Board of Trade of Metropolitan Montreal - Speaking notes for Ms. Sophie Brochu, President and CEO of Gaz Métro

October 14, 2014 - Speeches

October 21, 2014

Speaking notes for Ms. Sophie Brochu, President and CEO of Gaz Métro For her presentation to the Board of Trade of Metropolitan Montreal

(Check against delivery)

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Mr. President of the Board of Trade of Metropolitan Montreal, Michel,

Honoured guests,

Ladies and gentlemen,

It is a privilege to be here with you again and a great pleasure to see such a large turnout today.

Thank you all for coming.

A few weeks ago, Michel and I decided that it would be interesting for our business community to discuss the ins and outs of the Energy East project along with the broader context in which the project was born.

And here we all are.

Thank you, Michel, for encouraging the discussion of issues that are important for the future of Montréal, of Québec and, as is the case today, of Canada as a whole.

Energy, the lifeblood of our economy, is certainly one of those issues.

I would like to extend an especially warm welcome to my colleagues Steve Baker, of Union Gas, and Glenn Beaumont, of Enbridge Gas Distribution, who are both here with us today. They are the heads of Ontario's largest natural gas distributors.


Together, we supply natural gas to 3.6 million consumers. Hospitals, schools, houses, small businesses and large industries.  All of them use natural gas because it is an affordable energy source that makes good environmental sense. As you will see, we have a lot in common.

Thank you my friends for being with us today. I'm happy to see you here in Montréal, teaming up with Gaz Métro, in order to collectively send a message that needs to be heard across the country.

As central Canada's natural gas distributors, we are not opposed to the Energy East project in principle. However, we firmly believe that unless major changes are made to the project, millions of natural gas consumers in Québec and Ontario will be hit hard.

That said, the problem we are facing goes far beyond the project itself. It is a serious problem that deserves our attention. Energy East is just one example of the excesses that can arise in a country that has no overall vision for its energy sector.

Canada, although a world power when it comes to energy, has no national energy policy.

Energy is an area of provincial responsibility, and far too often, the provinces fail to discuss energy issues with one another. It's a little like never talking about what's happening on your own street with your neighbour out of a fear that you would lose all future privacy. Producers in Western Canada haven't been talking with consumers in Eastern Canada for years, and vice versa. It's as simple as that.

Today, that lack of communication is preventing us from moving forward with large infrastructure projects in an orderly fashion, even though they are central to our economic development.

But before I go on, let's back up a little bit to see how we got here.

***

In 1980, the Canadian government implemented the National Energy Program. Introduced after the energy crises in the 1970s, the program sought to encourage low oil prices and keep the price of Alberta oil below world market levels. As a result, Alberta was left with the distinct impression that it was subsidizing industrial development in the eastern provinces. A few years later, with the fall in global oil prices, the program's goals became obsolete. It was dropped altogether in 1984, but it left some very deep wounds.

***

Fast forward to 1997.

That was the year I joined Gaz Métro and became part of an effort by Québecers and Ontarians to connect central Canada markets to the new gas reserves that Nova Scotia was preparing to develop: the Sable Island gas field.

Exxon Mobile was effectively in control of the situation. The American giant wanted to send natural gas from Nova Scotia to the New England market to generate electricity there.

For our part, we were willing the pay the market price for that natural gas and build a gas pipeline between the Sable Island field and central Canada. That would also have made it possible to carry natural gas from Nova Scotia all the way to Boston via another pipeline that we were building between Montréal and Massachusetts.

In 1997, the Internet hadn't quite yet arrived. I clearly remember calling Ottawa to get a copy of Canada's energy policy at the time, so we could build a solid case for our plans.

But at the other end of the line, all I heard was silence.

“There is no Canadian energy policy,” said a voice, raising the spectre of the failed National Energy Policy once again.

I was flabbergasted.

15 years after the death of the National Energy Program, we were still struggling with our demons. Our national approach could be summed up in four words: “Let the market decide.”

And that is how central Canada never got access to the reserves off Sable Island.

***

Let's take another leap forward now, to 2007.

Western Canada's oil producers were ramping up development of the oil sands. The American thirst for Canadian energy was insatiable. This, of course, was just before the financial crisis struck. It was also before hydraulic fracturing and the emergence of shale resources.

Contrary to what some people may believe, Canadian producers were and still are very conscious of the environmental issues associated with their activities.

And so, in 2007, I found myself on a panel in Calgary, discussing what oil producers might do to give all Canadians a better understanding of their economic goals and of the efforts they were making to mitigate the environmental impact of their activities.

In the room were academics, producers from Western Canada and industry regulators from across the country.

When it was my turn to speak, I expressed the idea that over the years, Canada had become a patchwork of provincial energy businesses focusing primarily on moving energy from north to south. It was true for electricity, oil and natural gas.

I spoke about how each province sought to make the most of its own energy resources. That was just common sense, of course. But I also felt, as I still do today, that without a broader discussion between Canadians about our respective ambitions, it wouldn't be easy for any province to get the buy-in it needed from the residents of the other provinces to achieve its ambitions. And that sooner or later, we even run the risk of going head to head.

My comments received a cool reception from several people in the room who still bore the scars of the National Energy Program, 25 years later.

I went home feeling like I had asked major burn victims to dance around a campfire.

When it comes to energy in Canada, it's important to realize the weight of the millstone we carry around our necks: decades of silence, a lack of political leadership, and a system where each province goes about its business in its own little corner.

***

Let's come back to the present now.

Our neighbours in the U.S. have discovered huge natural gas reserves. They have so much natural gas that in just a few short years, they have become the world's top producers.

But that's not all. There has also been an explosion in American production of shale oil—to the extent that many observers feel that Americans could theoretically put an end to all crude oil imports by 2030.

In Western Canada, producers' business plans have been turned upside-down. They had set their sights on a massive increase in oil production, practically all of which would go south of the border.

Then, all of a sudden, Americans' appetite for our energy is starting to fall off.

All of a sudden, the Keystone project is teetering on the edge.

And all of a sudden, America is discovering the geopolitics of energy… just as Canada does too.

***

Caught up in a very understandable case of the jitters, producers in Western Canada and their partners are working on plans to develop new markets for Canadian oil.

Plans that have to garner support across the country, without the benefit of a national energy strategy to help.

Canada was so ill prepared for this upheaval in the North American energy industry that industry players are rushing to put forward projects that are at times poorly cobbled together and set in motion without any real public discussion having taken place.

All we see is a press release from a company announcing its plans, a quick statement from a minister in a corridor, environmentalists protesting in a field and a lawsuit being filed in a courthouse.

Welcome to Canada.

It's disheartening, but after a communications vacuum that has lasted nearly three decades and without a broader vision for our energy sector, it doesn't come as a surprise.

It is against this backdrop that Energy East has made its appearance.

***

In the 1950s, TransCanada Pipelines built a network of pipelines to transport natural gas from Alberta to Québec. This is known as the Mainline.

In the 1980s, the network expanded with the addition of two lines between North Bay and Ottawa. This meant being able to bypass Toronto and more quickly reach the rapidly growing Québec and eastern Ontario markets.

In Ontario, as you can see on the map, the pipelines literally formed a triangle that became known as the Eastern Triangle. The network was built to meet the needs of Québec and Ontario.

At Dawn, in southern Ontario, lies an immense natural gas storage facility. It's a huge trading hub for Canadian and American natural gas. Over the years, it has become a key supply point, given that it is closer and therefore cheaper.

This is how the excess transport capacity for natural gas developed in western Ontario.

TransCanada has said that it will use this excess capacity to transport crude oil from Western Canada to Saint John, New Brunswick. From there, the oil would be loaded onto tankers.

When TCPL raised the idea, we were far from opposed to it. Over one year ago on this very rostrum, I expressed my support of this concept. If the oil producers could access a transport infrastructure at a fraction of what it would cost to build a new pipeline from Alberta, so much the better.

But once the idea emerged as a project complete with maps and figures, we were stunned.

TransCanada's proposal to convert a section of the Eastern Triangle is going too far. This system is key to supplying natural gas to consumers in Québec and eastern Ontario.

During the winter months, the Eastern Triangle operates at full capacity to serve our schools, hospitals, businesses and industries. This capacity is so critical in the cold season that, earlier this year, gas consumers in Québec and Ontario committed to paying its fees all year long.

In Alberta, there's no problem: any one of five gas pipelines can be converted to carry oil. Same with Saskatchewan. In Manitoba, even after the conversion, two pipelines will still remain.

But once we get to North Bay in Ontario, the plan stops working.

TransCanada wants to assign one of the two pipelines between North Bay and Ottawa to oil service. A pipeline whose costs Québec and Ontario gas consumers have assumed for nearly 30 years and which is now largely amortized.

TCPL has told us: “Don't worry, we'll build brand new facilities for you.”

The problem is that these brand new facilities will have only 50% of the capacity of the current pipeline, the use of which they want to deprive Québec and Ontario gas consumers. And these facilities will be costly. Very costly.

Furthermore, TransCanada has taken pains to make it clear that we are to shoulder the construction costs, whatever they end up being, without regard to any possible overruns between the estimated costs and the final price tag.

TCPL has tried to sugar-coat the deal by telling us that the operating costs will be lower.

You know as well as I do that this is a fool's bargain. They want to remove a vital pipeline that is already largely amortized and replace it with a smaller pipeline at a higher cost.

No thanks.

The fact is, we didn't ask for anything. TransCanada won't be building for us. It will be building in order to allow the transportation of crude oil.

In reality, removing transport capacity between North Bay and Ottawa will put a stranglehold on our gas supply and push up the price of natural gas distributed in Québec and Ontario.

Because the demand would far outstrip such a constrained supply, the market would find no other way to resolve the situation than to raise prices.


The fact is that, in mid-winter, major Québec consumers who do not have a firm transport contract would have to turn to heavy fuel oil, which is costlier and far more polluting. This runs counter to good sense, to the basic principle of the right energy at the right place.

In Québec, large interruptible industrial and institutional customers would see their winter energy bills skyrocket by 155%, an additional cost of at least 95 million dollars each winter.

They would also generate close to 300,000 additional tonnes of greenhouse gas emissions.

And that's just the impact on our large industrial and institutional interruptible service customers.

Ultimately, plants could also close and industries will choose other places to set up shop. At the end of the day, it means lost jobs.

Already struggling with tight budgets, hospitals and schools would have even more trouble making ends meet.

If Energy East goes ahead in its current form, not only will Québec have a hard time of it, but it will also stand to lose a great deal. As will Ontario.

Yes, there will be economic benefits and jobs created during construction.

Yes, our refineries will have access to a more competitive supply of crude that will help make them more profitable.

It's important, yes; but it fails to justify the collateral damage we're being asked to undergo.

Asking Québec and Ontario natural gas consumers to subsidize oil exports makes no sense. 

What's more, it's completely unnecessary. All the more so since there's a simple solution.

What we've been asking TransCanada for over a year is to build the new pipeline from North Bay, where their system's excess capacity stops.

Otherwise, if they absolutely must convert one of the two pipelines between North Bay and Ottawa for operational considerations that frankly escape us, they must commit to keeping natural gas consumers in Québec and Ontario unscathed.

They must commit to rebuilding with the same capacity and guaranteeing that there will be no impact on our transport costs. Based on our estimates, this would represent an additional cost of approximately 50 cents per barrel. One barrel of oil sells for between $85 and $100. This seems viable to me.

I would reiterate, we do not seek to undermine Energy East. But we will not accept having our boundaries trampled and our customers pushed around.

Gaz Métro, Union Gas and Enbridge Gas have done everything possible to avoid going public with this. However, it appears to have struck a chord and is perhaps what unfortunately needed to be done in order to bring this impasse to an end and at last see a change to the Energy East project. I fervently hope that's the case.  

***

 As you can see, it is high time this country creates an energy strategy to avoid such pitfalls.

A well-thought-out Canadian policy—which I believe should come from the provinces—would encompass all energy forms in a coherent whole.

At the very least, it would lay the groundwork for the orderly implementation of major Canada-wide energy transport infrastructures.

Otherwise, the task of determining what is in the public interest will continue to fall to the private sector.

The “everything for oil and damn the rest” attitude is most certainly not in the public interest.

There's a light at the end of the tunnel.

At their Charlottetown meeting this summer, the provincial and territorial leaders moved forward on a Canadian energy strategy.

This initiative is credited to the Premier of Ontario, Ms. Wynne, and the Premier of Québec, Mr. Couillard.

This burgeoning provincial leadership should be applauded.

But we have to remain realistic.

We can't rebuild in a mere few months something that has been neglected for three decades. It will take time, and we are prepared to invest that time.

In the meantime, we'll do everything we can to safeguard our customers' interests.


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