Frank McKenna Speech at the Saint John Board of Trade, Saint John, New Brunswick supporting Shale Gas and The Cross Canada Pipeline!!!!


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Hope Restored - A Future in Energy
Remarks to be delivered by Frank McKenna at the Saint John Board of Trade, Saint John, New Brunswick, February 11, 2013

Thank you Mr. Premier.

Thank you for the kind remarks and thank you for being here today.

There’s no place else in the country where a sitting Premier would introduce a former Premier, of a different political party, and then sit through a half hour speech.

It speaks to the character of the Premier. 

It also speaks to the magnitude of the challenges that we face. 

Incidentally, I would never speak on New Brunswick issues without first advising the Government of the day.  The Premier is aware of the opportunity that I am about to discuss and support of my intervention.

I was provoked to speak after listening to the rather apocalyptic news of the last several months.
The chronically high unemployment levels
Anaemic growth
The Finance Minister’s dire warning that this year’s deficit will hit $350million -- almost double what was forecast
Warnings that sharp tax increases are in store
Economist Constantine Passaris warning of a demographic time bomb

I believe the realization that we are facing unprecedented challenges to our survivability as a province is somewhat responsible for all three mainstream political parties supporting a west to east pipeline terminating in Saint John.

This is an extraordinary accomplishment and I applaud the political leadership in New Brunswick.  That unanimity may very well be the silver bullet needed to win this battle.

I want to build on that spirit of compromise and goodwill by connecting some dots and laying out a possible path from doom and gloom to hope and prosperity. 

The theme for this talk is taken from an anecdote about a preacher and a flood:

As the water came up to the first floor windows, some friends came by in a row boat.  “Get in” they said, “It’s going to be a bad flood”.  “Oh no”, the preacher answered.  “I’m a righteous man, I don’t need your help.  The Lord is going to save me.”

An hour or so later the water was up to the second floor windows and this time a motor boat came by.  “Get in” they said “It’s getting worse.”  “Oh no”, he said.  “I’ve kept the commandments; I’ve gone to Sunday school all my life.  I don’t need your help; the Lord is going to save me.”

Finally the preacher finds himself standing on the chimney.  The water is up to here.  A helicopter comes over, drops a rope.  The guy says “Grab the rope.”  “Oh no” he said.  “I’m a righteous man.  I don’t need your help; the Lord is going to save me.” 

Well sure enough, a few minutes later, he finds himself standing in front of Saint Peter and he’s absolutely furious:  “What happened?” 

Saint Peter said, “What do you mean what happened?  Stupid, we sent two boats and a helicopter, didn’t we?  Why didn’t you grab the rope ?!!!!”

For many years Saint John boosters have enthusiastically extolled the virtues of Saint John as an energy hub.  For a variety of reasons our fondest dreams have not borne fruit.  Quite understandably many Saint Johners are disillusioned and discouraged. 

I am here today to tell you that the dream is still alive.  It is far from a certainty but it is more than a faint hope.  For a variety of reasons Saint John and New Brunswick is at the epicentre of several developments that could bring profound changes to this community and the province. 

Throughout the last year I have spoken ad nauseam on the virtues of bringing western oil all the way to Saint John, New Brunswick both for further processing or for transhipment to other North American or world markets.  A variety of public utterances from both producers and shippers have provided credibility to the vision.  The Premier’s work with his colleagues has resulted in widespread political support for this opportunity.  The recent presence of Energy Minister Joe Oliver in Saint John, New Brunswick was encouraging and validating. 

And as mentioned the expression of unanimous political support in this province is in complete contrast to experience elsewhere. 

Should this initiative be successful it will result in over 5,700 direct construction jobs between Quebec and New Brunswick in building the pipeline alone.  Even more jobs would be created in receiving facilities and shipping movements to foreign markets.  I believe that all the stars are aligned for us to win this very significant battle.

Once this pipeline is built an even larger opportunity presents itself.  Everybody agrees that Canada should be upgrading more of its petroleum.  Adding value represents massive value for the country.  It is also well known that Alberta is a very expensive place to build upgrading facilities.  You may have noticed in the news recently that Imperial Exxon’s Kearl Project is expected to be at least $2 billion over budget.  The major reason for the dramatic overrun is from the delay in transporting modular equipment through Idaho and Montana.  Strong local resistance required Imperial to take more than 200 of the modules apart to be moved on an alternate route.

Saint John has access to tidal water transportation for even larger modules, existing infrastructure and a highly skilled labour force.  By one estimate, the cost of an upgrader in Saint John New Brunswick would be 40% less than in Alberta.  These projects require billions of dollars in investment and create as many as 5,000 jobs per year.  It may be the real pot of gold at the end of the pipeline.

When the time comes, grab the rope!

Now, I am here today to talk about another project with even greater potential for jobs and investment and even more realistic in terms of implementation.  I am going to be talking about natural gas and connecting the dots as to how oil and gas could translate into an exciting new future for Saint John and for the province as a whole. 

Now, I know how controversial some of these issues are and I deeply respect the strong diversity of views.  I want to make a few things clear before the critics even start.  Firstly, I have absolutely no vested interest in the results of any of these energy projects that I am talking about. 

Secondly, I am not impervious to the environmental and social equity arguments.  I happen to believe that climate change is real and that we should be doing something about it. 

Canada should be known and should set the new standard for responsible development – which integrates environmental and social benefits as part of the case for development of our diverse resource mix.  If we don’t do this – who will? 

And as unpopular as it is, I actually believe that we should have a carbon tax in this country to provide market based mechanisms that would give impetus to advancements in technology.

I am Deputy Chair of a bank which is considered amongst the greenest in North America.  I am the Chairman of the Board of Brookfield Asset Management which has the largest portfolio of renewable energy resources in all of North America. 

But I am also a pragmatist.  I know that fossil fuels will form the base of the global energy supply for decades to come.  I know that even with the rapid acceleration of renewable energy sources that this market will not be going away in the future. 

The only question is whether we subsidize the Americans to buy it with cheap prices or sell it elsewhere in the world and use the money for the benefit of Canadians.  The CEO of Synovis during this past week suggested that the price differential that we are currently experiencing is costing every Canadian $1,200 per year. 

So let me talk about shale gas which, I believe, will inevitably lead to a revolution environmentally, geopolitically and as an energy source.  Indeed its low price and highly desirable carbon properties will result in a displacement of other energy sources. 

This abundant new energy form in the United States is already creating an energy revolution.  Last year access to low price natural gas saved $107 billion or almost $1,000 per household.  Over 1.7 million jobs have already been created from the shale gas boom. 

A confluence of conditions put Saint John, New Brunswick in an extraordinarily advantaged position to take advantage of this unprecedented energy revolution that is sweeping the world. 

Firstly, we have an existing LNG facility that I will talk more about later. 

Secondly, we have access to existing pipeline capacity from offshore gas deposits and we are also connected to major consumer markets. 

Thirdly, we have access to an ice free deep water port that can accommodate the largest vessels in the world. 

Fourthly, we have access to world class deposits of potash. 

Fifthly, we have access to a shale gas resource that some estimate is larger than that of Alberta located within several hundred kilometres of Saint John and connected by a pipeline to Saint John.

So let’s try to connect the dots. 

You have to appreciate that we are dealing with a lot of back of the envelope estimates here but I can assure you that more than a few smart people are putting their minds to a New Brunswick scenario because it is so compelling. 

The first step revolves around the LNG Terminal in Saint John.  It is no secret that it is for sale as part of a basket of Repsol assets.  It is also common knowledge that the business case for importing liquid natural gas at present is very sketchy while, in theory, the business case for exporting natural gas is very robust.  Natural gas currently attracts approximately $3.50 per thousand cubic feet in North America with prices in Europe as high as $12 and prices in Asia as high as $17.

North America is increasingly being flooded with shale gas driving down or holding down prices while the rest of the world has not yet started exploiting this resource. 

That is why there are at least 20 LNG export proposals on the table across North America.  Undoubtedly, there will be a significant narrowing of the gap but there is still a strong business case to be made for exporting natural gas.  First mover advantage will be very important.  Saint John is uniquely positioned in this regard. 

Canaport is the only LNG import facility in Canada.  It can be reversed to become Canada’s first export LNG facility.  It already has storage tanks with 10 billion cubic feet of capacity and an offshore jetty which allows LNG vessels to dock. 

To reverse Canaport requires the construction of liquefaction trains.  This is not like a conventional train.  A train is an LNG plant’s liquefaction and purification facility.  These “trains” have a compression area and methane, ethane and propane condenser areas. 

Here are some crude estimates of the potential: 

The first liquefaction train would be capable of producing approximately 600 million cubic feet of gas annually and could be operational within four years.  A second liquefaction train could become operational several years later. 

Each train would require direct investment of about $2.5 billion creating 900 constructions jobs for four years and 80 permanent jobs.  It is not inconceivable that at least two more trains could be added in the fullness of time contributing $5 billion more in investment.  Think of the jobs.  Grab the rope!

Simultaneously, natural gas would need to be sourced for this export facility.  In the short term this would undoubtedly come from offshore Nova Scotia, more specifically, Sable Island and Deep Panuke.  In such a case a substantial investment in infrastructure would be required to move the gas to Saint John. 

The most important phase is the exploitation of New Brunswick’s indigenous shale gas reserves.  It is estimated that New Brunswick has 82 tcf of shale gas which is located less than two hundred kilometres from the coast line.  Even if less that 10% of this shale gas was exploitable it would result in 150,000 person years of work during the life of the shale gas basin. 

Producing and exporting this currently stranded shale gas can generate over $7 billion in royalty and tax revenues to the province of New Brunswick over the life of the project.

In short, reversal of the LNG facility in Canaport and the export of New Brunswick’s indigenous shale gas resources could result in the following impact in our province.
$17 billion of direct investment in New Brunswick

$4 billion of provincial tax revenue.

$3 billion of provincial royalties.

150,000 person years of new jobs.

These are direct jobs and direct revenues. Grab the rope!

There could be much more.  If we are smart we would develop an entire knowledge industry around the exploitation of these resources with additional spin off jobs in knowledge related industries. 

A recent report reveals that the University of Alberta has over 1,000 university researchers currently engaged with corporate partners to innovate and develop new technologies.  What a wonderful opportunity for New Brunswick’s knowledge sector.  Grab the rope!

By the way, New Brunswick must demand equal treatment by the Government of Canada for these revenues in the same way that the offshore resources in Newfoundland and Labrador and Nova Scotia are assessed.  These Provinces have saved billions of dollars in equalization reductions. 

It would be unconscionable if the Atlantic accord was really a Nova Scotia and Newfoundland accord.  This is a bridge we must die on. 

Finally, the cherry on the cake is the creation of new value added industries in New Brunswick.  We are closer to India than western Canada.  I recently returned from India and can vouch for the fact that there is a strong demand for natural gas. 

There is also a strong demand for products made with natural gas as a major input.  In New Brunswick’s case we have potash.  We have natural gas.  There is no reason why we cannot create an entire petrochemical sector of the economy and export value added goods rather than raw material.

This is not idle speculation.  Access to cheap natural gas is already attracting offshore companies back to the United States and I know for a fact that offshore companies are looking at Canada and, in fact, New Brunswick as a possible site for major investments based on the potential for plentiful and low price natural gas.  It will be incumbent on the province to ensure that enough of our resource is allocated to exploit these opportunities for a new entrance and our existing New Brunswick enterprises.  Again, grab the rope!

In closing, I would stress all of this is speculative.  None of this may happen.  The world energy footprint is transforming itself at a breathtaking pace.  Methane hydrates may even replace shale gas as the “new best thing”. 

However, very smart people and very smart money are currently investing billions of dollars across North America in an explosive race to be first to market to export natural gas.  There is no jurisdiction in this hemisphere better positioned at the present time to exploit this enormous potential than right here in New Brunswick.

I recognize there are some who believe that shale gas production should go ahead at all costs and others who believe it should not proceed under any circumstances. 

I believe that the vast majority of New Brunswickers are in a third camp.  This third group looks at other jurisdictions for guidance, understand there are some risks and understands the mitigants to these risks.  This group believes that a regulatory and royalty regime can be put in place that would make us globally attractive to investors but highly secure as citizens.  That is the camp that I am in.  I believe that the Premier and his government will honour their commitment to provide a regulatory and royalty regime adopting best practices from other jurisdictions with a long history of shale gas exploitation.

Opposition parties have a right and, in fact a responsibility, to scrutinize and ask questions on these important issues.  However, it is my fervent hope that at the end of the day we will be able to find a common path forward that will allow us to create an environmentally respectful and economically sustainable energy sector.  And a province that can provide badly needed social programs for its citizens and a home for its sons and daughters.

As Saint Peter said “Grab the Rope!”

Thank you.

King Skater Louis

Some King Skater stuff from my sketchbook