THE STANDING SENATE COMMITTEE ON ENERGY, THE ENVIRONMENT AND NATURAL RESOURCES
EVIDENCE
OTTAWA, Thursday, October 31, 2024
The Standing Senate Committee on Energy, the Environment and Natural Resources met with videoconference this day at 9 a.m. [ET] to study emerging issues related to the committee’s mandate.
Senator Paul J. Massicotte (Chair) in the chair.
[Translation]
The Chair: Honourable senators, my name is Paul J. Massicotte. I am a senator from Quebec and I chair the committee.
Today, we’re holding a meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources.
I invite my fellow committee members to introduce themselves, starting on my left.
Senator Galvez: Good morning. Rosa Galvez from Quebec.
[English]
Senator Robinson: Good morning. Mary Robinson from Prince Edward Island.
Senator D. M. Wells: Hi, I’m David Wells from Newfoundland and Labrador.
Senator McCallum: Mary Jane McCallum from Manitoba.
[Translation]
Senator Youance: Good morning. Suze Youance from Quebec.
Senator Miville-Dechêne: Julie Miville-Dechêne from Quebec.
Senator Fridhandler: Daryl Fridhandler from Alberta.
The Chair: Today, the committee has invited witnesses to appear as part of its special study on climate change, specifically in relation to the Canadian oil and gas industry.
For our first panel, we welcome David Dodge, Senior Advisor, Bennett Jones LLP, former Governor of the Bank of Canada. Welcome, Mr. Dodge, and thank you for accepting our invitation. We’ve set aside five minutes for your opening remarks. This will be followed by a question period.
You have the floor, Mr. Dodge.
[English]
David Dodge, Senior Advisor, Bennett Jones LLP: Thank you very much, Mr. Chair. It’s a tremendous pleasure to be here with you this morning. I’ll be very short in my opening remarks so that we can move on to the discussion.
I want to start with the observation that today and over the decades from now until the middle of the century, the world, and we in Canada, will have to manage four unparalleled changes that will fundamentally alter the structure of our economy and our society.
We must deal with population aging. We must deal with the fracturing of a global trading order that historically has been very favourable to Canada but doesn’t look very favourable going forward. We must deal with a shift to a digital economy, artificial intelligence and new technologies. Finally, both globally and here in Canada, we must make an energy transition in order to deal with climate change.
Going forward, these are real challenges for us all. All of these fundamental changes will require Canadian households, businesses and governments to work together to manage adaptation and grow our economy in order to secure an improved standard of living as we approach the middle of this century.
This committee has a critical role to play in providing guidance on how Canadians can deal with the fourth element of these fundamental changes — the energy transition.
I hope my remarks this morning may be of some help as you address these issues around managing the energy transition. Canada can play an important role in the global transition, and ultimately to a net-zero world, but that transition will require massive investment in our energy system over the next few decades, both upstream in the production of energy through cleaner fossil fuels and new renewables, and downstream in the efficiency of energy use by businesses and households for transport, production and buildings.
During the transition, the share of national income devoted to these investments that must make is going to have to increase. Although most of the additional capital to finance this investment will have to come from businesses, public financing will be required both to provide complementary public investments and to catalyze private finance. Providing that finance will be least difficult if the transition is managed in such a way as to keep the economy growing rapidly, both through increased productivity and the maintenance of a high level of income-generating exports.
To generate rising productivity, both businesses and government must focus on two things: first, those investments which create the highest return on capital over the longer term — not necessarily the greatest increase in construction jobs today; and second, those exports which generate the greatest amount of economic rent during the transition.
Canada can capitalize on its capacity through the transition to be a reliable exporter of responsibly sourced hydrocarbons and over time to pivot to exporting more of the clean energy technology and services that we are going to be developing during the transition.
I would like to note that exports of energy products generated $212 billion in 2022 and continue to generate large returns that must be preserved and enhanced. These exports make a critical contribution to our collective ability to finance the investment and thus speed up our own domestic energy transition.
Senators, thank you very much for your attention. I look forward to elaborating on these remarks in the upcoming discussion.
The Chair: Thank you, Mr. Dodge.
Senator D. M. Wells: Thank you, Mr. Dodge, for returning to the committee. You talked about shifting demographics, climate change and global transitions. We all recognize that there is a global consensus on climate change, so I wanted to talk about it, of course, as we’re doing our oil and gas study.
Of the major industries in Canada — and we are an industrial nation with respect to agriculture, mining, forestry and industrial manufacturing — where do you see oil and gas fitting on the scale of ensuring that Canada is prepared to be economically strong as we move into the future? If anyone asks, it’s both the East Coast and the West Coast.
Mr. Dodge: Mining, oil and gas, taken as a package, represent roughly 7% of the Canadian economy. That is a larger share of our economy than these industries represent elsewhere in the world — much bigger than in the U.S., for example, where they represent only a little over 1% of the U.S. economy. They’re absolutely crucial industries for us.
Second, I would note that workers in the mining, oil and gas industries have very high productivity. In terms of 2007 dollars, the productivity in the oil and gas industry represents roughly a little more than $220 per person. That compares to about $70 per person in manufacturing and a little less than $40 per person in our service industries.
In terms of generating incomes for Canadians, this industry is critical, and it is absolutely critical that productivity in this industry continues to grow and that we continue to play an important role in the global transition, particularly in the short term, through the export of gas — somewhat of oil, but particularly of gas — and in the medium term, through the export of technology and services that we are developing in this country as we make that transition.
Senator D. M. Wells: Thank you, Mr. Dodge. You talked about income-generating exports, and certainly oil and gas would be of a national scale on that: commodities with the highest return on capital and exports that can extract the greatest rent and the return versus the jobs.
Of the major industries we spoke about, where would you rank oil and gas?
Mr. Dodge: The only other industry that, with respect to output per head or output per worker, generates anything like what the oil and gas industry does is actually finance and real estate and that whole collection of financial services industries. I should be a little bit careful. There are also very specific elements elsewhere in the economy, but if we think of major industries, there is none that generates the same income for the amount of effort that Canadians put into it than oil and gas.
That will continue to be the case. One expects that oil prices, in real terms, are probably going to decline somewhat over time, but the margin is so much larger today. The margin is so large today that even with that decline, these industries will remain very important going forward.
Senator Miville-Dechêne: Thank you for being here, Mr. Dodge. I want to quote Andrew Leach, a professor at the University of Alberta who came to testify here about the transition. You are saying that continuing to export, as we are — and, in fact, we are producing more and more oil — is the way to go to finance the transition. That’s what I understood from what you’re saying. However, Professor Leach cautions that betting on rising oil demand is betting on a world that fails to act on climate change.
So should we go a little faster? Obviously, the world is threatened by climate change now, and the idea of keeping this balance so we don’t “suffer” is difficult to reconcile with taking care of the planet.
Mr. Dodge: I take the period until the 2040s as the transition. In the transition, one would expect and hope that the world will replace coal quickly, and it will replace some of that with oil and gas, particularly with gas imported from us, the United States or the Middle East.
It’s very important to understand that there’s a hump here: There is a market that continues strong through the rest of this decade and into the 2030s, but then it’s going to decline. It’s important to take advantage of that hump because we receive significant rent from those exports. Then, we can use that rent domestically to finance and speed up the transition, which means huge investment in electricity generation from less greenhouse gas creating sources and a big increase in the transmission of electricity.
That’s what I think has to happen, and we need to find a way where we take the rents from the export of that gas and oil and then convert it into efficient generation, whether that is new types of generation, more hydro or more nuclear. But then we must develop the transmission capacity. That requires an absolutely massive investment going forward as we reduce the amount of oil and gas that we use for transport, buildings and industrial production.
Senator Miville-Dechêne: Just as a quick follow-up, from your point of view, is the oil industry investing sufficiently in alternative and green energy? I know they’re investing in the capture of carbon. The government, too, is investing there. But regarding a transition to something else, do you think they’re doing their part in investments? At this point, the production is going up and the profits are going up — well, I believe so. So what are they doing with those surpluses? Should they invest in green energy?
Mr. Dodge: The answer is some are. Some firms have chosen that. Other firms are distributing that income. Part comes to us in government through taxation and royalties, and part is being distributed and then reinvested by other companies in greener forms of energy production and by utilities. That’s really important: utilities in both the generation and transmission of electricity. Because of our demand for electricity to replace oil and gas as motive fuels and to replace gas in particular in electrical generation, we must make those investments.
It won’t necessarily be the companies that produce oil and gas that are going to be the biggest investors in green energy, but they are generating the savings through the distribution of those profits that allow other companies to make those investments.
Senator Miville-Dechêne: Thank you.
Mr. Dodge: The point, senator, that you flagged is that most of this effort is actually going to come from the private sector. We have to be supportive in the public sector in terms of the complementary investments we make and in terms of the financing arrangements and the way we allow finance to operate to facilitate those investments in green energy production and distribution.
Senator Galvez: Thank you, Mr. Dodge. It’s nice to talk about the economics of the oil and gas sector. While I agree with your ultimate vision, I think the devil is in the details. You’re talking about the transition, but we need to say when the start of transition is and when the end of the transition is. Otherwise, we’re in permanent transition.
I just came back from COP 16. There was a date on financing both climate protection and natural protection, and they say that we are at 0.0001% of the financing that is needed in order to conduct and finance this transition. We are not Norway. Norway has a sovereign wealth fund that allows it to give $1 billion to Brazil to help it with its transition and protecting the forest.
Both the Amazon Rainforest and boreal forests are becoming carbon producers. They aren’t carbon sinks anymore.
Our economy, our banks and our insurance are investing $4 in fossil fuels and only $1 in renewable energy when it should be the opposite. At the same time, the government is giving them between $15 billion and $20 billion per year as subsidies.
How do we solve this conundrum? You’re saying that the private sector should do more, but the transition is supposed to be a marathon. Now it’s a sprint because we’re all in a hurry. What needs to happen so that we shift the investment toward renewable energy, electrification and the transmission that you’re advocating for instead of continuing with business as usual?
Mr. Dodge: There are two issues there: First is the straight, ordinary structure of financing. My successor at the Bank of Canada, Mark Carney, has spoken a lot about what needs to be done in terms of the structure and incentives needed in that regard. That’s not just here in Canada; it is a global issue.
There are things in the financial sector, in the structure of finance, that can help, but fundamentally, if we expect business to do the job, then business must have an expectation that their investments in those sectors will actually pay off. It’s important. We often deride the profit incentive, but it is absolutely critical in this regard. That means we have to be looking at increasing the returns to those investments in clean energy production and transmission.
One of the key things there, of course, is how we regulate electricity prices. At the moment, the way we regulate electricity prices is that the regulator doesn’t make any allowance in setting those prices for the need that we have to make investment ahead of time in order to deliver the electricity down the road. That is a problem because the investor — the firm — must look to the profits being generated, but if those prices for the electricity that comes from green production is held down, then the potential profit is lower, certainly, in the short run; it’s negative.
When one thinks about the complex of things that need to be done, there are some things in the financial sector itself. There are things in the regulatory sector that are important in terms of generating the expectation of profit that will allow the investment to be made.
Finally, we have the question of what the discount being applied will be going forward. We are looking to a period when interest rates are going to be reasonably low and, hence, compatible with making the investments today.
There is not just one single thing, senator, in this regard that will generate that very important expectation that in the private sector you can make money from investing in the right thing.
Senator Galvez: I have a quick supplementary. I am sure you know that Canada now has two or three extreme weather events per year, the last one being the burning of Jasper Park, which last week reached a cost of $1 billion. Do you think Canada has the money next year for another two or three extreme weather events that are within that range of cost? Who should pay for that?
Mr. Dodge: We’re all going to pay for it in one way or another.
Let’s look at what’s happening in the financial sector. Insurance is an absolutely critical issue in determining where investments are made. We’re seeing that insurance rates for both housing and industry have gone up quite dramatically. This provides an incentive for businesses to be located in a place that has less climate risk, and because those insurance rates have gone up, it provides an important incentive for investing in the right thing, in terms of both mitigation and the production of energy going forward.
There are a number of components here, but we don’t want to forget the importance of insurance rates. Having to pay for that insurance does guide where investments are made and certainly guides lenders regarding whom they’re willing to lend money.
Senator Arnot: Thank you, Mr. Dodge, for bringing your expertise to help us here today. I appreciate you being here. I have questions similar to those of my colleagues. We’ve heard in this committee that the electrical infrastructure in Canada needs to double within seven years. This will require a massive investment to meet the expected demand.
In my province of Saskatchewan, SaskPower has estimated that we need four modular reactors, which cost about $5 billion each. It takes 10 years to bring them online. We have a Crown corporation in Saskatchewan.
Investment needs certainty, and decisions probably need to be made today in order to hit targets and expectations 10 years from now. You’ve outlined a number of difficult and challenging issues.
Is public policy moving quickly enough for the private sector to make the kinds of investments you’re talking about? My impression is that we’re not — and that public policy is lagging and impeding decision making by the private sector or, for instance, Crown corporations in my province.
What would your advice be on approaching those difficult issues and how this can be financed?
Mr. Dodge: Yes. Are we moving fast enough in this country? The answer is no. In part, we’re not because the cost of moving quickly would mean diverting a larger share of our national income from consumption to investment.
That means we’re going to have to pay a price at the moment in the form of reduced, or at least certainly not increased, consumption in order to ensure we make the investments where we’ll be able to count on the rising ability to have incomes going forward.
We all have a degree of myopia in that sense. We tend to discount future incomes more highly than even the interest rate we have in the market. It’s true in the public sector and the private sector, and it’s very much true in the household sector.
So how do we come collectively, in business, government and households, to the understanding that we have to undergo a bit of short-term pain — I’ll call it “pain” because that is a language that has been used before — or a short-term curtailment of our consumption in order to release resources to the investment for the future? In some sense, that means that we as households have to understand that and that we would like to see business increase the investment use of their retained earnings, maybe not distributed all back to us as people. That’s a difficult change in mindset that we have to come to.
If you take that, then, to the public policy aspect, what it really means, again, is that governments, both federal and provincial — and, in a very important way, local — have a role to play here too. They are going to have to reduce their promises to the public as to the current services and transfers that they will deliver in order to free resources to make the investments, which will pay off down the line and mean higher incomes for people in the future. Currently, it would mean a change in the structure of where governments spend their money and how governments raise their money. That’s just very difficult.
Senator Arnot: That is really difficult, isn’t it? Politically, it’s a difficult —
Mr. Dodge: Well, yes. It’s politically difficult or easy depending on the understanding the public has of what needs to be done. If the public can better understand what it is that needs to be done — for example, investment now to have higher incomes in the future — then governments have a licence to act.
We write a lot about this. The last reports we did at Bennett Jones, for example, emphasize this. My job is to try to increase understanding on the part of the public as to what needs to be done to make it more feasible for the political authorities to act in the way we need to.
I would say the political authorities have an important responsibility to be honest and forthright with the public as to what’s at stake. That’s not easy. Complicated issues are always difficult, so it’s hard to get at an aphorism, a short saying, that describes it.
Essentially, we have to make the investments today, and accept short-term pain in terms of reduction of consumption, in order to have the long-term assurance that we can continue to grow incomes for ourselves two decades from now and for our children and grandchildren as well. That is the job. That’s why I would say public policy is so difficult: There is not a clear understanding on the part of the electorate as to where we are and what must be done going forward.
Senator Arnot: That’s an important observation we talked about before. The lack of public understanding is a real impediment to moving forward and getting the commitment Canadians need to make to support this change. Thank you very much.
Senator McCallum: Thank you for coming here and sharing your knowledge and wisdom with us. I wanted to shift the conversation to First Nations.
On paper, Canada endorses the goal of sustainable development, that being development that meets the needs of the present without compromising the ability of future generations to meet their own needs. That concept has three critical components: the ecological imperative, living within the Earth’s physical limits; the social imperative, developing democratic systems of governance that enshrine and respect basic human rights; and the economic imperative, ensuring that human needs and aspirations can be met worldwide.
Nature is not a boundless cornucopia with endless forests, water, oil and gas reserves and other natural resources, and it does not have an infinite capacity to absorb pollution and waste. When I look at the cumulative impacts of oil, gas and hydro — hydro is part of the problem in First Nations lives because all these resource-extractive industries leave cumulative impacts and devastation where they are extracting.
With these cumulative impacts, human activity is involved. So when we look at new conduct of human activity that has the ability to add to the cumulative impacts, making the environment vulnerable for the people living in that local area, where the water, land and air are degraded — and we looked at that — a lot of it is centred around First Nations.
We went to Alberta this summer and looked at Suncor and their place of work. They now have huge AI-driven vehicles, and they are using not only oil but also natural gas and hydro to drive them because the AI needs a lot of energy. The AI-driven vehicles are going to be working 24-7, 365 days per year. That means a decrease in the need for employment, so that came out.
That is a further devastation of land, water and air. How do you see sustainable development fitting into this conversation of economics? Do you think sustainable development is critical?
Mr. Dodge: The preservation of the environment in which we live is absolutely critical. Operating in such a way as to facilitate that preservation is, of course, critical. What you mean by “sustainable development” is being sustainable in a global environmental sense. This means that in the extractive industries, it is absolutely critical that, in evaluating those operations, allowance is made for reparation and restoration of the environment, whether it’s the physical environment or the water environment in which they operate. In this country, we have not always been insistent that, in evaluating an investment, adequate attention be paid to the impact that investment is making on the environment.
We have a number of instances across the country. We can see it, for example, in Alberta, where we are now having to call on the municipalities and the provincial government to provide the money that should have been set aside by the drillers when they drilled. It’s important that the legal and regulatory structure we set up is such that it forces people to take into consideration those costs as they are making the investments.
We have not always been very assiduous in doing that. Also, we may not have recognized what some of those costs are. It’s hard to undo the past, but looking forward, that is very important.
However, in doing so, we have to be clear, and we have to give the investor a degree of certainty as to what we collectively expect as the public. Certainty as to what the investor and the producer are supposed to do is needed. It’s not just that we haven’t been as definitive as we should have been in the past; we are very unclear about our expectations. We leave producers with uncertainty as to what they must do.
That uncertainty, in and of itself, discourages investment. The investor may not appreciate the fact that they must be prepared to set aside reserves to do restoration and so on, but if they know those are what the rules are, then they can make the judgment.
If it were very unclear as to what those rules are, and if we keep changing the rules, then they have too much uncertainty and won’t make the investment to begin with.
These are difficult issues to deal with, but we must provide a degree of certainty and also have an oversight or regulatory regime that is clear about what is expected.
That’s what we can do in the public sector. I don’t think it’s easy, but we can do better than we have in the past. We certainly don’t want to create more uncertainty as to how things will be treated going forward.
Senator McCallum: I have one more question to follow up on Senator Galvez’s: Who should be responsible for the uninsured and uninsurable losses due to wildfire and extreme weather events that are experienced by First Nations and Indigenous peoples in the North in terms of infrastructure and equipment used in fishing and trapping in the exercise of the treaty promise of the Crown regarding hunting and fishing for food for support and subsistence?
It’s not only the natural extreme weather eventing doing this; this is already occurring with extractive companies. They are losing that ability. In Fort McKay, when they interviewed an elder, he said, “Oil has come and devastated our culture and our life. Now we have to work with oil because they are here.”
When that oil is gone, we’re not going to have our natural way and we’re not going to have oil. What will we be left with?
Mr. Dodge: The answer is that all of us are going to have to change. Change is not easy. You talked about one particular element of change, but, as we move forward in the world that we have been comfortable living with and adjusting to, we are all going to have to make changes. Those changes are not easy, whether it’s in terms of the folks who live around Fort McKay or whether it’s those of us who live in cities who will have to adapt the way we live our lives if we’re going to treat our global environment better. We are all going to have to make some adaptation, and that is critical.
You can’t undo the past. Your first question was about how we did not in the past provide resources to compensate folks that are then hit by unexpected climate change. Is it up to the public sector to do so? In part, the public sector will have to do so, but in part, because we have all collectively made decisions in the past, we’re all going to have to accept part of the cost of doing that.
Looking forward — this is why I raised the issue of insurance earlier in terms of the financial system — if there are indeed high-potential costs, then it will not be possible to obtain insurance. Those activities becoming uninsurable — or only insurable at an extremely high price — will be a signal they we shouldn’t undertake them.
We have a financial system out there in aggregate that is creating the right incentives going forward for the right thing to be done. When mistakes have been made in the past and we’ve picked up the pieces, there was some element of trying to figure out whether it’s the individual person or firm versus us collectively through our governments that provides the compensation.
That’s a difficult set of decisions as a result of our past actions. I would argue that going forward, we have mechanisms to deal with them, and we should use those mechanisms.
The Chair: Just to remind all of you, we have nine minutes left, and we’re stuck with that time frame. We still have three people in the first round. If we can make the questions short and the answers even shorter, that would be much appreciated.
Senator Fridhandler: Looking forward to the utopia that will be getting to net zero, where the oil sands contribute with significant technological developments and where Canadians as a whole curtail their use of hydrocarbons such that we have reached our domestic targets, we will still have significant hydrocarbon infrastructure. We just completed the Trans Mountain pipeline. We’re a major exporter of our hydrocarbons. We probably still need this to drive our economy.
Should oil and gas companies be free to simply pump, export and let the rest of the world worry about dealing with our hydrocarbons while we sustain our economy? What are your thoughts? Is Rich Kruger, in focusing on production and no longer on his renewable efforts collateral to the conventional oil and gas, clairvoyant in what he is doing?
The Chair: Rich Kruger is CEO of Suncor, correct?
Senator Fridhandler: Yes, he’s the CEO of Suncor.
Mr. Dodge: I think companies should focus on what they do well and do best. This has been a debate in oil companies around the world, like Shell, BP and so on, as to whether they are in the oil and gas game or in the general energy game and playing on a much bigger canvas.
It’s quite natural that some companies will make the argument that no, they want to be diversified and play on all elements of the playing field because that gives them diversity and it means that as a company, they will continue to exist when a particular element of the business goes down.
Alternatively, as a business, they can also make the decision that no, they’ll focus on doing well and as efficiently as they can in the business they’re in and understand that that business is going to shrink and maybe disappear over time. Those are legitimate corporate decisions that are made according to where they think they can make the biggest contribution.
I don’t think that it is right to think that oil and gas companies should focus on everything rather than on what has been their traditional business, but if they decide to focus on just their traditional business, they then generate savings for the rest of the economy to be deployed by firms that are more efficient in deploying those resources in other domains.
I don’t think one ought to look at this as every oil and gas company should be in the business of green energy. That doesn’t necessarily make sense, but in aggregate, what we need is the investment on the green production and distribution to be made.
[Translation]
Senator Verner: You were in the process of answering my question thanks to the one asked by my colleague. I wanted to come back to the objectives of the study, in particular the relevance of the oil and gas industry to our economy and public finances.
In the course of this study, we’ve found that many Canadians underestimate the importance of this industry in terms of jobs and, above all, tax revenue. I heard you clearly when you said that this tax revenue could lead to investments that go back into cleaner energies.
As a former deputy minister of finance and governor of the Bank of Canada, do you find it worrying that there is so little awareness of what the industry could help us achieve if we channelled the tax revenue into other types of energy?
[English]
Mr. Dodge: Yes, in other forms of energy, but also in other forms of activity that generate real income for Canadians. That, I think, is the important thing.
Senator, I would like to pick up on one thought. You talked about the jobs aspect. In fact, if we are going to survive in this country, especially given the fact that we’re all getting older and will have a relatively smaller labour force and so on, the focus is going to have to be on what we can do to increase the productivity of people who are in the labour force.
The focus must be on the real income generation effect of those activities and the incentives that we provide. It’s not as easy as simply saying that there will be jobs for everybody. The focus has to be increasing the efficiency of what people do so that fewer people can produce the income that most of us older folks are going to be relying on. Older folks are going to be a much larger fraction of the population going forward.
Income generation as opposed to immediate jobs ought to be the focus of what we’re looking at. I think that’s important. That is quite different from the general political language that is used not just in this country but in many other Western countries also.
The Chair: Mr. Dodge, when you look at our discussion, these are complicated matters. There are a lot of complicated decisions to be made, yet the consequence being in Canada today is if you consume carbon dioxide or if your car is not electric, you’re considered a bad person. There’s a very negative tone to the industry, and they are playing defensively as a consequence.
If you were the minister, and you had a one-minute TV opening to explain to your industry why it should invest, what would it say in a very simple and convincing manner? We asked this question of the minister. It’s complicated. We’re losing Canadians from a communication point of view. How would you summarize it quickly so that it has an impact on Canadians?
Mr. Dodge: We have to be honest. We will have to devote a larger share of the income we produce in this country today to investment that is going to generate incomes in the future. That is what we are up against in all of those four areas that I talked about. We have just been talking about the energy transition here, but all those four areas require that mindset. We must be thinking about how we can increase the potential of the smaller share of the population that we expect to be in the labour force in the future and how we can increase their potential to produce incomes for all of us. We can’t expect those in the labour force to bear all of the costs.
We can’t ask workers to accept lower incomes to support us older people. We must invest in such a way that we raise the income-producing capability of those folks who remain in the labour force. That is what we must focus on in dealing with all of those things.
It’s not easy, as you said, Mr. Chair. It’s complicated, but it’s that mindset regarding what it is that we’re focusing on that is so critical. To put it bluntly, it is not jobs for the boys today; it’s income for all of us in the future. That’s quite a different mindset as we look at what must be done.
The Chair: Thank you very much, Mr. Dodge, for your time. It was a little bit over, but it was very interesting. I think we could have continued for another hour, but we’ll do that next time. Thank you very much for being available to us.
Mr. Dodge: It was my pleasure. Thank you very much, senators.
[Translation]
The Chair: Honourable senators, for our second panel of witnesses, we have Paul Barnes, Director, Atlantic and Northern Canada, Regulatory and Operations, from the Canadian Association of Petroleum Producers. He is joining us by video conference. We also have, as an individual, Lesley James, Professor, Faculty of Engineering and Applied Science, Memorial University of Newfoundland.
Welcome and thank you for accepting our invitation.
Five minutes are reserved for your opening remarks. The floor is yours, Mr. Barnes, followed by Ms. James.
[English]
Paul Barnes, Director, Atlantic and Northern Canada, Canadian Association of Petroleum Producers: Good morning, senators, and thank you for the privilege of speaking to you today. Our head office is based in Calgary, Alberta, but I am based in my hometown of St. John’s, Newfoundland and Labrador.
The Canadian Association of Petroleum Producers, or CAPP, represents Canada’s oil and natural gas producers from coast to coast, including the conventional, offshore and oil sands sectors, although I am here today specifically to talk to you about the offshore oil and gas industry.
The offshore oil and gas industry is a long-term partner in Newfoundland and Labrador. Since 1997, when production first began, royalties have reached more than $25 billion. Industry investment into Newfoundland has totalled over $65 billion over the last 25 years. Today, offshore royalties account for 15% of the provincial government’s budget: One dollar in every seven spent can be attributed to our industry.
The Canadian Chamber of Commerce released a report earlier this year quantifying the economic impact of the conventional oil and gas sector across Canada. That report demonstrated that the economic impact of the oil and gas industry on Newfoundland and Labrador in 2022 was $10.5 billion in GDP and over 20,000 direct and indirect jobs. In 2023, offshore oil and gas investments were about $1.6 billion in the province and are expected to reach $2 billion this year. There remains a significant potential for further growth.
This industry is truly the backbone of the Newfoundland and Labrador economy, and it’s becoming an even more important player on the global stage. Over $6.8 billion of crude oil exports were shipped from Newfoundland and Labrador in 2023 to the United States and Europe. For the first time in 2023, European markets exceeded American markets as the leading destination for exported crude from the province. By expanding our export markets, we not only enhance trade relations and contribute to global energy security, but we have created more jobs and a healthier economy here in Newfoundland.
We often say at the Canadian Association of Petroleum Producers, or CAPP, that Newfoundland and Labrador’s offshore oil and gas industry is an opportunity waiting to happen, as global offshore oil and gas investment has seen significant growth in recent years. Yet investment in Newfoundland and Labrador’s offshore is not keeping up with the global pace.
CAPP believes that by creating the right regulatory environment, we could be attracting significantly more investment into our sector. We have world-class offshore oil and natural gas resources, along with decades of experience and talent in Newfoundland and Labrador to develop those resources in a way that competes with any other nation in the world.
Unfortunately, policy uncertainty and regulatory complexity are making it incredibly difficult to attract investment, and policies like the proposed emissions cap, for example, have the potential to stifle growth in our industry.
Then there are recent changes to the Competition Act to address greenwashing claims, an incredibly vague law with exceptionally high penalties that limits what we can even say on the topic of emissions reduction. These are just two examples of significant hurdles facing investment in our sector.
Although the Competition Act changes limit what I can say on the topic of emissions reduction progress, what I can say is that companies working in our offshore oil and gas industry today are investing in research and innovation in an effort to manage and reduce greenhouse gas emissions from their operations, not only because we are environmentally responsible producers, but because it makes good business sense to do so. We have seen innovation work for our membership in this space, including efforts to use artificial intelligence to monitor emissions in real time. We have seen replacement of diesel-burning equipment with electrical equipment — such as cranes used in some of the offshore instillations — and we have seen significant investment in investigating the feasibility in using renewable power options for offshore facilities.
The government’s own data shows that the offshore production in Newfoundland and Labrador accounted for only 0.14% of Canada’s total emissions in 2022 and only 0.5% of Canada’s upstream oil and gas sector emissions.
As mentioned, our industry invests heavily in research and development, and not only on emissions reduction. Recently, the offshore oil and gas industry has been funding research in Indigenous knowledge, decommissioning and abandonment and biodiversity. This includes doing a study to promote the understanding and appropriate use of Indigenous knowledge in the impact assessment process. We are also funding an extensive project on Atlantic salmon, an important species to some Indigenous communities, with the objective of determining when, where and how long the Atlantic salmon from different life stages are in Eastern Canada’s offshore regions. Results of this research can also help regulatory decision making.
To conclude, while the offshore oil and gas industry has been producing in Canada and largely in Newfoundland and Labrador for more than 25 years and has brought tremendous benefits, the industry has much greater potential. Fixing or removing some of the current barriers to investment will help ensure Canadians — and, by extension, Newfoundlanders and Labradorians — receive greater value from our natural energy resources. Thank you for your time.
The Chair: Thank you very much. Ms. James?
Lesley James, Professor, Faculty of Engineering and Applied Science, Memorial University of Newfoundland, as an individual: Good morning. I am honoured to be here as a witness today.
Today, I will convey the importance and need for Canada to fully commit to its oil and gas economy. Does this mean that we should not commit to 2030 and 2050 climate goals and the transition? No, absolutely not. We should 100% full-heartedly invest in renewables and hydrogen.
Our planet is stressed. We can all recognize that. We are now crossing the threshold of six of the nine planetary boundaries. This is a framework to assess our anthropological impacts via nine different pathways on the different earth systems, such as climate change and fresh water use.
Canada needs to do its part in reducing global greenhouse gas emissions. The International Energy Agency, or IEA, and the common citizen know that our reliance on fossil fuels will continue for the foreseeable future.
Canada actually has a duty to produce its low emission fossil fuels. We are a country that can exert and hold dear to sustainability pillars of environment, society and economy through governance. I call it the economic, environmental, social and governance structure, or EESG. It is because of our wealth and economy that we can help solve social and environmental problems. We can be a global leader in producing oil and gas sustainably, moving to net-zero emissions through the transition to minimal reliance on fossil fuels.
Right now, Canada’s energy intensity for oil and gas is 91 kilograms of CO2 equivalent per barrel, while Norway is 36 and the United Arab Emirates, or UAE, is 74. We’ll see that, in offshore Newfoundland, those numbers ranged from 8 to 36 in 2022. As I’ll mention later, there can be some question as to the certainty of these numbers as they are self-reported to date.
I believe Mr. Dodge has sufficiently addressed the economy, but I would like to add to what Paul Barnes said: The Newfoundland and Labrador perspective is that the oil and gas industry consists of one third of our GDP in 2022. Our oil and gas are sweet, that is, low in sulphur and heavy metals. Our crude oil trades at Brent or higher on the markets and is sold — as Mr. Barnes said — mostly to Europe these days. It requires less processing upstream and downstream, meaning that it has less energy intensity and has less CO2 emissions. Isn’t it our duty to produce this nice, sweet oil in a country where we can regulate it quite strictly versus oil coming from other developing nations that do not have or hold the same philosophies?
When considering emissions from year to year, one must be cautious about understanding the situation. Intensity is the best view when looking at a facility, not total emissions, as they don’t account for plant down time.
Canada’s emissions intensities continue to remain high, primarily due to Western Canada’s heavy oil and bitumen. Emissions monitoring and reporting, in general, have improved greatly with technology, from on-site specific leak source detection to more general emissions monitoring via mobile surveys, stationary source detection and satellite.
A recent paper, led by lead researcher David Risk from St. Francis Xavier University, found that the emissions recorded from operations offshore Newfoundland were in line with those recorded by the operators. This is an independent measure of emissions. This is not always the case, due to monitoring and reporting methods.
Offshore emissions reduction is challenged, and uncertainty in carbon taxing and pricing has operators and potential investors shying away from future investments. Challenges include aging facilities that are space and weight constrained. Terra Nova has recently upgraded, but is still working out a few kinks. So emissions intensities for Terra Nova are expected to rise, unfortunately, for 2024, and Cenovus’s White Rose is on its way back from a refit in Belfast, Ireland, with the wellhead platform to be towed out in 2025. This is important because that wellhead platform will help reduce the flaring and handle the gas that is being produced in White Rose, which is otherwise now stranded. So, none of our low carbon gas from offshore Newfoundland is being produced and sold on the market. It all has to be reinjected in emergency, and where processing cannot handle the capacity, it’s flared. This is the challenge we’re up against.
As Paul mentioned, there is the electrification of cranes. Studies have been done, and we see regulation coming for offshore wind generation to help with green electrification of the offshore.
Canada’s transition plan needs to include further development of its cleaner oil and lower carbon solutions for the transition, and it needs to factor in all solutions.
Taking into account the energy density of one fuel to another, there is 1.4 times more CO2 produced from diesel compared to natural gas, and that’s once you look at the actual heating value of the resource.
Investing in developing the sweet natural gas found offshore near Newfoundland is a very feasible way to reduce emissions. Investment and infrastructure offshore needs to be multipurpose. When we take the view that we need to electrify or use zero‑carbon electrification, that’s going to be challenging due to those space and weight constraints. However, we can look holistically at a hub concept to produce and sell natural gas — which, again, is a lower carbon solution — produce blue hydrogen or, even better, produce turquoise hydrogen, where we take the CO2 and inject it into the same formations or other subsea formations. A hub that burns that natural gas and captures and sequesters the CO2, thereby having the ability to electrify other operating facilities, can further reduce emissions and make the existing facilities carbon neutral.
The transition plan also needs to include enhanced oil recovery, or EOR. We have studied how CO2 can be used to recover more oil, making our oil production more sustainable from the same fields, while at the same time storing CO2. This is my direct area of research. The entire reservoir could then be injected with CO2, with wells and infrastructure already in place to do so. A CO2 hub on its own offshore is economically challenging, but we are up against that challenge to help with all the emissions from Eastern Canada since there is a lack of sedimentary basins, except when you look at the offshore in Atlantic Canada. A multipurpose hub could offset the cost of CO2 injection with oil and gas production.
To the question raised earlier about AI equipment and jobs, digitalization can also improve production efficiency and reduce the need to transport so many people on board.
CO2 storage is almost a one-to-one transition for our current oil and gas workforce. Otherwise, based on the National Occupation Classification, or NOC, skills codes, some jobs can transition to hydrogen production and storage. All subsurface energy will require some of the skills from oil and gas. Other topside or facility skills can move to running other energy plants, especially hydrogen to ammonia, CO2 storage and capture, et cetera.
As Mr. Dodge said, most oil and gas operators are in the business of risk. The best thing Canada can do is have well‑documented, clear and time-bound regulations concerning environmental assessments, carbon pricing and taxing and regulations to support an integrated transition. Offshore, we have an excellent track record with our Canada-Newfoundland and Labrador Offshore Petroleum Board, soon to be the offshore energy board. They have an excellent record of protecting our offshore environment.
We also need regulations to support CO2 injection for EOR and storage. Regulations to support offshore wind are helpful. Currently, we cannot inject CO2 into formations beneath the ocean due to the London Convention. We can for EOR, but any funding available is exclusive to EOR.
We need to transition more quickly. Our duty is to lower greenhouse gas emissions. To do so, we need to produce lower carbon fossil fuels economically, with environmental protection and sustainability first and foremost in our minds. Thank you.
[Translation]
The Chair: Thank you.
[English]
Senator D. M. Wells: Thank you, Ms. James, for your presentation and for coming here today. I know a bit what you’ve talked about, but I want to explore more about EOR. Would the enhanced oil recovery include gas as well or is it specific to oil?
Ms. James: Typically, EOR is enhanced oil recovery. It’s for our oil resources to increase recovery efficiency, usually by between 7% and 15%. We tend not to need those same sorts of recovery methods for gas. We can still inject carbon dioxide into a gas reservoir and get the unswept gas, absolutely, but gas has a much higher sweep efficiency and production efficiency than oil, just due to the nature of multiphase fluid flow in porous media.
Senator D. M. Wells: What would happen if the Newfoundland offshore industry was cut back or eliminated? What would be the global effect on emissions, for instance? Where would the replacement oil come from? You spoke eloquently about the benefits of Newfoundland oil and all its characteristics and aspects. Would that be replaced by equally good oil? When I say good oil, I mean sweet oil with low carbon emissions.
Ms. James: To some extent, yes. The world has Guyana. Guyana is an amazing resource now with, from my understanding, very nice oil. What we want to do is to move toward the better oil and the lower-emission gas rather than relying on producing heavier oil from less regulated jurisdictions. Again, this goes back to the complexity of economics versus social and environmental protections. If we look at Venezuela, our emissions are at 91, and Venezuela’s are at 397. So if we’re not producing the good oil and we still rely on fossil fuels, it will come from lower-quality sources.
Senator D. M. Wells: That’s where you say Canada has a duty.
Ms. James: Yes.
Senator D. M. Wells: Can you expand on that a little bit more?
Ms. James: There is so much the government is trying to do to lead efforts toward lowering greenhouse gas emissions and meeting its targets. We have a responsible government which keeps the public in mind, and we have the economy, more or less, to do so, unlike countries that are trying to survive to provide food for the table, exactly as I think you mentioned earlier, if we look at the household level versus the larger national level.
Though not to the extent that Norway can, we can afford to be very mindful of our workers’ safety and the environment as we produce any of our resources.
[Translation]
Senator Miville-Dechêne: I understand what you’re saying. It’s well known that offshore oil in Newfoundland is less polluting than oil from the oil sands. How do you see things developing?
First, what percentage of Canadian production does offshore oil make up as compared with oil sands oil?
We have high levels of greenhouse gas emissions. Do you know how much each oil sector contributes to the emissions preventing Canada from reaching its targets?
[English]
Ms. James: Maybe Paul has the statistics in front of him. I don’t have the exact numbers. I did know this, but offshore Newfoundland oil represents a small fraction of national oil and gas production. I believe it’s around 10%. Paul, I’m looking at you to see if you nod or want to step in.
Mr. Barnes: Yes, hopefully, you can hear me. I don’t have the exact numbers in front of me either, but we can certainly provide reports to the Senate committee on that. I do know that the Canada Energy Regulator, or CER, recently produced a national inventory report with that exact data, showing emissions from each oil and gas sector in Canada.
Ms. James: I have the emissions but not the actual production. It’s a fraction, probably less than 10% of Canada’s overall oil.
Senator Miville-Dechêne: After hearing what you said in your opening remarks, I wonder about what you see happening. Do you think Alberta oil should be on another regime? Should there be more development offshore in Newfoundland and should we shut down oil in Alberta, which would be pretty drastic? This could be an implication of what you’re saying. I want to hear what you have to say on that.
I also want to hear what you have to say on the fact that it’s less polluting. It seems that you’re not there with the intensity. You say that Terra Nova has to change some of their features to become more effective. There is still work to be done. Let’s start with this country: There are two kinds of oil.
Ms. James: There are, yes.
Senator Miville-Dechêne: What is your take on that, since we have a planet that is burning?
Ms. James: Absolutely. I believe Alberta should continue to work on its emissions reduction, like Newfoundland and Labrador. Just as I could point to Alberta and say that they are the problem — and I am not — Canada could point to other countries and blame them for the pollution problem. That doesn’t take away from our need to do what we can. I don’t want to pit one against the other. I will say that in offshore Newfoundland and Labrador, the resources are not exploited to the extent that they could be, and there is much more potential, whereas we have a good understanding and a very well-developed oil and gas economy in Western Canada. We know the resources.
We have moved from conventional and even heavy oil sands to be the more challenging oil and gas in low-permeability rocks, requiring fracking and extra energy to access those resources.
Senator Miville-Dechêne: But considering our very poor record in terms of emissions, the burning we have now and other signs that things are not going well, is it a good idea to expand production of oil offshore in Canada?
Ms. James: We need to look at the whole picture. If the whole picture also includes carbon storage and the need to capture carbon dioxide and inject it, and knowing that the only sizable sedimentary basins in which we can inject CO2 in Eastern Canada exist offshore Atlantic Canada — offshore Newfoundland and Labrador as well as Nova Scotia — then we are back to Mr. Dodge’s point: How do we finance that carbon storage project that will cost billions of dollars and be potentially uneconomic unless we put a price on carbon so that the oil and gas can actually be that transition and help cover the cost if we look at it holistically?
Not only can we build new facilities that have the potential to capture the CO2 and inject it directly, but we could have the opportunity to take emissions from other jurisdictions within Canada, which is being assessed by NRCan, who are looking at models to capture and transport CO2 from Ontario and Quebec to the Atlantic provinces. We would be able to finance that hub to be able to inject the CO2.
Senator Galvez: Thank you, Professor James, for your presentation. My question will be directed to you.
First, for my colleagues, do you mean a lot of high sulphur or chloride when you say sweet?
Ms. James: Sweet does not have sulphur.
Senator Galvez: What is the sweetness?
Ms. James: It means it’s not sour. The sulphur makes the oil or gas sour.
Senator Galvez: What is the pH? Is it acidic, neutral or basic?
Ms. James: That’s a good question. It depends on which formation we’re taking from, but it hovers around neutral.
Senator Galvez: Okay. Thank you. You mentioned that there is a process by which you can inject the CO2 into a permeable basin. Is the CO2 permeable? As you were saying, eventually it’s just a matter of years before it reaches the ocean — maybe 100 years — depending on the permeability. Eventually, because it’s permeable, it will reach the water.
Ms. James: May I respond to that?
Senator Galvez: Yes, just a second. We know that the other big planetary issue, which you initially spoke to, is the acidification of oceans, which is already happening in the St. Lawrence Estuary, which is already changing the fauna with respect to the shrimp and the salmon and other fish there. Can you elaborate on what would help this whole situation?
Ms. James: Thank you. Let me be clear: We will want to inject CO2 into permeable formations at least 1,000 metres below sea level. That’s in order to get the CO2 to be as dense as liquid. It would not be as dense as water — it would have to be deeper if you wanted water density — but we would get the storage capacity and efficiency that we’re looking for. The CO2 would be injected as supercritical CO2 with a density anywhere from 350 to 600 or 700 kilograms per metre cubed, depending on the depth. Again, water is 1,000, but gases are one. It’s energy intense.
Senator Galvez: Okay.
Ms. James: Those permeable formations have a kilometre of impermeable rock above them. That’s not to say they are without risk. We were talking yesterday, looking at the seismic surveys of offshore Newfoundland, and there is the potential for — and we do see — fluid migration through some of the formations in certain places. It’s understanding where those are. We have the technology to know where those are. In some cases, those chimneys will self-seal because the CO2 reacts and calcifies or mineralizes in that pathway.
Again, it’s very important to understand the uncertainties in injecting CO2, but we have the skills to do that.
Senator Galvez: I would appreciate it if you could send to the committee what my colleague Senator Miville-Dechêne asked about the production, intensity and emissions. It would be very helpful.
My last question is this: I just mentioned to Mr. Dodge, who said that it’s true that we give all these billions of dollars to the oil and gas sector.
In that distribution, can you tell us how much the offshore oil and gas industry receives from those subsidies compared to those that the oil sands receive?
Ms. James: I’m sorry. I cannot. I’m not privy to that information. I can tell you —
Senator Galvez: Maybe Mr. Barnes can?
Mr. Barnes: I’m not aware of any current subsidies that the offshore oil and gas industry in Newfoundland receives.
Senator Galvez: So to your knowledge, all the subsidies go to the oil sands.
Mr. Barnes: I’m not sure about all going to oil sands. I’m not aware of any going to the offshore.
Senator Galvez: Can you confirm that information for us? Thank you so much.
Mr. Barnes: I’ll certainly try.
Senator McCallum: Thank you for your presentations. I wanted to make a request before I ask my question. I would like to request Mr. Barnes to come to us not in his role with offshore but in his role with the other oil companies that he represents.
Mr. Barnes: I represent the offshore side of the sector. Another colleague would have to represent Western Canada.
The Chair: We have another witness acting on behalf of the Western Canada side.
Senator McCallum: That would be good.
I don’t know very much about this, but when we were looking at the oil sands and they were getting subsidies and injecting CO2, there was a release of methane, but they never measured it or brought it up. I read about it. Does that happen with what you’re doing?
Ms. James: Thank you for your question, Senator McCallum. I cannot comment on what happened in Alberta.
Senator McCallum: No, I mean when you inject into your —
Ms. James: An injection of CO2 can happen in three different ways. We can inject purposely to produce more oil, and with more oil, we’ll get more gas, because gas, water and oil will all be produced. We can produce methane, or natural gas, that way. That would be expected, and it would be processed, and offshore, it would either be reinjected right away or, if the time came, we would hopefully be able to sell it or use it to produce blue hydrogen. Methane could also be produced, I suppose. I think most of it would have to come from the oil itself, so by producing more oil, you’re going to produce the associated gas with that.
You may also sweep parts of the reservoir. In a reservoir, we tend to have water, oil and gas — all gravity segregated, just like oil and vinegar separates based on gravity. In most reservoirs, gas exists at the top. You could be sweeping and producing that methane as well.
There could also be an accidental release of methane, absolutely, if they went over pressure or the wells weren’t properly sealed, though, again, these are things that we should technically be able to overcome. Old, abandoned wells are a source of emissions in Western Canada. We do have gas leaking from those with no one taking care of them.
That’s how we could produce the gas accidentally or purposely.
Senator McCallum: Thank you.
Atlantic Canada’s offshore oil production has a lower emission intensity per barrel compared to the oil sands, which could position it as a more attractive energy source in a carbon‑constrained world. As global markets increasingly prioritize decarbonization, it is unclear whether this lower emission intensity will provide a meaningful competitive advantage. Other factors such as geographic location, infrastructure and global energy trends may also play significant roles in shaping the future of offshore oil production. How significant is the lower‑emission intensity of offshore oil for maintaining competitiveness in global markets focused on reducing carbon footprints? Are investors or buyers showing a preference for lower-emission barrels? If so, how should this influence Canadian policy?
The Chair: Is that a question for Mr. Barnes?
Senator McCallum: It’s for anyone who wants to answer.
The Chair: Whoever’s better positioned to answer, go ahead.
Mr. Barnes: Let me make an attempt. To answer your question, the oil that is being produced offshore Newfoundland is of high demand, as I mentioned in my opening remarks. Markets in Europe and the U.S. have been the locations most interested in the crude oil being produced off Newfoundland.
Because of the low sulphur content of that oil, it gets a higher price than Western Canadian oil. Dr. James mentioned it’s priced on what is called the Brent pricing, which is a higher pricing than Western oil receives, so there is a high demand for lower sulphur oil. We see that continuing to be of high demand into the future.
The Chair: Further to that, when you talk about emissions per barrel, could we get from you, Mr. Barnes, what that number is relative to Newfoundland? I presume it’s accessible. What are the emissions per barrel? What are they compared to Western Canada and also the world? I wouldn’t mind seeing comparisons to Venezuela, Brazil and so on. Can you get that information and have it sent to our committee?
Mr. Barnes: Yes, I can. The Canada Energy Regulator has a national inventory report that does a great job showing some that information on a national basis by province. I believe we have access to the international data as well.
The Chair: We need international information as well because it’s a world commodity.
Ms. James: Are you looking for the emissions for the production or for the actual oil quality when you burn it?
The Chair: I mean by the time you export it. I want to compare it to the world, because we had some witnesses saying the emissions from the oil sands today, given all the work they have done to make it more efficient, compare well to California and so on, even with the oil sands. I wouldn’t mind seeing the numbers. What is the —
Senator Fridhandler: I think the witness wanted a clarification on whether you want emissions from the production of the oil or emissions from the oil’s utilization after production.
The Chair: The total.
Senator Fridhandler: Well, I don’t know. It’s apples and oranges.
Senator Galvez: It will be better if he provided a scope 1, scope 2 and scope 3.
The Chair: Is that possible?
Mr. Barnes: Scope 1 is definitely possible. I will have to check to see if the other data is available.
The Chair: The other question I would have for you is this: At the very end of the day, maybe 10 or 20 years from now when we’re having a reduction in the oil and gas that we need, we’ll be competing against the world. Some producers will have oil and gas, but the question will be this: What do you want to buy given the cost of extraction and so on? How does that compare? What is the marginal cost of your oil and gas being produced? How does that compare to, say, Western Canada and to the world, from a marginal cost point of view? Mr. Barnes, would you —
Mr. Barnes: I don’t have that data in front of me, but we do have access to some of that, so I can certainly find the best data for you and send it to the committee clerk.
The Chair: That would be much appreciated. If I could ask one more question, I’ll direct it, maybe, to Mr. Barnes. You notice that even in the discussion we’re having about how to become more efficient and sell your goods, it’s complicated. If you were put in a situation where you were the minister and had a minute to explain why we should be buying oil and gas with all the consequences to our environment and the planet and so on, how would you sell your goods? How would you explain why we should support the industry? What is a simple sell you would propose?
Mr. Barnes: There’s probably no quick or simple answer. All you have to do is look at Newfoundland and Labrador and the benefits that our industry has brought to the province since it started producing in the late 1990s: billions of dollars of investment and royalties, high-paying jobs and a very well‑functioning economy.
If you tie it back to the quality of the crude that we produce, if we don’t produce it for the markets that demand it around the world, then, as others have mentioned, other countries will fill that void. Then all of the benefits of oil production that are seen in Newfoundland will go to those countries. Newfoundland and, by extension, Canada will lose out.
[Translation]
Senator Youance: Thank you to the witnesses.
Ms. James, I would like to come back to the three sustainability pillars that you mentioned: social, economic and environmental. Let’s go back in time about 15 years, to Venezuela.
According to the environment pillar, Venezuela’s oil refining sector was responsible for significant greenhouse gas emissions because the oil is very heavy. However, there were social and economic impacts in the southern region with the policy of selling oil at reduced prices or with deferred costs to southern countries.
The situation has changed. If we go back to those days, how could we balance the environmental, social and economic impacts of oil production like Venezuela’s?
Ms. James: That’s a good question.
[English]
How do we balance the social and environmental with the economic? There was a good example brought up of how Norway is subsidizing Brazil, and in the past — I don’t know if it is still the case — how the West has also subsidized China for instilling how to lower and lowering carbon emissions.
Besides our producing our own natural resources and the duty that we have to produce our own natural resources with the utmost attention to the environment and society, with that wealth, we can help influence other developing countries, be it in the Global South or elsewhere.
Senator D. M. Wells: Mr. Barnes, you mentioned some of the measures that are considered to be obstructive to further investment in Newfoundland and Labrador offshore. What measures could the government take with respect to taxation? I’m not even saying incentives, but what taxation and other regulatory measures would cause operators to increase their investment in the Newfoundland offshore in exploration and possible development?
Mr. Barnes: Thank you for the question. We hear from members quite often that it is the regulatory front that has an impact on investment. Specifically, the Impact Assessment Act, while we have had some success there with respect to getting through the environmental assessment process in a timely way for exploration, the challenge still exists on the production side. There is some unclarity and inconsistency with the way that particular act is constructed that gives investors concern that if they have an oil field or a production project in mind, it will take years to get that project approved through the environmental assessment process versus other jurisdictions around the world. That’s a big one.
The second policy legislative piece is the unknown around the emissions reduction framework. We expect some further guidance on that soon. But that has certainly given a number of investors in the offshore industry and Newfoundland pause, because that could easily result in future projects not proceeding or even current projects that we have producing offshore Newfoundland closing their production early before the end of the useful life of their offshore field.
Senator D. M. Wells: Thank you.
Senator Galvez: I have some comments about the cost of production per barrel. Maybe that information can be sent to the committee clerk.
Professor James, we all know that when we sell our petroleum, the price is such a political thing. It depends on the market, and we don’t have control over anything. It’s not only about the environment and the ESG. It’s about the geopolitics. They adjust the stop, and they want to play with the valve to modify the price.
For our petroleum to make a profit, what is the price? It’s not $100 per barrel anymore. What is the cut-off?
Ms. James: Senator Galvez, thank you very much. I don’t know if I’m the best person to answer that question. However, I will say that cut-off depends on the cost per barrel to produce, and that will change depending on the facility.
Some of our operations were economic at $19 a barrel or $29 a barrel back in the day, when they started. I don’t know those numbers right now. Maybe Mr. Barnes can send those numbers. It’s all based on a per facility point of view.
The Chair: Thank you to our two witnesses. We learned quite a bit. Thank you for contributing to our knowledge; it is much appreciated.
[Translation]
I would like to thank the senators and our witnesses for participating in today’s meeting.
Our next meeting is scheduled for Tuesday, November 5 at 6:30 p.m. We will hear from Canada’s Net-Zero Advisory Body on its September 2024 reports, followed by government officials on their response to the reports.
(The committee adjourned.)