“Nation-building Infrastructure: A Roadmap to Economic Growth” – by the Honourable Jim Prentice, P.C., Q.C.

Address by the Honourable Jim Prentice, P.C., Q.C.; Senior Executive Vice President and Vice Chairman, CIBC – to the Edmonton Chamber of Commerce November 21, 2011

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Thank you and good afternoon.

I’m delighted to be here in Edmonton. I am very fond of this city. I lived here as a young man and my Bachelor of Commerce degree is from the University of Alberta, which I am proud to say has emerged as Canada’s top research university.

Over the last few months I’ve had the privilege of speaking to audiences in Halifax, Montreal, Toronto, Calgary and Boston. At each event I’ve focussed on energy infrastructure development, and the tremendous opportunity for jobs, investment and long-term wealth creation that it represents.

In fact, it would not be overstatement to say that the build out of Canada’s energy infrastructure could be the main driver of our economic growth. A report released just days ago by CIBC’s Institutional Equity Research team concluded that Canada is in the midst of an infrastructure “super cycle”. In the energy sector alone, the report listed twentyeight current and proposed projects in Canada, and the total size of the investment is close to $75 billion. A good portion of that build out will take place right here in Northern Alberta.

Clearly this estimate is based on the assumption that there’ll
be world market access for our oil and natural gas, and
North American access for our hydro. As you all know,
market access has been very much in the news lately, and
I’ll return to the subject later on in my remarks.

But first, let’s step back into history for a moment.

”Nation-building” is a term usually associated with our
country’s past. It evokes a sepia photo of men in stovepipe
hats driving in the last spike of the transcontinental railway.
In the last century, projects like the Saint Lawrence Seaway,
the TransCanada Highway, the TransCanada Pipeline, James
Bay and Churchill Falls, the oil sands, Hibernia… all put their
own stamp on Canada’s development.

These transformational infrastructure projects have a
number of common elements. They took years to build, and
created massive employment and spinoff benefits during
construction. They were financed with both public and
private sector money – and that includes the development of
the oil sands. Over the years, both government and the
private sector more than recouped their investment as the
projects became profitable and stimulated the economies of
entire regions. And each in its day was subject to intense
scrutiny and stoked public debate, as is the nature of
developments that change the fortunes of a nation.

But the era of nation-building is far from over. Canada still
has enormous untapped resource wealth, and planned
megaprojects across the country hold out the promise of
unlocking that potential and securing new markets for
Canadian energy.

In the west, there is TransCanada’s Keystone XL, Enbridge’s
Northern Gateway project and recent purchase of
ConocoPhillip’s interest in the Seaway pipeline, and Kinder
Morgan’s proposal to twin its existing Trans Mountain
pipeline through BC to move up to 700,000 barrels of
Alberta crude a day to the west coast. There are also LNG
facilities planned for the west coast, and the long-awaited
Mackenzie Valley natural gas pipeline.

And of course there is the NorthWest Upgrader, a
transformational project to be built near here in Sturgeon
County.

When fully built, this $15 billion project will be a critical step
in the maturing of our oil sands industry. When all three
construction phases are completed, the upgrader will refine
about 150,000 barrels of bitumen a day, adding significant
value to the product before it leaves the province. Phase
One alone will create jobs for 8,000 people over 2½ years.

But that’s just the beginning. Half the output from the
upgrader will be ultra-low sulphur diesel fuel, helping to
green up the operations of customers in agriculture,
transportation and other industries. The upgrading process
itself will be a world first – the first to combine gasification
technology with CCS technology to capture 1.2 million
tonnes of CO2 per project phase, or the equivalent of taking
900,000 cars off the roads. And the captured carbon, with
its high purity, can be used for enhanced oil recovery of
conventional oil. It will be sold and distributed to sites where
it is needed through the Alberta Carbon Trunk Line, before
being finally sequestered in the ground.

This megaproject adds economic value to one of our most
important resources and is a milestone on the road to
becoming a clean energy superpower.

Across Canada, a number of exciting hydro projects will add
thousands of megawatts of clean energy to the North
American power grid. From west to east, there’s the Site C
project on the Peace River in British Columbia, the
Conawapa hydro project in Northern Manitoba, the hydro
component of Quebec’s massive Plan Nord, and the Lower
Churchill River hydro project in Labrador. All told, Canada
has an estimated 25,000 MW of hydroelectricity that could
be developed over the next 25 years – hydro that will
substantially green up North America’s electricity system.
These projects will move us well along that path.

Let me put this slate of hydro projects into context.

A significant amount of electricity generation in North
America still comes from coal-burning power plants. These
plants are the single largest contributor to greenhouse gas
in North America. In Canada, they are responsible for 13
percent of total GHG emissions. In the US, the figure is more
than double – 27 percent. And so reducing the emissions of
these plants is a top priority for both countries.

The federal government, the provinces and the industry are
engaged in the final phase of a plan to shift Canada away
from coal or sequester CO2 emissions from coal-burning
plants over the next few decades. This plan is based upon
“capital stock turnover” which the industry requested when I
was the Environment Minister.

With 59% of our electricity now coming from hydro, the goal
of making Canada the world’s cleanest electricity producer is
eminently achievable. The hydro developments in the
pipeline right across the country will all move us further and
faster towards this goal.

Nation-building projects throughout history have all had
their share of controversy – and today’s projects are no
exception. And that brings us back to Keystone XL.

I know there are many Canadians who feel this most recent
delay by the US State Department calls into question the US
Administration’s commitment to free trade in energy, which
is a cornerstone of our trading relationship.

The Keystone decision is troubling. In my judgement, the
decision is a mistake even from the perspective of the
United States, which has long had a policy objective of
diversified and dependable sources of oil supply. It is,
however, a mistake which is theirs to make.

From our perspective, as a country that prided itself on
being dependable, the whole sad Keystone experience has
had a transformative effect on Canadian energy policy.
Today, no one seriously advocates that Canada should be
dependent on a single continental buyer for its oil. Even the
Americans don’t say that anymore. We have been driven –
perhaps by American politics, but driven nonetheless – into
the international marketplace.

Andrew Leach, a Business Professor at the University of
Alberta, has noted that we have enough existing pipeline
capacity for about eight years’ worth of continuing oil sands
expansion. At the same time, our energy companies have
demonstrated a remarkable dexterity in adapting to a
dynamic and shifting environment. Enbridge recently
announced that it plans to reverse the Seaway pipeline to
send oil from Cushing, Oklahoma to the Gulf Coast.
TransCanada said it can reroute Keystone XL around the
environmentally sensitive Sandhills region and Ogalala
Aquifer, and that it could even get started on the southern
leg of the pipeline.

All this would indicate that the delay on Keystone is an
issue, not a crisis.

My own view is that there are two main lessons arising from
the current turn of events.

The first is one that I’ve repeated a couple of times in
Alberta, and I can’t say that it’s been greeted with standing
ovations. But I stand by it.

I’ve said that in a low-carbon world, energy leadership and
environmental leadership are two sides of the same coin.
Canada will either be an environmental leader or have other
jurisdictions dictate our environmental policies. While the
delay on Keystone XL is not precisely an unfolding of this
prediction, it’s close enough that you can feel the backdraft.
Let me be categoric: neither industry nor the governments
of Canada or Alberta can defend themselves in the absence
of credible, science-based data that substantiates the fact
that we are protecting the environment.

As a country we have not had data of that quality. That is
why federal and provincial governments, together with
industry leaders like Hal Kvisle, are advocating more robust
monitoring systems for the oil sands. This will allow the
industry to get out in front of its critics by setting tougher
targets and benchmarks with respect to impacts on water,
air and land and by making the investments to meet those
targets and by having the data to prove success.

Alberta’s new Premier, Allison Redford, was in Toronto
recently to address the Economic Club of Canada. CIBC’s
President and CEO, Gerald McCaughey, introduced her to the
audience and I had the privilege of formally thanking her.

I would encourage everyone to read this speech for
themselves because I believe it signals an important new
direction for the Government of Alberta. But let me single
out one area that pleased me in particular – her strong
endorsement of the need for renewed effort on the
environment.

Allow me to quote a few lines from the speech:

“Environmental sustainability is our most important
shared outcome. In expanding our energy sectors, we
must avoid compromising the health, safety and
competitiveness of our agricultural, fishery and forestry
industries.

Greening our energy is also critical of global scale. More
than ever, consumers are demanding environmentally
responsible products. In refashioning Canada as an
energy leader, we must fill their requirements.’’

End of quote

Accordingly, we need to see more projects like the
NorthWest Upgrader – projects with world-leading
technology that are delivering on the promise of a
sustainable oil sands industry. The sooner we can bring
these projects with their advanced environmental
technologies to fruition, the better.

The second lesson is one that was underscored by Premier
Redford in Toronto — we need to open up new markets for
Canadian energy. As Patrick Daniel of Enbridge has been
saying, we are currently a price-taker rather than a pricemaker.
Having only one market is simply too risky for the
Canadian economy. Last year we exported $50 billion worth
of crude oil, our single most valuable export commodity, and
part of a grand total of $91 billion in energy exports. And
right now, both our crude oil and natural gas are selling at a
discount to international prices because we have essentially
one customer for our exports.

At the same time, our available global market continues to
grow. According to projections by the U.S. Energy Agency
we will see a 50% increase in consumption of marketed
energy between now and 2035 – and the largest projected
increases in demand will be from non-OECD economies.
China’s middle class is expanding so rapidly that it will soon
be larger than the population of the United States. And
incremental demand is Asian, not American.

Canada will never get full value from its oil and gas
resources until we have expanded pipeline capacity to the
west coast, until our markets are broadened and our
commercial influence expanded.

Having one customer just doesn’t cut it anymore. Unless we
diversify our energy markets, we will remain a price-taker,
and the dream of becoming an energy superpower will
remain just that – a dream.

Let’s resolve to turn that dream into reality. The opportunity
represented by planned energy megaprojects – by the
NorthWest Upgrader, Keystone XL , Northern Gateway,
Quebec’s Plan Nord, Newfoundland’s Lower Churchill – is
unprecedented in the world today. With our enormous
untapped resource wealth, Canada stands uniquely
positioned to achieve economic growth and job creation
while securing new markets for our resources. And the best
news of all is that all this development can be led by the
private sector.

I mentioned earlier a CIBC Institutional Equity Research
report that lists $75 billion in energy infrastructure projects
either in construction or pending. This is hard on the heels of
a report in September by our Economics Group that
focussed on job creation. Our economists found that, with
the recession-induced burst of government spending on
municipal infrastructure projects now winding down, energy
sector infrastructure projects will become a main channel of
investment and job creation in coming years. When you tally
up the capital investment in oil sands and pipelines, power
generation and electricity transmission and distribution, the
grand total is more than one million new jobs over 20 years.

We’re talking about more than a million jobs when they are
most needed… a network of pipelines and ports that will
diversify our oil and gas markets beyond the United States…
the greening up the North American electricity system… and
adding value to our energy exports.

These opportunities are literally staring us in the face.

In this environment, what is the appropriate role for
Canada’s federal and provincial governments?

First they should, on a case by case basis, support these
projects with innovative public policy tools. In the case of
Lower Churchill, a federal loan guarantee has been utilized
as a wise instrument of industrial policy. In the case of the
NorthWest Upgrader, the tolling arrangements and the
provincial commitment to process its own royalty share
facilitates the project.

Second, governments must continue to work on the
diplomatic front to advance our energy relationships with the
U.S. and with China, which has become a profoundly
important secondary marketplace.

On the near horizon, we need to negotiate a single North
American low carbon fuel standard for every barrel of oil
landed on our continent. We also need to lobby against
growing protectionism in the US renewables sector that
threatens to keep out Canadian hydro. Finally, we must do
everything we can to make sure Keystone XL eventually gets
a green light.

Third, governments must continue to reduce domestic
impediments. They need to expedite, streamline and
accelerate the regulatory and environmental approval
processes for mega-projects. And this includes fulfilling their
special relationship with First Nations, for whom jobs and
economic opportunities are especially important.

Nation-building is always a bet on the future. It requires
courage, commitment and vision, tempered by a clear-eyed
assessment of how the future will unfold.

Let’s resolve not to look back 20 years from now and
chastise ourselves for letting a new era of nation-building
slip from our grasp. If we are smart about this, we can
unlock Canada’s vast untapped resource potential using
private capital, strengthen and diversify our energy export
markets, create more than a million jobs, and still maintain
one of the lowest debt to GDP ratios in the world.

CIBC supports the continued build out of Canada. You might
even say it is in our blood. We’ve been in business since the
first great round of nation-building. We opened our doors in
the year of Confederation, and our bankers and branches
followed the westward path of the Canadian Pacific Railway.

Helping to finance the infrastructure that will bring jobs
today and prosperity tomorrow is our legacy and our future.

Thank you very much.

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