Proceedings of the Standing Senate Committee on
Energy, the Environment and Natural Resources
Issue 37 - Evidence - February 14, 2013
OTTAWA, Thursday, February 14, 2013
The Standing Senate Committee on Energy, the Environment and Natural Resources met this day at 8:02 a.m. to study the current state of the safety elements of the bulk transport of hydrocarbon products in Canada.
Senator Richard Neufeld (Chair) in the chair.
[English]
The Chair: Welcome to this meeting of the Standing Senate Committee on Energy, the Environment and Natural Resources. My name is Richard Neufeld. I represent the province of British Columbia in the Senate, and I am chair of this committee. I would like to welcome honourable senators, any members of public with us in the room and viewers all across the country who are watching on television. I would now like to introduce my deputy chair, Grant Mitchell, a senator from Alberta. I will ask the senators to introduce themselves.
[Translation]
Senator Ringuette: I am Pierrette Ringuette, from New Brunswick.
Senator Massicotte: I am Paul Massicotte, from Montreal, Quebec.
[English]
Senator Brown: Bert Brown from Alberta.
Senator Lang: Dan Lang from the Yukon.
Senator Wallace: John Wallace, New Brunswick.
Senator Seidman: Judith Seidman from Montreal, Quebec.
The Chair: Thank you. I would like to introduce our staff, our clerk Lynn Gordon and our Library of Parliament analysts Marc Leblanc and Sam Banks.
On November 28, 2012, our committee was authorized by the Senate to initiate a study on the safe transportation of hydrocarbons in Canada. The study will examine and compare domestic and international regulatory regimes, standards and best practices relating to the safe transport of hydrocarbons by transmission pipelines, marine tanker vessels and railcars. The committee has held five meetings to date on this study.
In the first portion of our meeting today, we welcome via video conference from the Government of Saskatchewan, Kent Campbell, Deputy Minister, Ministry of the Economy; Ed Dancsok, Assistant Deputy Minister, Ministry of the Economy; and Todd Han, Director, Petroleum Development, Ministry of the Economy.
I believe one of you gentlemen will present a brief to us, of which we have received a copy, and then we will go to questions and answers.
Kent Campbell, Deputy Minister, Ministry of the Economy, Government of Saskatchewan: Thank you, Senator Neufeld.
On behalf of the Government of Saskatchewan, it is a pleasure to be invited to appear before the standing committee to provide our input on the safe transportation of hydrocarbons in Canada.
I am the Deputy Minister of Saskatchewan's Ministry of the Economy. As you mentioned, I am accompanied by two officials, Ed Dancsok and Todd Han.
The Ministry of the Economy regulates all oil and gas pipelines within Saskatchewan's borders. There are more than 1,800 licensed transmission pipelines, which span 23,800 kilometres. We are also responsible for more than 68,000 flowlines which feed to transmission pipelines. Natural gas distribution lines are regulated by SaskEnergy, a provincial Crown utility. Interprovincial and international pipelines traversing Saskatchewan are regulated by the National Energy Board, which also regulates lines that are contained on First Nations lands, national parks and other federal lands.
Saskatchewan has a well established and effective regulatory framework that provides cradle-to-grave life cycle management of pipeline infrastructure. This regulatory framework is backed by on-the-ground officers and responsive emergency and incident management systems and infrastructure.
Saskatchewan also has a robust environmental assessment review process. The Environmental Assessment Act and related procedures regulated by the Ministry of the Environment provide a coordinated overview of environmental issues associated with pipeline development.
The environmental assessment process ensures that economic development proceeds only when adequate environmental safeguards are in place, while providing opportunities for public input and consultation.
Saskatchewan legislation and regulations mandate that all pipelines be licensed. This ensures that pipelines are designed, constructed and operated, maintained and abandoned in accordance with the latest Canadian Standards Association code, CSA Z662.
In order to maintain the integrity management system, the licensee of the pipeline is required to conduct frequent inspections of its right-of-way. This can be done through aerial reconnaissance, ground-truthing, by walking alongside or taking soil samples to detect leakage or emerging potential problems. We also require pipeline operators to actively monitor for pressure drops through remote pressure measurement systems to immediately sense leakages and do an automatic shutdown.
In addition, pipeline operators are required to conduct scheduled in-line inspections using high-resolution inspection tools to detect corrosion, cracks and dents and determine where they are located within the pipe.
The Ministry of the Economy also has its own field inspectors, located in four regional offices in Saskatchewan. They conduct inspections, audits and enforcement on pipeline operators and infrastructure. We have well-established legislation and regulations that cover sound emergency response planning and management, spill prevention, spill and incident response, spill reporting and spill site reclamation. In addition, the Government of Saskatchewan has partnered with the oil and gas industry to establish six non-profit cooperatives. The co-ops have established spill response associations with highly trained volunteer members who are first responders in the event of a spill.
Their response is integrated with other partners such as fire departments, the RCMP and ambulance services, as well as the Ministries of the Economy and Environment. The combination of a comprehensive licensing review and approval system, backed up by on-the-ground field inspections and enforcement, provides a high level of confidence in ensuring the safe operation of pipeline infrastructure.
When we compare U.S. and Canadian pipeline regulations, Saskatchewan is cognizant that pipelines crossing the border into the U.S. are regulated by separate regimes with different requirements and philosophical approaches. The differences in pipeline regulation include physical differences, such as valve spacing intervals, burial depths and welding procedures. For example, the United States requires a 72-per-cent specified minimum yield strength for pipelines whereas Canada specifies 80-per-cent yield strength. This means that the wall thickness of international pipelines increases upon entry into the United States. These can be viewed by some people as subtle and by others as significant differences. However, these differences affect the micromanagement, or the nuts and bolts, of the construction and operation of pipelines.
We would like to see the United States and Canada harmonize pipeline regulatory standards, while maintaining environmental and safety procedures and meeting our mutual economic and energy needs. With the potential to become one of the world's largest oil producers, Western Canada needs to develop transportation capacity to reach three critical markets: Asia, the U.S. Gulf Coast, and Eastern Canada and the U.S. eastern seaboard. However, that potential will go unrealized unless the federal and provincial governments deliver a harmonized strategy to advance the development of pipelines to ensure hydrocarbon products are delivered to critical markets in a safe, efficient and environmentally responsible manner.
The Government of Saskatchewan is confident that pipelines are a safe and cost-effective way to get hydrocarbons to markets. They are designed to deliver large volumes in an energy-efficient manner compared to alternative modes of transport.
Mr. Chair, that is an overview of how we regulate pipelines in Saskatchewan. We are now available to answer your questions.
The Chair: Thank you very much, Mr. Campbell. We will begin our questions.
Senator Mitchell: Thanks very much, gentlemen. I am quite interested in the different standards between the U.S. and the Canadian sides. Could you tell us why it would be that the U.S., for example, would have thicker walls on their pipes than we would? Does that make it safer?
I will have some follow-up questions to that, too, I think, Mr. Campbell.
Todd Han, Director, Petroleum Development, Ministry of the Economy, Government of Saskatchewan: I cannot explain why we have two differences other than there are philosophical differences in terms of how we regulate.
The more important issue is a safety issue. We do not believe there is a greater advantage to having a thicker wall on the pipeline. In most cases, pipeline operation or maintaining a safe pipeline operation really has to do with a number of things other than just the thickness. That includes having proper mastics or coating around the pipeline; ensuring the impressed current systems are there to ensure that corrosion is prevented; and having a good, high-level frequency of inspections to ensure that corrosion does not occur. It is not just a single factor.
In terms of safety, it is equivalent in terms of what Canada provides and what the U.S. provides with pipeline operations.
Senator Mitchell: Are there studies or statistics that would show a difference in the rate of spills between the two jurisdictions?
Mr. Han: We do have studies in Canada. In Saskatchewan, we keep a fairly comprehensive set of spills statistics. As for the U.S., I would have to say that I do not have their statistical information in terms of their line failures.
Senator Mitchell: In terms of your relationship to the CSA Z662 standard, how do you feed in ideas, new technologies and lessons learned to that? Is there a structure or network of joint committees? How do you do that?
Ed Dancsok, Assistant Deputy Minister, Ministry of the Economy, Government of Saskatchewan: Yes, there is an interprovincial committee set up by the Canadian Standards Association in which we are a participant. The committee meets twice a year to discuss issues of common concern and look at changing technologies and specifications for pipes to try to gain a common understanding of and a standardized approach to the regulation of the lines.
Senator Mitchell: Thanks. I can go on a second round.
The Chair: Thank you. I just have one question: What is the difference in the thickness of the wall of the pipe? It is listed in your report as 72 per cent to 80 per cent. What is that difference in?
Mr. Han: We brought that out as an example to show a difference, not to give a technical comparative difference. It was just one of the comparative examples that we have provided. In terms of providing the actual exact differences, other than the yield strength, is there a specific percentage that you want? What is the exact difference that you want to know about?
The Chair: I think that is what we would like to know. What is the exact difference? I mean that 72 per cent and 80 per cent may mean something to an engineer, but to us folks around the table here we would like to know if that is just the strength of the pipe. Is it the thickness? You can see what happens right away — people think it is the thickness. Maybe it is not even the thickness; maybe it is the tensile strength of it.
If you can get that information for us, I would appreciate it. Send it to our committee clerk, please.
Mr. Han: We will get that to you.
Senator Lang: I want to follow up further on this, because you are part of the Canadian association respecting setting standards for Canada. Does this particular thickness of the pipe apply across Canada, whether in British Columbia, Alberta or Saskatchewan — the difference between the 72 per cent versus the 80 per cent thickness going across the line?
Mr. Han: Transmission lines are regulated with NEB. That would translate right across Canada. A transmission line that remains just inside Saskatchewan would also follow those requirements as part of the CSA Z662 requirements.
Senator Lang: You mentioned that you would like to work with the United States with respect to the general requirements for pipelines and work with them so they are the same, regulatory-wise, across both countries. Have you asked the National Energy Board to work towards that end, or is that the association that you would ask to work with the Americans to try to come to a common regulatory process between the two countries to streamline it?
Mr. Han: Yes, we would certainly ask the National Energy Board to start that initiative. However, we also recognize that CSA works with international standards associations, as well as the American jurisdiction, to ensure that there is harmonization. Even though there are small technical differences between the regulations, the overall performance goals are the same; everybody is striving for the same safety and environmentally sustainable management of that pipeline.
Senator Lang: I will go into one other area, Mr. Chair, and that is the question of the transportation of oil; namely, pipeline versus rail. There is more and more discussion in the public domain with respect to the utilization of rail, and maybe even the expansion of the use of rail, as opposed to pipeline for the purpose of transporting oil.
What is the Government of Saskatchewan's position if you have a choice between transporting oil by rail or by pipeline? What do you deem the safest and the most efficient for the transportation of oil, if that is a decision you have to make?
Mr. Han: In terms of our position, we believe both transportation means are viable options. Not as a comparison of safety, but rail certainly allows us access to oil that does not have easy access to pipeline at this point. It is a viable vehicle to get the oil out of Saskatchewan. Pipeline is our most efficient way to get large amounts of oil and gas out of the province.
Mr. Campbell: Other things being equal, we view pipelines as being the most efficient, cost-effective and safe method of transport for oil.
Senator Ringuette: You mentioned that you have legislation and regulations in regard to abandonment of pipelines. Have you experienced in your province abandonment of pipeline sections? If so, what would be the process? Would it be removal and so forth? We have to also understand how the process works.
Mr. Han: I can certainly cover the abandonment process. We have a standardized abandonment process. Before the line is decommissioned and abandoned, the lines are cleaned, or what people refer to as ``pigged,'' to ensure there are no residual elements or contaminants inside the line. Then the line is additionally washed, and then we also hydrostatically test the line to ensure that there were no pinholes or any kinds of other abrasions that occurred on the line that may have leaked small amounts of material into the ground. If we do find that the line had a small leak or any kind of problem, then we require the company to excavate that area to ensure there is no contamination. If there is any contamination, they have to remediate the contaminants out of that ground.
Once that is done, then there are several ways to complete the abandonment. One is to fill it with environmentally benign fluid that prevents the line from corroding. Then we cap both ends and leave the line in place in case it is used at a later time. In some cases, when necessary, they will actually remove the line from the ground. However, that is rarer. In most cases, the line is left in the ground with a benign corrosion inhibitor and it is capped on both ends.
Senator Ringuette: You are saying that you have experience with the abandonment process. Would that be in the last five years?
Mr. Han: Yes.
Mr. Dancsok: Oh, yes.
Mr. Han: You must understand that we also have very small lines that are attached to wells and small battery sites, so we abandon large numbers of lines, but they are very small diameter lines. They are not the same large pipelines that the NEB deals with.
Senator Ringuette: I suppose that you do the oversight of that process, that the Government of Saskatchewan would not incur the cost of that abandonment and the entire process that you have just described.
Mr. Han: That is correct. Many of the lines that are being abandoned in Saskatchewan are lines associated with well sites. Usually the line is abandoned when the well is plugged. You are right that we are the government oversight. However, there are special occasions when we do intervene. We have a full liability management program that covers the wells, the batteries and the flowlines that connect them, or smaller diameter pipelines. If the company is bankrupt or not available to deal with the problem, then we step in through this orphan liability program, which imposes a levy on the companies. We use that money to both abandon and remediate sites. At no point is the public stuck with the costs of cleanup.
Senator Ringuette: To clarify, the levy you are talking about is collected during the operation of the facility and is a reserve?
Mr. Han: The program has two components. First, we measure the company, and when I say ``company,'' it is not the pipeline company. It is the oil and gas producer, which is separate from the pipeline companies. Producers have their lines, which are called flowlines.
On a monthly basis we measure the producer's assets versus liabilities and that is done based on how much oil or gas they produce. Liabilities are calculated based on how much the environmental cleanup would cost for that well site, flowline or battery, or how much it would cost to abandon those. When assets fall below liabilities, we collect a security deposit from the company to make up the balance, so at no point is there an unsecured liability. It is covered through the security deposit.
We recognize that sometimes companies suddenly go bankrupt and there is not enough security deposit held by us, or they may have gone bankrupt before this program came into place in 2007. Therefore, we also have an additional power to impose a levy on every company in the province, whether or not it is their property. The levy is applied equally to companies based on the total liability that they represent. If we are to identify a number of orphan sites that need to be cleaned up, we impose a levy on that amount and they pay based on the total liability they represent to us.
Senator Seidman: I would like to ask a more systemic question. In your presentation, Mr. Campbell, you said that the Government of Saskatchewan has partnered with the oil and gas industry to establish six not-for-profit cooperatives. You implied that they were important in safety management and response. Could you tell us how those cooperatives work and what role they play?
Mr. Han: The spill cooperatives are a mandate required through our licensing system. They collect fees from all the oil and gas companies that have a spill potential if they have a property, be it pipeline, well or battery. With that money, they purchase all the necessary equipment and centralize it in a mobile unit and make it available to all producers. Because there are over 500 producers, and at any time we may have as many as 60,000 wells operating, requiring individual producers to have enough equipment to cover spills throughout the province would not make sense. It is better to have a centralized system through these cooperatives and have all equipment available that small operators cannot afford. The cooperatives provide the equipment when a spill occurs.
The spill co-ops also provide annual training to all producers in their geographical area. They do classroom exercises as well as hands-on exercises. In sites in rivers or other water bodies they do additional winter exercises in case a spill occurs in the water.
All producers are required to be members of the spill co-ops and to attend each of the spill exercises, because we believe spill training is a very important part of the actual safe operation of pipelines.
There is one more feature of the spill co-ops. Sometimes a producer is not available to go out to the site when they have one well in a very isolated area. There are volunteers in the spill co-ops who will respond on their behalf. The companies for whom these volunteers work bill the company after the fact to recover the cost of fixing the problem.
Senator Seidman: I appreciate the importance of the training for spill response. You referred in your presentation to highly trained volunteer members who are first responders in the event of a spill. Are they actually volunteers?
Mr. Han: The first responders are not volunteers. The volunteers are people who are part of the spill co-op membership who only volunteer if the other member is unavailable or does not have enough people to deal with the problem. That is what we meant by volunteer. Each company is responsible for their own spills and their own training through our spill co- op, but if they are not available, as sometimes happens, the spill co-op will provide a volunteer to deal with the spill.
We will not let any spill go unmitigated. It is the first few hours after a spill occurs that are of key importance in containing and collecting the material.
Senator Seidman: Does the cooperative own the equipment?
Mr. Han: The spill co-op owns the equipment. It is a non-profit. The board governs the association and the members pay the fees.
Senator Seidman: You also say the response is integrated with other partners such as the fire department, RCMP and ambulance services. How does the integration work?
Mr. Han: We do it in two ways. The EMOs — the ambulance, fire and RCMP — are part of our training exercise, but also the training manual, which contains the logistical requirements, that is, things like where our launch points are for boats and what the safe distance is for the fire department to stay from a fire, is written in conjunction with the emergency responders. Emergency responders are part of the spill co-op board as much as our staff are directors in the spill co-op board to ensure that there is frequent communication as well as integration of procedures.
Senator Wallace: Mr. Campbell, I understand that in 2012 the Saskatchewan provincial auditor audited the pipeline network there and, in particular, looked at the ability of the provincial government to monitor and regulate the network. What can you tell us about the conclusions that the auditor reached?
Mr. Dancsok: The auditor did come up with a number of recommendations about some improvements that could be made in our regulatory oversight. A number of the regulations were around better documentation of the approval process, better documentation around the initial inspections of the lines and the testing of those lines prior to being put into service. There were other recommendations.
Right now, the licensing process in Saskatchewan is for the major transmission lines that run across the province. However, the smaller diameter flowlines, which number in the thousands but are very short and do not carry a lot of product, are not part of our licensing process. Having said that, the CSA standards still apply to those flowlines. However, the auditor recommended that we put into legislation the authority for those smaller flowlines to also be licensed. Those are the major parts of the recommendations.
Senator Wallace: Did the auditor have anything to say about the effectiveness of spill response and the recovery rates of hydrocarbons after spills have occurred? Was there anything mentioned about that in the report?
Mr. Dancsok: I do recall the auditor wanting to ensure that a proper process for spill responses was in place. I do not recall anything about the spill sizes or that sort of thing being covered.
Mr. Han: We know through our statistics for large-diameter pipeline, the spill frequency is fairly low. However, the volume certainly could be significant because it is a large-diameter, high-pressure line. In terms of small diameters, the frequency certainly is there. I cannot say it is low. However, the volumes are very low.
In general, the recovery rate in most cases of a spill is measured very carefully on a yearly basis and then also posted on our website. The Saskatchewan recovery rate of hydrocarbons and produced fluid is fairly high. It is usually around 70 or higher percentage in terms of recovery rates.
Mr. Dancsok: What the auditor was seeking is that we have in our laws the responsibility to verify that the pipeline operators have cleaned up those contaminated sites to an acceptable level.
Senator Wallace: Mr. Campbell, I was interested in your comment, which I think we are all well aware of, that in order for Canada to reach its full potential as a world oil producer further steps have to be taken to get product to market, and that requires pipelines and perhaps other means of doing that. You referred to three critical market areas: Asia, U.S. Gulf Coast, and Eastern Canada and the eastern seaboard. I am from New Brunswick and well aware of the importance of getting Alberta crude, western crude and Saskatchewan crude to the East Coast as well. The largest refinery in the country, as you probably know, is located in Saint John and it fully accesses the export markets along the U.S. coast and into foreign markets.
What might you have to say, from a Saskatchewan perspective, about the importance of expanding the existing pipeline network and, in particular, do you have any comments about a line that could eventually extend to the East Coast of Canada?
Mr. Campbell: We certainly think that we need infrastructure going to all three places. Speaking of the line to the East Coast, there are a couple of benefits here. Right now we are seeing a fairly large discount for our oil off of the WTI price. WTI prices alone are lower than what eastern refineries are paying, so there is certainly the opportunity here for mutual benefit. We are supportive of the initiatives like TransCanada's to turn that pipeline from gas to oil. That is a good idea and a good project. We also think that just solves part of the problem.
A lot of oil will be coming on-stream in Western Canada, particularly from Alberta oil sands, so we think we need infrastructure going to the Gulf Coast. That is important because there are lots of excess oil refineries with capacity there. It is already there so that is an important project. Once you get to the Gulf Coast, then you are really linked to international markets.
As important as that is access to the West Coast as well, because the growth markets for oil really will be driven by Asia. We are seeing moderate demand to declining demand in North America. Now with U.S. projected to be self- sufficient in oil at some point, or coming close to it — I am not sure if they actually will, but they certainly will be producing a lot more themselves — access to international markets is very important and Asia is a primary one. I think we need all three.
Senator Wallace: It is interesting that you point out the importance of the U.S. Gulf Coast, of which we are well aware. There are different ways of getting to that market as well. One line could be to the East Coast of Canada and then crude could go by tanker to the U.S. Gulf Coast, in addition to the export markets. There are different ways of dealing with the situation, but it is what is in the Canadian interest and so I am pleased to hear your comments.
Mr. Campbell: Absolutely; I fully agree.
Senator Brown: I was interested in the 68,000 flowlines that you have. I would imagine those are the ones that pumpjacks bring the oil to tanks. Is that correct?
Mr. Dancsok: That is correct.
Senator Brown: The U.S. drilling rigs were from 50 or 60 years ago. Pretty much all of the rigs that drilled your wells were American rigs; is that right?
Mr. Han: Back in the 1950s and 1960s maybe, but certainly today it is Canadian rigs that drill most of our wells.
Mr. Dancsok: Canada has a fleet of 800 rigs now operating, mainly in Western Canada.
Senator Brown: I was just trying to get to the fact that people were discussing the different thickness of pipelines and whatnot. The Americans, of course, have been working in inches and fractions of inches for all of these pumpjack flow rigs that you are talking about. The difference is, I think, most Canadians have switched to millimetres. That might be the answer for the difference between the pipe flows and the thickness.
Mr. Han: I think that is extremely plausible, because we had a live example in Saskatchewan and Alberta where Alberta has a specific distance from their well to a tank at 50 metres and Saskatchewan was 45 metres for decades. When I asked the engineers who worked on it why that was so, they said that Saskatchewan actually got their calculator a couple of years before Alberta did and were able to calculate it at a lower decimal place than Alberta. That is why theirs is 45.
I think your answer might be very plausible.
Senator Brown: Yes. Thank you.
The Chair: Thank you. We will check that out.
Senator Massicotte: Thank you for being with us this morning.
We are all talking about being surprised that the thickness is different, and you say we should coordinate our efforts with the Americans. The Americans, being Americans, are pretty focused on their own needs. Why do we not simply adjust our needs to theirs? What is the consequence if we simply did that? Is it a higher cost? Why the debate? Why not just comply, period?
Mr. Han: I believe Canada's industry has features that are extremely salvageable, and not just on very technical components of the operation. We believe there is the training process and the spill co-op process, which are not just Saskatchewan specific. Alberta, B.C. and Manitoba also have comprehensive spill co-op processes that are in place.
We want to ensure that these well-developed institutions and processes are salvaged, because we do believe the pipeline operation is not just about nuts and bolts. There is a high human element. Canada has done well to ensure that the human element is adjusted in that part of the operation.
Mr. Campbell: We certainly expect that Canadian and U.S. citizens would have similar expectations around things like environmental performance and safety. I think your point is a good one in that perhaps it should not be that difficult to come up with a good standard, whether it is theirs or ours, and just apply that. I think it is something we should increasingly work towards.
Senator Patterson: I will go back to the provincial auditor's 2012 report. This may be a naive question, but the May 2012 provincial auditor's report looked at the Ministry of Energy and Resources and its abilities to assess compliance with pipeline safety legislation and regulation. You are from the Ministry of the Economy. Can you explain that, please?
Mr. Campbell: Certainly. The Government of Saskatchewan did a reorganization in May 2012. One of the creations was a new ministry called the Ministry of the Economy, and it brought in the entire former Ministry of Energy and Resources; the economic agency of government, which was called Enterprise Saskatchewan; and the labour market components from advanced education to create a new, large ministry. The idea was that resource sector seems to be driving a lot of the growth in Saskatchewan, so ensuring that our economic development programs are as aligned as possible with those developments makes sense. Also, regardless of which industry sector you talk to, access to labour and qualified labour is the number one impediment to further growth and development in Saskatchewan. The idea is that bringing these three things together will really help facilitate further growth in Saskatchewan.
Within the Ministry of Energy and Resources, we have two primary divisions: We have the Petroleum and Natural Gas Division and the Mining, Lands and Resource Policy Division. Those divisions moved from the Ministry of Energy and Resources to new divisions within the Ministry of the Economy, largely untouched.
Senator Patterson: That explains that. Thank you.
With regard to the provincial auditor's report, which my colleague Senator Wallace asked you about, there were a number of recommendations. I am wondering if the government has responded to those recommendations — I would assume in a written form — and if those could be shared with the committee.
Mr. Campbell: Yes, certainly we can do that.
We did provide an initial response to the letter. We have done a number of things to comply with the recommendations. There are still some we are considering and assessing. One example is the licensing of flowlines, specifically. Responsibility for flowlines does fall under our legislation and regulations. The question for us is: What is a way to properly license those and monitor and enforce that?
Some of the more complex recommendations we are still working through exactly what we will do in response, but a number of them we have responded to.
We will be able to provide that information to you.
Senator Patterson: This is a bit of a technical question. I understand that The Pipeline Regulations, 2000 require an emergency response manual. However, neither it nor The Pipelines Act, 1998 appear to mandate that operators prepare emergency response plans or spill response plans.
I am just wondering, either this morning or later, if you could tell us whether there is a difference between an emergency response manual and an emergency response plan. Also, how do you verify and ensure compliance with those requirements?
Mr. Han: There is no difference between an emergency response plan and an emergency response manual. They were just two different terms that were used because The Pipeline Act was written so much earlier. Since then, the commonly used term is ``emergency response plan.'' However, they both mean the same thing.
We actually require the companies to submit their emergency response plan. They submit a corporate plan for the entire company. Inside the corporate plan, they break it into areas that they operate in. Then they deal with the details of how they deal with pipeline spills, well spills, blowouts or whatever the case. That is registered with us in a written form as a binder. Some companies use a digital media, also, and they will send us a CD.
Those forms are registered in two places: one in the head office and the other at the field office, because it is the field office that usually responds to the emergency and they want to ensure that plan is available at their offices.
The Chair: I wonder if I could ask a couple of questions, please, before we go to second round.
How much of the oil that you produce in Saskatchewan is moved by rail as compared to pipeline?
Mr. Dancsok: That number is changing and actually growing. Every month we check. The last time we checked, the statistics were for December 2012. At that time about 12 per cent of Saskatchewan oil was moving by rail, which represents about 53,000 barrels per day. That is out of the total of around 470,000 barrels a day.
The Chair: Is that oil down in the southeast or southwest part of Saskatchewan, and would it be going to the American markets?
Mr. Dancsok: Surprisingly, there is more than just the southeast moving oil by rail. Some of our heavy oil areas now have rail-loading facilities, such as in the west-central part of the province. I think there are in the order of nine or 10 rail- loading facilities now established in the province, both in the southeast, as well as the west-central part of the province where there is heavy oil. All of that oil would be moving south into the United States, though.
The Chair: The major market for your oil, whether it moves by rail or by pipe, goes into the U.S., does it, or does it go to a refinery someplace else within Canada?
Mr. Dancsok: Sixty-five to 70 per cent of our oil is exported to the United States, and the rest is used within Saskatchewan.
The Chair: When we met with the National Energy Board, they said they keep a record of incidents as it relates to anything to do with pipeline breaks, leaks or incidents of all kinds. Does Saskatchewan keep that also?
Mr. Han: Yes, we do. We also make it available publicly on the website, so that the public can see how many incidents occur and what the causes are.
The Chair: Our staff can go to the website and get that for us, and that will maybe answer some of my questions. Thank you.
With that, I will defer to Senator Mitchell to start the second round.
Senator Mitchell: Mr. Campbell, you said something that is kind of haunting and that is that the U.S. could be self- sufficient in oil. We have kind of accepted that they will be in gas, and we are starting to hear that they may be in oil. That is problematic for Western Canadian economies; ergo, it is problematic for the Canadian economy — desperately problematic.
When you are talking about exports to the U.S. in that context, what are your projections for pipeline or other transportation capacity needs — infrastructure — to get your product to the U.S.?
Second, that still causes the problem that we have in Alberta — I am from Alberta — which is the price differential, because you have to get it offshore. What are your expectations for a west or east pipeline for your oil? How will you factor that into capacity requirements?
Mr. Campbell: In terms of U.S. oil self-sufficiency, one of the studies I referred to was an IEA study. It projected out to 2050. There is a lot of uncertainty around that. North American self-sufficiency is probably a lot more likely. If we get access to the Gulf Coast, it really becomes access to international markets. There is a lot of refining capacity on the coast there and, if our product gets to the Gulf Coast, it is not necessarily going to be for U.S. markets. It may get exported from there. Similarly, the point was made earlier that if we get it to the East Coast of Canada that may also go down by tanker to the Gulf Coast.
I think the most important thing for us is getting access to the coasts, and we think we need all three, given the volume of production that will be coming on with Alberta oil sands in particular. I think the two proposed pipelines to the West Coast, both Northern Gateway and Trans Mountain, are very important, as well as Keystone XL and the eastern access. When you look at the amount of production that will be coming on, I think we really need all three to solve that differential problem. The differential problem will be there for a while, because it will take some time for these pipelines to get approved, should they get approved.
Mr. Dancsok: The differential is always going to be there because of the quality of crude, of course. Even before there were market access issues years ago, there was always a known differential based on the quality of that crude and the sulphur content, et cetera. That differential will always remain.
Mr. Campbell: It has just grown larger. That is the big issue.
Senator Mitchell: I always thought Canadian crude was the best crude in the world. It is clear the world does not appreciate that probably.
Earlier on, the point was made that you have this liability fund, I think — I may have missed the detail of it and I would like to pursue it a bit — and that as the assets are diminished below the perceived liability or the projected liability, then you would fill it up again. Could you talk about how that compares to your knowledge of regimes in other provinces, and what are the limits of the liability? I know the U.S. has much higher liability limits generally than Canada, at least I think that is the case, and how does that compare in the Saskatchewan experience?
Mr. Han: The Saskatchewan program is identical to the Alberta program, and very similar to the B.C. program. We are almost word for word exactly the same as Alberta for our program. In terms of our liability tolerance, it is 1:1, so the asset to liability has to be 1:1. When you divide the two factors, if it is below 1, then we automatically ask for a security deposit.
Senator Lang: I would like to pursue a little bit further, if I could, the question of the resource in Saskatchewan and the future of that resource. With the discovery of the Bakken resource that goes into Saskatchewan, what are your projections in respect to the future resource, the size of that resource, and the volumes that you will be looking at transporting one way or the other in order to take advantage of the discovery that you have there?
Mr. Dancsok: The Bakken resource in Saskatchewan has been known for a long time and known to be an immense amount of oil in place. How much is recoverable is at question, of course. It is considered a tight oil reservoir, meaning that horizontal wells, combined with hydraulic fracturing, is required to release the oil from those rocks. Even with that, the recovery rate from that immense resource will probably be in the 5 to 10 per cent recovery rate. What we have seen in Saskatchewan in the past, say, eight years is a growth in that Bakken resource production-wise from 1,000 barrels a day in 2004 up to over 70,000 barrels a day in 2012. It has grown quite quickly. However, it has tailed off in the last couple of years to a more measured rate of growth.
What we see in the growth rate for the next five years or so — and I do not think we want to try to project beyond that — is in the order of a continued growth of about 5 to 10 per cent per year, which in real terms basically replaces the decline that other wells in the province are experiencing. Overall for the province, we see a fairly measured rate of growth of production and 2012 was a record production year in Saskatchewan. We expect that growth to continue, but at a fairly measured rate.
Senator Wallace: Mr. Campbell, I want to make a comment on something that Senator Mitchell just said. I think he said it partly in jest, but I am not sure. The comments were made around the quality differential between WTI and western crude, and since there is a difference in quality, there will always be a differential in price. I think he said somewhat jokingly that he thought Canadian crude is the best in the world, but maybe it is not because of this quality differential. To put that in context, and I am sure you could explain this, the quality differential arises because, as each crude is assessed in its ability to be converted into refined petroleum product — that is the ultimate value to producers — and because of that, to varying degrees, crudes will produce varying amounts of more valuable product, namely gasoline, the lighter product. That is where the differential comes in and that is what it is all about.
Could you explain that for our viewers, and for the sake of committee members as well, to understand why that quality differential exists?
Mr. Dancsok: I will give it a try. The majority of oil coming out of Western Canada is heavy oil, or the product of bitumen, so when refiners take that stream of crude, as you said, they cannot convert that crude. It is heavy because it does not contain the lighter ends of hydrocarbons in it and, therefore, when it goes through the refining process, the more valuable products that can come out of that process are not available to the refinery. Therefore, they would pay a lower price for that oil.
The lighter oil, on the other side, would contain those lighter-end hydrocarbons, including petrochemical feedstocks, which would be of more value in the refining process and which the refiners can then take the benefit of in the product that they produce and would be willing to pay a higher price for that oil.
Senator Wallace: You would agree, though, even when you are referring to the heavier, western crudes, I thought you were leaving the impression they could not be converted to gasoline or to the more valuable refined products. My understanding is they can; it is just that refineries would need to have sophisticated hardware to do that, which results in more cost and, as a result, refiners want that reflected in the price they would pay. It is not that Canadian crude cannot produce the more valuable refined products. It certainly can.
Mr. Dancsok: Certainly not. That is correct.
Senator Wallace: I just wanted to make sure there was no misunderstanding of that.
The Chair: Thank you very much for all the questions, and thank you, gentlemen, for your presentation and your answers. I think we got some very valuable information from you.
Happy Valentine's Day in Saskatchewan and I just remind you to phone your wife or do whatever you have to do. Have a good day. Thank you.
It is my pleasure to introduce our witnesses from the Energy Resources Conservation Board coming to us via video conference. We have Cal Hill, Acting Chief Operating Officer; Tom Pesta, Senior Advisor, Technical Operations; and Mark Miller, Acting Field Operations Manager.
After your opening remarks, we will go to questions and answers.
Cal Hill, Acting Chief Operating Officer, Energy Resources Conservation Board: Thank you for inviting the Energy Resources Conservation Board, which I will refer to as the ERCB, to appear before this Senate committee and to contribute to this important process.
Alberta produces about 816 million barrels of oil and 4 trillion cubic feet of natural gas each year, almost 80 per cent of Canada's total production. What is not consumed in Alberta is shipped across North America through a vast continental pipeline network.
As you are aware, Canada's pipeline network extends over 700,000 kilometres. While those pipelines crossing provincial or international boundaries, such as the proposed Keystone XL pipeline or the Northern Gateway pipeline, are regulated by the National Energy Board, more than half of that network, slightly more than 400,000 kilometres, operate solely within Alberta's boundaries. These pipelines carry virtually all of Alberta's produced oil and gas to market and are regulated by the ERCB. Alberta's pipelines are mostly 168-millimetre, or 6-inch, outside diameter pipelines and transport raw product from the well to a central facility and then to a central delivery point. These are commonly referred to as gathering lines.
The ERCB is Alberta's primary energy regulator. For 75 years, we have been committed to our mission to ensure that the discovery, development and delivery of Alberta's energy resources occur in a fair and responsible manner that takes into account public safety, environmental protection and resource conservation.
As we discuss the safe transportation of hydrocarbons in Canada, and specifically Alberta's experience regulating pipelines within its borders, I will provide you with an overview of how the ERCB regulates Alberta's pipelines to ensure they operate safely and within all regulatory requirements.
From initial application and approval to safety and environmental standards, from inspection and monitoring activities to emergency response, the ERCB has effective processes and strict regulations in place that ensure pipelines remain a safe method of moving Alberta's oil and gas to markets.
The ERCB works with the oil and gas and pipeline industry to continually improve pipeline safety and reliability. Alberta's pipeline failure rate was 1.5 per 1,000 kilometres of pipeline in both 2010 and 2011, which was down from 1.7 in 2009, even though some 20,000 kilometres of pipeline were added.
In describing incidents, it is important to understand that the ERCB requires pipeline operators to report all pipeline incidents, including breaks, test failures and external contact to the pipeline, regardless of whether there is an actual leak. Pipeline operators are required to contact the ERCB immediately by telephone should an incident occur. Failure to do so can result in ERCB enforcement action being taken against the company.
The ERCB must review and approve a pipeline company's application for a licence for all new construction. Obtaining a licence to construct and operate a pipeline in Alberta is contingent upon a company's ability to meet specific technical requirements found in Alberta's Pipeline Act and regulations. It is the ERCB's role to evaluate a company's compliance with these requirements prior to and following the commencement of pipeline operations.
Additionally, our regulations incorporate the standards of the Canadian Standards Association, or the CSA. The CSA Z662 Oil and Gas Pipeline Systems standard sets out the technical standards for the design, construction, operation and maintenance of most of Canada's oil and gas pipelines, and are the mandatory starting point for pipelines in Alberta. CSA standards are widely regarded. In pipeline coatings, for instance, CSA standards are considered to be world leading and have been adapted as international standards. The ERCB actively participants in the development of CSA standards. Tom Pesta led the ERCB's participation for many years.
An important part of the ERCB's application process is the requirement for companies to involve and consult with landowners and other stakeholders prior to submitting a formal application. This mandatory step ensures that parties have an opportunity for meaningful participation in the pipeline application process and to ensure any outstanding concerns are effectively addressed.
The consultation process is extensive and companies must demonstrate to the ERCB that every effort has been made to address outstanding stakeholder concerns. In situations where unresolved issues or conflicts exist, the ERCB offers mediation through our appropriate dispute resolution program. If concerns still remain unresolved, the ERCB may hold a formal public hearing.
Pipeline applications undergo a comprehensive and rigorous review. It can take several days for routine applications with no objections, usually relatively short pipeline segments, and several months or longer for pipeline applications with technical and public involvement issues before approval is granted. The onus is always on the company to demonstrate it can meet and maintain the ERCB's strict technical, safety and environmental standards before construction can begin.
When pipelines pass through sensitive areas, operators must adhere to additional requirements, including reducing operating pressure, using thicker-walled pipeline, pipe being buried at greater depths and increased ERCB inspections and surveillance.
When in operation, the ERCB requires companies to remain in compliance with a variety of regulations that protect public safety and the environment. Our inspectors regularly inspect energy facilities, including pipelines, across the province to ensure companies adhere to all regulations.
The ERCB conducts proactive random inspections and uses a proactive system of inspections based on a prioritization system called OSI. The OSI system takes into account a variety of factors that help us determine how frequently we inspect a particular facility.
``O'' stands for the operator's history — the company's history of complying with ERCB regulations. If an operator has a poor track record, we will inspect its facilities with a greater frequency. ``S'' represents site sensitivity. This is where we take into account the location of the facility. If it is located near a heavily-populated area or a wetland, for example, it becomes an inspection priority. Finally, ``I'' refers to inherent risk, where we consider the nature of the resource being extracted or transported. For example, high vapour pressure fluids, such as propane or ethane, would warrant more frequent inspections.
While the OSI system is an effective way of prioritizing inspections, our inspectors routinely conduct proactive random inspections to ensure we monitor a variety of facilities. If companies fail to comply with the ERCB regulations, the ERCB works diligently to ensure that any non-compliance is immediately corrected. If the infraction is found to be a risk to public safety or the environment, the ERCB has the legislated authority to immediately stop pipeline operations until the problem is corrected.
If necessary, a detailed enforcement protocol can be enacted. This can lead to restrictions on operations and future development. In these situations, the ERCB may prohibit the pipelines from operating until all problems have been corrected.
In 2011, the ERCB conducted more than 1,450 pipeline inspections.
The ERCB requires companies to develop and implement integrity management programs to identify, manage, monitor and address any potential hazard associated with each individual pipeline. The companies must have management systems to design, construct, operate and maintain pipelines. The ERCB is currently developing an assurance program to assess these various management systems.
Companies must consider all safety and operational aspects of pipeline operations, from the type of product being moved to the pipeline routing. Regional weather patterns and surface development also factor in. Pipeline companies are required to have extensive maintenance and repair programs, and operate leak detection systems to monitor pipeline integrity.
Our requirements spell out that all pipelines must be designed to address the nature of the product they carry. We also require companies to carefully monitor their pipelines through testing and inspections to ensure the integrity of the lines is maintained.
With regard to the issue of transporting diluted bitumen, commonly referred to as dilbit, based on our extensive operating experience in Alberta, no evidence has emerged to indicate diluted bitumen is any more corrosive than crude oil, which is not a corrosive product.
If a pipeline failure does occur, the ERCB ensures that companies are prepared to respond. The ERCB's Directive 71 requires companies to have in place comprehensive emergency response plans, or ERPs.
Additionally, ERCB regulations require all pipeline companies to belong to an oil spill co-op in each geographic area through which their pipeline is routed. Oil spill co-ops provide immediate emergency response capabilities in all areas of Alberta through the provision of specialized equipment, infrastructure and personnel, should a release occur. Funding for spill co-ops comes entirely from industry and is administered through Western Canadian Spill Services.
Emergency response plays a significant role in pipeline planning, as the prompt coordination of emergency responders and resources is critical to limit damage to property or the environment. Emergency response plans define the actions a company will take should a failure occur. This includes identifying the detailed roles and responsibilities of all responders and how the company will work with appropriate local and provincial government agencies.
The ERCB requires operators to train emergency response personnel and regularly test their emergency response plans through major live exercises as well as tabletop simulations. The ERCB's participation in and awareness of these exercises allow us to assess the knowledge and capability of a pipeline operator to respond should an incident occur.
In situations where an operator is unable or unwilling to take the necessary actions during an incident, the ERCB has the authority and expertise to do so. If a company is incapable of implementing its emergency response plan, the ERCB can deny a licence application, shut in facilities or suspend licenses until the company demonstrates otherwise.
It should be noted that while our regulatory requirements for pipelines are stringent, occasionally unusual circumstances arise that result in a particularly large release. As with any pipeline failure, in these rare cases we thoroughly investigate the incident, learn from what occurred and, if need be, enhance our regulations when appropriate.
If oil or liquids are released during an incident, the ERCB requires the company to properly dispose of the waste. Oftentimes companies will recoup as much product as possible and ship it to market. That which cannot be recouped must be disposed of at an approved disposal facility. Alberta Environment and Sustainable Resource Development is responsible to ensure that adequate spill cleanup and remediation takes place.
We believe that Alberta has an effective regulatory regime in place to ensure that oil and gas development occurs safely and in the public interest, and this includes pipelines. Having said this, last summer the Honourable Ken Hughes, Minister of Energy, announced that the ERCB would contract an independent third-party to review specific elements of Alberta's pipeline system. Part of this review compared Alberta's regulatory system with that of several jurisdictions from across Canada and around the world. This review is now complete and when released by the minister, we will undertake to ensure that this committee receives the final report.
In conclusion, pipelines play an important role in moving Alberta's hydrocarbon resources from the wellhead to markets across Canada and beyond. As the province's primary energy regulator, the ERCB continues to uphold its 75- year regulatory history by ensuring that Alberta's extensive pipeline network operates safely and in the public interest, through a robust regulatory framework that includes a comprehensive application process; strict requirements around the design, construction, operation and maintenance of pipelines; rigorous inspection procedures that prioritize pipelines with higher-risk profiles; and, finally, stringent requirements that make certain pipeline operators are prepared to effectively respond to emergency situations.
All of this is accomplished through the work of our technical staff. Their efforts ensure that public safety and environmental stewardship are maintained in all areas of energy-related development, including pipelines.
Thank you for your attention. We look forward to answering any of your questions. Fortunately, I have strong technical folks here to assist me with the questions and I will defer many questions to them.
The Chair: Thank you very much, Mr. Hill, for that great presentation. We will begin our questions.
Senator Mitchell: Thank you, gentlemen. My first question concerns the monitoring of the spills planning and the safety planning process. You have laid it out very well in your presentation, but I just wondered if you could dig down a little deeper in that respect. How often would you audit or consult with a company about their plans? I know you have the live exercises. How often would you do that with companies? Do you it do it with every company, or does it happen on a random sampling basis? How do you do that?
Mark Miller, Acting Field Operations Manager, Energy Resources Conservation Board: Most of the exercises that the ERCB attends or audits — or witnesses, for that matter — are done through a random selection process. It is probably more based on the experience of the staff within that certain field centre within whose boundaries the exercise is taking place. The operators or licensees are required to notify the ERCB 30 days in advance of any of their emergency response plan exercises, and we use that information to plan accordingly.
Senator Mitchell: Are they required to do a certain number of emergency response exercises? For example, if after several years you had not heard from some company, would you begin to be concerned about that?
Mr. Miller: Absolutely. Each licensee is required to test through an emergency response exercise on an annual basis each one of their emergency response plans. Therefore, if a company has a number of emergency response plans for different operating areas within the province, they have to test each one of those emergency response plans with a live exercise, a major exercise every three years and a tabletop exercise in the years in between.
Senator Mitchell: Thank you. This question is not directly within your jurisdiction, but it certainly affects Alberta's oil, and that would be the comparison between the Gateway pipeline and the Prince Rupert possibility, which is relatively remote, apparently. Why is it that Prince Rupert seems to be a less acceptable solution to a pipeline than, say, Gateway? Are there different safety considerations? It is longer, I assume. Are there more rivers, wider rivers? What is the difference there?
Mr. Hill: We could speculate, but one thing that is a bit different in Alberta than what you have heard from Saskatchewan and others is that the ERCB is an independent regulator, or arm's-length regulator, from the government. When it comes to the strategic policy issues which would relate to access to markets and to the different offshore, those are really within the purview of our government. Our role is pretty much to ensure that whatever the policy decisions are made on — which pipelines would be allowed to go to whichever coast — that any of the operations of those pipelines is conducted in a way that protects public safety and the environment. When it gets into those strategic policy-type discussions, they are better left to our government to be able to answer.
Senator Mitchell: Okay, thank you.
Mr. Hill: I am deferring the answer.
Senator Mitchell: Yes, I got that, thanks.
Senator Johnson: Thank you, good morning. There have been a number of incidents since April 2011 that have raised the question of pipeline safety. You mentioned briefly in your report that an independent third party review of the regulatory requirements relating to pipeline safety has been undertaken and the ERCB is expected to deliver the recommendation soon, I believe at the end of March.
Could you tell us if these incidents and the resulting review of pipeline safety suggest there is a problem with the current safety culture of Canadian pipeline companies?
Mr. Hill: I will take the first attempt and then turn it over. What we have found with some of the major releases is that they are not systemic; that each root cause in each case was significantly different. From that, our perspective is, no, it does not point to a systemic failure. Each one was an individual case and had to be judged on those merits.
Tom Pesta, Senior Advisor, Technical Operations, Energy Resources Conservation Board: Mr. Hill, I think you have covered it. We believe that the incidents do not suggest that there is a trend in safety culture problems within the industry. Each incident is dealt with on a case-by-case basis. The incidents you referred to are under investigation. The investigation reports have not been completed yet and, when those investigations are completed, the information will be made available.
Mr. Hill: I was just going to mention that all the major incidents and the reports are made publicly available.
Senator Johnson: How many are being investigated now? Do you know? How many incidents are there under investigation?
Mr. Hill: We have three significant ones that we are working on and reports should be finalized within a reasonable period of time.
Mr. Miller: I would like to add that every pipeline failure in Alberta is investigated and ERCB issues a written report on the major one, which is made available to the public. However, the release and failure statistics are captured by the ERCB and are also made available to the public through various reports issued throughout the year.
Senator Johnson: Excellent. We will get a copy of that then, thank you.
Senator Ringuette: As a follow-up to Senator Johnson, you indicated that there was a review by an independent third party to review specific elements of Alberta's pipeline system. I understand that the report is on the minister's desk, but my question is, what are the specific elements that have been reviewed?
Mr. Pesta: The minister has asked us to hire a consultant to look at existing pipelines in Alberta specifically to look at the pipeline integrity requirements, the safety of pipelines near water bodies and the response to incidents.
Senator Ringuette: Okay. Thank you.
Mr. Hill: Three key areas.
Senator Ringuette: Three specific areas of concern.
Mr. Hill: Right.
Senator Ringuette: You indicated that Alberta has 50 per cent of the nation's pipeline, 400,000 kilometres. That is a lot of pipeline. Since Alberta has been regulating for 75 years, I suppose that over the last 75 years some pipelines have been abandoned.
Earlier I asked the same question of the representatives from the Government of Saskatchewan. How do you deal with that? How many kilometres of pipeline were abandoned? I think we have to deal with the entire life cycle of a pipeline to ensure that regulation and a proper abandonment process is also there to secure since we are looking at many more kilometres of construction. It is rightly so that people have this concern on how we will deal with these pipelines once we do not need them.
Mr. Pesta: Let me start with putting the length of pipelines in perspective. In Alberta, we deal with the upstream gathering pipelines. About 85 per cent of the pipelines from the 400,000 kilometres are 6-inch diameter and smaller. They are fairly small pipelines. There is a different way of dealing with abandonment of those types of pipelines than in dealing with the 20-inch pipelines or larger diameter. About 17 per cent of the 400,000 kilometres has been discontinued or abandoned.
Discontinuation is a temporary suspension of operation. Abandonment is permanent suspension of operation. We have similar requirements to what you have heard from Saskatchewan. Basically, the pipelines must be cleaned and capped at each end and left in a safe condition. Then we make sure that the operator is responsible for the pipelines forever. Even though they abandon the pipeline, it does not mean their responsibility has stopped. Our regulations specifically state that if there is any need for additional action on those pipelines they will need to go back and take additional actions.
Most of the pipelines are abandoned in place. They are not removed. Again, that is because they are typically small diameter pipelines and it would cause more disturbance by removing them than by leaving them in place. We ensure they are left in a safe condition without a potential hazard to the environment.
Senator Ringuette: Would most of those abandoned pipelines be close to existing and used pipelines?
Mr. Pesta: It varies. Typically, the abandoned pipelines would be associated with situations where the well is no longer required. There could be other existing pipelines in the vicinity, but there could also be many situations where there may not be. It is associated with the need for the pipelines in relation to production from the wells and transportation of that product to a facility.
Senator Lang: I would like to go back to another area. You indicated that you are an independent body overseeing the pipelines and the installation of pipelines. My understanding is that the construction of these pipelines goes back 50 years or more, but yet at the same time, over the last 50 years, the method of construction has changed dramatically. The technology has changed dramatically. As an independent organization, do you find when you experience these ruptures or breaks that the age of the pipeline is coming into question, or is that a factor at all?
Mr. Pesta: Our review of the incidents and the integrity of the pipeline does not suggest that there is any evidence that age of the pipeline is a factor. We monitor the incidents and the main issue we need to deal with is the integrity of the pipelines. The action for repairs, maintenance and operation of the pipelines is related to continuous management, repairs and maintenance of them. If the pipelines are effectively repaired and monitored, there is no reason to believe that their integrity will be affected by age.
Senator Lang: With regard to specifications requirements, we have learned this morning that the United States requires a 72 per cent specified minimum yield strength for pipelines whereas Canada specifies 80 per cent. We learned this morning that the wall thickness of international pipelines increases upon entry into the United States. That is the situation in Saskatchewan. Is it the same situation in Alberta?
Mr. Pesta: The requirements you quote are based on Canadian standards, so the 80 per cent stress level limitation is a criterion established in the Canadian Standards Association pipelines standard. The Canadian standard originated from the American standards, and it was a 72 per cent requirement for both American and Canadian. Through experience in Canada, we have determined that it is acceptable for pipelines to be operated at a higher stress level. The Canadian standard has allowed operation at 80 per cent stress level for some time.
As you mentioned, that is typically the situation for the large-diameter transmission pipelines. The gathering pipelines would typically not be designed to that limit. They would be designed to lower stress levels.
Senator Lang: I will move to the question of rail. In Alberta, do you ship any oil by rail? If so, is your organization responsible to oversee that?
Mr. Miller: Although we regulate the upstream oil and gas industry in Alberta, we do not necessarily regulate the transportation of oil by railcar. I believe that would be the responsibility of the Transportation Safety Board. However, we are aware of rail loading facilities located throughout the province of Alberta. It is becoming more prominent and prevalent, as it is in other provinces in Western Canada.
Senator Wallace: Mr. Hill, you spoke about the oil spill co-ops that exist in Alberta and said that the companies are required to be part of these co-ops. Their function is to respond to spills.
Could you expand upon that and explain how it works? Is spill response equipment all owned by the co-ops or are the companies expected to own some of those resources? If a spill occurs, who directs the recovery operation; is it the co-op or the pipeline company whose product has been lost and whose asset is at risk? How is all of that coordinated; who is responsible?
Mr. Miller: There were a lot of questions contained in that, but I will begin. If I miss something, please ask the question again.
In Alberta, we do have an oil spill co-op system called Western Canadian Spill Services. It is a not-for-profit organization similar to what they have in Saskatchewan. In Alberta we have 26 oil spill co-ops located throughout the province, and each co-op is managed by that overall organization, Western Canadian Spill Services. There is equipment owned by the co-op that is paid for by the industry members and the various associations, and that equipment is located throughout the 26 co-ops. That equipment is available to the member companies, and it is a requirement in Alberta that all licensed companies, including pipeline companies, belong to an oil spill co-op system.
When a spill occurs, it is the licensee's responsibility to manage the control and clean-up of it. However, initial responders, who may be referred to as volunteers, from the companies operating within that co-op can assist with initial spill response activities until the responsible operator gets there with all of its resources. At that time, those volunteers or initial spill responders will step back and let the licensee take over the control and clean-up operations of that spill.
Senator Wallace: The licensees are the ones to direct the response. There must be standards in Alberta for how they are to respond, what is expected and the qualifications of the individuals who are to direct that type of response. I am also thinking in terms of the amount of equipment the co-op is to have available. Is all of that covered in regulation, or is it left to the industry to determine that as it sees fit?
Mr. Miller: Some of that is covered in regulation. We do not dictate through regulation the amount of spill response equipment that has to be available. However, in Alberta there is over $7 million of oil spill response equipment located throughout the co-ops.
We do regulate that companies maintain their own emergency response plans. I spoke to that earlier. By virtue of belonging to Western Canadian Spill Services they also have specific oil spill response plans for the various geographic areas. In the emergency response plans as well as the oil spill co-op plans the company outlines the various positions that their responders hold within a response system. In Alberta, we use the standard of incident command system, so it is structured the same in all the co-ops.
Senator Wallace: Has your organization had any experience in assessing the conversion of crude lines to natural gas use or vice versa?
Mr. Pesta: We do allow conversions of pipelines for different substances. Pipelines are currently normally licensed for a specific substance and companies do apply to make changes. Again, that would typically be with smaller-diameter pipelines. It would not be with the transmission lines that are under consideration right now. Our experience with 6- inch pipelines would probably not be directly related to the need for the large-diameter pipelines.
Senator Patterson: I have three specific questions. First, do you have different standards, regulatory performance and safety requirements for transmission pipelines and gathering lines?
Mr. Pesta: Our requirements are based on the Canadian Standards Association standards, as I mentioned before. Those standards do not distinguish between transmission lines and gathering lines. They are constant for both. Generally, there is no difference between those types of systems. However, when you get into review of pipeline right- of-ways and inspection of activity around pipeline right-of-ways, we do have additional requirements in our pipeline regulations for additional surveillance of pipelines depending on whether they are large volume transmission lines or gathering lines, and also depending on where they are located.
Senator Patterson: Speaking of the CSA standards, does the ERCB participate in updates and revisions to those standards?
Mr. Pesta: Absolutely. The CSA standards are very important to us. They make our life much easier by being able to adopt the Canadian standards. We ensure we participate in the development of those standards to share our experience in pipeline operation and also to learn from what the other operators experience in operating their pipelines.
The Canadian standards are key to regulating pipelines in Alberta. We actively participate in the main technical committees and the various subcommittees. In fact, I was the chair of the technical committee dealing with the pipeline standards for the last four years.
Senator Patterson: I asked that question of the right person, I can see. Thank you.
I have one last question. With the amount of diluted bitumen that flows in Alberta, you would be aware of the U.S. National Academy of Sciences' current study of diluted bitumen as to whether it has an increased likelihood of release compared with the pipeline transportation of other crude oils, I would imagine. I would like to know if the ERCB is aware of and, more important, participating in any way in this study, with all your experience in this area.
Mr. Pesta: The ERCB has not participated in that study. The Minister of Energy and the ministry's group have provided some input into review. However, the information and the study were based on transmission pipelines and, as the ERCB regulates pipelines within Alberta, we chose not to participate in that particular study.
Senator Patterson: I imagine you would be interested in its findings, though; would that be correct?
Mr. Pesta: Absolutely. We monitor the developments, the studies and the various reviews that have been done, and look at how they will influence how we regulate pipelines in Alberta.
Senator Seidman: There has been a recent tendency for proposals for and approvals of the re-reversals of pipelines, reversals of pipelines and even conversion of pipelines from oil to gas. Given your regulatory agency, I would like to know if that will change anything in the way ERCB gathers, interprets or assesses information with regard to the maintenance of these particular pipelines.
Mr. Pesta: The discussion about the reversal or conversion of pipeline is typically with regard to pipelines going across Canada, which are regulated by the National Energy Board, so we have no role in the regulation of those lines. We regulate pipelines that stay within Alberta boundaries. Even if the pipeline starts within Alberta and crosses the boundary, that pipeline would be regulated by the National Energy Board.
Having said that, we always monitor what happens in the review of those types of pipelines and the experience that they have. Where appropriate, we will look at how it influences the regulation of pipelines within Alberta.
Specifically, we do not regulate the pipelines that you had a question about.
Senator Seidman: As a regulatory agency, do you think these conversions or reversals will increase the level of risk? Do you see that as increasing the level of risk?
Mr. Pesta: From an Alberta perspective, when we look at the conversion of pipelines, we evaluate whether the pipeline would be feasible for the new product and we ensure that the pipeline is suitable for the new product.
The company is required to conduct an engineering assessment that looks at the differences between the two products and at the existing condition of the pipeline. Through that review, the company would propose what changes they need to make to the pipeline to make it feasible for the new product. We would review that with them to ensure that the pipeline could be operated safely.
Senator Brown: It says here in our paperwork that you did 1,450 pipeline inspections in 2011. Were those just done because you wanted to ensure there were not any problems? Certainly there would not be 1,450 leaks, would there? Is it something you do every year? How many inspections would you have done in 2012?
Mr. Miller: I can speak to that. The 2012 numbers have not been published yet, so that is why we provided 2011 numbers. I do not think they will change significantly.
With regard to your first question about the number of inspections on pipelines, some of those inspections would be the result of failures on the pipelines. We inspect and investigate all failures, and those would be recorded as either an inspection or an investigation within our tracking system.
The other inspections that were not failures would be based on our different inspection strategies. Mr. Hill referred to those in his presentation at the beginning of our session here. Those would be inspections based on our OSI system. We do a number of baseline and random inspections that are just chosen by our field inspection staff. Again, we have those reactive-type inspections that are based on complaints, incidents, failures and that sort of thing.
The total number is a combination of all of those different inspection strategies.
Senator Brown: Would there be different numbers for 2012 that are substantial? Is it less or would there be more inspections?
Mr. Miller: No. The average number of inspections does not change dramatically from year to year.
Senator Brown: These are actually mostly just to prevent things rather than wait for something to happen; right?
Mr. Miller: That would be an accurate statement.
The Chair: I have one quick question and then we will go to second round.
In your statement, you say that there are 400,000 kilometres solely operated under your jurisdiction in Alberta. Can you tell me how many kilometres the NEB regulates within Alberta's borders?
Mr. Pesta: I will give you an approximate number. It would be in the neighbourhood of about 30,000 kilometres, and those are mostly the natural gas transmission lines.
Senator Johnson: I am curious to know something. The U.S. National Academy of Sciences is engaged in a study called Pipeline Transportation of Diluted Bitumen, and it is examining whether ``transportation of diluted bitumen, dilbit, by transmission pipeline has an increased likelihood of release compared with pipeline transportation of other crude oils.''
Are you participating in this study or do you know of it?
Mr. Pesta: We know of it, but we are not participating.
Senator Johnson: What do you think of it? Do you think the study is a good idea?
Mr. Pesta: From our point of view, we feel that there is no evidence to suggest that there is an increased possibility of failures on diluted bitumen pipelines. We have operated in Alberta pipelines for almost 30 years, and that operating experience does not suggest there is any increased likelihood of failure on those types of pipelines.
Senator Johnson: They must feel there are in theirs. Is that the raison d'être for this? They must be seeing some in their country. Do you know if that is the case or not? Is that the reason for the study?
Mr. Pesta: I think they are studying the possibility. There have been some suggestions that that might be the case. However, now there have been two studies that clearly state there is no evidence to distinguish between crude oil pipelines and diluted bitumen pipelines in terms of the likelihood of corrosion failures. Therefore, it has been proven and shown that those suggestions are not accurate, and I believe the committee has heard that evidence.
The Chair: A bit further to that: The NEB has completed those studies — I think it is the NEB or the Canadian Standards Association — and actually agrees with what you say. Canada has already undertaken those types of studies and says there is no greater risk to dilbit than there is to conventional crude. Is that correct?
Mr. Pesta: There have been two studies. I do not believe the National Energy Board did that, but it was Natural Resources Canada, which is an independent research organization. One was done by Alberta Innovates, which is also an independent organization.
Senator Lang: I would like to ask you a broader question in respect to the mandate you have as an independent organization. One of the reasons we have this study is because obviously the question of safety of pipelines has come into the public domain. The Northern Gateway discussion, Kinder Morgan and other pipelines and various organizations have brought up the question of whether or not the pipelines are safe and if it is in the public interest.
At the same time, we hear and read statements being made by some of these organizations and spokespeople about the safety of pipelines. A statement is made and no one seems to correct the record if it is not true. Is it within your mandate, when you see a public debate ensuing and statements being made about your organization or the pipeline companies, that you correct the record to ensure people are aware of exactly what is being required for the installation of pipelines and the safety standards that are being administered, so that the public is aware of both sides of the question?
Mr. Hill: I will take a stab at that question. One of the things we try not to do is get involved in the public debate, whether it is good or otherwise. However, we publish statistics on the rate of incidents, the cause of those incidents. The notion is that if we can put good information out in the public that is based on science and statistics, then that should inform the public themselves whether it really is a safe way of transporting oil and gas, whether it is within Alberta or outside of Alberta. Our role is to ensure that we try to be as transparent as we can in our reporting of the nature of the kinds of incidents that occur and some good statistics so that folks can make up their own minds.
Senator Lang: I want to pursue this a little further, because it is of concern. It is one thing to have information on a website;it is another variable in respect to informing the general public of what is on that website, so that the general populous also is informed. If your organization is not taking a more proactive role on the standards and what you expect as an independent organization of the oil and gas industry, my question then would be: Who is doing that in respect to Alberta, ensuring that that information is disseminated?
Mr. Hill: Part of the role would certainly be the Canadian Energy Pipeline Association, CEPA, and others have taken a proactive role in ensuring there is good information out there that the public can get a hold of.
Again, I think our role is not so much promoting as ensuring there is good regulation within the province and that pipelines are operating safely. Our government may take a stronger role in promoting and trying to ensure that the message is getting out there. Certainly, from access to other markets, that is a position they feel strongly about. They have to ensure there is good information around pipeline safety. Others are taking on that responsibility, but, again, our role really is not so much on the promotion side or even strategic policy side. It is to ensure there are good regulations in place that ensure they can be operated safely. To that end, we provide both our government and others with statistics to be able to show them how well that is actually operating.
Mr. Pesta: I wanted to supplement one point. You asked about accurate information being provided to the public. We monitor the information that is in the media and, where there is false information presented that reflects on the ERCB, we will address that and correct the record to make sure it is correct in the public.
Senator Lang: If there is information being disseminated that is not true, by various vested interests, I believe strongly that all the organizations that are involved and knowledgeable, such as yours, should be correcting the record so that the public is fully informed. Right now the debate seems to be based on, in many cases, half-truths.
The Chair: Thank you for your presentation and your answers to some very good questions. We appreciate your time. We know it is valuable and we hope you have a good Valentine's Day.
(The committee adjourned.)