THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, June 8, 2023
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9:01 a.m. [ET] to study on emerging issues related to the committee’s mandate.
Senator Rosa Galvez (Chair) in the chair.
[English]
The Chair: Honourable senators, my name is Rosa Galvez. I’m a senator from Quebec, and I’m the chair of this committee. Today we are conducting a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
I would like to begin with a reminder. Before asking and answering questions, I would ask members and witnesses in the room to please refrain from leaning in too close to the microphone or to remove your earpiece when doing so. This will avoid any sound feedback that could negatively impact the committee staff in the room.
I now ask my fellow committee members to introduce themselves.
[Translation]
Senator Verner: Josée Verner from Quebec.
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
Senator Gerba: Amina Gerba from Quebec.
Senator Massicotte: Paul Massicotte from Quebec.
[English]
Senator Arnot: I’m from Saskatchewan. My name is David Arnot.
The Chair: And there is Senator Margo Greenwood from British Columbia. So it’s not just Quebec.
I wish to welcome all of you and the viewers across the country who are watching our proceedings.
[Translation]
Today, we are continuing our study on the Canadian oil and gas industry. We are welcoming, by video conference, the president of GravDrain, Chi-Tak Yee. We are also welcoming, from Cenovus Energy, Rhona DelFrari who is with us in the room; she is Chief Sustainability Officer and Executive Vice President Stakeholder Engagement.
Welcome and thank you for accepting our invitation. You both have five minutes for your opening remarks. We’ll start with Mr. Yee, followed by Ms. DelFrari.
Mr. Yee, you have the floor.
[English]
Chi-Tak Yee, President, GravDrain Inc.: Thank you, madam chair, and good morning to everyone. It’s a great honour to be here today.
As a quick introduction, I’m an engineer by training and have worked in the oil gas and industry for almost four decades, essentially all in oil sands extraction. My last job in the industry was the chief technology officer and the chief operating officer of MEG Energy Corporation, which is an oil sands producer. I retired from the industry last year and have been focusing my efforts in looking for ways to decarbonize oil sands production as well as making valuable, non-combustion products from bitumen. I’m here today as a private citizen and not representing any industry organizations.
In my opening statement, I would like to discuss three things; first, the importance of the oil and gas industry in the Canadian economy; second, industry’s track record in reducing greenhouse gas emissions intensity and what more can be done going forward; and third, can the industry compete globally in a net-zero emission environment?
On the importance of oil and gas industry in the Canadian economy, energy products, which is mainly oil and gas, accounts for about 25 to 30% of Canadian exports, according to Statistics Canada. Since the 2007 financial crisis, Canadian merchandise exports, excluding energy, failed to recover quickly or fully, which has shifted the trade balance from structural surpluses to a deficit. Fortunately, the trade balance is kept very small thanks to increasing crude export. In fact, we registered small surpluses in the last two years — that is, 2021 and 2022 — with higher oil prices. The export of crude oil has been a major factor in sustaining Canada’s trade balance and helping our nation’s current account.
Canadian crude oil production has grown considerably over the last 30 years, from 1.7 million barrels per day in 1990 to 4.7 million barrels in 2019, just before COVID. That is an increase of about 3 million barrels. Canadian oil exports also increased by the same amount, 3 million barrels per day, in the same time frame. This increase is almost entirely due to the increasing oil sands production.
In terms of the industry’s track record in reducing GHG emissions, contrary to the common perception, oil production is actually a pretty high-tech industry. Technology improvements have been successful in reducing energy consumption per unit of production. For example, GHG emission intensity has gone down by approximately 10% between 2010 and 2020, according to Canada Energy Regulator, in the in situ recovery of oil sands. However, the absolute emissions have gone up because of the significant increases in production that I referred to earlier.
The oil sands industry recognizes this, and six major producers that operate 95% of the production got together a couple years ago to form the Pathways Alliance to tackle this issue. They have set an ambitious goal of reducing approximately one third of the absolute emissions per decade and reaching net‑zero emissions — that is, scope one and two emissions — by 2050 in alignment with the Paris Agreement. I’m sure my fellow panellist may elaborate on that in her remarks.
In the near term, the producers are relying on the established carbon capture and storage, or CCS for short, to do the bulk of the reduction by 2030. These CCS facilities will require large amounts of capital to construct and operate, which will create significant economic activities and help workers transition into the low-carbon environment.
That brings me to the third point, which is whether the industry can compete globally in a net-zero environment. In the IEA net-zero scenario, oil consumption by 2050 is projected to be approximately 25% of 2020. That means a 75% reduction. Because of this dramatic reduction, the oil price is predicted to stay well below today’s prices. The low-cost producers, especially those that are located in jurisdictions that do not have a lot of carbon cost, could squeeze our high-cost producers, such as us in Canada.
In my humble opinion, I think Canada needs to find ways to convert bitumen to a more valuable product which does not have emissions. Alberta Innovate, which is a provincial agency, has been coordinating a research program called Bitumen Beyond Combustion, or BBC for short. In making valuable, non‑combustion products from bitumen, these products take advantage of the chemical and physical properties of the components of bitumen.
The three types of products I identified so far are asphalt binder, carbon fibre and activated carbon. These are important products for a green economy. They have similar or reduced, in most cases, GHG intensity compared to current products, which has the added benefit of sequestering carbon as well. That means zero scope three emissions. By doing this, we’re positioning bitumen as a source of high-demand materials rather than as an energy supply. The manufacturing value train of BBC-related products can employ Albertans and Canadians of all skill levels. It represents significant job opportunities for Albertans and Canadians with oil and gas sector experience, as well as those in the chemical, manufacturing and construction industries.
BBC is a disruptive initiative. Government support through leadership and policy direction as investment is needed to make BBC an economic engine and the climate solution for Alberta and Canada.
That concludes my opening remarks. I will be delighted to answer any questions that you may have. Thank you.
The Chair: Thank you.
Rhona DelFrari, Chief Sustainability Officer and EVP Stakeholder Engagement, Cenovus Energy: Thank you for having me here today. I really appreciate it.
Before I go into my opening remarks, I want to do a quick overview of what Cenovus is. We are one of Canada’s largest energy companies. The majority of our oil and natural gas production is in Western Canada, but we also have offshore production in Newfoundland and Labrador and some in the Asia Pacific region. We own refineries in the United States and in the Lloydminster region, and we have ethanol production in both Saskatchewan and Manitoba. Cenovus directly employs about 8,300 people, and 80% of those are here in Canada.
My role on the executive team is to guide our sustainable operations and to ensure that environmental and social considerations are a part of all of our business decisions. I also lead our engagement with our Indigenous communities and with governments.
Today I would love to have time to talk more about the Indigenous partnerships that we have. Cenovus alone has spent more than $4 billion with Indigenous businesses since we were formed in 2009, and $400 million just in the last year alone with Indigenous businesses. We have targets for our Indigenous business spend of hundreds of millions of dollars every single year. I would also like to have time to talk about our water conservation efforts and our world-leading Caribou Habitat Restoration Project, but I know you have asked me here today to talk about our climate change efforts and those of our sector, so that is where I will focus my remarks.
We recognize, as Chi-Tak said, that our industry is a significant contributor to Canada’s GHG emissions, more than one quarter of the country’s total emissions. We know that we have to be a large part of the solution for Canada. Cenovus has a target of reducing our absolute emissions by 35% by 2035, on the way to our ambition of getting to net zero across all of our operations by 2050. To do that, our company has put $1 billion into our five-year business plan just for GHG emissions reduction projects. These include things like carbon capture and storage projects and advancing them, as well as methane mitigation, which we are making great strides in.
Our biggest emissions challenge, though, is in the oil sands. Reducing those emissions at a pace and scale that’s needed to support Canada’s net-zero goal requires an unprecedented level of collaboration. That’s why, as Chi-Tak mentioned, we cofounded the Pathways Alliance to move faster together towards our shared climate goals. The alliance consists of six of the largest oil sands producers. We operate 95% of the oil sands production, so it’s pretty much all of the oil sands production in this alliance. Our industry has been collaborating on action to reduce emissions intensity for many years, but Pathways Alliance takes this to a whole other level. Our plan is to reduce absolute emissions from production in the oil sands by 22 million tonnes per year by 2030, with an ambition to get to net zero and a three-phrase plan to get to net zero by 2050. To achieve this, again, collaboration is key, and not just amongst the producers, but with governments and with Indigenous partners. We are already well under way with that over the last couple of years.
We expect a large part of the initial emissions reductions to come from the development of what we view as the world’s largest carbon capture and storage, or CCS, network. It’s going to transport the CO2 captured at oil sands facilities via a pipeline to secure underground storage near Cold Lake, Alberta. The CCS project is planned to have the capacity to connect more than 20 oil sands facilities, as well as any other industries in that region that would like to use the CO2 network.
At the same time as our CCS project, we’re advancing more than 70 other technologies, working together with our oil sands peers. We are pursuing solutions such as fuel substitution, including the use of hydrogen — Cenovus and our peers are looking into that and currently using it — as well as examining the feasibility of using small, modular nuclear reactors to create power, and more importantly, to create the steam that’s needed to develop our oil sands.
We’re going to spend billions and billions of dollars over the coming decades on this, and we’re going to create thousands of jobs, but we’re going to need strong financial partnerships with the government as well as regulatory policy that supports these emission reduction projects to progress in a timely manner. 2030 is coming at us very, very fast. By working together, we can support Canada’s climate commitments, we can help ensure energy security for Canadians and we can protect the tens of billions of dollars that the oil and gas sector contributes to the Canadian economy every year. That includes hundreds of thousands of good-paying, direct and indirect oil and gas jobs across the country in every province and territory.
You are tasked with writing a report on the energy transition. I hope you will conclude after our discussion that energy transition does not mean a transition off of oil and gas production in Canada. What it does mean is a transition to the low-carbon production of these resources, enabling Canada to be the global oil and gas supplier of choice to meet the world’s growing energy demand. Any other plan would be detrimental to Canada’s economy, and it would not help address climate change since the demand for oil and gas would just be filled by other countries with less of a commitment to sustainable business practices. Our industry is taking action on climate change. This is not greenwashing; it’s real dollars going to real projects. Those dollars are going to be growing rapidly over the coming years as we progress our discussions with governments on the details of the policy and fiscal supports needed to advance this important work.
I look forward to this discussion.
The Chair: Thank you to both of you.
We are going to proceed with questions. Please identify the person to whom you are addressing your question.
Senator Arnot: I have two questions.
The first one is for Mr. Yee. You have indicated that investing in bitumen and creating more value in a different way is one aspect. I wonder if you could just amplify what investments, research and projects you see as essential undertakings for Canadian industry to mitigate the changes that we know are coming.
Ms. DelFrari, I understand Cenovus has made a commitment to reduce the absolute greenhouse gas emissions by 35% from your levels in 2019 and that net zero is Cenovus’s ambition for 2050. You have outlined that well here today. I would like you to amplify for me what you are doing with Indigenous partnerships in Canada particularly.
As well, on the CCS network, underground in Cold Lake, what’s happening in Cold Lake to accommodate that? What kind of infrastructure is being invested in or built, and will that have long-term job sustainability?
Mr. Yee: Thanks for the question.
In terms of work done so far in advancing these non-combustion products, Alberta Innovates, which I talked about earlier, had already started a lot of the initiatives about 10 or maybe even 12 years ago, and it has provided a lot of funding at the fundamental level, mostly university research and also private enterprise, to move things forward. Through that time, we already made quite a bit of advancement.
I identified three products. To give you a bit of a colour on that, the largest one that will have the biggest quantity — because we talk about 1.5 to 2 million barrels of bitumen production, so we need to have a scale as well as the price to support that. In terms of scale or volume, the one that we’re really homing in on is the asphalt binder. That takes the heaviest component of the bitumen to make what we call asphalt binder to mix with aggregate to make asphalt to pave roads, for example. What we have found so far, which is interesting, is because of the low wax content of the asphalt binder, it makes it a very good material in terms of duration and also preventing cracking of the asphalt going forward. That work has been done quite a bit now, and we are ready to move to a piloting scale in terms of thousands of barrels per day. We are in the process of looking for industry partners and government funding for that.
The second product that I talked about is carbon fibre. Carbon fibre is a very important enabling material for green economies. One of the issues that people are talking about now is electrification, driving electric cars and so on. I’m not sure people appreciate it or not, but electric cars are a lot heavier than internal combustion cars. They are about 30% to 40% heavier. That will cause a lot of damage to the road infrastructure, and that’s why we need this asphalt binder. In terms of the material to make this carbon fibre, again interesting enough, as I said in my opening statement, the chemistry of bitumen actually makes it very conducive to make this product versus light oil. In fact, we can make carbon fibre at a fraction of the cost of what is being done today. This is not just science fiction. Again, these have advanced to a stage of piloting. I myself have personally invested in a venture that is piloting this technology.
The third one is activated carbon. The asphalt team that we have for bitumen provides a lot of surface area for energy storage for green power, for example. That is also a product that is at a piloting stage. There is a fairly large pilot now in Nisku, in the Edmonton area. That is also progressing as well.
We are actually at the stage of moving from the lab to the pilots, and this is the time where we need a lot of support from government in terms of policy as well as funding going forward on that. I gave you a long-winded answer, but I want you to understand where we are at. Hopefully, that answers your question.
Senator Arnot: Thank you. I appreciate that comprehensive answer.
Mr. Yee: Thank you.
Ms. DelFrari: I would like to support my fellow panellist’s comments. Cenovus is actually one of North America’s largest asphalt producers now, and there is huge opportunity in the future to grow these bitumen-beyond-combustion businesses.
So, Indigenous. Thank you for asking that question. When a company like Cenovus spends billions of dollars with Indigenous businesses, it doesn’t happen by chance. You have to make a concerted effort to make sure that these communities that are our neighbours, especially in northern Alberta but across all of our operations in Saskatchewan and elsewhere, have a chance to succeed. We’re very focused on economic reconciliation.
We go to these communities, and our process is that we identify the types of businesses and business activities that we’re going to have over the coming years, because that changes in different phases, and then we say to them, “How do we help you establish businesses that we will be able to hire?” And not just Cenovus but the rest of industry. That has taken buy-in across my entire organization. Senior leaders across operations, across finance and across our supply chain leadership have made it a priority to look for Indigenous businesses first. Sometimes these businesses need some of our help, so we will provide mentorship, guidance and coaching to get them off the ground.
What we found when we looked back is that after a few years, they are very cost competitive. They have to be safety competitive, because we will not do business with any company that doesn’t have safety as number one. I talk to the workers at these businesses in our communities, and the pride that you see and the stories that I have heard from them, saying, “I didn’t have any job opportunities in my community before, and now, look, I’m making great money. I am providing a future for my family,” it’s absolutely amazing.
That’s our approach to doing this. My peers do very similar work, but for Cenovus, it has been core. One of the reasons that I joined this company many years ago was our commitment to Indigenous communities and helping them to thrive. Hopefully, that answers that particular question.
On storage, for the CCS network, we’re at the beginning stages, but we have been working now for a couple of years on this idea. Regarding the specific technical details of it, in the last year, we have done an environmental impact assessment on the pipeline and into the storage area. It takes a full year so that you can see every season, for those of you who have a scientific background. We’re coming to the end of that part of it. That’s mostly focused on the pipeline route, and it’s mostly going to be on already-existing rights of way for that so that we reduce our disturbance for the CO2 pipeline.
The Alberta government recently awarded the Pathways Alliance with the rights to explore the opportunity to store our CO2 in this region. This is a huge advantage for Canada, especially Western Canada. We have the geology that enables the CO2 to remain underground indefinitely. You can’t do that everywhere in the world. As the IEA and multiple other organizations and the UN have said, CCS has to be a part of the climate solution, especially for industry and especially in the near term. We’re in a very good position in Canada, because we have the spots that you can actually store it. It’s proven. Our industry knows these reservoirs. That’s what we’re experts in.
For this one in Cold Lake right now, we’re in the process of doing some test wells about where the best spots would be to inject it, but we’re talking thousands of kilometres underground of multiple layers of sandstone, and we are extremely confident that it will be able to stay underground. We need to move to the next phase with the Alberta government to show them the test work that we have done.
We’re working with the First Nations communities in the area to see what their economic participation can be in this CO2 pipeline and this hub. It’s a bit of a different challenge because this project, CCS, doesn’t make money for us. Typically when we do an economic partnership, it’s something that’s creating revenue. This isn’t creating revenue for our companies. It’s a cost, but we’re going to find a way for economic participation for the Indigenous communities.
That’s where we’re at right now with the CCS storage hub and pipeline.
Senator Arnot: Thank you for those answers.
The Chair: Just before passing to the next question, can you give some examples of the types of businesses with Indigenous people?
Ms. DelFrari: It’s a huge variety. We work with the communities and talk about what types of businesses they want to do as well. It’s everything from drilling rigs that they own to them running our camps and our food and our catering to construction businesses to a lot of the environmental impact assessment work.
The Indigenous peoples have the best knowledge of this region, and they know it through their ancestors. They will often come out with us before we even start a project and give us advice and guidance on the different areas, where it would be best and where we should avoid doing any of our projects.
When it comes to the reclamation work, this is more conventional, because our oil sands facilities are not at the reclamation stage. We don’t have mines. We only have the in situ facilities, so we’re not there yet. We do start to reclaim some of the roads that we’re not using anymore and some of the water pits. A lot of the work that we do with that reclamation is also with these Indigenous partners.
Senator Massicotte: Thank you for being here this morning. I have a lot of questions, so I’ll make them short. That way I will get more information from you.
Do you agree with the government plan that they described to us whereby they say that we wish to significantly diminish the CO2 that Canada produces, but at the same time, we want to compete internationally and have good growth but be the cleanest producer of oil and gas internationally? Some people would say there is a contradiction. What are your thoughts about that government plan? Is that acceptable to you? Is it the right time?
Ms. DelFrari: I do agree with the premise that we can do both reducing our emissions, getting to net zero, and still be an oil and gas producer well into the future. Every credible study shows that it is still going to be a smaller amount but still oil needed in 2050 and beyond for products, but also for certain fuels as well. Our particular type of oil, the heavy oil, is perfect. It’s well suited for things like jet fuel or the heavier fuels. I do believe this.
If we can get to net zero as we have planned — and we feel we can and we have a path set out in front of us as we work with the governments and with our Indigenous partners — the world should want to come to Canada. On every environmental, social and governance ranking, Canada is at the top. There are no other oil-producing jurisdictions that beat us on multiple different third-party rankings. When we do surveys around the world — one was done just last year — and people are asked where they would like to receive their oil and gas, Canada always comes up number one for global people. People want to purchase oil and gas from Canada. Canadians and our industry and our government want to reduce our emissions. As long as we do this in a practical, sensible way, don’t rush it and make sure the technology can keep up with the regulation that’s coming into force reductions in the emissions, I actually do feel that this can be a huge win for Canada overall.
Senator Massicotte: You made reference in your presentation to CCS, carbon capture and storage. I gather it’s a very important factor of your strategy because of your comment about it. Could you comment on what is the cost of that CCS? Is it free to the producer, or is there a cost? How about the carbon tax? That was a fundamental strategy of the government whereby if you can increase your costs, you will seek efficiencies and more efficient CO2. Is that important to you? Why should you get it free if you’re getting it free? Some people argue that you shouldn’t touch the CCS but go to a permanent solution rather than a storage solution that you have to deal with over the next hundred years or thousands of years. Could you comment on those?
Ms. DelFrari: I’ll do the carbon tax first. Alberta was the first province in the country to have a carbon tax on industrial players. Our sector has been supportive of a carbon tax for many years, and we’re used to living with it. A carbon tax, when done right, can provide incentives. But you can’t have only a stick; you need some carrots too. The way the system works in Alberta, we pay into a carbon tax if we’re exceeding certain limitations and benchmarks, and then that is redirected towards decarbonization technologies, which I strongly feel is the right way to do it. If these monies are just going into general government coffers, then it’s not really encouraging new technologies to be developed. Regarding the carbon tax, that’s one thing.
Regarding CCS as the solution, it’s the one that works right now. It’s a proven technology. We, as an industry, have been using it to enhance our oil recovery for many decades, including Cenovus. We can’t keep waiting for the perfect technology. We can’t let it slow us down or we’re never going to get anywhere. I talked about small modular nuclear reactors. That would be an ideal situation. We think it will work in the oil sands, but we don’t know. Realistically, mid-2030s for these new technologies that have never been proven at a commercial scale will probably be the earliest that we could see it. We’re still starting to progress those now. Can do CCS today, and we are doing CCS today. I talk about CCS because it is the immediate solution. It doesn’t mean that it’s the long-term solution, but it’s the only one that we know can have a huge impact on emissions immediately.
Senator Massicotte: Basically, you talked about the importance of working as a team. You obviously are working together relative to your confrères in the industry, which is very good, but you also made a comment that it’s important to get the government onside because we all have to work together. When I hear that, my alarm bell always rings. I think, “Oh, so you want our money again?” Is it only that? Why should you be subsidized and your competitors not subsidized?
Ms. DelFrari: I wouldn’t say that. In fact, I think that any significant decarbonization efforts, not just in Canada but around the world, need government partnerships. There is none, no examples, of significant decarbonization such as CCS but also other examples that have progressed without significant government-industry partnership. When you look at those in Norway or in the U.K. or what the United States is doing right now with the Inflation Reduction Act and the 45Q incentives, that’s what’s starting to get the action happening regarding decarbonization from industry.
Going back to your price tag, we’ve known that these technologies such as CCS have existed for many years, but they cost multiple billions of dollars. It’s not something that a publicly traded company can invest in on its own. This is a shared outcome that we’re trying to achieve. Canada wants to reduce emissions, our industry wants to reduce emissions, and we have to work together to achieve this shared outcome.
When you look at some of the projects overseas, it’s anywhere from two thirds, to 75%, to sometimes 100% of some of the costs are covered by governments to get these projects off the ground. Of course, costs will come down for CCS, for small modular reactors and for all of that, but right now it’s a multiple billion‑dollar investment and is something that wouldn’t make sense for any sector to do it — I’m not just talking about oil and gas — or it would have been done by now. The technology is there. Yes, it needs some tweaks, and yes, it’s never been implemented at the scale we’re talking about, but it’s there. It’s been the economics that have held us back from taking climate action.
[Translation]
Senator Gerba: First of all, I’d like to applaud your company’s proactivity, Ms. DelFrari. It seems to be the path forward for companies in the oil and gas industry.
The question I wanted to ask was just asked by my colleague across the way, but I wanted to understand how we can justify and explain to our constituents that we need to subsidize and support more the companies that are already making so much money in this sector. That’s my first question.
I also understand that you work a lot, you’re socially engaged with First Nations, which is very interesting. Outside job creation, do you face any reticence from First Nations communities, those who are against what you’re doing in their communities, as these are communities that have concerns about preserving their nature? Those are my two questions.
[English]
Ms. DelFrari: Thank you for those questions.
When you look at funding these multi-decade, multi-billion-dollar projects, you can’t just look at one year of revenues for a company. Last year, because of geopolitical reasons primarily, oil prices were high. Our companies brought in a lot of money. As a sector, we contributed about $50 billion to governments last year alone. All of Canada has benefited from that. Unfortunate circumstances led to high oil prices, obviously. However, when we look at projects, we have to think about the long term, not one year at a time. About two or three years ago, we were losing money. We had negative oil prices. Last year, we were making money. This is the typical cycle for the oil and gas industry or when you’re in any commodity business. When we look at long‑term projects at Cenovus, we don’t price the price of oil at $120, like it was. In fact, it went from $120 to around $70 now. That’s how fast this can change. We use the price of $45, in fact, before we make investment decisions because we feel like, over the long run, you have to make investments based on when the bad times will be there. That’s how you survive as a company.
Again, these are projects that will be decades and decades. There is no way that we can look at one year of very high revenues that benefit our companies, our shareholders and also the country and say that we don’t need any government partnership on that. If we were to do these projects on our own, we would have investment leaving this country because it would add so much to our costs — and that’s what investors are looking for because it impacts their revenues — that we would not be profitable companies. While investors do want us to decarbonize, they want us to do it in a way that it is not going to create a huge strain on the finances of our company. That’s why, again, you see around the world these partnerships with government on these — not just oil and gas but with every sector you see these partnerships. You have to think about over the long run. You have to think about the competitiveness.
I’ve never had so many conversations with investors where they’ve asked me about government policy, because they are very nervous in Canada that the government policy will add so much to our costs that we will no longer be able to compete with the investments. These investors’ money can flow anywhere in the world, and they’re going to put their money where they’re creating returns. In the end, even in Canada, a lot of our shareholders are actually funds that people put their retirement savings into. You have to think about how these investors make sure that they can look their investors in the face, which is everyday Canadians, not these huge companies, and say, “We have your retirement under hand because we can invest in these Canadian companies. They’re going to make returns over the long term. They’re not going to have huge costs that their peers in other parts of the world don’t have because they’re not dealing with carbon.”
I think we can have it both ways. We can address carbon. Eventually, my ideal would be that we get rewarded from investors for being the lowest or zero-carbon production in the world. Ideally, we would be able to get a premium for the oil that is zero-carbon oil. We’re not there yet, but that would be the ideal. People are saying they want to have low-carbon products, so they should be willing to pay for that. Right now, we have to have these partnerships or we become completely uncompetitive and lose our investors. When you start losing investors from one sector, the sector that has such a huge part of the Toronto Stock Exchange right now, it starts to send questions about all other sectors as well.
Regarding more than just jobs for our communities, absolutely. Engagement with these communities from the early stages on every project, whether it be a decarbonization project or an oil and gas project, is key. That has been core to what we do, and I know our peers do that as well. We go to our Indigenous communities before we would ever put in an application for any project, because we want to make sure that up front they know what our plans are so we can get their feedback. That’s key to us. Yes, we create jobs, but we also invest in these communities.
For example, Cenovus alone, just our company, has a massive Indigenous housing initiative. We heard from these communities that housing was their biggest concern. They didn’t have adequate housing. It was falling apart. They couldn’t put all of their members in housing. We committed to $50 million over five years with six of our closest communities to our oil sands projects to build about 200 houses. The cost of housing has gone up a bit, so we’re adding more to that. We probably will expand that program, because it’s been a huge success. That’s just one example.
When we go into these Indigenous communities and even with the housing initiative, it’s not just about putting money into that community on a need that they’ve expressed to us that they have, but we also partner it with a training program so that we can provide the skills. Cenovus partners with the Indspire organization, and we spend thousands of dollars on scholarships to help Indigenous people be able to afford post-secondary education. We invested about $50 million last year alone on community investments of various kinds, just Cenovus.
Senator Gerba: Are they somewhat against that?
Ms. DelFrari: It doesn’t matter which community you go to. There will always be people for and against a project. It’s happening with wind, solar, geothermal and ours. I will never say every single member of a community will be in support of this, but what I will say is that because of our strong working relationships, we have been able to move forward with all of the projects that have we have come to our communities with as Cenovus over the last multiple years. But it takes work and it takes a lot of listening to these communities, and it takes us adjusting a lot of what our initial plans were because we may not realize that something may be sensitive to the communities. We do not face significant opposition to our projects, but it’s because of the approach we’ve taken. We really do view them as neighbours and partners. Again, there will always be certain people who don’t want certain things, but in general, overwhelmingly, we have a significant amount of support.
[Translation]
Senator Miville-Dechêne: Thank you for being with us and congratulations on your efforts. Let me ask you a more philosophical question. I read that, fortunately, your facilities have been spared by the forest fires in Alberta; you have suffered little significant damage. You’ve come to Ottawa to testify. You know that the forest fire situation is terrible in the east, too, certainly in part owing to global warming. Some would say that Canada is on fire.
Faced with this dramatic situation, is Cenovus Energy encouraged to think more about accelerating its transition? Because oil is still being produced, and production is being increased. Isn’t that a signal that the transition needs to be accelerated?
[English]
Ms. DelFrari: It is a horrible situation. I was very surprised. I was at a responsible investment association conference in Toronto this week, in Toronto and Ottawa, seeing the smoke, and we had it in Calgary. Our operations were impacted by the fires as well in northern Alberta and our communities. We did our best to help the communities. We asked them what support they needed and we did that. We’re going back into Rainbow Lake as an example of where we have operations way up in northern Alberta, and the entire community has been evacuated. We ourselves are touched by it with our employees and by our neighbours and our communities.
It doesn’t take the fires for us to realize we need to take climate action. I’ve been working for this company for 15 years, and we have always been working to reduce our emissions from that time. As Chi-Tak said, it’s been mostly to this point emissions intensity, so emissions per barrel reductions, because that’s what you can achieve from the operational efficiencies and from — I’ll call them the tweaks. The engineers will not like me to use that word, but really creating more efficiencies. Now we’re at the stage where for all of the low-hanging fruit at our operations, we’ve already made those improvements.
[Translation]
Senator Miville-Dechêne: Short of reducing production, which would be one way of reducing emissions, can you tell me clearly — I don’t know if it’s per barrel — what subsidy you get for carbon capture per production, per barrel produced? It’s something we can understand, as you’re saying that, without subsidies, you’d be in the red. So what’s the proportion? How much money do you get in subsidies?
[English]
Ms. DelFrari: Right now, we haven’t been receiving financial support for the CCS that we’ve been doing at Cenovus. That’s because the CCS projects that we’ve been doing so far with our experience at our company have been linked to enhanced oil recovery. You do capture the CO2 off a facility. There are various facilities. If it’s a pure stream of CO2 — and not all of it is. The ones in the oil sands are very low CO2 concentration. But when you do it with enhanced oil recovery, you’re making your additional revenue from selling that barrel of oil that you otherwise wouldn’t have been able to do. In those cases, with the investment tax credit that’s been proposed by the government now, you can’t use it if you’re using it for enhanced oil recovery, so those projects have not been receiving government funding. It depends on the source because there are so many of them. Maybe there may have been some government funding for some of the capture technology. The one in Weyburn that we used to operate took a lot of its CO2 from North Dakota, and I think there was government involvement there on the capture. For the projects that we’re looking at in the oil sands, it’s a low concentration of CO2 and it’s just going to be stored. It will not be used there. There is no revenue generation from those. That’s why we’re talking about government partnerships with it.
You did ask about the costs. The costs will vary. We won’t know until we start to really put it into our plans. A general estimate that’s being used is that it’s going to cost between $800 million and $1 billion per million tonnes of CO2 from these facilities. That’s a high-level estimate. Do we think that as more of them are expanded that this cost can be reduced? Yes. But in general, at CCS projects of this magnitude, that’s kind of the cost that people are looking at.
When we’re in talks with the government right now about the partnership, we are going to be putting in billions of dollars of our own shareholders’ dollars. We’ve already spent billions on environmental improvements over the years. We haven’t found any other example around the world of massive decarbonization efforts like this where corporations are planning to put in as much of their own, of their shareholders’ dollars, as we are with these projects that we’re proposing in the oil sands right now.
[Translation]
Senator Verner: Ms. DelFrari, you mentioned earlier that the Canadian industry was perceived as a world leader — number one — according to an international survey. Can you tell us what survey you are talking about, or do you have an internet link where we could go to find this information?
[English]
Ms. DelFrari: I wasn’t referring only to our decarbonization efforts; I was referring to our broader sustainability. When you look at things like biodiversity, water use, human rights, our work with Indigenous communities, when you look at all of those factors — and I believe you do need to look at all of that when you’re choosing products — that’s where we rank very high. Our biggest challenge has been our GHG emissions, and now we’re tackling that one. When I go overseas, and I do sometimes to talk to our investors, insurers and others, I say to them, “Are there any other oil-producing jurisdictions in the world that have a better sustainability record, looking at the UN Sustainable Development Goals?” If you look at all of those, I’ve never had one person say to me there’s another country that’s better. They always agree Canada is at the top and that our only challenge with our oil and gas sector has remained our emissions.
Now that we are tackling this head on, the rest of the world should all be pointing at Canada and say that the rest of the world should be doing oil and gas production like Canada is doing it because we are committed to decarbonization, to human rights, to biodiversity, all of these things. I have multiple studies, and I’m happy to submit that to the committee because I think it is very interesting to see those. We’re happy to submit those details. Honestly, we need to be proud of this sector. It has gone so far over the years on all of those factors. The rest of the world does recognize it. Now that we’re attacking the GHG emissions in a bigger way, the rest of the world that’s producing oil should watch out. I really feel we’ll be the one that will be here for the long run.
[Translation]
Senator Verner: It’s refreshing to hear from you. You’re Chief Sustainability Officer at Cenovus Energy, but how much would you say you invest in renewables? I will have a follow-up question for you afterwards.
[English]
Ms. DelFrari: Wind and solar is not our expertise. We buy power purchase agreements for wind and solar to offset some of our scope two emissions, those emissions that aren’t in our director control, but that’s not a major part of our business plan. We may at some point consider it. But we feel there are companies out there that are experts in wind and solar, and those are the companies that should be developing that. We’re absolutely looking at other alternatives that are complementary. For example, carbon capture can be a business. We have expertise in that. We may be able to provide that service to other companies. Renewable fuels are within our competency. We already produce ethanol and sell that into markets like British Columbia. There are other renewable fuel projects that would be complementary to what our expertise is. But right now, as our company, we’re not looking at renewables. I know some of our peers are.
When I talk about sustainable development, it doesn’t have to mean wind and solar. Geothermal might be another example or the small modular reactors. These are things that are complementary to us. Sustainable development does mean to me producing oil and gas that will be needed for decades to come in the most sustainable manner.
[Translation]
Senator Verner: You have entered into a partnership in the Asia-Pacific region with the company CNOOC to supply solar energy for the next 25 years.
Do you have a similar project in Canada? I thought I saw an agreement or project with a First Nations company in Cold Lake to produce solar energy. Could you tell us more about that?
[English]
Ms. DelFrari: Yes, you are correct. You have done very good research. At our Asia-Pacific operations, we have advanced solar. It’s more for our own operations, not necessarily to sell the power to the grid.
Regarding Cold Lake First Nations — and Elemental is the one you’re referencing — that was a power purchase agreement. They would do the actual project, the Cold Lake First Nations, which is one of the major communities that we partner with, and this provider of solar. We would then buy the power, put the power onto the grid from them so that we are encouraging. Those projects won’t go ahead unless you have a partner like us that signs a long-term agreement to pay for that power over the long run. When we look at renewables, that’s how we’re looking at it, not to be the actual operator of the projects but to encourage it by signing these agreements that would look at it over the long term. That particular project right now is going through some regulatory challenges. I will just say that. We’re looking for more of these.
The other thing we never talk about, and we should, is that at most of our operations, you’ll see solar panels everywhere, because they’re in remote regions and often they’re not electricity grid connected. We do use solar electricity at all of them; all the time you see that. Even to reduce our methane emissions — we haven’t even talked about methane today, and we’re proud of our methane activities — some of that, where possible, we put in solar. Solar in rural Alberta in the winter is not ideal, so it can’t be the only source. But absolutely, we use it extensively with thousands of solar panels across our operations.
[Translation]
Senator Verner: Thank you.
[English]
The Chair: Colleagues, we said we will end at 10:00, but there are a lot of questions. I want to ask the witnesses if they wouldn’t mind staying with us 15 minutes more. Thank you so much.
Ms. DelFrari, I have a small question. Pathways Alliance groups 95% of the oil producers in Canada, but we know that our oil is exported to the United States because that’s where they have the refineries.
Ms. DelFrari: And some in Canada, but yes, mostly in the U.S.
The Chair: Mostly in the U.S.
Ms. DelFrari: Yes.
The Chair: You’re saying the world will want to buy Canadian oil. But after it goes to the United States, does the United States sell it saying this is Canadian oil, or do they just mix it with everybody else’s oil, because they receive oil from everybody, and then sell it as jet fuel or whatever? How does the client know they’re buying clean, sustainable Canadian oil?
Ms. DelFrari: That is a challenge with any commodity product. Currently, you’re right that when you’re going to fuel up, if you need diesel or gasoline for your vehicle, depending on what type of vehicle you have, you don’t know where that oil was produced. There’s not a sign on the pumps that says this oil came from here. I was talking more into the future. We can do this now. We have the ability to send our oil to a specific refinery. This is what I think of as we decarbonize our oil, as we get to zero emissions from the production of our oil. A refinery should be able to — now I’m dreaming, this is not happening right now — buy that oil and then sell that product for a premium to clients that want lower-emission oil.
I can give you a real-life example that’s not with oil right now. For example, with our ethanol production, we use grain to create ethanol and then it’s blended in to address scope three emissions because ethanol mixed in with other gasoline has lower emissions when you burn it in your vehicle. We have two of these, one in Lloydminster and one in Minnedosa, Manitoba. At the Lloydminster plant, we already have carbon capture and storage. We capture the emissions from that. We’re planning to put that in at Minnedosa. These projects are in our immediate five-year business plan because the product, the ethanol, allows us to gain greater revenues, a higher price for ethanol, when it’s from a plant that has carbon capture and storage.
Ideally, it would be great for the regular oil products to be seen like that in the future. I know there are some liquid natural gas projects. Again, it’s a niche right now, but because they have been certified as lower-carbon production, they have been able to sell their product for a higher premium. That is something that we would look at in the future, especially as you talk about border carbon taxes, adjustments and things like that. A lot of work needs to be done, but it is possible to trace the oil from our facility to a refinery in the United States, and then the refiner could sell that product to companies that, in particular, are looking for lower-carbon oil. We have ownership in five refineries in the U.S. ourselves, two of them we don’t operate, three of them we operate.
The Chair: Thank you so much.
Senator Greenwood: Thank you to the presenters for your really informative presentations. I am here today as a substitute for another senator, so I get the privilege of hearing you.
I have a question for you, Ms. DelFrari. Canada’s Competition Bureau said on May 11 that it was investigating whether Pathways Alliance, a group of oil sands producers that includes Cenovus Energy, misled the public in its advertising campaign. Accordingly, the Commissioner of Competition has commenced a formal inquiry into certain marketing practices of Pathways Alliance. Specifically, the inquiry is seeking to determine the facts relating to allegations that the Pathways Alliance has contravened the act by making false or misleading environmental representations. Three environmental groups complained to the bureau in March about Pathways’ “Let’s clear the air” campaign that promoted the producers’ plan to achieve net-zero emissions by 2050. The environmentalists said that Pathways’ net-zero claim was misleading because 80% of the emissions associated with oil and gas were related to combustion, not the initial extraction on which Pathways is focused. Can you talk to us about these claims of misleading us?
Ms. DelFrari: Yes. Those are going through the process right now. You are right that the focus of that is the scope three emissions or the use of our product. I’m sure that if you are here on this committee, you have followed a lot about the climate discussion and the net-zero term and what that means. There are groups that say you cannot use the net-zero term unless you are referring to the production of your oil right through to the end use. We have been very clear in our materials through the Pathways Alliance on our website and others that we are talking about removing emissions from scope one and two, so direct and indirect from our operations, and that we are not talking about our scope three emissions. What’s being looked at is if we were clear. Have we been clear about that? We feel we have been very clear about that, and that’s what we talk about all the time. We say it’s from our operations, not from the end use. We do many things — Cenovus and as a group — to deal with end-use emissions. Right now, we’re tackling scope one and two, which are within our direct control.
Senator Greenwood: I find very interesting the terrain that you must have to navigate with investigators, as you spoke about today, and the fear of losing investors. If they are not making money, they are not going to invest. It must be a challenging terrain to navigate when you consider the environment and the groups that you engage with, particularly First Nations, Inuit and Métis peoples in this country and the land that we all share. It must be hard. Those are very different philosophical orientations to this particular challenge or this particular reality around land, investment and people. Personally, if we don’t have the land, there will be no investment. Does either panellist have anything to comment on that?
Ms. DelFrari: It’s interesting that you ask that question today because, when I leave here, I’m actually joining a delegation from the First Nations Major Projects Coalition. That’s a meeting with various people in Ottawa to talk about the desire for First Nations communities — in particular, they are here to talk about a potential national loan program opportunity, which is great, but the whole purpose of the First Nations Major Projects Coalition is to help First Nations communities advance energy development. There are different types of energy, and some of it will be geothermal projects that they are invested in, but some of it is traditional oil and gas.
We hear from our Indigenous communities that they care deeply about the land, and any human activity has an impact on the land, any human activity. Oil and gas do, absolutely. That’s why we are very careful to make sure you don’t do anything in oil and gas without having a plan to return the land back to the way that it was before you were ever there. Before we go out, we harvest seeds, working with First Nations businesses, and store them in a seed bank. We take the soil in its different layers, store it and know how to put it back. These are things that our sector is really good at doing when looking after the land.
Again, there is opposition to every type of project development, and you have to look at what is the better good for the local community, for the company, for Canada and for your investors. You are right that it is a balancing act, and I think that right now, one of the balances with the decarbonization in particular is for the investors — that’s where you started — and where that tipping point is between saying, “Companies, we want you to invest, and we want you to spend our shareholders’ dollars, having strong environmental and social governance is great, but we want our returns.” Again, I just came from the Responsible Investment Association conference. I don’t think that the balance for investigators has been fully tested. Every investor is different, too. It is part of my job to find out what that is. I know that it’s not 100% of our shareholders’ dollars going into these multi-billion-dollar projects. I know that’s not where the balance is.
Mr. Yee: I definitely agree with what Rhona said earlier. I want to add to that it’s not just the land. We also work with Indigenous communities on the water and the air for the community as well. Many times, they are our next-door neighbours, in most instances. In the in situ industry, the surface land usage is actually very small, just a portion of the project. Typically, they are under 5% to 10% usage of it. Certainly, we do a lot of consultation to do that first, and then also the recommendation that Rhona talked about earlier. I just wanted to add that. Thank you.
The Chair: Mr. Yee, can you remind me how many barrels of water you need to produce one barrel of oil? In my time, 20 years ago, when I was doing that at McGill University, it was four barrels for one of oil. Have we reduced that?
Mr. Yee: I’m speaking about the in situ part of the business. There is also the mining side of it. In the in situ part of it, things have changed quite a bit since the time that you are familiar with. We developed very exclusive water recycling technology. Today, on most projects, we recycle at least 90% of the water coming back from the reservoir. On a net basis, industry-wise, that is less than 0.2 barrels of non-saline water used for every barrel of bitumen production. In the company that I used to work for, MEG Energy Solutions, we drove it down to 0.1 barrels per barrel of bitumen produced. Thank you.
The Chair: Yes, thank you.
Senator Batters: Thanks to both of you for being in our meeting today and for providing us with this important perspective on this topic.
Ms. DelFrari, in your remarks earlier, you said you were supportive of a carbon tax like Alberta has for industrial emitters. Of course, with Cenovus’s carbon tax — that is, as you pay for it — you are able to then pass that cost down to consumers. But with the Trudeau government’s carbon tax, consumers who have to pay the carbon tax are not able to pass that down to anyone. They have to pay it themselves. Then it does just go into the government’s general revenues, which is something that you said is not the ideal scenario. You also noted, “carbon tax done the right way.” I’m assuming that when you said that, the federal government’s carbon tax going into general revenues, that sort of thing, does not fall under that category. Can you please comment a bit more on that distinction?
Ms. DelFrari: When you are an oil producer, you don’t have the ability to pass on extra taxes to the consumer because we sell to the general market as a commodity for our production. So we’re a price taker. We don’t get to say, “I’m adding an extra $2 to our barrel of oil.” We have to take whatever the price of oil is on the open market. We can’t actually pass through any additional costs in that manner as you would if you were selling a retail product and you have an option to do that.
I am not the expert in carbon tax on the general public. This has been something that we at Cenovus have been supportive of for many years. We launched as an independent company in 2009, and that was the first messaging that we talked about because we knew that was a question back then. When I talk about an effective tax, I’m really talking about the effectiveness on decarbonization efforts. That means that if you are charging a tax specifically for carbon, then you need to redirect those dollars to efforts that will lead to advancement of technology to decarbonize. That is the way that the Alberta government has set up its fund right now.
When you talk about the sticks and the carrots, and you hear that a lot, especially looking south of the border at the extremely promising incentives that they have for decarbonization, my concern is that because of the opportunities that are being offered in the United States to encourage decarbonization projects to move forward — and they are using way more carrot than stick — we’re going to need a significant increase in labour to do these projects. For the foundational CCS project for the Pathways Alliance, just the construction, we’re talking about 25,000 to 35,000 jobs. That is huge. The next boom is decarbonization projects.
We need to get going on those things because those jobs are going to the U.S. right now. These projects are being incentivized to start right away because of the incentives that have been provided down there. We can’t fall behind because, again, if we are to achieve the 2030 goals that the government and our industry have, this is coming fast at us. We have a regulatory system that we have to go through, and we have to start buying pipe and buying these technologies to capture it. I am personally worried about the ability to attract labour here because the labour market is going to get sucked up by these projects. It’s a wide variety of labour. These are construction jobs, but these are also specialized jobs for these decarbonization projects.
Senator Batters: Absolutely. I’m from southern Saskatchewan and am familiar with the waiver in Estevan CCS projects there.
Also this morning, you said here something like ideally we would be rewarded for having the lowest carbon products. Do you have a sense of frustration when you are making these types of major and sincere efforts to reduce your carbon footprint and taking this seriously while, and at the same time your industry — and in many circles, including, let’s face it, the current environment minister who was previously an environmental activist — is sometimes vilified as the producers of “dirty oil,” saying they are killing the planet and things like this? Do you feel you are getting any proper credit for the major efforts in certain circles that you are making?
Ms. DelFrari: As an industry, we have to take some responsibility for the fact that we didn’t talk about the efforts well enough, to be fair. Yes, it’s frustrating. Our employees work their hearts out. I go up and talk to them, and they are so frustrated when they are being accused of producing dirty oil when they know that we’re doing everything possible to protect the environment and contribute to our communities. It’s very frustrating for our employees especially. It is frustrating for me, but I look at it as a lack of awareness. There is a lot of information out there that is not correct. We should have done a better job over the years, but we’re an industry that is — now I’m going to offend any engineers in the room — full of engineers whose attitude was, “We’re doing the right thing. Why do we have to stand on top of a mountain and scream that we’re doing it? We know that we’re doing the right thing.” But doing the right thing and not telling people you are doing the right thing hasn’t worked well. Now that is why you see us being more vocal publicly. I think it is because we’re proud of what we’re doing. We know that we are the most responsible producers in the world, and we need people to understand that.
A lot of the global studies, in particular with GHG emissions, are a challenge because they are based on a lot of assumptions. We’re the fourth-largest oil producer in the world. The others are Saudi Arabia, Venezuela and Iraq. We’re not getting data from those countries in the way that we’re getting data from our country and our industry. We measure our emissions right at the plant, so we know. It’s been verified. An S & P Global study shows that Canada has by far the most rigorous emissions reporting in the world. A lot of assumptions go into what the emissions from other countries are. I feel that if they were accurate assumptions, Canada would not be deemed as having the highest emissions. In fact, even with those assumptions, our production at Cenovus is on par. We have worked with the researchers that do some of those studies that are quoted globally. We’re right on par with the global average at our largest oil sands facilities.
Senator Massicotte: I’m glad to hear your last answer. You talked about being measured, about ethics and environmental issues, but regarding the CO2 level, where were you at, say, five years ago? Where are you at today relative to the amount of CO2? You’re saying it’s across the international average, including other oil sands projects like in California and so on?
Ms. DelFrari: Yes. The ones in California are much higher emissions than our production in Canada’s oil sands.
Oil sands projects vary. It’s a wide range of emissions intensity. Now we’re talking intensity per barrel emissions. Cenovus has been doing in situ SAGD, steam-assisted gravity drainage production, for the longest in the sector, and that’s only been about 20 years. This is still a new sector. We have the lowest emissions. Some nearby peers also have low emissions.
We have worked with the academics in the United States that have done these global studies. As we provide them with more information, the assumptions they’ve been making are often quite wrong, so they have come back and said, “You are right. You are right on par.”
Senator Massicotte: The CO2 density that we produce in Canada, all matters combined, light oil and heavy oil, we are averaging?
Ms. DelFrari: I’m talking about our facilities. If you take all the oil sands facilities — remember, some of these are older facilities and they have different emissions. On average, the oil sands is still a bit higher than the global average, knowing that the global average has a lot of flaws in the assumptions that these studies are using. Some of them don’t even count methane. Some of the studies don’t even include methane.
Senator Massicotte: How about recent plants that were constructed in the last five years?
Ms. DelFrari: Any of the newer facilities, they have, most definitely, lower emissions, because we have the technology advanced.
Senator Massicotte: How far away are we from being the best in the world relative to CO2 density?
Ms. DelFrari: I’d have to trust the other data, and I’m not sure that I do. As data improves, and as monitoring of methane in particular globally from satellites improves, we’re going to get a much different picture of what the global average is.
Senator Massicotte: Could we get the report?
Ms. DelFrari: Yes. I will send you that as well.
Senator Massicotte: We can compare density.
Ms. DelFrari: I’ll send you a couple of them.
Senator Massicotte: That’s very good.
The Chair: That ends our session today. Thank you to our witnesses. Thank you to all the staff from this committee that make the committee’s work flawless.
(The committee adjourned.)