Proceedings of the Standing Senate Committee on
Transport and Communications
Issue No. 5 - Evidence, September 21, 2016 - Morning
CALGARY, Wednesday, September 21, 2016
The Standing Senate Committee on Transport and Communications met this day at
9 a.m. to study the development of a strategy to facilitate the transport of
crude oil to Eastern Canadian refineries and to ports on the East and West
Coasts of Canada.
Senator Michael L. MacDonald (Deputy Chair) in the chair.
The Deputy Chair: Honourable senators, on behalf of the committee, I
would like to express our pleasure at being here in Calgary this morning.
This morning the committee is continuing a study on the development of a
strategy to facilitate the transport of crude oil to Eastern Canadian refineries
and to ports on the East and West Coasts of Canada. This study began last March
with the objective to find a better way to bring Canadian oil products to
We are pleased to be in oil country and hear from individuals close to the
industry, versus the limited view we receive in Ottawa.
On Monday, the committee held some very productive meetings in Edmonton, and
we are pleased to continue our deliberations here today.
I would like to introduce our first panel: from the National Energy Board,
Peter Watson, the Chair and CEO; Josée Touchette, the Chief Operating Officer;
Sandy Lapointe, Executive Vice President, Regulatory; Robert Steedman, Chief
Environment Officer; and Shelley Milutinovic, Chief Economist.
I'd ask the board to begin their presentations and then the senators will
have questions. Go Ahead, Mr. Watson.
Peter Watson, Chair and Chief Executive Officer, National Energy Board:
Thank you very much, Mr. Chair.
As you indicated, I'm the Chairman and also Chief Executive Officer of the
National Energy Board. No doubt you've heard a lot about the National Energy
Board in recent weeks and months, especially as it relates to our quasi-judicial
functions. So I want to begin by reminding the honourable members of the
committee of what we also do beyond our hearing applications for new and major
As Canada's national energy regulator, we regulate interprovincial and
international pipelines and facilities to protect the safety of Canadians and
the environment throughout the full life cycle of the infrastructure, from
construction straight through to their eventual abandonment.
The NEB has four core responsibilities: energy project adjudication, safety
and environmental oversight, energy information, and engagement with the public
and indigenous peoples throughout the life cycle of the regulated activities.
Canadians care very deeply about protecting their local waterways, about
protecting the lands that they value from the potential risks associated with an
incident at a pipeline. Any strategy to facilitate the transport of crude oil to
Eastern Canadian refineries, and to ports on the East and West Coast of Canada,
will require public confidence in the regulatory oversight of pipelines.
For governments and regulators, we need to allow sufficient time to engage
and to listen to the public and indigenous peoples before we make decisions on
projects. We understand that Canadians must have confidence that review
processes are open, accessible, fair and science-based.
The issue of public confidence was at the forefront of our hearings into the
Energy East and Eastern Mainline projects. As you know, a recent decision was
made by three panel members to recuse themselves, in addition to myself, as
chair, and the vice chair, recusing ourselves from our very limited and specific
The board members in question all acted in good faith. Their recusals, as
well as mine and the vice chair's regarding our specific administrative duties
on the file, were done to preserve the integrity and the credibility of the
board's decision-making process. Once a new panel is appointed, the review of
the two project applications will proceed and will get completed.
I want to be clear that the events from Energy East and Eastern Mainline must
not deter us from our vitally important engagement work with citizens and
communities across the country. We at the NEB know that we need to get better at
meeting, listening and talking with landowners, with communities, with
indigenous peoples regarding the infrastructure that we regulate throughout
their full life cycle. We know that people care that this infrastructure is
operating properly and safely, and that they need to understand that our
oversight is effective.
Building public trust has been, and continues to be, my core focus at the
NEB. As such, we have committed to an ambitious transformation agenda within our
existing legislative framework to make us better and to align our resources to
our priorities. The government's modernization review also provides an excellent
opportunity to engage Canadians on the NEB's role and mandate.
A key component of our transformation agenda is improving our life cycle
oversight activities, and how we measure and report on these activities to
Canadians because they care about the safety of the infrastructure in their
In the 2015-16 fiscal year, we completed more than 175 inspections. We
conducted 19 emergency exercises. We conducted five comprehensive operational
audits of all components of a pipeline company's management system. We issued
161 notices of non-compliance. We issued 10 safety orders; several of them were
new and seven of them were amending, and that is to ensure the safety of the
infrastructure. And we issued five administrative monetary penalties.
Our new draft Departmental Results Framework will better enable Canadians to
measure and assess our performance in a comprehensive way. We're putting
together a framework to allow the public to have the tools to assess us and to
give us the feedback that we need to look ourselves in the mirror and assess
whether we are good enough, and help us understand the actions we need to take
to better meet the public's needs and expectations.
We've undertaken numerous transformation initiatives in the areas of safety
and environmental management. We recently began posting emergency response
exercise evaluations of regulated facilities; we've required the industries to
post their emergency management plans; and this month, we initiated a process
that will result in companies being required to post their emergency management
program information so that the public can understand how these systems work
inside a company and how they work if anything happens.
Using data visualization technology, we're also finding better ways to share
complex information and tell Canada's energy production and consumption story.
We're making this information accessible to Canadians so they are better
informed to be part of the dialogue around energy issues.
Of particular interest to this committee is our energy information function
and the work that we do to provide forecasting data through our Canada's
Energy Future publication, which assesses various production and
transportation scenarios over time.
We forecast that production from the oil sands will continue to grow
significantly in the next decade at least. In our reference case forecasts from
our report early in 2016, we forecast Canadian oil production to grow by about
56 per cent from 2014 levels through to the year 2040.
We evaluated a constrained case model where no new major oil export pipelines
are built between now and 2040, and, in that case, more than 1.2 million barrels
per day of oil is moved from rail by Western Canada to the U.S. and Canadian
coasts. To give you a bit of perspective, this is about ten times of the amount
of crude that was carried by rail in the first quarter of this year.
The transportation of crude oil is based on an integrated system that
includes pipelines, rail and tankers. An energy strategy must consider the risks
and benefits associated with all the various modes of energy transportation.
The NEB does not take a position on which might be the best way to get these
resources to tidewater, and that's because our job is to determine whether we
believe a project application in front of us is in the public interest. After
we've completed that review, it is up to the Governor-in-Council to decide
whether the project goes ahead.
Canadians deserve and demand an energy regulator that is focused on pipeline
safety and environmental protection, one that listens and one that engages with
Canadians throughout the full life cycle of its regulated activities. In this
context of life cycle regulation, we will continue to act as stewards of the
Although the NEB has a critical role to play, industry also has to expand
their efforts to address environmental concerns and to continue advancing
technological and safety improvements related to energy transportation. As the
committee studies the important issue of energy transportation, it is important
to consider how to build confidence in processes to assess projects and oversee
their safe operation. Meaningful dialogue with the public and indigenous peoples
At the same time, it's important to also understand that the NEB's process is
only one part of the broader energy system in Canada. There are other issues
outside of the NEB's mandate that are very important to the public; for example,
climate change and the rights of indigenous peoples. That is why we welcome the
work that the federal government and the provinces have undertaken to tackle the
issue of climate change, and it's also why federal leadership to consult
meaningfully with indigenous peoples is critically important.
Thank you for allowing me to provide this brief overview of who we are, where
things stand now and some perspectives on what the future holds. We look forward
to answering your questions.
The Deputy Chair: Thank you, Mr. Watson.
We will now to turn questions.
Senator Mercer: Thank you for being here with your colleagues.
The job of the National Energy Board is an extremely important one and one
that Canadians from time to time like to forget, but when they remember, they
usually remember it with a bit of a vengeance. But your job is important; it
You talked about public confidence and about allowing time for public input.
What's the right amount of time?
Mr. Watson: Thank you very much for the question.
The first thing I want to say is that our role is to regulate in the public
interest; yet, at the same time as we do that, we recognize that public
confidence in how projects are assessed and operated in Canada is critical, and
that participation in our reviews, as we seek to understand what the public
interest is, is critically important.
We operate within the parameters of the mandate we've been given under our
legislation. Within that mandate we are required to complete a review within a
specified period of time. But what I want the members to know is that we work
diligently. Our members act diligently all the time to ensure that anyone who is
directly affected by the project application, anyone who has relevant
information or expertise to share — those are the two tests for participation in
our mandate, and that anyone who can meet those tests is provided an opportunity
to participate over the course of our review.
Our reviews under the NEB Act have been identified to be completed for major
projects within 15 months, and we believe that our processes can provide for
comprehensive and sufficient engagement of the public within that time period or
any extension of that time period that the government would give us.
At the same time, I want to come back and say something I said in my earlier
remarks. We know that we're operating in a context today where there are
significant issues of concern to Canadians, many of them outside our mandate. So
we recognize that we operate within that arena, and many of those issues are
coming to our door. What we're trying to do, within the time limits for our
review, is to ensure that all of the information that people have to provide us
is properly on our records so we can make a decision. Our members care deeply
about hearing from people who are affected by these projects.
Senator Mercer: I appreciate that. It seems to me, though, that
building public trust on occasion will come up against a wall where trust cannot
be built on certain issues and it will come up against the need for government
leadership, because governments need to lead; governments need to manage the
economy. We're in a situation now where we have a tremendous product to sell the
world, but we're only selling it to one customer. For the future of the Canadian
economy, not just Alberta's or Saskatchewan's or Newfoundland's economy but the
Canadian economy, we need to be able to say — so that may come to a head when
recommendations come. For example, if the recommendation came that we not
proceed with one or the other, government may then have to take the bull by the
horns, if you will, and say, "Thank you very much, but we are going to approve
this or that." How does the board then deal with that kind of a reaction?
Mr. Watson: I would bring you back to our mandate. In the context of
the debate around energy policy and energy systems in the country today, and
transition amongst forms of energy, our duty to Canadians is to review and
assess a particular project and come to a conclusion as to what we believe is in
the public interest. We do that by considering generally the nature of the
benefits from the project and trying to understand as completely as possible the
nature of the burdens that the project might create. That's generally how we do
it. We try to assess the overall benefits and the overall burdens. At that
point, we've satisfied our duty and it is the government's decision as to
whether a project should go.
Senator Mercer: You mentioned pipeline inspections. This is an issue
that will need to be addressed and clarified with the public, to build that
public confidence that you talked about earlier.
Can you give the committee a summary of how many inspections you've had? Are
the inspections prompted by complaints or are they just regular inspections?
What happens when an inspection finds a problem? Tell us how this works.
Mr. Watson: One of the areas on which we have focused a tremendous
amount of effort is providing transparency around our inspections and the
results of those inspections to Canadians. Within the last year, we have begun
posting all of our inspection reports on our website so that Canadians in those
communities where we're inspecting facilities can see —
Senator Mercer: Does it get publicized at the local level? I mean, I
don't have a pipeline going through my community, so I don't see it.
Mr. Watson: We're actively engaging with communities across the
country to help them understand what we do and how we do it, and we want them to
know that they can have access to all this information. Every inspection report
is posted publicly.
Our inspections are driven by a variety of factors: our assessment of the
risks associated with the facility; the nature of the terrain that it's going
through; the nature of the products that are being carried in that line. All of
those things cause us to look at different facilities and different places
slightly differently, but we do an assessment of that and then we identify where
we need to prioritize our inspections.
They also are driven by inquiries from the public. If we get questions about
a piece of infrastructure, we'll go out and look at it. I would just say that
we've taken tremendous steps in the course of the last year to be a more
Sandy, do you want to elaborate on any of that?
Sandy Lapointe, Executive Vice President, Regulatory, National Energy
Board: As Mr. Watson talked about the consequence of facilities, I would add
that we use a risk-informed model to make sure that all of our oversight
activities are based on risk and driven by areas of risk, so consequence in
terms of the facilities themselves as well as performance of the company.
We do an analysis. We look at where there are specific issues associated with
companies, and we will be visiting those areas or companies more often.
From a follow-up perspective, when we determine a non-compliance, it's public
and it gets posted onto our website with our inspection reports, and then we
follow up to bring that company or facility back into compliance as soon as
Senator Mercer: Thank you.
Senator Black: Mr. Watson and your colleagues, thank you very much for
being with us this morning. I'm very appreciative and I know the committee is
Mr. Watson, before I get to my questions for you, I have a couple of
observations. I want to start by thanking you for your very honest reflections
that you've shared with us this morning around how to improve the work you're
doing. Whether it's the National Energy Board or, God forbid, the Senate of
Canada, there is always work we can do to improve. I very much appreciate an
open recognition that we're all just simply trying to do better. Thanks very
much for that.
Before going to the Senate, as you likely know, I practised energy law for
close to 40 years. I've had many opportunities to work with and observe the work
of the National Energy Board. I would simply say to you that Canadians should be
proud of the work that is done by the board and has been done by the board for
There is a reason the National Energy Board is considered one of the leading,
if not the leading, regulatory body in the world. While it's easy to criticize —
and, goodness knows, we all learn from criticism — I want you to know that the
work that you and your colleagues are doing is important for Canada and is
appreciated, at least by me, and the constituency that I represent.
I have a couple of questions. In terms of Energy East, are you able to
provide us any information on a timeline for appointment of the three new
commissioners and then a timeline for when the hearing will recommence?
Mr. Watson: I just want to start by acknowledging your comment and
also indicate that I, myself, am very proud of the institution and the members
and staff of the institution. We've got 450 people who show up at work every day
with the interest of ensuring pipeline safety, ensuring protection of the public
and protection of the environment. That's the passion of our organization.
We recognize we have things we have to improve on, and we're embarking on an
agenda of improving them and being quite aggressive about how we do that.
Having said all that, we have had an issue with Energy East. Now, I can't
provide any certainty on the timeline because the appointment of the members
falls within the purview of the Governor-in-Council. We are awaiting the
appointment of those members so that a new panel can be struck.
I can assure the members that we will move expeditiously once that new panel
is struck to get them the information and the analysis that they need to restart
the process and get us back on track and proceeding properly through their
Senator Black: Thank you. So your commitment to us would be that while
you don't control the appointment of the new commissioners, you will be ready to
go the next day.
Mr. Watson: Absolutely.
Senator Black: Thank you very much.
You gave two very important pieces of evidence or information that I would
like to review with you. You talked about, and if you would just review again,
your board's projection for the increase in the production and consumption of
oil to 2040. Can you just revisit that for us, please?
Mr. Watson: Sure. What I'm going to do is ask our chief economist,
who's intimately familiar with these details, to give you some perspective.
Shelly Milutinovic, Chief Economist, National Energy Board: The energy
futures analysis, which is our projection going usually 25 years forward, is the
only free one available in Canada. Our latest version shows an increase in
Canadian production going from about 3.9 million barrels a day now to 6.1
million barrels a day in 2040. That's a reference case. There are different
Based on that projection, we're looking at needing about 900,000 barrels a
day from increased Western Canadian production between now and 2020, and more
than 2 million barrels a day by 2040.
Senator Black: Can you review as well what you said the results would
be, given that information, if there are no new pipelines approved?
Ms. Milutinovic: If there aren't new pipelines, we did that scenario.
We called it "the constrained case," and it showed that there would be about 1.2
million barrels a day going by rail. But rail is more costly, so from a
producer's perspective, the netbacks are lower, the money that the producers get
is lower, and so there's lower production by 2040 by about 500,000 barrels a day
in that case. There is a bit of a hit on GDP; there is less production over
time; and there's about $100 billion cumulative less investment in the oil and
gas industry over that period.
Senator Black: I want to hit those last three points again for the
record. You're saying that if no new pipelines are approved, the National Energy
Board is of the view that there will be — what drop in GDP?
Ms. Milutinovic: I could get you the number for Canada. For Alberta,
it's 1.7 per cent less by the end of the period.
Senator Black: The differential in investment would be how much?
Ms. Milutinovic: Just over $100 billion.
Senator Black: That would be $100 billion?
Ms. Milutinovic: Billion, in our reference case.
Senator Black: The decline in production of barrels per day you said
would be about 500,000 barrels?
Ms. Milutinovic: That's right.
Senator Black: Are you able to extrapolate that to jobs?
Ms. Milutinovic: I don't have that number.
Senator Black: Thank you very much.
Mr. Watson: My apologies, Mr. Chair. I just wanted to add one point
for the senator's reference. When we undertake these market assessments — and
Shelley can help me — I want the members to be clear that we're not taking a
position on whether a project should go forward or not —
Senator Black: No, we understand.
Mr. Watson: — because we are in a position of doing a review, but our
models assess the issues in the markets, including price, and it's the price
determinants that drive our assessment of the implications, not a view on
whether a particular project should proceed or not.
Senator Black: I understand completely.
Ms. Milutinovic: Those forecasts are based on a few key assumptions,
one of which is that markets will be found and that there's no new policy. So
new policies that aren't currently in law or near law are not included in those
Senator Black: I understand. We're looking a long way out.
Senator Tannas: I have one question for you, Shelley, following what
you were talking about in your extrapolations. Would 6.1 million barrels a day
by 2040 be Canada's production or potential production?
Ms. Milutinovic: In the reference case.
Senator Tannas: What would the world daily production be under that
Ms. Milutinovic: We don't look at world production when we do our
analysis. We're just looking at Canada.
Senator Tannas: So we're just looking at what we could produce based
on what you see to be construction under way and so on; is that right?
Ms. Milutinovic: Right, and based on demographic drivers, economic
drivers and prices.
Senator Tannas: I have a couple of very general questions. Mr. Watson,
you mentioned the real emerging issues that are overlapping your work,
specifically climate change and the expansion or the recognition of indigenous
rights, strengthening of indigenous rights.
Is your mission statement, your mandate, sufficiently clear that will keep
you out of the ditch in terms of all of these potential players having to
suddenly take these things into account and begin to factor all of these in the
decision so that we wind up with too many cooks in the kitchen? Is your mandate
sufficiently narrow and sufficiently clear that you feel you can steer clear, to
the extent you need to, of these other issues that are out there, and continue
to do your work in a timely fashion?
Mr. Watson: I think our mandate is clear that our job is to review and
assess the project in front of us, which is the pipeline. As I indicated, there
are other issues that are swirling around us. We will continue to stick to our
mandate and discharge our mandate appropriately in accordance with our
I know there are other issues. As I said, governments are working on them,
and we welcome and we'll do whatever we need to contribute to those other works,
but our job will be to stick to our mandate within our legislation.
Senator Tannas: You don't feel any need to change/clarify your mandate
in order to continue to do the work you're doing in a timely fashion?
Mr. Watson: Our mandate gives us the robust tools that we need to do
our job and to assess and understand pipeline safety issues. Those things are
clear. We feel pretty confident that we have the ability to do that.
We know that the government is undertaking a review of NEB modernization and
we've indicated that we welcome that review. Our legislation does date back; its
beginnings were back to the late 1950s and early 1960s. While we have the tools
to do our job now, I think it's also a fair thing to do to just take a look and
see what needs to be considered, as it is an old piece of legislation.
We will contribute to that review as appropriate, but I want to assure the
members that we have the tools that we feel that we need to do our job relative
to the oversight of projects and assure safety of this infrastructure across the
Senator Tannas: My next and final question is really around improving
engagement with the public but also with indigenous people. I'm curious to know,
in your vision of improving engagement, what specifically that will look like.
Can you point to a specific change that you're going to make or even your
process that will highlight that?
I also wonder — it's just my own ignorance — do you do site visits? If
there's a proposed pipeline, are you walking up and down in the trees and
looking at the river crossing and so on and engaging to that degree with folks?
Maybe you can just give us a drive-by on both of those, the improvement and
what you do now.
Mr. Watson: Sure.
To quickly answer your last question, yes, we do site visits. We do our
inspections. If our staff needs to understand the terrain or the geography of a
particular location, they won't hesitate to go out and look at it and understand
The issue of engagement has become a topic that's discussed. I want to be
clear that all of the literature and some of the recent research that has been
done in a variety of forums point to the fact that regulators should be engaging
with the citizens, the communities and the stakeholders that they interact with,
and being isolated from people is not the way to go. We know that through the
research that was done recently by the University of Pennsylvania for the
Alberta Energy Regulator. We know that from the work that has been done at the
Engagement is not an option. We need to connect with people in communities
and stakeholders and be able to understand their issues and their concerns
One of the things that we are working on right now, a new potential, is how
can we better engage with indigenous peoples throughout the life cycle of the
infrastructure that crosses their traditional lands and territories, and how can
we open up our processes better to allow those communities to understand what is
going on, the performance of the pipelines, and be able to actively engage with
us on the questions and concerns that they may have.
That area was referenced in one of our recent decisions on a project where we
need to put in place a framework between the industry, indigenous peoples and
the NEB regarding their involvement in life cycle activities and oversight.
That's an area that I'm personally spending much of my time now, creating the
conditions for that kind of discussion with indigenous peoples to occur so we
can move forward.
Senator Tannas: Thank you.
The Deputy Chair: I'll have a few questions now, Mr. Watson.
Senator Tannas touched on this. It was the first question I was going to ask,
whether there are any deficiencies in your mandate, and you seem to be
comfortable with the scope of your mandate and what's included in it.
I want to bring up something that I think is a deficiency. You touched upon
it today. You used the buzzword that everybody always uses when it comes to
moving petroleum: "tidewater." It's a great landlocked term I hear in Canada. A
lot of people in Central Canada love to use the term "tidewater," but there are
many forms of tidewater.
I know that the National Energy Board has the mandate for managing the
movement of petroleum through pipelines, but pipelines go into ships' bottoms
and they go into the water. We had a situation where there was a proposed
terminus in Quebec that was eventually shouted down. I have to confess, I don't
support a terminus in Quebec. I don't think we should be exporting heavy
petroleum out of the Gulf of St. Lawrence, just like I don't think we should be
exporting heavy petroleum out of the Bay of Fundy when there's a perfect port in
Point Tupper in Cape Breton to do it, a more appropriate place.
Do you think that the National Energy Board has the proper mandate when it
comes to the issue of tidewater?
Mr. Watson: I want to make one comment first before I go to your
I wasn't intending to imply that there wasn't anything that should be looked
at. I know that the government is proceeding with its review and, as I said,
because we're an old framework, I think it deserves an opening-up and a refresh.
I just wanted to assure you and assure Canadians that we have the tools that
ensure that we can deal with pipeline safety issues today. We don't see any
issues that we cannot deal with, but I think there are a number of things on the
government's terms of reference for the review around the issues of governance
and other things, and it's quite appropriate to look at and see if we're
Having said that, I really don't want to speculate on what the outcome of
that would be. I need to come back to our mandate as it exists today, to review
the pipeline project, and that's what we have authority for.
Other jurisdictions and other agencies have the mandate in the offshore for
the issues around regulation in the marine environment and regulating safety.
I'm aware that there are other jurisdictions and other agencies that do that.
So we're sticking to our mandate, and as a result of all the discussion that
goes on, if our mandate changes, we will faithfully implement whatever the
government asks us to do.
Senator Mercer: As you examine the applications for the pipelines, and
you talked about the pipelines crossing certain lands and, in particular, those
lands owned or controlled by Aboriginal people, one of the things in my
discussions with leaders in the Aboriginal community that they're constantly
concerned with is the long-term effect on the community, not necessarily from an
environmental point of view, but more from, well, "What are we going to get out
Are we asking the questions of people proposing pipelines, "Are you going to
employ Aboriginal people? Are you going to train young Aboriginal people to do
the job of building and maintaining pipelines?" Because that's where the rubber
meets the road here, it's in Aboriginal communities. What's going to be left
behind, not just the fact that there's a pipeline going across the land, but
who's doing the job?
Are those questions that the board has been asking or will be asking as we
proceed? To me, this is a critical thing. Jobs and education are key, in my
mind, to the continued development of our Aboriginal people, and this is an
opportunity that comes along only once in a lifetime.
Mr. Watson: That nature of socioeconomic information is information
that we seek through our application review process and, obviously, in terms of
the broader assessment of the public interest on a particular file, all of that
socioeconomic information is a consideration that our panelists need to have.
I'm going to ask Dr. Steedman just to speak to some of the specifics of the
information that we require companies to bring forward as part of their
Robert Steedman, Chief Environment Officer, National Energy Board: To
your questions, Senator Mercer, the process starts in the National Energy
Board's filing manual, a very extensive list of information that the board
expects to receive from applicants, and things like, have you engaged everyone
who may be affected by the project along the route, in particular, indigenous
Aboriginal communities? The specific question of job opportunities and training
is always in that mix. The board will ask for evidence as to what the company
heard from the communities along the way and how the company modified their
project design to accommodate those interests. We often see, and we have seen in
recent board recommendation reports, conditions, which have the force of
regulation if the project proceeds, requiring companies to inform the board on
their practices and success in employing indigenous people and their commitments
to ongoing education, not just during construction but during the whole life
So this is the beginning, and the companies understand this; this is a life
cycle issue. It's part of working with communities. Education, training and
employment opportunities are increasingly in the mix, and it's exactly as you
described: environmental monitoring, and ongoing work on the projects and
construction opportunities, which is a big part of it as well.
Senator Mercer: Governments continue to talk about infrastructure
projects being a driver of the economy, and this is the biggest infrastructure
project which will require no government money, but I think there are great
opportunities for social development and economic development amongst our
Aboriginal peoples, and to date, I've not seen any great evidence that the
players have put on the table great plans for our Aboriginal people to involve
them in the process. That's my comment, as opposed to asking you a question.
My next question, though, goes to a point that my colleague Senator MacDonald
brought up with respect to the environmental effect of when the product hits
tidewater. I wasn't clear on your answer, or maybe I missed it somehow.
Senator MacDonald and I are both from Nova Scotia, so we don't make any bones
about where we think this Energy East pipeline should end. Yes, it needs to go
by Saint John, New Brunswick, in some form, with a line going up to the very
large refinery, but the use of the Bay of Fundy as the terminus for the product
coming from the west is a very risky thing.
The Bay of Fundy is environmentally sensitive, with the highest tides in the
world. Those tides are extremely powerful and can do a lot of things, but are
also environmentally sensitive. It is the summer home for some very important
species of whales — whales that are huge. It was described to me that they're so
big that, even when they see there's a ship in their way, they can't move fast
enough to get out of the way. We're going to be adding a bunch of ships to this
very sensitive area.
If we get to the point where we're down the road and we're talking about
where the terminal is going to end, whether it be in Saint John or Point Tupper
in Nova Scotia — by the way, the other important thing to recognize when you do
this is that Point Tupper right now is the entry point for a lot of the
petroleum products that we already import in the East. The storage tanks are
already there. As Senator MacDonald likes to point out, there's a gas pipeline
from Sable Island, and sooner rather than later we'll run out of product coming
off Sable Island. So we may be able to jump-start the program by reversing that
Can you tell me what the board will look at — and I don't want you to
pre-judge what the board will say — but what type of decision can we anticipate
in the case that I presented, Saint John versus Point Tupper?
Mr. Watson: A good reference point would be to look at the board's
review and recommendations on the Trans Mountain expansion that has been
concluded and currently sits in front of the Government of Canada, and this will
help me clarify my answer to Chairman MacDonald.
In that instance, our panel clearly looked at the marine issues and the risks
associated in the marine environment to help them conclude whether the project
as proposed by the proponent was in the Canadian public interest. So they do
look at those issues in coming to a consideration as to whether this is in the
broad Canadian interest. They had plenty of evidence on their record in that
proceeding regarding the issues in the marine environment and the risks and
challenges associated with that, and they drew a conclusion based on the
evidence in front of them.
But what I want senators to be clear about is that if that project were to
proceed, the NEB will not be regulating tanker traffic and tanker safety because
that's not our jurisdiction.
Senator Mercer: But will you comment?
Mr. Watson: We will support Transport Canada and the responsible
authorities with whatever they need from our infrastructure and our information.
Our responsibility from a jurisdictional perspective ends once the ship has
been loaded at the dock. That was the fine point I was trying to raise, but I
want to assure you, and I would just take you back to that example, where those
considerations from a position of whether or not this proposal is in the public
interest is most certainly looked at.
Senator Mercer: Okay. I heard your answer this time. I understood it.
I'm not sure that I liked it.
Senator Black: Mr. Watson, I have a further question on a comment you
made respecting engagement. You indicated that you're of the view, and I would
completely concur, that it's extremely important that the board engage with
communities, broadly defined.
In light of the recent circumstance involving Energy East and the outreach
that was being undertaken by panellists, are you able to inform us as to what
learnings you've taken from that and how the consultation of board members will
continue, if it will continue?
Mr. Watson: Sure. Senator, I first want to acknowledge that hindsight
is always 20/20. To give you a bit of context, the meetings that were in
question were held in January 2015. That was about 18 months before the
application was deemed complete and about two months before the deadline for
parties to apply to participate in the proceedings. At that time, we didn't even
know who the parties were in the proceeding.
The meetings were held, really, to gain insight from leaders in Quebec on
whom the NEB should meet with during my national engagement initiative. That was
the intent of our meetings. We also wanted to understand how to engage Quebecers
on the issues of pipes and pipeline safety.
Recall that we had just finished a number of months earlier a very
controversial hearing for the reversal of the Line 9 pipeline to supply fuel
into Montreal refineries, and there was a lot of debate in the communities
around pipeline safety, watercourse crossings, valve locations, emergency
management, all associated with this reversal of Line 9, and those are all
legitimate safety issues at a community level. So we were simply trying to
understand better how to engage Quebecers on this initiative as I was advancing
In some people's minds, that created an apprehension of bias, and so, while
the meetings were carried out with the best of intentions, our panel chose to
voluntarily recuse themselves.
To your point, we have learned from that, and we are implementing procedures
and processes so that we can continue to carry out our engagement program, yet
manage the significant risks associated with the potential for apprehension of
bias. Yes, new processes and procedures are being put in place.
Senator Black: Wonderful. I would encourage you, it's key that
decision-makers are in touch with community concerns, but obviously in
accordance with the rule of law.
Mr. Watson: We believe very strongly with that principle, but we're
learning how to do it in the most effective way.
Senator Black: Thank you.
Senator Tannas: I want to just ask for information. There has been
lots of discussion about potential value-add and the idea that we just are dumb
to send our unrefined products off our shores or south of the border.
Do we have a specific or much of a network in terms of refined product
pipelines, where product is being transferred over large distances? I wonder if
you could just give us quickly what the differences are in a pipeline like that
versus crude, around safety, environment, the benefit/burden discussion that you
had mentioned, and are there world examples? If there aren't big examples here
in Canada, are there examples that we can look to elsewhere in the world where
refined product is going to tidewater over great distance?
Mr. Watson: I'm going to make a broad comment in answer to your
question, and then I'm going to ask Shelley and Robert just to supplement on
some of the details that you asked about, the nature of the networks and so on.
I want to first assure the members that we take those factors into account as
we provide our oversight of the pipeline. As I mentioned earlier, one of the
things that we consider when we are doing our oversight and compliance
activities is the nature of the products in the pipe, and whether it's crude
products, whether it's refined products, what is the nature of the batches that
are actually being transported.
All of that factors into an assessment of how we schedule and conduct our
oversight, but I don't want to suggest that that's a major driver, because other
issues are drivers like sensitive locations where the pipe crosses sensitive
watercourse locations, sensitive slopes or terrain that we might be going
through that create risks that need to be managed by the company. All of these
things together are looked at as we conduct our oversight.
I want to turn it over to these two to give you more details on the network
of crude versus refined pipes in Canada, and some of the broader questions you
Ms. Milutinovic: We do have refined product pipelines in Canada, like
Trans-Northern operating in Ontario and Quebec. There's also intra-provincial
RPP pipelines in Canada, and the oil pipelines will do batching of refined
petroleum products as well. So they're moving across the country in different
kinds of pipe.
Mr. Steedman: Regarding risk and consequence, I think there is nothing
good about any hydrocarbon getting out of a pipe anywhere. They all are in their
liquid pipelines; I think from a technical point of view, the liquid doesn't
matter so much. It has to be consistent with the tariff that's approved for that
pipe in terms of physical characteristics, viscosity, et cetera. Those would all
be handled by the operator and the customers they're shipping for.
In terms of risk, there are tradeoffs on all of those things. A more volatile
product will evaporate quicker and have more intense air quality effects for a
short time — diesel fuel gasoline, for example — but then they tend to not
linger in the environment, whereas crude oil or heavier crudes, diluted bitumen,
have varying degrees of volatility. They all have some vapours that come off,
but they weather quickly, and they linger to differing degrees with differing
impacts. Every crude oil is different. They're a natural but ancient product.
There are tradeoffs on all of those things.
Operators need to be prepared and have the capability and the capacity to
respond to all of those circumstances. First responders who are potentially
involved need to know all of those. Our regulations require that kind of
It's a complicated topic, but a liquid pipeline needs to keep the liquids in
it; that's our first priority. As Shelley mentioned, there can be batching of
various kinds, depending on what's coming into a hub, for example, what the
customers are looking for.
Senator Tannas: Thank you.
The Deputy Chair: Mr. Watson, I have a couple of questions to finish
Does the board feel they're getting the support from the federal government
that they expect and deserve in this process?
Mr. Watson: Mr. Chairman, the board takes its responsibility very
seriously and we will continue to discharge our mandate as laid out under the
National Energy Board Act.
As I noted, we recognize we're in the middle of a much larger discussion, and
we are unable at the NEB to actually make decisions on some of those things
because they don't exist within our mandate. I mentioned that some issues are
actively under consideration by the federal government and other governments in
the country, and we're happy to see that occur.
I would just say that we'll continue to discharge our mandate as enunciated
by Parliament to the best of our abilities.
The Deputy Chair: That's a good question to finish on, because we have
a mandate, too, which is to facilitate the movement of petroleum to market. We
believe in it. I would encourage the board; I know you mentioned about measuring
public confidence; it's a very subjective matter of measure. We spend a lot of
time trying to measure public confidence. Three people shouting in a room does
not necessarily represent the public at large.
I would encourage you to stick to your mandate, we're going to stick to ours,
and just remind you that it's not your mandate to be social engineers and try to
worry about what every individual comes to the board with. You have to assess it
and, of course, we encourage you to assess it, but the bottom line is here. This
requires the leadership and the direction of the federal authority in this
country, the federal government.
I encourage you to do your job, get your report to them, and I hope the
federal government has the courage and will use their authority to make the
right decision on behalf of the Canadian economy and all Canadians.
I thank you for being here today. We really appreciate you taking the time.
Honourable senators, I wish to welcome our next witness: from Kinder Morgan
Canada, Peter Forrester, Senior Director of Legal and Aboriginal Affairs
Mr. Forrester, please begin your presentation and the senators will follow
Peter Forrester, Senior Director, Legal and Aboriginal Affairs, Kinder
Morgan Canada Inc.: Good morning, Mr. Chairman, honourable senators.
I've been asked to address this committee on the challenge of transporting
Canada's petroleum products to international markets, what I will call market
access, and its intersection with the concept of what has popularly become known
as social licence. I address the topic from the vantage point of the Senior
Director of Legal and Aboriginal Affairs for Kinder Morgan, the proponent of the
Trans Mountain expansion project.
Trans Mountain is proposing to expand the existing Trans Mountain pipeline
system, which currently transports 300,000 barrels per day from Edmonton to the
West Coast of Canada, to 890,000 barrels a day. The intent of the expansion is
to give Canadian petroleum producers the ability to economically access
tidewater and to sell into the international market instead of to the
oversupplied American market, which is currently the situation. This market
access and increased returns for producers and Canadians generally are obviously
to the significant benefit of Canadians and the economy and the standard of
living of all Canadians.
This committee is studying the topic because, when the desire for market
access runs up against the evolving concept of social licence, we have a
problem, and it's not a little problem. We have a situation where we as
Canadians want reliable, clean, sustainable and affordable energy for the very
items that drive our quality of life and our standard of living: transportation,
heating, the manufacturing of our computers, cars and clothes, and the list goes
We also want, or at least know, that "sustainable" means we need to
transition to a lower carbon world and reduce our reliance on hydrocarbons,
including petroleum. We also know that this transition is going to take decades
and that we will continue to require petroleum for years to come, and as one of
the largest petroleum reserve holders in the world will be selling petroleum to
the world for years to come. We are, after all, a trading nation.
The challenge facing Canadians, its government, businesses involved in or
relying on the energy sector, affected communities and First Nations, is how to
bridge the gap between the legal and the regulatory approval of major resource
projects, which are premised on serving the public interest, with the competing
view of legitimacy and social licence based upon accommodating diverse social,
political, economic and environmental issues. How do we collectively say that
we've met all of the legal and regulatory requirements and we've obtained social
licence such that we can construct major projects?
In the context of major petroleum pipelines, one can easily see how
complicated the situation is. Take the Trans Mountain expansion project, which
proposes to traverse almost a thousand kilometres, two provinces, multiple
municipalities, regional districts, Crown land, agricultural and private land,
small businesses, public roadways and utility corridors, and did we mention it
impacts the marine corridor?
For TMEP to ever become a reality, it must pass the rigorous regulatory
processes and obtain approval set out by the National Energy Board, which you
heard from today, TERMPOL, B.C. Environmental Assessment Office, B.C. Oil and
Gas Commission, B.C. Ministry of Environment, and all of its Alberta
It must comply with the requirements of the municipalities in terms of roads,
buildings and local issues. It must meet the requirements of Port Metro
Vancouver. It must engage with indigenous communities potentially impacted by
Trans Mountain expansion, and work to avoid or mitigate any impacts. Trans
Mountain must fulfill all conditions and commitments to regulators, stakeholders
and indigenous communities throughout the life of the project.
Once we fulfill all of these legal and regulatory requirements, which to date
have taken the better half of a decade, it begs the question: Do we have social
licence to build the Trans Mountain expansion project? By "social licence,"
people mean you need something over and above regulatory approvals or formal
permission or permits to do something, which in law is how we understand
"licence." It is a formal granting of some approval. Social licence, on the
other hand, really means community approval or general or local acceptance.
Herein lies both the opportunity and the threat of social licence. The
opportunity is that the concept requires companies like Trans Mountain,
regardless of what permits or approvals it has in hand, to ensure it is
continuously working with governments, regulators, communities and indigenous
groups to understand their concerns and address them as they arise. It is an
acknowledgement that project proponents, governments, regulators and
stakeholders and those impacted by projects must work together to address
social, economic and environmental matters raised by the project in question to
the general satisfaction of those involved.
The threat lies in the fact that there are two sets of interest that proffer
up social licence as a requirement for a major project to proceed. The first are
those who work in what I will call the opportunity arena where they're trying to
solve some complex and competing claims to social or economic or environmental
The second and the more troubling area is those who proffer social licence
that they self-define as a veto over major projects. Those in this category
oppose resource development for philosophical reasons, refuse to engage in good
faith in the work it takes to compromise on matters related to energy
development, and are intent on exercising what I will call their "social licence
veto power." It matters not that the veto power they wish to exercise may
actually be diametrically opposed to the public interest and it serves the
social licence proffers' philosophical goal only.
The threat posed by the social licence concept, as it relates to major
pipelines, is compounded by what petroleum companies do and do not do. We
transport energy products such as petroleum. We do not produce the product; we
do not own the product; we do not refine the product. It is the approval,
construction and operations of those pipelines that we need to seek approval
for. We must prove that the project has an economic need, is well designed, is
constructed in a quality way with impacts mitigated, and is monitored and
operated in a prudent manner. The pipeline approval process can address these
What the pipeline approval process cannot address is the related matters over
and above energy transportation: the upstream and the downstream advantages and
disadvantages. Put another way, energy in Canada is about the economy,
international trade, climate change, sustainability, federal and provincial
cooperation, resource benefit sharing and innovation. These all require a
Canadian energy strategy that addresses each of these concerns, ironically, in a
way that meets the social licence of all Canadians.
What I've done so far is highlight the problem. That's the easy bit. The hard
bit is to postulate a solution to bridge the gap. The solution must lie in
revisiting this concept of social licence, clarifying what it is and what it is
not, and having us all work to fulfill it.
Social licence is not a licence. It's not formal permission to do something
such as build a pipeline, and it should not be called a licence. Canadians
cannot be caught in the loop of those in the philosophical opposition realm that
say, number one, you need to obtain social licence from us before you proceed
with the project; number two, we get to subjectively define what that social
licence is according to our philosophy, which we will not compromise on, and is
not the same, or may in fact be opposed to the broader social interest; and
number three, we hereby deny you your social licence, which is a veto vote
against your project.
We're left with a zero sum option. Without unanimity, no project can proceed.
Either project proponents win or those with philosophical opposing views win.
There is no room for comprise. This is the antithesis of democracy, the rule of
law, and is an intolerable outcome.
When Abraham Lincoln was given the thankless task of reconciling
diametrically opposed philosophies that pitted north against south, he had the
common sense to know he had to build consensus among the populace before he
could safely proceed. In his own words, "A universal feeling, whether well or
ill-founded, cannot be safely disregarded." When we refer to the concept of
social licence today, is that not what we're also saying?
For government, regulators, industry, business, stakeholders and indigenous
communities to accept major project development, there must be a general
consensus that the project is in the public interest. There must be a majority
view, a collective opinion, general agreement, that we — governments,
regulators, project proponents, communities and First Nations — are working in
the best interests of Canadians as a whole. This is democracy as determined by
the consent of the populace and based upon the rule of law, which Canadians and
our investors expect.
When it comes to energy development in Canada, including market access, what
is missing and what is needed is a Canadian consensus on energy development.
Building such a consensus will require leadership and courage at political
levels and must be led by provincial and federal governments in the best
interest of all Canadians. Building consensus in Canada on the energy file will
require an energy strategy that weaves together our best thinking, our best
views, and dare I say, compromise in how we generally want to proceed on energy,
climate change, transition to a lower carbon future, trade, the economy,
resource sharing, and respect for, and where required, resolution of indigenous
rights, interests and concerns.
This consensus must be built by ensuring the economy, the environment and the
social opportunities and challenges related to energy development support each
other as each element impacts the other. An energy strategy that is sustainable
must ensure that all three legs of the stool are supported and work in tandem:
economic growth, environmental sustainability and the social well-being of our
communities. Give too much attention to one, or not enough to the other, and the
stool will topple.
Any consensus on energy strategy will require all levels of government to
work together in the best interest of Canadians and their local constituents.
That consensus must be woven into regulatory approval processes that give
Canadians confidence that their will is being addressed from both a directional
perspective and a technical perspective. The energy industry, including those
companies operating in the industry, be they producers, transporters or
distributors, must continue to work with its constituents to demonstrate the
general consensus as to the work we're doing under the energy strategy.
I conclude with two thoughts.
There is an urgent need for political leadership and courage that will lead
to an energy strategy that, while all Canadians may not accept, the majority
will, a general consensus. We need to stop asking if a proponent has achieved
social licence and instead ask if there is a general consensus that they ought
to proceed with their project and their operations.
Instead of asking, does a project have social licence, one ought to ask, does
the corporate proponent have corporate credibility as determined by their
record, their dialogue and their ongoing actions? Does the industry have
credibility? Do government and international policies have credibility? While
hugely complex and interwoven with the regulatory and legal landscape, the
consensus approach has two major advantages over the social licence approach. It
informs us as to where we need to focus our actions. If that is transitioning to
a lower carbon footprint, the "how," the "when," and the "what" consensus must
be built outside of a particular project pipeline approval process, which is
only one element of the energy landscape. The consensus-building approach also
highlights and reminds us that what Canadians really want and need is energy
development that places Canadian resources as the leader in environmental
protection, addressing societal needs and economic progress. To have a Canadian
consensus, the stool must stand on all three legs.
Finally, the second thought is, let's not overlook the opportunity that we as
Canadians have as we transition into a low-carbon future. Canadians are
innovative, have been world leaders in innovating in the energy space. As a
country blessed with abundant natural resources, innovative companies, an
educated labour force, respect for our indigenous communities, a record of
reconciling many different stakeholder groups and a strong record on the
environment, we are well placed to be the leader in providing sustainable energy
to the world.
Where this energy strategy improves the economy, the environment, and
addresses societal concerns through innovation and collaboration, we have before
us the opportunity to build a general consensus that through innovation makes us
all better off.
The Deputy Chair: Mr. Forrester, thank you very much for a very
comprehensive and fulsome presentation. We'll have some questions from the
senators, starting with Senator Mercer.
Senator Mercer: Mr. Forrester, thank you very much for being here. As
the chair said, your presentation was very concise and detailed.
You've raised probably the crux of the issue here. From an economic
development point of view, looking at the country as a whole, pipelines are a
good thing. Economically, it's a good thing that we get one of our most
important products to tidewater so that we can stop being held captive by one
customer, and we can start selling our product worldwide and at worldwide prices
as opposed to a discounted price. All of that makes sense.
I noted the frustration in your presentation. Are you saying that small
groups of activists, well-meaning as they may be, are now directing or hindering
the development of the pipelines that have been proposed?
Mr. Forrester: It's no secret to anybody that there are those certain
segments of the Canadian population who are philosophically opposed to energy
development in Canada, particularly as it relates to crude oil. They are using
whatever means necessary to oppose that. They are not interested in a dialogue
on energy development or climate change or how best to achieve those. That's
very problematic because, ultimately, what we all seek is the same thing:
protect the environment, grow our economy and take care of our society. How can
you do that if you can't enter into a dialogue?
You will all know that there are certain groups that say, "I'm only speaking
to the government; I will not speak to the proponent," knowing full well that
the proponent could do a significant amount to assist us in achieving what we
Or, regardless of speaking to government, "I'm not part of government; I have
a different agenda and so, therefore, I am opposed and I will rely on social
licence, and is that not a veto? You don't have my social licence."
Or certain politicians, who know very well that the law which they're
discussing is not within their purview or jurisdiction and so simply say, "Well,
that may not be in my purview and jurisdiction, but if I then invoke the social
licence law, haven't I just got what it is that I need through the back door?"
That's the issue we have.
Senator Mercer: The interesting thing, though, is that politicians who
need to get re-elected, those members of the House of Commons and of the
cabinet, are subject to the pressures of what you described as smaller groups,
and I find it ironic, as we discuss this, that there are all these people who
will not accept a positive decision on pipelines but will be the first people in
line to accept the benefits that those pipelines will give the economic drive.
You talked about credibility, though, and you talked about credibility of
companies. I would suggest that one of our problems here is the lack of
credibility of the companies involved. Building up social licence is not
something that happens as we go through the regulatory process. Building up
social licence is something you need to do every day. All the companies involved
need to build up social licence. Social licence comes built on your solid
reputation of being a good corporate citizen, of being a good environmental
neighbour, of having a good working relationship with our Aboriginal community,
How do you balance that? We're focused on this for a few months, and the
country has been focused on it for a couple of years and will continue to be
focused on it. If there's a positive decision to proceed with a pipeline or
pipelines, we'll be focused on it for more.
When are we going to see a response from the participants in the process, the
companies, to engage in earning social licence every day?
Mr. Forrester: We at Kinder Morgan and Trans Mountain believe that
that's something that we have to do every day. We've been operating the Trans
Mountain pipeline to tidewater since 1952, over 60 years, and we cross multiple
reserves; we cross multiple municipalities; and we work with those folks on a
daily basis. One of the things that we're most proud of is that, as we've done
projects in the past, some of those First Nations, some of those communities,
some of those individuals that have opposed us have become not only large
supporters but integrated into our business, and have been integral to our
business. So that's something that we have to build every day.
The issue you have is when you go to postulate a new project, you're then
left with, okay, I get that, you might be a good actor, you might have done all
these great things for over 60 years, and you might be doing the right thing on
the environment and all of these things, but what about the general conversation
and what about the carbon footprint, what about the way we're going with that?
It's very difficult to have those conversations that involve so many parties in
a pipeline project approval. That's where the bust is.
Senator Mercer: One of the problems in politics, there's an old
saying, "What have you done for me lately?" Your 60 years of good governance and
being a good corporate citizen aren't worth a hill of beans today, because the
people we're talking about today may not have been part of that good 60 years of
good governance and good corporate citizenship; or if you have these allies, the
world doesn't know about it. We're talking to you right now, and I don't mean to
single you out; you're the only person here right now, but this is a problem
that the industry has. The industry has done good work. I'm aware of some of the
good work they've done. I'm aware of the good work they do in the community, but
Canadians who grant social licence aren't aware of it. The problem is that the
small groups of people who you describe in that way, who are the activists, who
are in opposition to pipelines, if they know it, they don't accept it.
But you have to remember that the politicians, the elected politicians who
will make decisions, are subject to getting their own social licence, their
licence to remain as politicians from those people who are opposed to this. So
it's a balance. This is a sales game. Logic is one thing, but sales is another.
Mr. Forrester: I think you are extremely right and you've identified
the problem. What you can do from a corporate and industry perspective is build
that credibility during your operations. You build it in projects and you reach
out very, very widely, very deeply, which we have done in an unprecedented way.
You continue that through the life of the project and the billing and the
benefits, and you share those things. But that gets you to the local level and
the people along your line. Where you have to be able to rely on the regulators
and the government to say they've done social licence is that energy policy.
So I'm agreeing with you that it is missing. I'm agreeing with you that, in
part, why it's missing is that if you're on a four-year cycle, it's difficult to
tackle all those issues. You're going to solve First Nations issues in a
four-year term? You're going to solve all of these environmental issues in the
four years? But you can drive the bus forward; you can take consensus; you can
do things like this, frankly, and give reports and give the government's
recommendation that they have to weave in the general consensus of politicians
and of Canadians whenever they're doing their decision-making.
Senator Tannas: Thank you for appearing before us today, Mr.
Maybe you don't have this, but we're always hearing if we could only get our
product to tidewater, we would earn X amount of dollars per barrel, right? I've
never really been able to really fix on what that is.
You would appear in your organization to have a ringside seat on what that
might be. You've got 300,000 barrels a day heading off our western shores. Do
you have any view on that, and the price on a netback basis that producers in
Alberta are getting per barrel versus what goes south?
Mr. Forrester: Let me say this. When we talk about tidewater access,
we talk about shipments that are large enough to be able to get economically to
Asia, in particular, but to other places, on an economic basis; and that means
you have to have a certain volume in your pipe and you have to have a certain
volume on your ships.
So 300,000 barrels a day, what you will see from our dock, is that much of
that is not going to Asian markets because the volume is not large enough to
make it economic. Obviously, if you scale up your volumes, then your shipment
costs become much less and you're able to ship economically to Asia.
The 890,000 barrels, the magic about that — and you'll see similar with some
of the other projects, they're larger projects where they're able to get
slightly larger tankers or at least they're able to fill those tankers more that
they can get economically to Asia.
To your direct question, what is the netback, we're in that business where
the netback not only changes from day to day but it changes on an hourly basis,
and we're well into that.
But let me put it at a basis level. There is a world price; take that to be
Brent crude. There is a discounted price for Western Texas Intermediate; take
that to be WTI, and that is largely based upon the Cushing hub and what happens
there. There is a Canadian general price, which is based upon Western Canadian
So you've got Brent at a price, you've got WTI trading to a discount to that,
and you've got WCS trading to a discount for that on any given day. If you can
get that WCS to world markets, to world refiners, then what you're doing is you
can get much closer to that Brent price, so that differential shrinks.
You have two very large benefits. Number one, you've shrunk the differential
as against both WTI and Brent, because Asians, for example, in China, they can
actually refine our particular types of crude, so you get that benefit and you
get that economic benefit back. Also, in addition to that, you are able to sell
more of the product at a given time because, as you all well know, the American
Midwest market is saturated today with oil. They'll still want certain types of
Canadian oil because they can receive it at a discount, and if that fits their
refineries, that may well be the way they go.
Senator Mercer: Sorry, but you haven't given us numbers, and I
recognize that the price has changed this morning, I do recognize that, but
maybe what we need you to do is pick a day, any day; here's what that would have
meant on Day X.
I think what we're having difficulty with, and I'm with Senator Tannas on
this, is understanding the real economic benefit of getting it to tidewater; and
if you want the social licence, Canadians can do mathematics. They will figure
this out, that if selling to the Americans at West Texas crude prices or going
to world prices by going to tidewater and shipping to wherever, Canadians will
say — so give us an example; give us some real numbers.
Senator Tannas: I'm surprised that it's not flowing off your tongue,
specific example of the delta, what that means in terms of money back to
producers and ultimately to the tax revenue for Canadian governments. I'm amazed
that you don't have that in some kind of a simple yarn that you can talk about.
Mr. Forrester: We have fed the numbers and the methodology into the
National Energy Board process. People, as you well know, statistics to them,
lies, can play with these numbers, and they change on virtually an hour-by-hour
basis and that's how crude traders make their money, so I don't want to say
something in front of this committee that misleads them. But I can tell you
this: today a barrel of oil trades for about $45, that's a WTI price; today, a
barrel of Brent will trade closer to $50; Western Canadian Select will trade $15
to $20 less than that on any given day, which goes up and down depending whether
there are refinery turnarounds, what's happening with the shippers. So it
literally changes day-to-day with denominations.
But what is clear, what is very clear, is that we are trading at a
significant discount, whether it be $5 or whether it gets as high as $20 or $25,
and it's historically been a problem, and it is why what we find with our
barrels even today, where we don't even get the scale, people want to send
barrels off the dock, and whenever we have the full dock up and running there
will be even more demand to solve the dock because what the smart producers are
doing is they're shrinking that differential by putting those barrels of oil to
Let me also comment on this. You say that Canadians will not tolerate selling
their resources at a discount. Ironically — and I travel Western Canada and deal
with First Nations, we touch 135 First Nations, we cross multiple reserves, and
I can tell you, you can imagine with chiefs and First Nations that are attached
to the land and the use of the land and the resources, whenever they find out,
"Excuse me, you're taking Canadian resources from our traditional territories
and you're selling them at a discount? How is that even possible?" So their
interest is in that.
I agree that the story is not told as well it should. I agree that it's a
complicated story. I agree that whenever I talk about Brent and WTI and Western
crude, which I tell my wife about every night, she says nobody cares. The
reality is that it's trading at a discount and we have to start trading at world
Senator Tannas: Thank you.
I want to just ask a question around social licence, because I think we can
all agree it's nebulous and it's swinging at ghosts.
I've heard a lot less about social licence in the last year. I think the fear
of everybody was that this was somehow going to get accepted by the public and
become part of the lexicon, without a definition behind it.
Are you saying that you think that the term "social licence" and what it
means to everybody is actually gaining legitimacy still, or do you sense that
there is a realism that we Canadians are kind of proud of, and especially proud
of here in Alberta, that that realism is maybe taking hold and that this whole
thing will be put into the right terms?
Mr. Forrester: Yes. I agree with your assessment that there's been a
bit of a cooling on the social licence in the last year. I do attribute that to
a few things.
First, the Alberta government; we have the government we have today and they
are working hard to address these issues from their perspective, which comes — I
talk about the three legs of the stool — from the environmental and the social
leg of the stool, drives to the economy. That in and of itself changes how
Alberta is viewed. Those are folks who were on the outside looking in
complaining. Now they're on the inside having to make practical, real decisions
and they have to now recognize they have to address all three legs of those
stools, and you'll see what's happening in Alberta right now; some will call it
grim. It's important, so that's changed.
The federal government, and they're new and they have not been able to
fulfill their mandate as of yet, but they're talking the same thing, and that in
and of itself comes that social licence from that perspective.
Third, we're out there and hopefully some of the work we're doing with the
NEB, some of the work we're doing with stakeholders, we're going through the
B.C. environmental process, we've been put through multiple court cases where
the courts are saying, "You're doing this right; you need to do more of this,"
and we listen to that, we pay attention to that and we try to do that. I think
all of those things are coming through to say, "realism."
What we're starting to hear now is, "We kind of like your project and we kind
of like what you're doing and we like the benefits and it's coming, it's got to
happen, so how do we get in, how do we involve ourselves?" But they don't take
that to the more macro level. I do think there's some of that going on.
Senator Tannas: Good answer. Thank you.
The Deputy Chair: Mr. Forrester, I have a couple of questions. It's
great to have you here.
I know you've been at this stuff for a while and I'm sure you went through
all of this with the National Energy Board. I'll get to the National Energy
Board in a second, but I want to go back to the pricing.
I understand the pricing. I've been on the Energy Committee for five or six
years and have a lot of friends who work in oil. I understand the dynamics
regarding the West Texas and Western Canada Select and the Brent pricing. All
the oil that comes into Eastern Canada, of course, is almost all Brent-priced
oil. When I was asked earlier by the press, I said, "Look, I think there's an
opportunity here for a made-in-Canada oil price, if we can get our oil to the
east, not directed by the government but directed by the market."
It's fair to assume that if we're prepared to sell our oil to the U.S. at a
discount of $25 a barrel, or even more when there's a glut, and they're doing it
to us all the time, I would assume that Canadians would be prepared to sell the
oil at a discounted price to ourselves.
Mr. Forrester: So I understand that. We don't set the price; the
market sets the price.
The Deputy Chair: The market sets the price.
Mr. Forrester: The thing about crude oil is, the economics used to be
a simple supply/demand curve that we could calculate.
The issue you've got with oil is, there's a whole bunch of other things
involved, including particularly the refined aspect of it and where those
refineries are; including the geopolitical aspects of it; including producers
doing certain things for certain political objectives.
The Deputy Chair: Yes.
Mr. Forrester: We will always be tied to the world price of oil. I do
agree with you that, obviously, if we can sell more of our product closer to
that, including to Canadians and Canadian refineries, and we can utilize that to
the best strategies possible, and the refineries including the Canadian
refineries and upgraders are no dummies, they know what they're doing, so we can
get much better prices by doing that.
One of the things you hear is, Canadian crude oil and Canadian petroleum, we
can be world leaders on this and we are bringing in products from other
countries that may not have the same environmental concerns that we have, they
may not have the same subtle concerns that we have, and we in Canada address
If we can sell and be world leaders on that, not only do we get world prices,
but we also get the banner and the brand of being environmentally sustainable,
socially sustainable, economically sustainable, and that's a great news story
for Canada, and we can deliver that.
The Deputy Chair: Yes, I think it is as well.
My second question gets back to the National Energy Board. You've had to deal
with the board during this process for the pipeline. I'd like your observations
on the efficacy of the board in terms of their mandate — and not them
individually, right? They have a mandate they have to fulfill and apply. Is
there a way you think the board can be strengthened? Do you think it's strong
enough? Do you think there's stuff in their mandate that should be taken out? Do
you think there's stuff that should be in the mandate that's not there?
Mr. Forrester: The National Energy Board, rigorous, a few years of
process, everything from A to Z, everything from design to operations to
mitigation to emergency response, spill response scenarios; hearing all of the
different issues, the National Energy Board did the absolute best they could do
with the terms that they had, and to be frank, they were extremely thorough.
They left no stone unturned. They heard all of the different aspects and the
people who were willing to participate in that process.
They're faced with the same challenge that we as a pipeline are faced with.
They can only address the issues under their mandate assigned to them, and
whenever you get things like, "Okay, but how does that connect to energy
development? Okay, how does that affect and connect to Crown consultation
duties? Okay, how does that connect to the B.C. five conditions that are per se
political? How does it connect to all of those things?" — the board cannot do
that, and that's why I say, at the end of the day, that we have to have an
energy strategy that we all agree on, at least on a consensus level, that moves
us all forward.
When I'm out at the cottage talking about pipelines and the NEB, Canadians
want to talk about carbon footprints, they want to talk about climate change,
and they want to know why that isn't part and sole focus and determined by the
NEB, and it cannot be.
What we have to do for Canadians, for consensus to build that collective
mentality, is to have a place for that, and where it belongs is in an energy
strategy that is led by the federal government, the provincial governments, and
it gets participation by all sectors of the energy industry, Canadians,
stakeholders and First Nations.
The Deputy Chair: Your quote from Lincoln, "A universal feeling,
whether well or ill-founded, cannot be safely disregarded," has a lot of value,
there's a lot in it. All Canadians should think about that quote, and all
Senator Mercer: I want to go back to the discussion about price. I
understand it fluctuates. It has probably changed since we've had this
discussion, and people will say, "Well, nobody cares." I want to go back to
being in the sales business. You're in the sales business, we're all in the
sales business as we're trying to promote this. I want to talk about hamburgers
for a moment.
A big hamburger company in this country is spending tens of thousands,
hundreds of thousands of dollars on advertisements to tell us that their
hamburgers don't have growth hormones or antibiotics in their meat. Well, you
know what, the customers didn't know there was that in meat products before they
started this advertising, but they found something that they had that was
different, and they said, "We're different than the other guys and we're going
to tell the public about it and we're going to make it sound like a big deal."
Whether it's a big deal or not is a debatable point, and the source of the meat
that they have is also another debatable point. However, what they've done is
they've gone out and they've created an image: if we buy those burgers, we're
not going to eat this.
If the industry wants to get social licence from Canadians and wants
Canadians to understand what this is all about from a practical point of view,
we need to talk about how many jobs it's going to create in the construction
period, how many jobs it's going to create at the end of the process, how many
jobs it will create in the production centres such as Alberta and Saskatchewan.
You need to tell Canadians that.
The politicians sitting in the House of Commons who are getting pressure from
those small groups that you talked about need to start getting some pressure
from some other groups saying, "Well, why aren't we doing this? Why aren't we
getting world prices instead of discounted prices? Why aren't we getting these
jobs that you're going to tell Canadians?" It seems to me that periodically
going to the National Energy Board, making a very good presentation and making a
very good case for it is one thing, but they're not your only audience. There
are 330-some-odd members of Parliament, they're your audience, too, and they
respond to 35 million Canadians, many of them who vote for them or don't vote
It's time, ladies and gentlemen — I'm talking to you, Mr. Forrester, but I'm
talking to the whole industry — to stop sitting back and feeling sorry for
yourself that you're not getting the support you want, because you didn't ask
for it. You didn't build the case. The hamburger company that I mentioned built
the case that our hamburgers are better than the other guys' because we don't
have this stuff in it. I don't know if that's the case or not, but the Canadian
people think that's the case, and they're out there buying their hamburgers.
Let's start telling Canadians, yes, the price is going to change, but there
are ranges that you can discuss. Canadians want to know numbers. They want to
say, this is going to mean jobs, and it's not just going to mean jobs here in
Alberta or in Saskatchewan, it's going to mean jobs in Nova Scotia, it's going
to mean jobs in New Brunswick and Newfoundland and Prince Edward Island, all
across this country, because if this industry is booming, the country is
Mr. Forrester: I take your words to heart. We've tried to do some of
that. We obviously haven't done the job that we should be doing in that, and
part of that is that there are many different actors in the industry. We need to
Second, part of it is that there are so many elements back to the energy
strategy that we're not in control of as the transporter of the pipe. But I take
your point, and the message that we always work with is, we'll compete with
anybody, and we mean "we," the pipelines and, frankly, Canadian resources, on
environment, on social issues and on the economy. We can and will compete on
that, and people are not thinking about that. I take your point that we need to
do a better job.
Senator Mercer: I know you compete on that and I know you're good at
it, but I'm a lucky guy because I get to talk to you and I get to work at a
different level than most Canadians, but if you want social licence, social
licence is granted by the people of Canada, so you've got to talk to the people
Mr. Forrester: I take your point.
Senator Mercer: That's all I have, Mr. Chair.
The Deputy Chair: Mr. Forrester, I want to thank you for being here
today. I think you're doing a pretty good job. In the end, the responsibility to
make these decisions lies with the federal government. The federal government
has the authority under the Constitution, and they have to take their
responsibilities and apply this authority. Thank you for being here.
Mr. Forrester: Thank you very much. I do appreciate it.
The Deputy Chair: Honourable senators, our final witnesses for this
morning are, from the Alberta Chambers of Commerce, Ken Kobly, President and
Chief Executive Officer; and from the Calgary Chamber of Commerce, Justin Smith,
Director of Policy, Research and Government Relations.
Please begin your presentations and then the senators will have questions.
Ken Kobly, President and Chief Executive Officer, Alberta Chambers of
Commerce: Thank you, Mr. Chair and senators, for this opportunity to present
in front of you. Thank you to Daniel for accommodating my travel schedule. I
just came back from five days at the Canadian Chamber AGM. Certainly, what we're
about to talk about today was very much the source of conversation at that
meeting from chambers across Canada.
By way of introduction, the Alberta Chambers of Commerce represents 126
community chambers in the Province of Alberta. We are the only province that has
100 per cent of community chambers operating in the province that are our
members and members of the Canadian Chamber. They in turn represent about 25,000
businesses across Alberta. Our representation is not just from large companies,
but primarily from small- and medium-sized enterprises that make up 95 per cent
of the business community in the Province of Alberta and, therefore, are also
Certainly, Calgary and Edmonton and the rest of Alberta are not happy places,
as you can imagine, based on the economic downturn. As a side note, coming in
this morning from the airport, my cab driver was a chemical engineer. That tells
you the state of our economy and the state of unemployment.
I understand that our submission has already been reviewed by the committee,
by the senators, so I won't bore you with those details. I'll be prepared to
answer any questions on those, but there are a couple of comments I'd like to
Primarily, I have one point on social licence. It's an undefined term; it's
overused, and in some cases it's abused.
We would have to look at it if we're looking at any major infrastructure
project to be constructed in this country, whether it's an oil transmission line
or a nuclear power plant. Because it is an undefined term, at what point in time
do you consider that you have a critical mass in order to actually approve this?
I will tell you that you will never get 100 per cent approval or buy-in from
organizations and individuals in Canada. That's simply a fact of life. I'll tell
you a different story a little bit later.
If we look at the recent disruption of the NEB hearings in Montreal, that is
indicative of where and what the Government of Canada will be facing when they
finally make a decision on any infrastructure. You will simply not get the
buy-in from the most vocal opponents. It is definitely necessary to have a full,
robust consultation on these major issues that are going to affect Canadians now
and going well into the future, and we have no issue with that. We fully support
However, once the consultations are done, once the regulators have made their
decision or recommendation to government, it's up to the Government of Canada to
act. We've seen what's happened in the past, particularly in the United States,
with the constant deferral and deferral and deferral and deferral of the
decision over Keystone.
My main advice to government is, trust your regulators. There are safeguards
in place to ensure that they follow the process. There will always be hiccups.
However, trust in the people that you hire in order to hear the input and in
order to make sure that there is compliance, and also make a recommendation to
I'll give you an example. In a previous life, I served 20 years on a
municipal council in a small community in Alberta, 12 years as mayor.
Constantly, council gets criticized because we don't listen. The reality is, we
have a statutory public hearing; everybody comes in and they have their
opportunity to present, but at the end of the day it's up to the politicians —
in my case, our council — to make a decision. However, we were constantly
criticized that we didn't listen to the people who were opposed to the decision
that we eventually took.
Alberta is in the forefront of environmental responsibility, yet gets little
credit. Certainly, even prior to the existing government that we have, the
previous government did take steps in order to show that we were responsible in
the development of our natural resources. Alberta has one of the toughest
regulatory regimes and environmental regimes in developing our natural
It also gets into the point about how long is a consultation; when is it
over? A good example of a consultation currently that is going on that is way
too short is the current tanker moratorium off the West Coast of Canada. That
consultation, which was announced, I believe, last Friday or the Friday before,
is now going to end on September 30. It will only have been open for six weeks
in consultation, two weeks of that time period during the summer months. That is
simply not enough time for Canadians either for or opposed to that tanker
moratorium to provide any reasonable comments to the Government of Canada.
As a matter of fact, one of the motions that passed the Canadian Chamber AGM
was to encourage the Government of Canada to extend the deadline on the public
I was here for the testimony of a previous witness, and there was some talk
about what the differential was between what we sell oil for in Alberta and what
the world price is. Certainly, one important issue that a lot of people are
missing, particularly in Eastern Canada, is that about 67 per cent of oil and 67
per cent of natural gas that is consumed in Ontario and Quebec come from a
foreign country —
The Deputy Chair: Yes.
Mr. Kobly: — whether it's the United States, whether it's Saudi
Arabia. But I'll tell the folks in Eastern Canada, because they're buying on the
world market, they are buying it at a premium. That's an economic issue that
they should look at.
How do you improve confidence in your regulators? It's a difficult process
because the folks who do not get a favourable ruling at a regulator are always
going to sow seeds of mistrust. I think that's perhaps what you're seeing with
the National Energy Board right now. You've got individuals who are calling into
concern how the NEB operates. What I again would suggest is support your
regulatory bodies such as the NEB and trust that the process works.
If there are issues that come up, deal with those issues at this point in
time. However, having politicians, with all due respect, criticizing the
regulator, who is supposed to be independent, doing a job for the Government of
Canada, serves no one well.
Regarding engagement of indigenous people, in our submission there is a link
to a paper that was produced by the Government of Alberta on engagement of
indigenous people. At the Alberta Chambers of Commerce, we fully support a full
and robust consultation with indigenous people.
There is also some comment about where we see the national benefit on this.
How do we share the benefits and how do we share the risks? I think Canadians
right now are recognizing just how much they do depend and how much they have
shared in the past in the benefit from the oil and gas sector. We're seeing huge
increases in unemployment right across the country. On the positive side, when
there's oil and gas development in Alberta, goods and services and labour — a
substantial amount of labour — are sourced from other parts of the country.
People don't know that the buses that are used in Fort McMurray are sourced
out of Quebec. They're sourced from a company called Prevost. We do not
manufacture all the stuff that we need. Tires for those big trucks up in Fort
McMurray are not manufactured in Alberta; they're manufactured in Ontario. The
benefit from oil and gas, from a strong, stable oil and gas industry is felt
right across the country.
As far as labour goes, it's often joked, but it's no joke, Fort McMurray has
the second largest population of Newfies in Canada —
The Deputy Chair: In the world.
Mr. Kobly: That just tells you. When those folks go back home on
December 31, they don't file their income tax returns in Alberta. They file
their income tax returns as being residents of the province that they live in.
The Deputy Chair: They'd like "country."
Mr. Kobly: Again, these are a number of issues that aren't out there
in the public domain. As the Alberta Chambers of Commerce, we are trying through
our network of community chambers around the province and through our
affiliation with the Canadian Chamber to get this messaging out. It's very, very
difficult. It is very, very difficult from a number of reasons and a number of
perspectives to get that messaging out as to the positive impacts of a strong
oil and natural gas sector in Alberta.
I'm prepared to answer any questions after my friend from the Calgary Chamber
of Commerce makes his presentation. Again, thank you for the invitation to be
The Deputy Chair: Thank you, Mr. Kobly.
Justin Smith, Director of Policy, Research and Government Relations,
Calgary Chamber of Commerce: Good afternoon, Mr. Chair, senators. Thank you
for inviting the Calgary Chamber of Commerce to present before you today on a
critically important topic, not only for Calgary's economy, but as Ken
mentioned, for the economy of the country overall.
It's my hope that our thoughts and perspectives on this issue, informed by
the rich diversity of our over 1700-member businesses located here in the City
of Calgary, will support your efforts in charting a more dependable policy
framework moving forward that will allow Canada's energy resources to reach
external markets and thereby maximize the value of our production for
businesses, taxpayers, resource owners and the nation as a whole.
I'd like to begin today's session by reflecting on some of the profound
structural changes that we've witnessed in the global oil and gas industry over
the last few years. In fact, I'd argue that the 21st century has brought with it
the greatest upheaval in the global energy system the world has seen in
generations, creating turmoil and far-reaching challenges for geopolitics, the
global economy and, of course, the environment.
Scientific discoveries and technological advancements are unlocking new
energy sources, from renewable and other clean energy technologies to advanced
extraction methods for shale oil and gas resources. The international community
has reaffirmed its commitment to addressing climate change in a meaningful way
by curbing greenhouse gas emissions, even as energy use surges in emerging
markets and 1.3 billion people still need access to modern energy services.
The changing dynamic between energy producers and consumers, including OPEC's
role in oil markets and the transformative role of U.S. unconventional oil and
gas production, is creating new trade opportunities, but at the same time
inducing sometimes unpredictable effects on supply and demand dynamics, leading
to price instability.
All of this, of course, is happening at a time when our energy industry is
facing unprecedented levels of public scrutiny, and we are grappling with a
prolonged price trough. Needless to say, top of mind for many businesses and
other stakeholders in Western Canada is the global competitiveness, as well as
the future relevance of our oil and gas industry.
This is our convening question: How do we get Canadian energy to world
markets in an era of profound upheaval and change? How do we ensure that we have
a robust regulatory framework in place that allows us to market our products
internationally, but be viewed simultaneously as an environmentally friendly and
socially conscious producer?
The troubling evolution in the answer to that question is that existing
federal review processes are no longer being viewed as sufficient or legitimate,
and social acceptance today seems to entail more than the regulatory process. It
is requiring governments to take the lead in areas outside the remit of
The most prominent example of this expanded scope is the issue of climate
change and the effects that increased energy production will have on Canada's
greenhouse gas emissions. At the Calgary Chamber of Commerce, we fully
understand the imperative that the issue of climate change places on how our
energy industry operates and evolves. In fact, we were one of the first business
organizations in the country to recognize the importance of an expanded and more
stringent carbon pricing scheme that would put in place meaningful incentives
for industry and citizens alike to reduce our overall carbon footprint.
In that vein, we were pleased to see the Government of Alberta move forward
with its Climate Leadership Plan in November of 2015, a plan, it should not be
misunderstood, that puts Alberta on a path to being the most progressive
carbon-pricing jurisdiction in the world. This will help incentivize industry to
be more efficient, while at the same time encouraging competitiveness and
allowing a burgeoning low-emissions technology industry to take flight right
here in our province.
From the perspective of federal policy and access to international markets,
we need to respect the efficacy of this policy construct, one that is taking
hold in more provinces and of course now being explored at the federal level,
and bifurcate our discussions about reasonable climate change policy from the
regulatory approval process for energy infrastructure.
My point is, once we have reasonably stringent carbon pricing policies in
place, there is no need to re-adjudicate the social acceptability of our
greenhouse gas emissions abatement efforts within the context of a regulatory
approval for an infrastructure asset. By design, a carbon-pricing scheme has
already implanted the efficiency incentive at every stage of the project, from
design to assessment, construction and operation of the asset.
As we move forward in haste to develop a national harmonized price on carbon,
a policy construct that we at the Calgary Chamber of Commerce hope will operate
in tandem with provincial efforts, we need to remind ourselves of the fact that
this should trigger an unwinding effort when it comes to the aspects of climate
policy that have taken root in our regulatory review process.
Another exceedingly complicated issue that Ken also mentioned, when it comes
to accessing international markets for Canada's energy production is how to
address the concerns of Canada's indigenous communities. These communities have
suffered injustice and have endured the tragic disappointment of repeated broken
promises. Those in industry want to move forward in a spirit of meaningful
collaboration and engagement on resource development projects, but they also
need more clarity regarding their role in reconciliation and consultation with
Canadian governments have a constitutional duty to consult and accommodate
indigenous people when proposed developments have the potential to impact their
constitutionally protected rights. However, there is confusion in the business
community regarding its role in the duty to consult process, and lack of clarity
regarding businesses' responsibilities to indigenous peoples. This lack of
clarity can lead to failure to pursue private sector projects that have the
potential to provide long-term economic and social benefits to indigenous
communities and all Canadians alike.
Any strategy to facilitate the transport of crude to Eastern Canadian
refineries and to ports on the East and West Coasts of Canada must include a
detailed framework for reconciliation with indigenous peoples, a framework that
provides clarity to industry on the meaning and potential implications of free,
prior and informed consent. We would also suggest that such a strategy make
available tools for both businesses and indigenous communities to help both
fulfill the obligations required of them, including guidelines for engagement to
seek the level of cooperation and trust required as a foundation for
Finally, we need to respect and adhere to the policy frameworks we ultimately
put in place. Regulatory uncertainty is one of the biggest barriers to
competitiveness in Alberta today. It is exceedingly difficult to make investment
decisions or other commercial commitments when the rules of the game can be
reinterpreted at any step along the way. Our policies and systems will always be
subject to political pressures, some reasonable, others not, and in the cases of
the latter, we need to have the fortitude to commit to our established policies.
In this way, all actors are treated fairly, and we can truly move forward in a
spirit of partnership and collaboration.
I want to thank the committee for its time and consideration. I'm happy to
reserve the balance of my time for questions.
The Deputy Chair: Thank you, Mr. Smith.
Senator Black: Gentlemen, thank you very much for those very informed
presentations. Because you both have the privilege of working with Alberta
business hours of every day, you're not guessing at this.
Mr. Kobly: No.
Senator Black: You're hearing what your members tell you. My first
question to you both is this: What are you hearing? What do you believe the
consequences are for Alberta and Canada if we do not approve the pipelines? If
we can't settle on a strategy to get this done, what do you believe are the
Mr. Smith: I think the consequences are the valuable but stranded
assets that will unfortunately not be able to get to market. We won't be able to
capture the value. At the end of the day we have to understand, here in Alberta,
those are owned by the people broadly, those are owned by Canadians broadly, and
the resource revenue, taxpayer revenue that the value of those resources help
generate for our province and our country, and the prosperity we derive from
that value, will begin to subside.
Not to mention the fact that, as I tried to allude to in my remarks, we're
operating in an extremely competitive global marketplace for these products. I
hear routinely from large-cap oil and gas companies that the regulatory
framework and the client service mentality to attract business in places like
Mozambique, Qatar and Australia is far more suitable to their interests than
that here in Canada. I doubt we'll see the level of investment, production,
marketing and value capture that we've seen in the past from our oil and gas
industry moving forward if we aren't able to come up with a framework that gives
those investors and those operators reasonable confidence that they'll be able
to get that product to market.
Mr. Kobly: Senator, I'll take a little bit of a different tack on this
and talk about what the impact is going to be on individuals.
We're already seeing the impact of inaction on getting a pipeline anywhere in
this country and also down to the United States on our unemployment rates in
Calgary, Edmonton and the rest of the province. We are seeing unemployment rates
in Calgary, Edmonton and around the province that we haven't seen in 40 years.
I've seen this rodeo four times in my lifetime, but this one is much
different. I think it's going to be more prolonged. You wouldn't think that
you'd hear these words of doom from a Chamber guy, but the reality is, on
impacted individuals and their lives, the lack of employment in the province of
Alberta and, indeed, across the rest of the country is being felt because of the
inaction of getting pipelines; and that impact is dramatic, it's personal, and
it will continue. I mean, even if the price of oil and natural gas rebound, the
reality is, we're not in a position right now to take advantage of that.
Senator Black: Thank you very much.
Mr. Kobly: I hope we actually take steps to not miss the next
Senator Tannas: Mr. Smith, I'm not a regular participant and in fact
I'm just a day traveller at this event, but I'm struck by your comments on the
need to unwind other efforts, regulatory efforts, and rhetoric and so on around
greenhouse gas emissions concurrent with the bringing in of carbon pricing.
That's absolutely plain, evident, and yet it hadn't occurred to me.
What evidence do you have or have you seen that governments get that, that
the Alberta government gets it, that environmental groups get it, that the
federal government gets that, that there is this absolute connection, and that
anything more is just piling on? It's tax on tax or it's a regulation on tax.
Are you an optimist or are you pessimistic that we're headed down the wrong
Mr. Smith: I'll be optimistic if I see a willingness to let a more
stringent and all-encompassing carbon pricing scheme operate for a few years and
determine its success, both at abating or mitigating our overall carbon
footprint but also allowing for industry competitiveness, as well as the support
of new and emerging technologies in the industries that that revenue can help
You're right, what's disconcerting to me is the necessity to always apply a
filter to conversations around energy infrastructure projects that involve other
public policy priorities. Carbon pricing is a perfect example, and I think that
Premier Notley has shown great leadership in trying something new here in our
province. If done correctly and implemented correctly in consultation with the
right players, it can allow our industry to be successful, but also be far more
environmentally sustainable moving into the future.
But I think that she's also done a good job clarifying the fact that once
that's in place, there needs to be — and I know Ken hates this term — some
social licence points associated with that. We've clearly put in a policy that
will abate carbon emissions moving forward, and that should bolster the case for
energy infrastructure projects that seek to bring that product to market.
Another aspect, especially when it comes to indigenous consultation, I
certainly agree — and all of our members at the chamber agree — that
consultation with affected communities is critically important. It's not just
check-a-box consultation, mind you; this is an ongoing, collaborative engagement
that needs to be renewed and recommitted to at every step along the way. But
there are broader social, political and economic issues when it comes to
indigenous communities that can't be satisfied in the process of a regulatory
approval for one particular asset. We need to be focused on educational
opportunities, skills development and job training, on water quality, and a host
of issues external of the regulatory review process for a particular asset.
If we don't commit to that bifurcation — it's a stupid fancy word, I should
throw my source out — but if we don't commit to splitting the two, then we're
unnecessarily burdening industry with a whole host of social, economic and
political problems that we together as Canadians should be addressing.
Senator Tannas: Thank you.
Senator Mercer: Gentlemen, thank you very much for being here. You've
added a lot to the conversation.
If you've heard me before, I talked a lot about social licensing needs to be
earned by the participants, it's not something that's granted. Mr. Smith, you
talked about other public policy priorities. I really think that this is a
problem that we all need to face here, that the other public policy priorities
can get in the way, and have in the past got in the way, of positive decisions
in the oil and gas sector, and those other public policy priorities may be those
environmental groups or those other groups who are opposed to pipelines for one
reason or another. But we can't sit back; the Chambers of Commerce can't sit
Mr. Kobly, you talked about being at a meeting where you brought this forward
and there were some resolutions passed by your colleagues on a national basis.
This is the kind of stuff that needs to go on, on an ongoing basis.
I personally am a huge supporter of the pipelines. You were here, Mr. Kobly,
when I spoke to people from one of the companies involved. I'm highly critical
of companies saying, "Well, we haven't been granted social licence." You don't
grant social licence, you earn social licence, and they need to earn social
Is there an acceptance in business in Alberta that social licence is earned,
it's just not something that somebody says, "Okay, let's give these people
social licence today"? Is it accepted?
Mr. Kobly: Senator, that's a great question. We have businesses in
Alberta that are glowing examples of trying to earn social licence, being out,
communicating and chatting with not only the local community but also their
Fort McMurray, the oil sands companies, get no credit for the amount of
engagement that they have with their communities, with the support they provide
to the community, with the support and development that they've provided
indigenous businesses in the Fort McMurray area.
Senator Mercer: Mr. Kobly, I would suggest that beyond the
municipality around Fort McMurray that they haven't told anybody. That's the
problem. You can't sell hamburgers if you don't advertise. You can't earn social
licence unless people know that you deserve social licence.
Mr. Kobly: We try at the Alberta Chambers of Commerce to showcase
those companies that are stellar examples of businesses that have been involved
in the community. Again, it's because the term is so nebulous. How do you try to
come up with obtaining social licence? However, we do showcase those businesses.
We have other businesses in Alberta, again, that may or may not be able to
get it into the media, into the broader public. The ATCO group of companies has
a stellar record in social licence. That is a commitment that the founder, Ron
Southern, made many, many years ago. These are not newcomers to the idea of
ensuring that what they're selling is in fact feeling good because they've been
What a lot of companies may need to do and what we need to do, and I take the
opportunity any time I get to speak, is to dispel some of the myths that we have
around oil and gas and greenhouse gas emissions in this province. For example,
the idea that oil sands oil is the dirtiest oil in the world is incorrect.
Senator Mercer: I agree.
Mr. Kobly: The dirtiest oil comes from California, but you don't see
social activists boycotting the state of California or the oil developments in
The reason why they point to the oil sands — and, again, it's playing with
numbers — is that greenhouse gas emissions from the oil sands are the dirtiest
because we are charged the full amount of the greenhouse gas emissions, cradle
to grave. In other words, if it burns in the tank in a car in Toronto, the
greenhouse gas emissions are tagged back to the oil sands. There is no chat;
there is no discussion.
Senator Mercer: Interestingly enough, you pointed out, quite rightly,
that the gas of somebody driving down Bloor Street in Toronto this morning is
not gas that came from Alberta in the first place.
Mr. Kobly: Anyone who is critical of oil and gas at this point in time
should try to live one day without a product that's been touched by petroleum,
whether in the production or in the transport to market. I think they would
recognize that, yes, it's probably a reasonable goal to recognize that we do
need to conserve wherever we can, but the reality is, we will still have another
generation that's going to be fully dependent on oil and natural gas.
Senator Mercer: I'll go back to the sales pitch. I've been on
Parliament Hill as a member of the Senate since 2003 so I've seen a lot of
people come and go. I've also seen a lot of people come and tell us a story and
want government to give them things or to grant them different things. The most
impressive people who come to see us are not the people who ask for something.
They're the people who come to tell us what they've done and to say thank you
for what government has done to either assist them directly or to grant them
social licence or grant them some form of approval to do that. Many years ago, I
was a salesperson. I wasn't very good at it because at that time I didn't
understand what I think I understand now. I think I'd be a better salesman now.
I don't want to go back as a salesman. Anyway, we need to figure out how we tell
it. You tell a good story. I've been to Fort McMurray. I've seen the good work
that some of the companies have done in the community, but the guy in downtown
Toronto and certainly the mayor of Montreal doesn't know, and others across the
country don't know.
Again, we're back to sales. We've got to tell people. I get the annual
reports. We get more annual reports than you can shake a stick at in our
business. I don't read them all, I have to admit, but on occasion I will read
them and particularly I will read when I get a report from an oil and gas
company. I spent my life working for not-for-profit organizations and charities.
I always go to what they've done in the community. There's always a section in
the report about how much money they've given away or projects that they've
sponsored. Those are very impressive when you read them, but not many people
read annual reports.
There's got to be an engagement here to tell people, not just in Alberta,
because Albertans are quick to understand; you bump into the good work that good
corporate citizens are doing everywhere you go. We need to demonstrate that to
the rest of Canadians.
What I'm suggesting is we provide some insulation, insulation for those
members of Parliament. You need to consult, and I think you said to trust the
regulators. Well, you only trust the regulators if they rule in your favour. In
this particular case, if the regulator doesn't rule in favour of Alberta, your
next stop is the cabinet, and this is the group who are the most vulnerable in
this situation because they need to understand — and I think they do; I don't
want to be critical of them; as a matter of fact, I'm a member of the same
political party they are — but they need to understand that a healthy,
prosperous oil business is a healthy, prosperous Canada.
Mr. Kobly: Yes.
Senator Mercer: If the National Energy Board doesn't come up with the
right decision, then we need to be prepared to go to the next level.
But we can't assume right now; we can't build that sales message and sales
campaign the day after the National Energy Board says no. This is a 24/7,
365-days-a-year program. You've got to be selling all the time. You can't sell
hamburgers by putting one ad on television.
Mr. Kobly: Mr. Chair, may I supplement?
The Deputy Chair: Certainly.
Mr. Kobly: That is a point that the chambers, both provincially and
nationally, have taken to heart. The Canadian Chambers organized three trips
with business people from across country to Fort McMurray to see what it's all
about, to see that it is not a total scar on the land, that there is reclamation
As a matter of fact, there's a group of Quebec business people that are going
to be going there in about a week or two weeks. Also, the University of Alberta
is organizing a group of business and non-profit people from British Columbia.
I'm going to be going on that trip with them on October 4. So we are working
towards that. We do realize that. I do understand the scars and the rest that
Senator Mercer: I have one last point. Deputy Chair.
The Deputy Chair: We're almost out of time. Before I go to Senator
Black, I want to bring something that you brought up back to your attention.
The Alberta Chambers mentioned the East Coast and the number of people
employed out here, and it's substantial. Every Maritime province has tens of
thousands of people who are now unemployed.
Mr. Kobly: That's right.
The Deputy Chair: I would assume that all the companies in the Alberta
Chambers of Commerce who are attached to chamber know who these people are that
they've let go.
Has the chamber thought of engaging with the Eastern provinces and these
people to identify them and bring them into the argument, get them out speaking
in Eastern Canada, in the Maritime provinces, in Cape Breton, where I'm from.
Tens of thousands of people are coming home. They would be a great vocal
The Chamber of Commerce knows who all these companies are and these companies
know who all these employees were. Is that something you might consider?
Mr. Kobly: That's an excellent point. As far as engagement with the
Atlantic provinces, we've kept it and we have a very good working relationship
with the Atlantic Chamber of Commerce; but, certainly, your point about getting
the folks who are back home, unemployed, to speak about the importance to them
would be, I think, an excellent idea.
The Deputy Chair: What's going to happen is, they're going to lose
their houses, lose their big trucks, lose their vacations. It's like a set of
dominoes, and it's coming down the track.
Senator Black: Mr. Smith, you made an excellent point that I wanted to
explore. You talked about engagement with Aboriginal communities. Did I
understand you to say that we should develop some kind of road map — my
language, not yours — that businesses can follow, or have I oversimplified what
Mr. Smith: No, I think the simplification is valuable. Essentially,
the point I was trying to emphasize is that, as a business community, you
recognize the fundamental importance, the imperative and the legal standard that
we all, as the communities of businesses, citizens, indigenous communities and
the government, need to abide by.
Similar to how nebulous a term "social licence" is, "adequate consultation"
is also a bit of a nebulous term in terms of what the necessary steps are that
need to be taken in order to satisfy that standard.
It would be helpful for businesses and government to work together to provide
a framework — it could be an industry-specific framework or certain subsectors
within industry — to showcase what meaningful consultation looks like.
Senator Black: Could you take leadership on that?
Mr. Smith: Absolutely. One of the things with the Calgary Chamber of
Commerce is that we run the oldest standing indigenous opportunities committee
of any chamber across the country. When the Calgary Chamber of Commerce was
first established, our forbearers recognized that you can't be a successful
business in Calgary without also having solid relationships with surrounding
So we have experience when it comes to the consultation conversation and what
true meaningful business partnerships looks like, and we're certainly willing to
commit to doing more.
Senator Black: I would encourage your chamber. I think this is a place
that nationally you could play a very meaningful role.
Mr. Smith: Absolutely.
Senator Black: Thanks very much.
The Deputy Chair: Last question, Senator Mercer.
Senator Mercer: I actually want to pick up on your point, Mr. Chair.
I'm changing my question.
I think you've made a very important suggestion, and I sure hope it's not
lost, if you could identify those people who have been laid off, who have left
Alberta and returned home. For example, there are 32 members of Parliament in
Atlantic Canada. They all happen to be of the same political party that I'm a
member of and I'm happy about that, but I also know that if all of those people
who have gone home and are unemployed were to call their members of Parliament,
call or write, go see, whatever works, and talk to them and said, "Look, you've
got to fix this thing. You've got to push for the pipeline" — I'm talking about
the pipeline east, but the one west is important as well — it has an effect.
Being a former politician, you know darn well that when the constituent comes to
talk to you, it does have an effect.
I want to support what Senator MacDonald suggested. I think it's a heck of an
idea. It's a constituency that you have that you didn't want to have, but you
have. If you can identify them, you can engage them and tell them to please call
their member of Parliament and tell him or her that this pipeline is important,
not just to Albertans, but to Nova Scotians, Prince Edward Islanders, New
Brunswickers and Newfoundlanders and Labradorians.
The Deputy Chair: If I can add to this, if we think this doesn't apply
in Quebec, Ontario and Manitoba as well, this is right across the country.
Mr. Kobly: It's probably a way for us to help out those folks who came
to Alberta to help us out when we were in the midst of a critical labour
shortage, because they've gone home. I think people have forgotten about what's
happening back home.
Senator Mercer: You might really want to concentrate some folks in
Montreal, perhaps remind the mayor.
The Deputy Chair: There are lots of Quebecers working out here, too.
Mr. Smith: Mr. Chair, I have one more comment. I didn't get an
opportunity to follow up on what Senator Mercer was talking about when it came
to social licence.
Calgary Chamber members and I think businesses across this country recognize
that social licence is something to be earned, absolutely. Is it a term that can
be redefined continually? I don't think that's a workable solution.
The final point I'll make is, in Canada, we have an extremely proud history
of institutional democracy that governs these types of decisions and this
decision-making process. Companies will often ask me, "Justin, what is
insufficient about the NEB Act and its provisions around environmental
protection that, when I comply with, still don't allow me to earn social
licence? What is insufficient about a provision in the NEB Act that touches on
indigenous consultation that, when I comply with, still doesn't provide me
social licence to build my projects?"
We have a set of statutes and regulations that ensure that projects that move
forward are complying with the highest possible standards of safety,
environmental protection, consultation and economic benefits. Yet, when those
standards are met, we still hold companies to this nebulous second standard
that, of course, is very difficult to achieve, as we've seen.
Senator Mercer: It goes back to that saying in politics that I used
earlier: What have you done for me lately? This is the mentality of the voter.
Unfortunately, yes, you did all of this for me before, but what have you done
for me lately? That's really, unfortunately, what drives the votes.
Mr. Smith: Yes.
The Deputy Chair: Gentlemen, I want to thank you for your