A. Opportunities in Oil and Gas Market Access and Diversification

1. Future Benefits of Timely Market Access

The Committee heard projections from government officials and various research organizations that Canada’s oil and gas industry will continue to grow over the next two decades, but Canada needs to act quickly.[170] The growth of the oil and gas industry will largely depend on Canadian producers having adequate access to markets.[171] Mr. Howard explained that “market access” refers to “infrastructure, either pipeline or rail, that would allow conventional, crude/bitumen, or refined products to achieve unhindered access to refineries and markets either in North America or globally.”[172] A number of witnesses pointed out the importance of “timely” market access. For instance, Mr. Hubbard told the Committee that:

It is a global market that we're competing against. If we don't move forward and capitalize on this opportunity we have here in Canada, our competitors will. There are significant opportunities and significant proposed investments, in the United States, in Australia, in other countries, in terms of oil and gas development. The market for these products is limited, so those first to market are going to capture those long-term opportunities presented by the growing demand, in the Asia-Pacific region in particular.[173]

Similarly, Mr. Khosla asserted that “Canada has a huge economic opportunity, but needs to act quickly.” According to him, “many argue that this is a time-limited window … [and that] economic experts agree on the tremendous importance and potential of Canada's energy sector.”[174] He referred to a recent International Monetary Fund study, which indicates that Canada has the potential to increase its GDP by 2% by 2020, if it is able to adequately diversify its markets.[175]

Speaking about the benefits of the government’s responsible resource development policy, which placed time limits on the reviews of major natural resource projects to foster certainty in the sector’s investment environment, Ms. Annesley pointed out that:

Streamlining the regulatory process provides a level of investor assurance that there will be a decision in a set time period. That is essential so that these projects don’t move on and drag on for decades….[176]

Similarly, Ms. Kennedy stated that “… from a government's perspective continuing with the implementation of responsible resource development is an important component, so that creates some certainty and creates some stability.”[177]

Some witnesses encouraged the federal government to further simplify the regulatory compliance process, and apply the abovementioned streamlined approach in other approval processes. Mr. Myers elaborated that “right now, we have a lot of duplicated and … unnecessary differences in compliance requirements from province to province.”[178] Having said that, Mr. Myers, along with Mr. Larson, asserted that a one-window approach for regulatory approvals, be they for the environment or health and safety, would be the best outcome.[179]

2. Future Benefits of Energy Infrastructure

The Committee heard that achieving market access requires a timely development of energy infrastructure.[180] For example, Ms. Mitchell observed that in order “to maximize the price of our oil and gas reserves, Canada needs to have the infrastructure in place, so that we can use it domestically, and for foreign markets.”[181] In this context, witnesses discussed the oil and gas industry’s several large infrastructure investments, including the Northern Gateway Pipeline project, the reversal of Line 9 pipeline project between Sarnia and Montréal, and the Energy East pipeline project. According to Mr. Khosla, these “proposed pipeline projects could increase [Canada’s] export capacity to 3 million barrels a day.” Furthermore, he told the Committee that the “industry is also pursuing a variety of proposals to export Canadian natural gas resources to international markets via liquefied natural gas [LNG],” with 10 LNG export terminals in British Columbia, and one on the East Coast.[182]

Some witnesses highlighted the projects’ potential economic benefits to the Canadian economy. Using British Columbia as an example, Jeff Labonté, a Director General at Natural Resources Canada, reported that:

The pipeline projects that are proposed in the west coast look at a combined GDP contribution of almost $17 billion to the Canadian economy over the period of growth, with over half of that accruing to British Columbia. The LNG projects have a cumulative GDP effect of $171 billion. That's $386 billion when you include the upstream development of the gas resources in Alberta and British Columbia with the 43,000 jobs proposed. The impact to provinces across the country other than Alberta and B.C. would be $10.8 billion. So these are substantial, staggering amounts of money to the economy over the period of those 20-year horizons.[183]

The Committee also learned about the potential economic benefits of the proposed Energy East Pipeline project, and its potential to reduce Canada’s reliance on imported crude oil. Announced by TransCanada in August 2013, the Energy East Project, worth an estimated $12 billion, will carry approximately 1.1 million barrels of crude oil per day from receipt points in Alberta and Saskatchewan to existing refineries in Montréal and Lévis, Quebec, and in Saint John, New Brunswick. It will also include deliveries to two export marine terminals, in Cacouna, Quebec, and Saint John.[184]

According to John Van Der Put, Vice-President of the Energy East Pipeline project at TransCanada Pipelines Ltd., eastern Canadian refineries currently rely on foreign imported oil for 86% (or 700,000 barrels per day) of their feedstock.[185] Given this reality, he argued that “In addition to laying the foundation for energy independence, this cross-Canada connection also allows Canadian producers and refineries to realize greater value for their products as producers gain access to new markets and refineries displace higher-cost imports.”[186] On this subject, Michael Priaro, a professional engineer and consultant, suggested that the Energy East Pipeline, along with other pipeline projects transporting western crude oil to eastern Canada, are more important for Canada than the proposed Keystone XL and the Northern Gateway pipeline projects.[187] Specifically, he asserted that:

New pipelines connected to bitumen upgraders in Alberta, and refineries and marine terminals on Canada’s east and west coasts, maximize the cross-Canada value of the largest oil reserves on earth, provide energy security, and by adding 4 million barrels a day of capacity, together with new crude rail terminals, make low-value export pipelines such as Keystone XL and Northern Gateway unnecessary until 2028.[188]

Mr. Boag and Jean Côté, Vice-President of Suncor Energy’s Montréal Refinery, both testified that eastern Canadian refiners would gain from proposed energy transportation pipeline projects.[189] Mr. Côté told the Committee that the Line 9 reversal project and the Energy East Pipeline are “good news” for Canada’s eastern refineries because they enable access to raw products sold at cheaper prices. He added that having access to western crude oil will allow the Montréal refinery to remain competitive, maintain jobs, and possibly invest in new developments.[190]

From a local community perspective, Mr. Teed described the Energy East Pipeline project as “a real game changer for New Brunswick, [and] particularly the greater Saint John area, where the pipeline ends and where a bulk storage and marine terminal facility will be built and operated.”[191] Ms. Mitchell highlighted that the project will, in addition to creating employment, contribute an estimated $2.8 billion to New Brunswick’s GDP over a span of more than 40 years.[192]

B. Opportunities in Adding Value to Oil and Gas Products

Multiple witnesses spoke about the opportunities and additional economic benefits that could be generated from adding value to Canada’s oil and gas products. Speaking about Canada’s largest hydrocarbon reserve, Robyn Allan, an economist, explained that “bitumen is not an export-ready crude oil product,” and that it is upgraded or diluted before it is moved through a pipeline. According to her, “Exporting a barrel of bitumen achieves 35% of the value of bitumen. Upgrading bitumen in Alberta captures 70% of its value, while refining it into petroleum products captures 100% of the value.”[193]

Mr. Myers and Mr. Larson voiced their support for more upgrading and refining of Canada’s oil and gas resources.[194] For instance, Mr. Larson reported that “CFI [Canadian Fertilizer Institute] recommends government policies that support value-added natural gas resource upgrading.” He further argued that “These policies drive industry, including fertilizer companies, to make long-term capital investments … [which] means more cost-competitive products and enhanced access to key markets, including the United States.”[195] Ms. Allan informed Committee members that “most countries have policies to support the value-added” aspect of oil and gas production. Specifically, she observed that the U.S. has “the 1975 energy policy and export act, which restricts crude oil exports until that crude oil is turned into valuable products like petroleum, gasoline, jet fuel, diesel, etc.”[196]

Andrew Leach, Associate Professor at the University of Alberta, argued that “encouraging more value-added processing of bitumen” may actually diminish the value of bitumen.[197] He elaborated that to encourage more processing of Canada’s bitumen, governments would need to use trade policy, fiscal policy, or get directly involved in the sector. He expanded that:

Implicitly what these policies would do is either directly assign government assets, resources, or direct financial support to the upgrading of bitumen or de-value Canada's bitumen through trade policies in order to underpin increased processing. Neither of those options would generally be value-added; they would be value-transfer or value-detracting; they would be taking away the value of our natural resource to support greater processing. We must recognize that using resources to support processing is not the same as adding value. We should all want to add value; we should not necessarily want more processing.[198]

On a similar note, Mr. Boag told the Committee that it is “much easier, more effective, more efficient, and less costly to export and import crude than it is to move refined product,” and that “The costs of moving refined product are higher than the costs of moving crude because of the quality standards that need to be maintained.”[199] According to him, “the economics of the refining business are very complex” and that “it’s a very capital-intensive industry.” In his view, “You need to have a market for [refined products], you have to be able to get it to market, and you have to be able to do it and actually make a reasonable return on investment. That's the issue that investors face today.”[200] On the subject of investments in upgrading and refining, Committee members learned that certain oil and gas companies are looking into the possibility of building a new upgrader plant in the Sarnia-Lambton region. Mr. Mallay noted that while there has been some discussion about a government subsidy for the upgrader, a market-based approach is preferable. In his view, there needs to be “a private sector champion” that would allocate significant funds towards a feasibility study.[201]

C. Opportunities in Developing the Oil and Gas Resources Found in Other Canadian Regions

1. Future Benefits to Quebec

While studying the potential benefits of Canada’s oil and gas industry, the Committee learned that certain provinces and territories outside of western Canada are looking to further develop their own potentially large oil and gas resources. For example, Quebec’s total natural gas resource potential may be more than 120 trillion cubic feet (Tcf), of which between 18 and 40 Tcf is expected to be recoverable. According to a document provided by Natural Resources Canada, the market value of these natural gas resources is assessed to be up to $170 billion, based on current Alberta wholesale natural gas prices ($4.40/gigajoule).[202]

Government officials also reported that there is significant resource potential in the Gulf of St. Lawrence and surrounding offshore areas, with an estimated 39 Tcf of natural gas and 1.5 billion of oil. Between 19.8 and 48.2 billion barrels of oil resources are also found on the Anticosti Island. Mr. Labonté informed Committee members that “the federal government has signed an accord with the Province of Quebec to pursue shared management of offshore resources in the Gulf of the St. Lawrence.”[203]

2. Future Benefits to New Brunswick

A number of witnesses[204] expressed their support for further developing New Brunswick’s oil and gas resources, and explained that onshore exploration and production could lead to “hundreds of jobs and [many] local companies.”[205] Currently, the province’s natural gas production is very small when compared to national standards.[206] According to Ms. Pike, even the small amount of production has an impact on the province. She explained that “in the area of Sussex, where Corridor Resources is producing natural gas, dozens have full-time employment and dozens of companies work on that project.”[207]

According to a document provided by Natural Resources Canada, New Brunswick has up to 78.2 Tcf of predominantly shale gas resources, of which 15 Tcf are recoverable. This resource potential has an estimated market value of more than $60 billion, based on current Alberta wholesale prices.[208] Ms. Mitchell told the Committee that the benefits of developing these resources “… include creating a stable, long-term supply of natural gas and lowering tolling fees to local manufacturing, industry, and residential users.”[209] In line with this comment, Mr. Boag noted that access to cost-competitive natural gas would help the competitiveness of Canadian refineries in eastern Canada.[210]

Additionally, Ms. Mitchell affirmed that natural gas development “creates an opportunity for export, balances the Atlantic energy requirements, and provides a significant source of royalty and taxation revenues to the government.” To summarize, she declared that “The economic impact of having an indigenous supply of natural gas in New Brunswick includes $21 million in direct, indirect, and induced investments and a direct GDP of $4.5 million.”[211] Mr. Norton stated that “we simply want what the rest of Canada in many ways already has, and that's the opportunity to pull ourselves up and be self-sustaining. We want to be a ’have’ place. We see what it has done in Saskatchewan, what it has done in Alberta, in Newfoundland, in British Columbia. We see so many provinces that are ’have’ places.”[212]

3. Future Benefits to the Yukon

The Yukon is another Canadian region that is looking to further develop its oil and gas industry. According to Mr. Turner, the Yukon has a relatively short history of oil and gas activity, and that natural gas production began at the Kotaneelee Field in the southeastern region of the territory. He also noted that over the last decade, Yukon’s natural gas extraction declined to nominal output.[213]

Given the lack of local production or supply of natural gas, the Committee learned that the Yukon relies heavily on hydroelectric- and diesel-generated power, which have reached their maximum combined capacity. In light of this, Mr. Turner declared that the Yukon’s business community would like to see “a significant increase in the growth of oil and gas exploration in the Yukon … the eventual lifting of the current ban[214] on exploration in the Whitehorse Trough….” Consequently, he affirmed that:

Certainly there'll be tremendous benefit to Yukoners to being able to source natural gas locally, particularly if we're converting some of our diesel electric backup generators to natural gas. I'd certainly much rather be burning natural gas that's extracted here in the Yukon by companies employing Yukoners and being transported perhaps 100 or 200 kilometres than transporting liquid natural gas 1,500 to 2,000 kilometres from Alberta or British Columbia to the benefit of those provinces and to the detriment of the greenhouse gases associated with 2,000 kilometres worth of transportation up to the Yukon.[215]

Mr. Turner also conveyed that an active oil and gas sector in the Yukon, would “enrich the First Nations communities in terms of employment opportunities,” and allow First Nations people to work close to their homes and families.[216]