May 27, 2016

Canada's Energy Future

Today is a critical time to discuss oil and gas in Canada – not just because of the headlines, but because our choices today on infrastructure and innovation will determine how we will compete as a country to shape the world’s energy future. But with bold thinking, shared commitment, skills, hardwork and leadership – Canada can be more resourceful with our resources.

Canada’s oil and gas sector matters. A lot.transmountainsquare_med.jpg

From the time we wake up in the morning to brush our teeth, to the time we load up the dishwasher at night and go to bed, oil and gas is enhancing the quality of life of every Canadian.

Oil and gas matters in this country because we’re blessed with abundant energy resources. Our energy resources are among the largest in the world.

We’re the fifth largest producer of natural gas in the world.

We have the third most oil in the world, with 97 per cent of it in the oil sands.

Only 20% of the world’s oil reserves are open to private investment. Most of the world’s oil is state-owned and controlled but when it comes to that 20% of free oil, half of it is in Canada. That is a tremendous opportunity for Canada to attract capital – and create jobs.

And oil and gas matters in another way; because here in Canada, our resources come with resourcefulness.

  • We have a highly skilled and deeply committed workforce;
  • We operate under strict environmental and safety regulations;
  • We have a strong, voluntary record of investing in technology and environmental innovation; and
  • We’re among the leading energy-producing countries when it comes to the rule of law and human and Aboriginal rights.

Finally, oil and gas matters in Canada because the development of our resources energizes our entire economy.

Thanks to the energy sector, we enjoy one of the highest standards of living in the world. The oil and gas sector generates on average $17 billion per year for government revenues across the country, not just in Alberta. That’s money used to pay for schools, hospitals, roads and infrastructure for our communities across Canada.

The oil and gas sector remains the largest capital investor in the country. The industry is expected to invest more than $31 billion in capital this year – as much as any other sector. But we are in the midst of the worst two-year decline in capital investment on record – down $50 billion or 62% per cent since 2014.This massive decline in capital spending should be a concern to all Canadians. Across this great country, there are more than 2,400 Canadian companies outside Alberta that today are building their businesses with Canada’s oil sands. That makes the oil sands a Canadian industry.

In Ontario, for example, there are 1,100 companies doing $4.6-billion in business with the oil sands every year. These are companies that provide everything from environmental and engineering services to water and waste treatment to building and construction services. Canada’s oil and natural gas industry supports a wide variety of business in B.C., from engineering to software development, creating more than 20,000 direct and indirect jobs in our western-most province, putting people to work and helping grow a healthier economy for our families.

So when we stop to think about it, it’s hard to imagine a Canada without the development of our oil and natural gas resources.

For the last 10 years, oil and gas was our leading trade sector.

And yet we compete in a highly competitive energy world. Without more capital, without new infrastructure there will be fewer jobs in Canada – and more in Texas, in Pennsylvania, in North Dakota.

The huge fall in world prices for oil and gas is due to slower demand and higher supply.

  • Outside North America, demand for oil in China and emerging countries is growing at a slower pace;
  • OPEC countries and Russia have decided to maintain production at record-high level;
  • Sanctions have been lifted and Iran will soon supply up to a million new barrels a day into the already-oversupplied market; and
  • Mexico has opened its oil sector to private investment in an effort to sell more oil to our No. 1 customer, the United States.

In short, competition in the global energy markets is intensifying.

Closer to home, changes in the U.S. market have created an even greater competitive threat to Canada’s oil and gas sector. For many years, we’ve sold our oil and natural gas almost exclusively to the United States. This customer has been a good customer.

But today the U.S. is becoming our greatest competitor. In less than a decade, technology – such as horizontal drilling and multi-stage hydraulic fracturing from multi-well pads – has produced an energy revolution in America, unlocking value from natural resources once considered unreachable or uneconomic.

From 2008 to 2014, oil production in the U.S. jumped by 3.7 million barrels a day. That’s basically equal to all oil production in Canada. And that increase makes the U.S. the fastest-growing oil producer in the world.

Earlier this year the U.S. Congress lifted a 40-year-old ban on American oil exports. So for the first time since Richard Nixon was president, the United States is exporting oil offshore. It’s being piped to American coasts and loaded onto tankers and shipped offshore to Asia and Europe.

Our Number 1 customer is now our Number 1 competitor.

At the same time, U.S. natural gas production has ramped up substantially. Again the U.S. has added as much natural gas production as we make in all of Canada. This is driving down the volume of Canadian natural gas exports by about a third. Ontario now gets about two-thirds of its natural gas from the States.

This American natural gas supply is projected to continue to grow, increasing pressure on Canadian natural gas production to compete for market share, abroad and even here at home. The result: the U.S. needs less and less of our oil and gas. Before the end of this decade, before the next federal election, the United States – our only customer for natural gas – may not need to buy any natural gas from Canada.

Our energy world is being disrupted, and Canada is feeling the pain.

Oil and gas companies have had to respond by scaling back operations. Less capital investment. Less economic activity. In the process, more than 110,000 jobs from Canada’s oil and gas sector – or about 1 in every 5 jobs – have been lost.
More than $50 billion in capital investment has been cut from the country’s leading private investor – the worst two-year decline on record.

How big was that drop in capital investment? That decline was more than second-largest industry, the utility sector, spent in total capital last year ($29 billion). Imagine if not a single dime was spent for growth or sustaining capital for power plants, transmission lines or waste-water treatment facilities. That is what the oil and gas capital decline would be like for utilities.

Our sector’s revenues fell 40 per cent last year. That’s a drop of $60 billion. Think about that for a minute: that’s like wiping out:

  • All revenues from Canada’s entire forestry sector;
  • Or the aerospace and mining industries combined; and
  • Or wiping out 75 per cent of our auto-manufacturing sector.

Any way you measure it, it’s a huge impact. And it’s not over.

With dropping oil-and-gas sector revenues, that $17 billions in government revenues shared across Canada are at risk. These are losses that will impact every Canadian household; from the public services they get – or don’t - to the taxes and deficits they will have to bear.

The Bank of Canada has said that the drop in oil prices has had an unambiguously negative impact on the Canadian economy. And it’s right.

Unemployment claims are up more than 100 per cent in Alberta. WestJet has cancelled routes and shifted planes out of Western Canada. Moncton used to have 14 chartered flights a week to Fort McMurray. Today it has none. That’s more than 3,000 Atlantic Canadians who no longer work in the oil sands every week to support their families back home in New Brunswick.

So, what’s to be done?

Canada needs infrastructure and innovation. We need to find more customers. We have the energy the world needs – our challenge is building ways to get it there. We simply do not have the transportation infrastructure – pipelines, rail or marine – to move more Canadian energy to Canadians and to the world. As a country, we have no influence on world prices. But we do control our choices when it comes to energy policy. At the top of this list has to be the choices we make on energy infrastructure.

Today, in part due to constrained pipeline infrastructure, Canadian oil and gas sells at a discount. Virtually all of our country’s oil and natural gas exports go to one customer: the United States. The U.S. buys Canadian oil for less than others in the world would pay for it. At the same time the U.S. has quickly become our biggest competitor, with growing oil and natural gas supplies that are increasingly being exported, including to Canada.

American oil exports to Canada are growing – up 16% last year and now at record levels.

And here’s something else to be aware of. In Ontario, Quebec and Atlantic Canada, half the oil used every day is imported. Eastern Canadian refineries import 736,000 barrels a day of oil from foreign countries. This foreign oil comes by pipe across the border from the United States and it comes by tanker to the Bay of Fundy or down the St. Lawrence River from places such as Saudi Arabia, Algeria, Angola and Nigeria.

Why? There is no direct pipeline to move oil from Western Canada to Eastern Canada. Canada has the 3rd largest reserve of oil in the world – yet last year we paid about $17 billion to buy and import oil from other countries.

There is something seriously wrong with this picture. It’s one we need to fix in Canada; starting with new infrastructure. We need to roll up our sleeves and get to work building more in pipeline infrastructure to reach more customers in Asia, Europe and yes, in Canada.

Here in Canada, there’s been lots of talk recently among politicians about the need for public infrastructure to boost our economy. The federal government announced in its budget $25 billion over two years for new infrastructure.

Well, we have a number of energy infrastructure opportunities right in front of us. There is more than $30 billion in private capital ready to build pipeline projects coast to coast: Energy East ($15.7B), Trans Mountain ($6.8B) and Northern Gateway ($7.9B). Getting the green light on these energy infrastructure projects would be a tremendous stimulus to the Canadian economy.

These projects would create jobs for trades – for pipefitters, for welders, for heavy equipment operators, for pipeliners.

These projects would create jobs at pumping stations, at storage facilities and at marine docks.

They come without taxpayer cost. They give taxpayer benefits.

Let’s look at KinderMorgan’s TransMountain pipeline. This is a proposed expansion of an existing pipeline from Edmonton to Vancouver than has been operating safely since 1953.

The Conference Board of Canada estimates the TransMountain expansion will result in:

  • 801,616 new jobs – or 32,064 jobs each year for 25 years; and
  • $46.7 billion in new government revenue – or $1.87 billion each year for 25 years.

Pipelines are economic infrastructure that create and sustain jobs and more government revenue, year after year after year. Pipelines even benefit Canadians in communities where the pipeline does not cross. Perhaps most telling, most of the economic benefits from pipelines come after the construction period. That is sustainable economic activity and prosperity. So the need to take action on all these fronts is urgent.

We simply need to build more pipelines to keep pace with even modest growth in Canada’s oil sector.

We have about 400,000 new barrels per day of scheduled new production under construction now to the end of this decade. Our existing pipeline network is already congested. Without new pipelines by 2018, every new barrel of Canadian oil will have to move by rail.

So it’s time to build the infrastructure to get our oil and natural gas to more customers and generate more economic benefits for us here at home.

Certainly, building new infrastructure is crucial. But it’s not the only solution we need to think about when it comes to building a strong energy future for Canada.

We need more Canadian innovation, more ingenuity. It was Canadian resourcefulness that found a way to take the oil out of the sand. It will be Canadian resourcefulness that will find a way to take carbon out of the barrel.

Today we’re facing increasing societal expectations - and rightly so - to lessen our impact on the environment. Clearly, even when oil prices improve, it’s imperative we find new ways to produce oil and gas more cost-effectively and with less environmental impact. We will be living in a low-price, low-cost, low-carbon world for some time.

The good news is this environmental leadership is already starting to take place in the oil sands – and could become a long-term competitive advantage for Canada. In fact, building new energy technology and innovation could be Canada’s greatest contribution to climate change.

Four years ago, 13 of our country’s largest oil sands companies formed Canada’s Oil Sands Innovation Alliance (COSIA, for short).

This is a unique partnership that’s committed to achieving ever-higher standards of environmental performance in 4 key areas: water; land, tailings and greenhouse gases. And to do that, they’ve set aggressive targets. They’re working with some of the country’s top scientists. And they’ve put their money where their mouth is.

Already they’ve invested almost $1.3 billion to develop and share more than 800 technologies and innovations. And the work is impressive.

  • Imagine using satellites to monitor GHGs from tailings ponds and mines more accurately. In Canada’s oil sands, we can. Imperial Oil is exploring satellite GHG monitoring from space.
  • Imagine making electricity from CO2, not making CO2 from electricity. In Canada’s oil sands, we can. Cenovus is exploring the use of molten carbonate fuel cells to capture CO2 and produce clean electricity with near-zero GHG emissions.
  • Imagine taking CO2 and converting it into a valuable product. In Canada’s oil sands, we can. The COSIA-NRG $20-million XPRIZE is now underway, challenging the world’s best minds to find a way.

These and hundreds of other innovations are taking place right now in Canada’s oil sands. This is breakthrough science at work. And it’s the future of the sector, today.

Because Canada’s resources come with resourcefulness. They come with skilled minds and steady hands. They come with a commitment to technology, responsible development. They come with a determination to find new markets and build stronger communities. That’s Canadian leadership.

Today the need has never been greater for all of us as Canadians to have serious talk about energy.

Here in Canada we’re in the midst of a national energy debate. At times, energy development has become a proxy for polarizing debates, with some calling for:

  • Keeping Canadian oil in the ground;
  • Shutting down oil sands development;
  • Imposing fracking moratoriums;
  • Banning tankers; and
  • Blocking new pipeline projects.

We need to balance this debate with an awareness of realities, namely, that we live in a growing world that will want more energy — more Canadian energy – not less.

According to the International Energy Agency, world demand for energy is forecast to grow by some 32 per cent over the next 25 years. The Energy Information Agency in the States forecasts it will grow by 48 per cent in that time. Certainly, our global energy mix is changing, and renewables will grow significantly in the decades ahead. But the world will continue to need all forms of energy – a lot more of it than we have today.

And that includes more oil and natural gas from Canada.

With new infrastructure and more innovation Canada can play a leading part in the world’s new energy future. Canada has what the world needs. We offer a reliable supply of energy that’s produced safely and responsibly. We have a skilled and committed workforce. We respect law. We invest in technology. The benefits of this industry are shared across the country.

We have not only the resources, but the resourcefulness the world wants and needs.

Together we can:

  • Get full value for our oil and gas resources;
  • Have multiple customers for our products;
  • Compete not just on cost, but on environmental performance;
  • Export not only our resources, but our Canadian resourcefulness; and
  • Create hundreds of thousands of jobs in communities across the country.

We can do this. But we can’t take this energy opportunity for granted. We can’t count our jobs before they’re created. It will take us raising our hands and saying yes to infrastructure, to innovation, to jobs by saying yes to growing our oil and gas sector.

We must choose.

Join us – and start a conversation.

Let’s build Canada together.