National Energy Board

www.neb-one.gc.ca

Common menu bar

• Français
• Home
• Contact Us
• Help
• Search
• canada.gc.ca

Breadcrumb

Home > Speeches and Presentations > Speeches and Presentations 2005 > Infrastructure and Markets in Canada: the Issues and Solutions

Infrastructure and Markets in Canada: the Issues and Solutions

Gaétan Caron
Vice-Chairman
National Energy Board

Forum québécois sur l'énergie
Montreal, QC

14 November 2005

Good morning. It is a pleasure to be here in Québec again speaking at the Fourth Forum québécois sur l'énergie. I am very pleased to be associated with this conference, and I would like to thank the organizers for inviting the National Energy Board once again.

Outline

Today I would like to talk about how energy contributes to the quality of life in Canada

We know that energy fuels the daily life of Canadians, North Americans and the world. It provides heat, light and mobility - in essence, most of the tangible things that fuel the basic elements of our quality of life.

The recent hurricanes in the southern U.S. remind us just how important energy is to our daily lives and just how interdependent the North American energy system, if not the world's energy system, is.

Although hurricanes Katrina and Rita hit the U.S. Gulf Coast, the effects reached across the continent and across the globe as the price of oil products and natural gas increased by over 50% because of the loss of production and the damage to oil refineries, gas processing plants and pipelines.

We do not have to look far back into Canada's own experience with weather disasters to see how the loss of energy can disrupt lives and businesses.

The Ice Storm of 1998:

• left over 4 million people without power in Québec, Ontario and New Brunswick (some for weeks).
• Over 100,000 people sought refuge in shelters.
• Military assistance was required.
• Disruptions to farmers, the dairy industry, milk plants, and the maple syrup industry to name a few.
• The estimated cost of the storm: over $5 billion..

Energy Contributes to Canadians' Quality of Life

Energy fuels our lives. In Canada and Québec we are very fortunate to have such an abundance of renewable and non-renewable energy resources that greatly contribute to the quality of our lives in many ways: energy production, export revenues and other social benefits.

Today, the benefits we receive from our energy resources are due to the tough decisions that were made ten to fifteen years ago, regarding energy and energy infrastructure. In many cases, these decisions were controversial.

Today we are accountable to future generations for their quality of life and therefore, today we need to make decisions on energy infrastructure and equally important, decisions on energy demand behaviours that will shape their energy future.

Energy Contributes to Canadians' Quality of Life (cont'd)

The oil and gas industry employs, directly and indirectly, 366,000 people across this country and the electricity generation, transportation and distribution industry is estimated to employ another 90,000.

Canada produces:

• 174 billion m³ (6.1 Tcf) of gas /year;
• 146 million m³ (915 million barrels) of oil /year;
• 560 Twh of electricity /year;
• 62 thousand kilotonnes of coal /year.

All of this fuels our economy and the excess is exported.

We export:

• 101 billion m³ (3.6 Tcf) of gas /year;
• 95 million m³ (almost 600 million barrels) of oil /year;
• almost 28 TWh of electricity /year.

Our governments collect billions of dollars in royalties and taxes from these industries to help contribute to the social programs that help define us as Canadians.

Energy Contributes to Canadians' Quality of Life (cont'd)

These charts show how Canadian businesses and households pay very competitive prices for natural gas and electricity.

Canada: A Large Energy Consumer

That, combined with our harsh climate is the primary reason why Canadians consume more energy per capita than any other country.

This is also the reason why our future quality of life is dependent on today's decisions about energy infrastructure and energy demand. We need to be smart about our energy choices.

Québec Quality of Life

In Québec, in particular, the low electricity rates and availability of large amounts of hydro electricity has attracted energy-intensive industries to the province, like metal smelting and pulp & paper. These two industries account for over 70% of industrial electricity consumption. The chemical and petrochemical industries are also large power consumers.

Québecers also pay one of the lowest rates for electricity in North America thanks to the large heritage hydroelectricity generating capacity asset.

Since Québec's electricity is priced below marginal cost, this could be thought of as a "prosperity bonus" that Québecers have been receiving for years and continue to receive.

Due to the fact that about 95% of Québec's electricity generation is hydro-based, while other provinces may be struggling with issues like air quality and emissions from coal-fired generating plants, Québecers enjoy the benefits that a hydro-based electricity system make possible.

Québec Quality of Life (cont'd)

The large but temporary hydro electric surplus asset also allows for the province to enjoy the revenues from electricity exports.

These export revenues declined between 2001 and 2004 due to low hydro conditions that generated lower electricity surpluses at a time when the province experienced rapid growth in electricity demand*. We estimate 2005 will show a reversal of that past trend.

* (Note: from both residential and industrial sectors)

Energy Consumption: West vs. Québec

Due to gas development as a by-product of oil, gas was considered a western product for a long time. Eastern Canadian energy consumption, including Québec, has been more oil-focused.

As the Quebec chart shows, 43% of the energy consumed in Quebec is oil-based. Most of that is gasoline and diesel for the vehicles we drive. Quebecers have about 1.2 vehicles per household.

The NEB just released a Short-term Outlook for Canadian Oil to 2006. While Canadian production, especially from the oil sands in western Canada, will continue to grow, this crude is not particularly marketed in eastern Canada. It is expected that refineries in Québec will continue to process primarily imported crude due to the proximity to waterborne import supplies, and east coast production. Eastern Canada and Québec will be competing on the global market for oil. World oil supplies are expected to be tight, at least into the near future, and fraught with geopolitical risks.

This provides some of the impetus for the renewed interest by Québec in exploring for and producing the oil and gas reserves in Québec.

Québec's Energy Future

The government of Québec engaged in an open debate last year to define key issues and raise the necessary questions about the energy future of Québec. In light of the slower pace of development of new hydro and the growing demand for energy, the government stressed that the security of the province's energy supply depends on ensuring diversity in sources of supply.

The electricity-intensive industrial sector and residential electric space heating creates high pressure on the province's electricity generating capacity, especially in winter-peak periods.

With Québec's energy demand growth projection of between 0.8 to 1.3 percent per year (depending on your scenario preference), real choices are going to have to be made for how that additional energy demand will be satisfied.

In Québec, you are already asking the hard questions:

• What is the ideal energy fuel mix for Québec, especially for space heating?
• What types of electricity generation does Québec wish to promote, in what proportion and at what cost, among the following: large hydroelectric projects, small hydroelectric power plants, wind farms, natural gas-fired or oil-fired power plants, nuclear power plants, cogeneration, biomass generation?
• What excess capacity should Québec target to protect its population from the electricity rate increases and supply problems experienced elsewhere in North America, and to have its population benefit from selling, if so decided, temporary electricity surpluses on North American markets?

Alternative and Revewable Energy

Today, energy use, particularly the burning of coal and oil products, is increasingly viewed by many as a burden to the environment in growing emissions of GHGs.

What are the non-oil alternatives for consumers? The NEB is examining the role that alternative and renewable (A&R) technologies can play in our power generation portfolio in Canada. An EMA on this topic will be released in February 2006. This report will address A&R technologies in electricity generation. We are in the process of cross-Canada consultations for this project. The NEB is consulting with electric utilities, system operators, provincial energy boards, industry associations and A&R sector participants like wind farm operators and the Techno Centre éolien.

There are certainly some important wind projects under development, notably in the Gaspé region.

Such developments are encouraged by the province's and Hydro Québec's contracting of 1000 MW of wind power and the issuance of another RFP of 2000 MW of wind energy to be in place by 2013. The speed and extent to which wind is integrated into the Québec grid may be affected by the ability to deal with the "intermittency" issues associated with wind energy. Of course, Québec's hydro system is relatively well-suited to accommodate wind generation.

Wind price would be in the neighbourhood of 6.5 ¢/Kwh plus grid integration costs of about 2 ¢/Kwh, which may give people cause to consider the true marginal cost of electricity. In contrast, the price of heritage hydro assets is 2.79 ¢/Kwh.

LNG: Why?

This brings us to the issue of what we will use for the next 20 years when oil supplies remain tight, while renewables are developing. The most likely bridge fuel in the foreseeable future viewed by many is liquefied natural gas or LNG.

LNG will be driving the international growth in gas, and this could also be true for some Canadian markets.

While LNG is a much larger story in the United States and Mexico, the location of LNG terminals in Canada are also being considered by several parties. Possible Canadian sites include locations in Québec (Gros Cacouna and Rabaska), Canaport in New Brunswick, as well as sites in Nova Scotia (Point Tupper and Goldboro) and British Columbia (Kitimat, and Prince Rupert).

Infrastructure development will be needed to support growth of the use of LNG in North America. This would mean the construction of regasification terminals, storage facilities and some pipeline infrastructure.

LNG Abundance

There are four main reasons why LNG is often looked upon favourably:

1. Availability. This map shows existing, proposed and under construction LNG liquefaction facilities.
2. Liquefy it or lose it. Much of the natural gas located around the globe is associated with oil production. Often the quantities of this associated gas is so great that re-injection is not possible and the gas either needs to be flared or find a market. Liquefying this gas allows it to reach any market around the world and benefically, avoids the GHG impacts associated with flaring the gas.
3. Falling costs. Unit costs of LNG have fallen by almost a third over the past 2 decades and this trend will continue.
4. Consumers want it. LNG is natural gas: it is clean-burning and has low carbon emissions.

Frontier Developments: Proposed Pipelines

LNG is one way of delivering more natural gas to the North American market. The other method is by accessing our northern Frontier developments.

As many of you know there are two big pipeline proposals: one from the Alaskan North Slope and the other from the Mackenzie Delta. The two proposed pipelines are illustrated on this map.

The Mackenzie Gas Project application was filed with the Board on 7 October 2004. The project proponents (Imperial Oil Resources Ventures Limited, ConocoPhillips Canada [North] Limited, Shell Canada Limited, ExxonMobil Canada Properties, and the Aboriginal Pipeline Group) plan to deliver 33.8 million m³/d (1.2 Bcf/d) of gas from the Mackenzie Delta by way of a 1 220 km pipeline along the Mackenzie Valley and into northern Alberta.

Canada's Oil Reserves

There are also some developments in the Canadian oil industry that bear noting.

In early 2003, for the first time, the Oil and Gas Journal and the Cambridge Energy Research Associates recognized the Alberta Energy and Utilities Board's (or the AEUB) estimates for the established reserves of crude bitumen in their listing of world oil reserves.

Canada's oil reserves are second only to Saudi Arabia.

Oil Sands Areas

The main reason why Canada is oil rich is the presence of enormous reserves contained sin the oil sands of western Canada.

Canada's oil sands resources are contained in three distinct areas: first, the Athabasca area which is the largest, and, to date, has seen the most intense development. This area is also the only area amenable to surface mining. Second is the Cold Lake area which has been responsible for the majority of in-situ production. Lastly, the Peace River area is the smallest of the three and has seen more modest development.

Canada's Oil Sands

Commercialization of the oil sands resource began with the Great Canadian Oil Sands Company in 1967. That project, now operated by Suncor, used surface mining to extract crude bitumen from oil sands.

Much has changed since 1967 and operators have become far more efficient. Today's mining operations use giant electric shovels to load trucks capable of hauling up to 360 tonnes. Mined oil sand is taken to a crusher which sizes the ore so that it can be transported to the extraction plant as a slurry. During extraction, the bitumen is separated from water, sands and other materials in preparation for upgrading. Upgrading is the final stage of the process whereby tar-like bitumen is converted into refinery-ready synthetic crude oil and, in some cases, petroleum products.

Oil Sands In Situ: SAGD

Steam-Assisted Gravity Drainage (SAGD) is the dominant technology being used today to access oil sands deposits that are too deep to be surface mined.

The SAGD process uses a pair of closely spaced horizontal wells in which the producer well is positioned near the bottom of the reservoir and the steam injection well is positioned directly above. Steam is continuously injected into the upper well to melt the bitumen and allow it to drain into the production well where it is pumped to the surface.

In 2005, in situ production is estimated to be 440,000 b/d in comparison to mined production of about 520,000 b/d.

Unlike in surface mining, in-situ operations have not traditionally included upgrading facilities to convert bitumen to synthetic crude oil, instead bitumen is marketed as a lower-value diluent-bitumen blend. This could change if Nexen builds an upgrader at its oil sands facility in 2007.

A major cost of in-situ operations is the natural gas component which is about one-third of the production cost.

Expansions and New Pipeline Proposals

To capitalize on Canada's oil resources, new infrastructure proposals have been announced to enhance market access.

The dotted blue lines indicate publicly announced pipeline expansions in North America. In Canada, there are four major expansions proposed. Two of the proposals are targeting the US Midwest and the other two focused on the west coast of British Columbia.

First, let's look at US Midwest:

To the West Coast of Canada:

Proposed Electricity Developments

Some proposed electricity projects for Canada include:

Labrador (Churchill Falls) to Ontario

• A capacity expansion of existing lines or some new lines including a new 250 MW interconnection between Québec and Ontario

Between Manitoba and Ontario, the Clean Energy Transfer Initiative has been proposed with 3 transmission options That would provide about 1250 MW of power from Manitoba to Ontario

• The Direct option
• Thunder Bay Option
• Winnipeg Option

Regulatory Assessment of Infrastructure Projects

The NEB considers many factors in its assessment of infrastructure projects to ensure that projects balance the economic, environmental and social interests of Canadians.

The NEB has a dual mandate to consider environmental matters: under the NEB Act, and under the Canadian Environmental Assessment Act (CEAA). Pursuant to these Acts, the Board ensures that:

• all facilities are built and operated in an environmentally sound manner;
• assessments and projects are carried out in compliance with all federal legislation and regulations;
• mitigation measures and operating conditions are effective in protecting the environment.

CEAA provides 3 levels of environmental assessment effort:

• screenings - majority of NEB environmental assessments (other departments may also provide input on a screening);
• comprehensive studies for projects:
  • >75 km of pipeline on a new right of way;
  • >75 km of >345 kV power line on a new right of way;
  • off-shore oil and gas pipeline;
• panel reviews (joint panel review) for projects triggering a comprehensive study and where the Minister of Environment decides to elevate it to a panel review.

Comprehensive Study Report
PNGTS Extension Project

The PNGTS Extension Project, in 1997, is an example of a Comprehensive Study Report.

The project involved 213 km of pipeline from Lachenaie to the Canada/US border near East Hereford and some ancillary facilities.

The Responsible Authorities for this project were: NEB, Environment Canada, Department of Fisheries and Oceans (Canadian Coast Guard).

The NEB carried out a study of the environmental and socio-economic impacts of the project. A Comprehensive Study Report (CSR) was prepared.

There was a public hearing in 1997.

The project was approved in April 1998. The Certificate included terms and conditions, including 13 environmental conditions.

Joint Review Panel
Sable Gas Projects

The Sable Gas Projects is an example of the Joint Review Panel Process.

The SOEP consortium and Maritimes & Northeast Pipeline Management Ltd. submitted applications to the following regulatory agencies:

• the Canada-Nova Scotia Offshore Petroleum Board (CNSOPB),
• the National Energy Board (NEB), and
• the Nova Scotia Energy and Mineral Resource Conservation Board (NSEMRCB).

Given that each jurisdiction required a public review of both Projects, an opportunity emerged to conduct a joint public review as a means of streamlining the regulatory process. The outcome was the Agreement for a Joint Public Review of the Proposed Sable Gas Projects (the Agreement) forged among the Ministers of Environment for Canada and Nova Scotia, the Ministers of Natural Resources for Canada and Nova Scotia, the Chairman of the National Energy Board and the Acting Chief Executive Officer of the Canada-Nova Scotia Offshore Petroleum Board (the Parties).

The purpose of the Agreement was to coordinate the environmental and socio-economic assessment requirements of the Parties by providing a review of the environmental and socio economic effects likely to result from the Projects. The Agreement provided that the review would meet the requirements of:

• the Canadian Environmental Assessment Act (CEAA),
• the Nova Socia Environment Act, and
• the National Energy Board Act (NEB Act).

In addition, the Agreement would meet the requirements of the CNSOPB and their appointed Commissioner under the Canada-Nova Scotia Offshore Petroleum Resources Accord Implementation Act.

The Joint Public Review allowed for the collection and examination of environmental evidence and the hearing of arguments on the environmental effects of the projects for use in subsequent deliberations and decision making of the applications by the regulatory authorities.

Challenges of Establishing New Infrastructure

Delivery of new energy sources, whether it be developing and connecting Quebec oil & gas reserves, importing LNG or delivering northern Frontier gas to southern markets will require large investments in infrastructure.

The primary impediment to regulatory efficiency today is the fragmentation of decision-making responsibility amongst many regulatory bodies. For example:

• the Mackenzie Valley project has 14 agencies (including the NEB) that have responsibility for reviewing pipeline project;
• there are also a number of federal and provincial agencies have legal mandates to review elements of applications for offshore facilities and LNG terminals.

Integrated decision making is very difficult with a fragmented decision-making framework. The decision-making process should integrate all public interest factors, including the benefits of the project, along with the environmental, social and economic considerations. It is very unlikely that a patchwork of separate decisions, each based on a narrow aspect of a project will effectively integrate al relevant public interest factors, even when there is a cooperation agreement in place.

Timelines are negatively impacted. Due to the extensive coordination efforts required across various agencies, the review process is complicated by the need to satisfy multiple information and procedural requirements. Regulatory predictability and clarity are negatively impacted as applicants are not sure how the regulatory process will develop, even when cooperative agreements are in place. This may deter industry investment.

The process could be made to work better for the Canadian public. Cooperative agreements usually result in complex arrangements that are challenging for the project applicant to understand and even more difficult for a member of the Canadian public to comprehend. This hinders participation in regulatory processes.

My sense is that there is a strong will to address the problem of fragmented decision-making. The Smart Regulation initiative demonstrates this point. Now that we agree on the "what", let us work on the "how"!

Possible Solution and NEB Role

I indicated at the beginning of my presentation that the benefits we receive from our energy resources today are due to the tough decisions that were made ten to fifteen years ago, regarding energy and energy infrastructure. In many cases, these decisions were controversial. Are we prepared today to make the decisions that will allow Quebecers and Canadians in 10 to 15 years from now to benefit from their energy endowment?

In that vein, we have begun at the NEB to talk about the dual role we play: protect and enable. The regulator must protect parties that are affected by infrastructure projects but at the same time to enable the development of this infrastructure when it is in the overall public interest. It is only by carrying out both roles that we can fully serve the public interest.

An example will illustrate the concept of "enable" when applied to the problem of fragmented decision-making. This solution would require legislative action:

• to create mechanisms under which one agency with an appropriate breadth of scope in its mandate can be designated as the lead for each major infrastructure project, coordinating the actions of departments and agencies involved, and establishing the timeframe and process for implementation;
• one model that merits examination is the lead agency designation set out in the U.S. Energy Policy Act of7 2005;
• FERC was established as the lead agency and sets deadlines of others;
• in Canada, may not always be NEB that is the lead.

Contact Us!

I want to close my remarks by thanking you for your attention and providing you with the Board's contact information. I would encourage you to contact us if you would like more information on this or other energy related topics or to access energy market and export statistics.

This contact information includes how you may be able to access a list of our staff and responsibilities, my own e-mail, and our 1-800-number.

I would also be more than happy to answer any questions you may have on today's discussion.

 

Primary navigation (left column)

Date Modified:

2011-10-28