The Canadian Oil & Gas Industry
Canadian Natural Resources Minister Joe Oliver Discusses…The State of Canada’s Oil & Gas Industry, Oil Sands, Regulatory Change and Asia
As a country that is home to the third-largest oil reserves on the planet, Canada is fast becoming a far more dominant force on the international stage thanks to advancements in technology and a stable national infrastructure. Meanwhile, global demand for energy continues to rise.
What are the federal government’s objectives for Canada’s energy future against this backdrop? Diversification, says Joe Oliver, minister of natural resources.
“Canada’s oil reserves are the most strategic of our energy assets, in particular the oil sands, which represent 170 of our 174 billion barrel proven reserves,” Oliver notes. “Diversifying our markets and developing the necessary infrastructure to transport our resources is a key to helping ensure the financial security of Canadians and their families for decades to come.”
He also points out the importance of a regulatory system which allows for energy resources development in a timely, responsible and sustainable manner.
That means Oliver is pleased with the March budget which addressed the very issue. No longer will environmental assessments of energy projects be allowed to drag on for years with no end in sight. Now, projects must be accepted or rejected within a two-year period.
Government action on this front may have been spurred by the numerous tie-ups affecting the much-publicised Northern Gateway project. It too must be resolved within two years, as minister of finance, Jim Flaherty, announced the new law will be retroactive to projects in limbo.
“Providing a regulatory regime that is both economically efficient and environmentally effective is a basic part of offering a stable, predictable climate for investment,” Oliver states. “This is why regulatory improvement has been a priority for our government from the beginning. Our goal is simple: one project, one review, in a clearly defined time period,” Oliver says.
Oil Sands Controversy
Oliver has often stood firm on Canada’s official position on the European Union (EU) fuel quality directive – which seeks to promote low carbon fuels - and the need to ensure it is non-discriminatory. He confirms that the federal government does not object to the goal of the controversial directive but rather any discriminatory treatment that singles out oil sands derived fuels without sound scientific justification.
According to a recent report by climate scientist Dr Andrew Weaver from the University of Victoria and a lead author on reports issued by the United Nations Panel on Climate Change, if every drop of the 170,000 million barrels (mmbbl) that make up oil sands reserves were produced at today’s rate of production – which would take more than 300 years – the total effect would be an increase in global temperature of only 0.03 degrees Celsius, or 3/100 of a degree. Against that figure, is weighed C$3.3 trillion in economic enhancement, an industry which supports an average of 700,000 jobs annually over the next 25 years and billions to fund important social programmes.
“Any policies that discriminate against oil sands will impede the free flow of global oil supplies and are detrimental to overall energy security,” says Oliver.
It’s the federal government’s belief that implementation of the draft EU fuel quality directive could have significant and unintended consequences to the world’s oil supply because it introduces discriminatory and unscientific impediments to global energy markets. Oliver reinforced this message during bilateral meetings with EU ministers and the European Energy Commission, which represents countries such as Germany, France, UK, Poland and Belgium.
He also points to independent studies that show oils sands crude is no worse than, and in some cases better than, several crude oils currently imported and used daily in Europe regarding the lifecycle greenhouse gas emissions that the fuel quality directive intends to curb.
“Canadians have always taken great pride in the blessings of our natural resources and our government is determined to make the most of them,” Oliver says. “We will advance Canada’s position on unconventional oil and gas development, a transparent and efficient regulatory system. Investment in Canada is supported by our sophisticated financial and legal institutions, by extensive science and technology and broad experience in geosciences.”
From the government’s perspective, there now stands a tremendous opportunity for Canada to diversify its energy markets and improve the energy infrastructure to leverage the advancement this implies. And key to that, is establishing reasonable, predictable timelines to review major resource projects while addressing environmental concerns.
Advancements in the clean tech sector remain a top-level commitment. Along with Vicky Sharpe, president and chief executive of the government-funded not-for-profit, Sustainable Development Technology Canada (SDTC), Oliver announced $22 million of investment through its SDTech Fund. The money will be used to drive eight new clean technology projects with the aim of increasing the chances of market success.
In another recent announcement, Oliver outlined the conservative government’s plan to introduce new fuel consumption labels in 2014 to help consumers make informed decisions when purchasing new vehicles sold in Canada.
“When Canadians make large purchases they want the best information available,” says Oliver. “Our government has listened and our new labels will more accurately reflect the actual fuel efficiency of vehicles.”
Oliver also notes how important the oil and gas sector has been to Canada’s eastern coastal province, Newfoundland & Labrador.
“It is not an exaggeration to say that the oil and gas industry has transformed the economy of several provinces,” he says. “Together with new mining developments, the Newfoundland and Labrador oil and gas industry is leading a resurgence of the natural resource sectors,
“Led by the resource sectors, the value of the province’s merchandise exports increased by nearly 40 per cent last year - well ahead of any other province.
Those numbers translate into real, tangible benefits for people; more and better jobs; tax cuts for families at all income levels; lower taxes for small businesses; and new investments in services and infrastructure that play such an important part in building stronger communities and attracting new investment.”
The clean tech commitment is further evidenced by the government’s joint investment with SDTC of $14 million in Aquistore, a carbon capture and storage demonstration project in prairie province, Saskatchewan.
“The Aquistore Project represents a first in the world: the first-time carbon dioxide is sequestered safely at this scale in the ground from a coal-burning plant,” says Vicky Sharpe of SDTC. “It is clean tech innovation like this that will help drive the Canadian economy, creating jobs and economic growth, and a source of innovative solutions.”
The project is further supported by the Petroleum Technology Research Centre (PTRC), which is providing management and drawing on expertise from private sector resources. Saskatchewan’s environment ministry is also investing $5 million through its Go Green Fund.
Inefficient regulatory system
It is difficult to overstate the importance of aggressively pursuing regulatory reform in order to ensure future economic prosperity and energy security.
“Regulatory modernisation is a key priority for our government,” Oliver decrees. “We need a regulatory system that works and provides a competitive advantage for Canada.”
He meets regularly with representatives from organisational bodies such as the Canadian Association of Petroleum Producers (CAPP) and the Canadian Energy Pipeline Association (CEPA) to discuss how those issues are affecting the oil and gas industry.
“Major projects in Canada are subject to long and potentially endless delays because of a needlessly complex and duplicative regulatory system,” he says.
“This is costing Canadians good, well-paying jobs. That’s why our government wants to streamline the regulatory system for major projects across Canada,
“The government is focused on responsible development of Canada’s natural resources to create jobs and economic growth as well as future prosperity. We’ve taken great strides toward making our complex regulatory system more efficient, and we remain focused on our goal: one project, one review, in a clearly defined time period,” Oliver says.
In order to get oil to markets such as Asia, the necessary infrastructure of the Northern Gateway runs through First Nations territory. The question many people are asking is: How do we avoid bitter disputes which lead to lengthy court cases?
“We have both a moral and constitutional obligation to consult with Aboriginal communities in respect to these projects,” Oliver responds. “Whatever timelines are imposed will provide adequate time for us to discharge that constitutional responsibility. We have to make sure it’s a fulsome one and is respectful of the Aboriginal communities’ desire to be heard as equals.”
Further pressing this point on the continuing dispute, Oliver was asked whether in the view of the government the Aboriginal groups have any type of veto power over such energy projects of national interest.
“The law is that they don’t have a veto, but they certainly are entitled to be consulted and accommodated,” he says.
The degree to which accommodation would be provided remains unclear and would more than likely be determined on a case by case situation.
On the international front, investment in two-way trade with other major oil producing nations such as Saudi Arabia, United Arab Emirates, Algeria and Kuwait is another area the government is exploring. Increased business with Asia is essential, he adds.
“Our Asia-Pacific gateway will be the fastest way to ship goods including energy between North America and Asia and diversifying our export markets remains a key strategic objective for Canada,” Oliver states. “We’re also moving forward on reasonable and predictable timelines to review major resource projects while addressing legitimate environmental concerns.”
As for projects closer to home, the shelving of the Keystone XL pipeline project – which would see a 1,900km pipeline built between Canada and the US - is one that has drawn a lot of headlines. Is it a delay or a rejection?
“We view it as a delay,” he says. “The fundamental reasons making Keystone a very positive project for the United States is that it addresses three issues for them: national security, jobs and economic growth.”
Some observers note that the US government’s rejection of the pipeline permit earlier this year is “nothing but politics”.
“I thought it was interesting that former President Bill Clinton, whose wife makes the decision – at least preliminarily – has spoken out in favour of it,” Oliver says. Obama has also stated he was happy that half of the Keystone Pipeline that doesn’t require presidential approval will be built.
Those would appear to be strong signals that full approval down the road could become a reality.
Held every two years, the International Energy Forum (IEF) brings together energy ministers from producing and consuming countries and leadership from major international petroleum countries to chat about energy security and the state of global oil and natural gas markets. It’s the world’s largest gathering of energy ministers, with 88 member countries representing more than 90 per cent of global oil and gas demand.
March’s gathering this year in Kuwait City marked the first IEF meeting attended by a Canadian minister, which saw Oliver take a seat at the table with other major oil and gas producers. Last year, Canada signed onto the new IEF charter and is a member of the executive board.
Many nations are members of both the International Energy Agency (IEA) and the Organisation of Petroleum Exporting Countries (OPEC). On the first day of the conference, Oliver pointed out Canada’s significant contributions to global energy security because of the country’s supply of oil, natural gas and uranium and stated the official position on the EU fuel quality directive.
“We discussed the development of various energy sources to achieve a more sustainable energy mix, including non-conventional energy while at the same time meeting energy investment requirements,” Oliver says. “I emphasised the contribution of Canadian oil and gas to global energy security.”
Bilateral meetings were held with several ministers, including those from the United Arab Emirates, Algeria and Saudi Arabia, with the aim of promoting Canada’s role as a stable, competitive and reliable energy supplier to the world in often volatile markets.
Investment in Canada is supported by a sophisticated financial services sector, a regulatory system, legal institutions, extensive science and technology networks and broad experience in geosciences. That adds up to a great trading partner, particularly as the country also has the capacity to increase production.
“We have to recognise that the global economic balance is shifting, and it’s essential that we adapt to these changes,” Oliver says. “As attractive as this country is to investors, we can do better. Our government is committed to ensuring that Canada can attract the investment it needs to develop its natural resources and build the infrastructure we need to move our resources to these new markets.”
Canada is known to be transparent in its disclosures about oil sands emissions, but other countries from which Europe imports are somewhat more opaque - to deal with this, emissions which are unknown are given roughly equivalent status to conventional light oil. Not surprisingly, the Canadian government is up in arms over such an assumption.
“I was in China when we heard President Obama had rejected the Keystone XL pipeline, so we were already thinking about the objective of diversifying our markets,” he says. “The delay in the Keystone approval emphasised the need to go ahead and do that, so it’s a key priority. It always makes sense to have more than one customer.”
The Indian middle class is growing at a rapid rate and South Korea is on the radar as an important economy to watch but by far, China is the biggest consumer of energy. Forecasts predict the country may require as much as 25 per cent of the entire global energy demand within the next 25 years.
So is a free trade agreement with China being hammered out?
“I wouldn’t characterise it as a near-term objective,” Oliver says. “It’s something that was discussed in a very general way when the prime minister visited China, but it’s certainly not an imminent decision”