Natural Resources Canada
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NOTES FOR A SPEECH
BY
THE HONOURABLE RALPH GOODALE
MINISTER OF NATURAL RESOURCES CANADA
AND MEMBER OF PARLIAMENT FOR WASCANA

TO THE
NATURAL GAS COUNCIL

HOSTED BY THE
CANADIAN GAS ASSOCIATION

TORONTO, ONTARIO
JUNE 15, 1998

Check against delivery

Thank you and good evening everyone. To the members of the Natural Gas Council, let me extend a special welcome to Canada. Our government appreciates your interest in Canadian energy commodities, technologies and investment opportunities, and we look forward to increased business ties with the American natural gas industry.

I'd like to spend a few minutes this evening providing a perspective on Canada's energy sector and its importance to our economy. Exports are critical to that sector, and the United States is far and away our biggest trading partner — not just for natural gas, but for oil and electricity as well. I would also like to talk about how Canada is responding to the climate change challenge, and the opportunities this presents for the natural gas industry.

Canada's position as one of the world's leading industrialized nations — a member of the G-8 — has been built on the strength of our natural resource industries. Our energy, mineral and forest resources account for about 14 percent of our Gross Domestic Product, with a combined value of $95 billion. Our abundant natural resources are a key reason why the average Canadian is the "second richest person" in the world, according to a new system of wealth measurement devised by the World Bank.

To maintain those high values and to enhance them for the future, it is our ambition to be the world's "smartest" natural resources developer: the most high-tech, the most productive, the most socially responsible and the most environmentally friendly. That's the reputation to which we aspire.

For more than fifty years, oil and gas have been at the heart of our natural resources sector. More recently, we've been unlocking the energy potential of oil sands and heavy oil deposits, two of Canada's largest energy resources. And offshore on our east coast, the Hibernia and Sable Island developments are opening a major new energy frontier, with more developments yet to come.

But there's more to Canada's energy sector than oil and gas. The James Bay hydroelectric development in northern Quebec is one of the largest in the world, and an important source of power for several utilities in the U.S. northeast.

About 60 percent of the electricity produced here in Ontario comes from nuclear plants.

Canadian coal is used at home and exported to some twenty countries worldwide.

And uranium deposits in my home province of Saskatchewan have made Canada the world's leading exporter of this important energy commodity.

Our government fully recognizes the importance of the energy sector to Canada's economic well-being. It brings both direct and indirect jobs, well-paid upscale jobs, economic growth, technological sophistication and new export opportunities to hundreds of communities and thousands of Canadians. It provides the energy that drives the rest of our national economy, and it generates large public revenues for governments. That's why we support the industry with a market-oriented energy policy, strategic use of tax incentives, and membership in one of the largest and most lucrative free-trade zones in the world.

As a net exporter of every primary energy commodity, Canada is a significant player in international energy markets. We are the world's third largest producer of natural gas, the ninth largest producer of coal and the twelfth largest producer of petroleum products. We rank third among OECD [Organization for Economic Cooperation and Development] countries in producing electricity. And, as I said, we lead the world in uranium exports.

Canada exported $26.7 billion worth of energy commodities in 1996, 91 percent of it to the United States. Petroleum products as a whole led the way, followed by natural gas, electricity and coal. For each of these commodities, the U.S. represents a growing market.

For the natural gas industry in particular, the combination of free trade and market deregulation have transformed the North American market. Both our countries have deregulated natural gas prices and unbundled transmission services in ways that have promoted compatible and competitive business environments.

For Canadian gas producers, the impacts of deregulation have been tremendous. Since 1993, Canadian exports of natural gas to the U.S. have grown by more than 30 percent. Last year, 2.9 trillion cubic feet — more than half of Canada's total production of natural gas — was exported south of the border.

Canadian gas represents 98 percent of all U.S. gas imports. We supplied 13 percent of overall U.S. demand in 1997. When you look at trade at the regional level, Canadian natural gas takes on even greater importance. Last year, Canadian gas accounted for 21 percent of demand in the U.S. northeast, 23 percent in the midwest, and 50 percent in the west.

A number of indicators point to increased trade in natural gas. For example, there are excellent opportunities for natural gas as a result of the way the electricity sector is changing in the United States.

The decision by U.S. regulators to order electric utilities to open their transmission lines, combined with technology innovations, has created opportunities for new companies to compete with some of the largest utilities in the world.

The natural gas industry could be one of the major beneficiaries of this move from regulated monopolies to an open and competitive North American industry. Using natural gas in combined-cycle power generation is one of the newest and most efficient ways to produce electricity. Gas-fired generation plants can be more easily sited, are cheaper to build and can be put into service faster than any of the other alternatives. They also offer important environmental benefits. With the trend toward convergence of electric and natural gas companies in the U.S., the use of this new technology will likely gain momentum.

I'm not alone in my optimism for increased gas exports. At the request of Canadian pipeline companies, our National Energy Board has approved more than a billion cubic feet per day of new pipeline capacity to the U.S. for this fall. An additional 1.85 billion cubic feet per day has been either approved or is under consideration by regulators for service in 1999 or 2000.

With the construction of new pipeline capacity, the deregulation of electricity markets and growing competition among companies marketing a range of energy commodities and services, I believe Canada's role as a secure and reliable energy supplier to the United States will continue to grow.

Much of the revolution that is taking place in North American energy markets, particularly in the electricity sector, is being driven by new technologies. A great deal of effort and money is being focussed on finding ways to use energy more efficiently and to use less carbon-intensive sources of energy. Again, natural gas stands to emerge as a winner.

Canada is a world leader in the development of clean and efficient natural gas technologies. One of the most recent examples is the CargoCycle — the world's first cargo- carrying motorcycle powered by natural gas. This exciting new technology was developed by Next Generation Vehicle Corporation, a six-person firm in Alberta, with financial and technical support from my department.

From an environmental perspective, the CargoCycle produces at least 20 percent fewer greenhouse gas emissions than a similar gasoline-powered motorcycle. From an economic perspective, it has enormous potential in billion-dollar international markets, particularly in the crowded cities of Southeast Asia, where there are already 22 million motorcycles in use. The company is now exploring options for commercial production, which could lead to the creation of 3,000 new jobs in Canada.

Another exciting and potentially large Canadian innovation is the fuel cell technology developed by Ballard Power Systems of Vancouver, again with support from my department. This technology has recently attracted the attention of, and investment from, some of the world's largest corporations. Their 250-kilowatt prototype power plant for stationary applications uses natural gas as a feedstock. For Ballard's automotive applications, while hydrogen is currently being used as a fuel source, this technology can also use natural gas to derive its hydrogen fuel.

These technology innovations are just a couple of examples of how natural gas is factoring more and more into the world's energy future — a future that will be influenced in large part by how we all respond to the global challenge of climate change.

As you know, international momentum has been building for some time on the issue of reducing greenhouse gas emissions. The negotiation of the Kyoto Protocol last December is a strong signal that we are all about to begin a long-range, fundamental transformation of the world's energy economy. Canada, like other industrialized nations, must do its part.

Canada has agreed to what we believe are realistic and achievable targets and timetables for reducing greenhouse gas emissions. The Kyoto Protocol gives us the flexibility to achieve these targets in ways that we see fit and that allow us to stay competitive in world markets, particularly with respect to the United States. Like the U.S. government, we want to devise our own solutions to the climate change challenge.

Canada's commitment is to bring our emissions down to six percent below 1990 levels by the period between 2008 and 2012. That will mean a reduction of between twenty and twenty- five percent from the emissions level currently projected for our economy in the year 2010, under a "business-as-usual" scenario.

No one should pretend that it will be easy to reach this target. It will require a fundamental rethinking, by all Canadians, about how we use energy, and it will touch virtually every aspect of our lives. Individual consumers must be fully informed and engaged in the work.

Business and industry need to be encouraged to go further and faster with the self-initiated efforts they have already begun to take to bring down their emissions. In this connection, we are working on a system of tangible credit for early actions which we expect to have defined by early next year. This will be a step in the right direction. Our objective is to demonstrate that it will be more advantageous for the private sector to move sooner rather than later in making real progress against emissions.

We must accelerate our campaign for greater energy conservation and efficiency in all aspects of our economy. This will require an astute combination of information, promotion, incentives, regulations where appropriate, and government leadership-by-example.

On this latter score, the Government of Canada itself is a large "enterprise" and a big energy consumer. Through a combination of facilities retrofitting, better fleet management and green power procurement, we are on track to bring our overall federal government emissions down to 27 percent below 1990 levels by the year 2005. In the process, we're also beginning to save money on our federal energy bills.

As a country, we must diversify our energy sources, beyond the conventional, to foster the availability and actual use of more renewables and alternative fuels in the marketplace. More co- generation projects are also a part of this equation.

Also vital will be the successful utilization of the international flexibility tools which are included in the Kyoto Protocol:

• Emissions trading.
• Joint Implementation Projects among developed countries.
• The Clean Development Mechanism in the developing world.
• And the proper inclusion and calculation of carbon sinks.

These are not loopholes. These are sensible techniques to use available investment dollars in the most cost-effective manner to achieve emission reductions globally. In a big, diverse and energy- intensive economy like ours in Canada, some of these international tools may also have practical application domestically – as useful market-based economic instruments.

And fundamental across the board will be the pursuit of new technology — both its development and its effective deployment as rapidly as possible. Significant increments in public sector and private sector investments in research and development, science and technology will be essential.

And this is where we reach the "opportunity" side of the equation — the intersection between:

• how we use our energy resources, and
• the creative, innovative brain-power of the knowledge-based, technology-driven economy of the new millennium.

This is where we must find and foster the new businesses, the new jobs, the new economic sophistication and the new trade opportunities of the future.

I am convinced that natural gas, in combination with new technology, will have a prominent role to play. As we go about developing our full Canadian response to the climate change challenge — now and over the years to come — we intend to be open and inclusive, engaging individual Canadians, all other levels of government and vital stakeholders in the private sector — among whom, I'm pleased to say, the Canadian Gas Association is particularly innovative and pro-active.

We are also very interested in close collaboration with the United States. For example, I met recently with my U.S. counterpart to sign a Memorandum of Understanding on energy research and development. We should seek to maximize our joint opportunities on both sides of our common border. And we should do so in a manner which demonstrates that strong environmental policy and strong economic policy can be successfully combined. The two are not mutually exclusive and the public wants both.

I say again that "squaring that circle" will not be easy. But now is the time to move. As is said so frequently in describing the competitive reality brought upon us all by the accelerating revolution in Information Technology — "speed wins!"

So too, in the new energy realities of the 21st century, the greatest success will be claimed by those who are bold enough to anticipate new trends and position themselves now to get ahead of the wave. The natural gas sector is especially well suited to do so.

I thank you for your kind attention.