of development in energy usage and your other one, which consists of regulating environmental issues, which means all the regulations intended to protect the environment? How do you strike a balance between the two? For the average person, it would seem contradictory that the person responsible for promoting and developing energy also be in charge of protecting the environment.
[English]
Mr. Fox: I don't know if someone has misspoken, but the National Energy Board does not have a responsibility to promote the development of energy. The National Energy Board will look at a project that we would regulate that's brought before us. We consider safety, environmental protection, conservation of oil and gas resource issues, but we do not promote the development of energy. So if a project cannot be done —
[Translation]
Senator Boisvenu: As to future exploration projects, what role does the National Energy Board play in developing this industry?
[English]
Mr. Fox: A project would come forward to the board. The applicant would provide us with information about how they are going to make sure the project is safe, protect workers and the public, how the environment is protected. The board would assess the application a company made to us and determine whether or not they're meeting the appropriate standards of environmental protection. If it did, the board would issue an authorization for the company to go ahead and do the work. Otherwise, no authorization would be issued.
Senator Patterson: I'd like to ask about the Arctic Offshore Drilling Review, and I would like to say that I believe the NEB did quite a good job consulting northern residents in developing this report. I think it was of comfort to northern residents who have strong concerns about offshore drilling in the Arctic, and it was timely in light of the problems that have been experienced recently in the world and in offshore drilling.
I'd like to focus, though, on geophysical surveys, seismic testing. I note that the board, in conjunction with its Arctic Offshore Drilling Review, reviewed regimes in Greenland, Norway, the U.K. and U.S. in northern Arctic waters. First, do you have a jurisdiction or do you regulate seismic testing elsewhere in Canada, other than in the Arctic?
Mr. Fox: The board does regulate seismic testing in other offshore areas, notably in the Gulf of St. Lawrence, and other offshore areas that are not covered by provincial-federal accord. So if there were seismic to take place offshore B.C., the board would be the regulator.
Senator Patterson: Okay. This is an issue of concern in Nunavut and I know there is an application before the board now, which I wouldn't want to ask you to comment on, but is information available and did it come up in the Arctic offshore drilling regime on the question of the impact of seismic testing on marine mammals? Did the Arctic Offshore Drilling Review look at that issue and/or make any recommendations?
Mr. Fox: I don't know if it came up in the Arctic review. Geophysical work was not the main focus of the review, but we can get back to the committee to confirm that is the case.
I am aware that for a number of years, probably the last decade, the Department of Fisheries and Oceans and other agencies with expertise, including the National Energy Board, have been working on a protocol for ensuring that geophysical is not undertaken in certain conditions where marine mammals are present, and there is a protocol that's followed. We have worked with the Department of Fisheries and Oceans on that protocol. I'm not an expert on this myself, but I know it exists and it is something we would take into consideration in issuing an authorization to conduct geophysical and, if it was appropriate in the circumstances, would be put in as a condition of the authorization.
Senator Patterson: I think the committee would be interested in getting that information.
I am curious about all this oil and gas that's in the Arctic, and there is some exploration being planned for the Beaufort Sea, I believe. I suppose that's not within your jurisdiction; is that correct?
Mr. Fox: No, it is actually in our jurisdiction.
Senator Patterson: Could you outline what is being proposed or what has been approved, please?
Mr. Fox: At this point, an exploration licence has been issued. That was issued by Aboriginal Affairs and Northern Development Canada. A company makes a work commitment and it gives them the right to do some exploration in that area. Apart from that, nothing has been approved.
Senator MacDonald: Thank you for being with us this morning.
Mr. Fox, I want to get a little more feedback on what occurs when we devolve responsibility. You mention responsibility in the North on the second page of your presentation. Land tenure or rights issues, benefit plans, royalty management issues, which have not been devolved to the Northwest Territories and Yukon governments, are administered by Aboriginal Affairs and Natural Resources Canada. And then you add that the Government of Canada developed responsibility for managing oil and gas resources in the Yukon in 2003. I'm just interested in the impact of those devolutions. What occurs when we devolve these responsibilities? What's the actual impact in terms of decision making? Does it speed up decision making? Does it make it more efficient? Does it arrest it? Does it make it more difficult to make decisions? What has been the experience with the Yukon over the past 11 years?
Mr. Fox: Over the past 11 years since devolution in the Yukon we have had a service agreement with them and have provided them, on occasion, with technical services, various kinds of advice that they might ask us on oil and gas related questions, but I'm not aware of the impact on actual decision-making, whether it's been sped up or slowed down or anything.
In the time period that devolution has happened there has only been a small amount of oil and gas exploration activity in the Yukon.
Senator MacDonald: If I look at the map, there seems to be more activity in the Yukon up and running than in most of the territories, certainly more than in Nunavut. Is there any way to measure this at all? If we're devolving this authority is there any way of measuring the impact of the devolution of the authority?
Mr. Fox: I think it would be possible to measure in terms of cycle times that parties undertook. From the map, I'm not sure that the map is intended to explain how much activity is actually going. What I can say from our experience is that actually the most activity has happened in the Northwest Territories over the past decade in the central Mackenzie, and the southern Mackenzie earlier. In that decade there were a number of gas finds drilled and connected to the Alberta and B.C. gas grids.
Senator MacDonald: We haven't devolved that authority yet. Is there a strict time frame on when that's going to be done?
Mr. Fox: The devolution in the Northwest Territories happened on April 1.
Senator MacDonald: It's done. Thank you.
Senator Seidman: Thank you for coming.
I'd like to ask you a question about the Canadian High Arctic Research Station. I don't know what connection you may or may not have to them, but certainly they're going to be up and running. One of their short-term priorities is predicting the impacts of changing ice, permafrost and snow on shipping, infrastructure and communities.
One would think that, in terms of environmental protection, the change in the permafrost, the thawing of it, might impact the development of new energy infrastructure projects such as roads and pipelines.
Do you have knowledge of the state of the research on this? Do you have a connection with CHARS? How would this connect with your role as environmental protector?
Mr. Fox: At this point we do not have a specific, formal relationship with CHARS. The board has a large staff focused on environmental issues and who keep in touch with the research. We have a professional leader of environment, our chief environment scientist here, who helps that staff keep in touch with the research that goes on. To the extent that any of CHARS' research outcomes would inform board decisions, we would bring those in, inform ourselves of them, and look to see what an applicant might say about those issues.
Senator Seidman: Are you aware of what the current state of research is regarding the permafrost, particularly in the areas of mapping and surveying?
Mr. Fox: I'm not, specifically. Our professional environment staff would be.
Senator Wallace: In your presentations you reminded us of the incident that occurred in 2010, the Macondo incident and the comprehensive review that the NEB conducted into safety and environmental requirements for offshore drilling.
From an NEB perspective, could you expand upon that? I realize you have referred us to the source where we can actually look at the review report, but could you give us a sense of how you would compare the degree or extent of spill response preparedness in the North to what exists generally in the South? Everyone is interested; most people are interested in encouraging further development and exploration and all the economic benefits that could be derived from that, but from an environmental perspective, are we ready for it? Are we prepared? Could you give us some sense of that spill response preparedness in the North, as was reviewed and recommendations made by the NEB? What is your response to that?
Mr. Fox: In the offshore Arctic right now there is very limited spill response capability prepositioned. What the expectation would be, and this is borne out by some of the filing requirements in the Arctic review report itself, is for the company to take that spill response with it if it was going to drill in the Arctic. No offshore drilling has taken place in the Arctic for many years. A well was drilled in 2005, but it was drilled through land-fast ice, and at that time, the emergency response capability was all taken up by the company and positioned around the well, including another drilling rig to drill the same-season relief well if one were necessary.
So we would expect the company to come with a spill response plan and an emergency response plan and program that would take all the capability and need to respond with it when it went to drill.
Senator Wallace: Because of the very unique circumstances that exist in the North and drilling that could take place offshore in the North, did the NEB's recommendations take into account those special circumstances? Are there recommendations that would relate specifically to the climatic and ice conditions? I would think it would be impossible to simply carbon-copy the drilling requirements that might exist in the Gulf of Mexico and say that we'll apply those to the Arctic. Did the NEB's analysis and recommendations take that into account?
Mr. Fox: Yes, they do. For drilling and drilling operations, the board has a regulatory framework that focuses on the company having an appropriate assessment and mitigation of all the hazards it may face. Whether you're drilling in the offshore of Newfoundland, Nova Scotia, the Gulf of Mexico or in the Beaufort Sea, the hazards are different. So once the hazards are identified, we find appropriate mitigations for those.
When a company comes forward to propose a drilling operation, we would look to see if the company has identified all the specific hazards that come with, not just the generic location, but the very specific location — when is ice expected to come and what environmental and weather conditions bear — and have a program that will manage all of those hazards to an appropriate level.
Senator Wallace: Did the work of the NEB consider the need to have comprehensive baseline environmental surveys done for areas that border the Arctic waterways? What is the state of that today; do those exist?
Mr. Fox: A Beaufort regional environmental assessment is under way. It is a multi-government agency project to provide some of that baseline environmental information for the Beaufort Sea area. For areas adjacent to the offshore, I'm not personally aware of what the state of baseline environmental information is, but some of it would come up through things like the "Inuvik to Tuk" highway environmental assessment process that was completed last year, I believe.
In terms of the board looking in the Arctic review whether that information was available, the Arctic review was focused on whether the board's regulatory framework was sufficient to be able to evaluate an application for drilling in the Beaufort Sea. We found that it was; certain specific filing requirements would be needed from a company coming up, and certain engagement activities would have to take place to ensure that people living near the Beaufort Sea have a part in being able to express concerns and have those concerns mitigated.
We didn't turn our mind to whether the environmental assessment information would be available, but if it were not available, that would be a reason for the board to either deny or condition the approval until that information was available.
Senator Wallace: Would you not think that establishing a regulatory framework to approve offshore exploration, in establishing the conditions that would apply to that regulatory permitting, would have to consider what the impact would be if an incident occurred on the land that adjoins or is in proximity to the area being drilled? Wouldn't that be something the NEB would consider?
Mr. Fox: Absolutely we would consider it. The responsibility of putting that information in front of the board at the time the board is asked to make a decision is the responsibility of the company. So the company would conduct an environmental study and bring up whatever information it thought was necessary to demonstrate that, if a spill were to happen, it would not have negative effects on people or the environment. They would file that study with the board, and there would be a comprehensive evaluation done by our expert staff. Recommendations would be made to the board, and the board would ultimately decide whether the authorization should be issued.
The Chair: I have a couple of questions for Ms. Milutinovic. You stated that marketable conventional gas resources in Canada's North are expected to be 117 trillion cubic feet. We had a witness recently who told us that the North holds 38 per cent of the proven reserves of natural gas in Canada. When I read your number, that's a little closer to what I think it is, and I don't believe it's 38 per cent. I could be wrong. Could you tell me?
Ms. Milutinovic: I don't know what the 38 per cent number was. The 117 trillion cubic feet is an estimate of ultimate resources in the North. The latest estimate of ultimate resources for the Western Canadian Sedimentary Basin is 632 TCF, and that number has skyrocketed since 2010 because of assessments reasonably done that include non-conventional resources.
So the board and governments of B.C. and Alberta recently did an assessment of the Montney Formation and estimated that the recoverable marketable reserves from that play were 449 TCF. So out of that 632, 449 are Montney. There is another 78 of non-conventional resources that would be the Horn River formation. Those two are a significant component of that 632.
But the 632 TCF is estimated to go up further in the next few years because of assessments of other non-conventional resources that are not included in that number — the Duvernay shales, the Deep Basin in Alberta, the Liard Basin and so on. So that number is moving quickly.
The Chair: I'm aware of that. I live in Fort St. John and have been involved in the oil and gas industry most of my life, so I was surprised by the numbers provided to us. What you're confirming to me is that the numbers that Canadian department had are out of date. This was Aboriginal Affairs and Northern Development Canada. Do you share that information so everyone is kept up to date on what's taking place?
The other one that amazed me was that they said 35 per cent of the proven reserves for oil were in the North, and I'm having a hard time reconciling that because of the oil sands alone.
Ms. Milutinovic: Right. Again, I don't know the numbers they're quoting, but when you look at the ultimate potential for oil for all of Canada, the number is 339 billion barrels, and I'm rounding to the nearest billion. Of that, 306 billion are oil sands, and 12 billion are resources in the North of which 1 billion have been discovered to date.
The Chair: That tells me there needs to be better sharing of information between departments so that when they actually give us numbers, they're the correct numbers. And that's not your responsibility but it ought to be someone's.
Ms. Milutinovic: All of the estimates we have are publicly available.
The Chair: So I could just tell them to go to the website to get the right ones.
Ms. Milutinovic: Again, I don't know what they were quoting.
The Chair: I gave you the numbers that they quoted, and that's on the record.
You say there is less information about recoverable conventional oil in the Canadian North, though recent studies by the U.S. Geological Survey indicate it could be over 10 billion barrels. Why would it be the U.S. Geological Survey providing those numbers for Canada's North? Help me a little bit, please.
Ms. Milutinovic: I asked that same question. Apparently that’s the most recent. That estimate was done in 2008, and it's been updated. The Geological Survey of Canada has done other work as well. I don't believe it's as recent and it hasn't been aggregated and published, to my knowledge, so that was why the U.S. geological survey number was used.
The Chair: Are you saying that the geological survey of the United States actually did work in the Canadian North to come up with these numbers, or did they work off maybe some of the stuff in Alaska? I'm not sure.
Ms. Milutinovic: I believe that they did work in Canada to do that, but I could confirm. I understand that they looked at the entire Arctic.
The Chair: Okay. Thank you.
Secondly, Senator Massicotte brought this question up earlier and I'll ask you also. Where I live in Fort St. John, we're tied into the world market for oil through Vancouver. We're tied into the North American market for natural gas and have been for 50 years. It’s the same with Alberta. I'm always told by the industry that it is way more expensive to develop oil and gas in northeastern British Columbia than it is in Louisiana or southern Alberta or southern Saskatchewan. I can understand that. When I look at the map and go further into the Arctic and think about the weather conditions and all of the lack of infrastructure, none of that is in place other than a pipeline from Norman Wells.
What would you say has to happen to actually get at some of those reserves? Is it that they're looking for the big oil find that would actually do it, these major companies, or is there something that government should do? Norman Wells is there because of a war, to be perfectly honest, and the Canol oil pipeline was to go to Whitehorse when it was originally designed but was canceled. That oil comes to Alberta now to be refined. Is there something that government has to do?
I'm puzzled as to how we get at those reserves when natural gas is priced on the North American market and oil is priced on the world market. Natural gas could change with the advent of LNG, obviously, and it probably will, to go to more a world price. What's your take on what it would take to actually develop not the offshore, because you can get at that a little better, but the onshore reserves in the North, and all of it, not just the Northwest Territories, but Nunavut and the Yukon?
Ms. Milutinovic: I wouldn't want to speculate on policy. It's not the board's role to make policy. If reserves are found in significant enough quantity and a location that it can be produced economically, then it will be tied in. I wouldn't want to speculate beyond that.
The Chair: What you're saying, and what I believe, is that the economics are going to drive totally whether that is developed or not in the near future. If you go into the High Arctic and start drilling for gas, to build pipelines and so forth to connect to the world market actually is very expensive. The price you receive for the product is the same whether you develop it in Louisiana or southern Alberta or the High Arctic.
Ms. Milutinovic: Yes, essentially.
The Chair: Thank you.
We have no one else that has any questions. We appreciate your responses very much. Thank you for being with us today.
(The committee adjourned.)