Keynote luncheon address I.

Introduction--James W. Spence

Speaker--Al Monaco


MR. SPENCE: Good afternoon. My name is Jamie Spence. (1) I am a partner in the Toronto office of Dickinson Wright. I have the pleasure today to introduce our keynote luncheon speaker, Mr. Al Monaco. (2) Al is President of Gas Pipelines, Green Energy & International for Enbridge, Inc. out of Calgary. His business unit is responsible for the operation and growth of Enbridge Gas Pipelines, including its gas gathering and processing operations in the United States, the Gulf Coast offshore assets, and Enbridge's investment in Alliance Factor in Osavo. AI also has responsibility for Enbridge's green power generation in North America, its energy marketing business, international business development, and investment activities.

Al earned a Master of Business Administration in Finance from the School of Business at the University of Calgary. He holds a Certified Management Accounting designation and is a member of the Society of Management Accountants of Alberta. Al recently completed the Advanced Management Program at Harvard.

Please welcome Al Monaco.


MR. MONACO: When I was asked to speak at this Conference, it literally took me about three seconds to say "yes," partly because Enbridge is an important player in the energy equation on both sides of the border. But it is also because I truly find the Canada-United States relationship to be a fascinating one. It is unique on many levels, and I really do enjoy talking and speaking with Canadians and Americans about it.

Recent developments in the Middle East and North Africa have shown the volatility of oil supply and oil prices. This reinforces that the interconnectedness of the Canada-United States energy system is really a strategic advantage to both nations. (3) That interconnectedness shows up in the facts and figures of the energy trade. There are also, I think, some clouds lurking on the horizon here which are going to challenge the relationship going forward.

Now, I was not sure about slides today because it is a keynote address but when you are talking about energy, it is always useful to show a few maps to get a picture and a feel for the continental outlook here. I would like to focus my comments on the overall energy picture in North America from a corporate perspective. You have heard a lot of different perspectives here so far which have been very interesting. What I will do is discuss the importance of energy in our economy, the criticality of the resources that flow across the border, describe our company's role in that energy flow, and what we are doing to develop infrastructure that goes to the heart of energy security and economic growth. I will then wrap up with what I believe are a few important challenges and opportunities facing Canada and the United States in terms of policymakers and our industry.

I hope the main message, though, that I leave today is one that says the future growth and sustainability of our standard of living in North America depends on the strength of the Canada-United States energy relationship and that we need to manage and nurture that relationship going forward.

I am going to take a few minutes to discuss my personal view on how Canadians see themselves day to day, and the relationship that they have with the United States. Canadians might appreciate this. We will have to see about the Americans, but this is sort of how I look at this dynamic.

Believe it or not, some Canadians feel unsure about themselves in this relationship. In contrast, nobody questions that Canadians can speak up and be counted on. At times we differ with United States' positions--witness our cross-border issues around beef, softwood lumber, and so on (4)--but we usually work through those. We sometimes feel that Canada has a very small role or a smaller role anyway on the world stage compared to the United States. But we believe strongly in our values and we think we punch well above our weight when it comes to standing up for those values, in many cases right alongside our American friend. I would venture to say that most Canadians feel that their national sport, hockey, is much more exciting than baseball, basketball, or NASCAR, but we are too polite to even say that to an American.

Interestingly, when I speak to my United States friends and colleagues, they really have trouble understanding this whole dynamic I am talking about here--an inferiority complex that seems to be part of our psyche. It might have something to do with living alongside the five-thousand pound elephant which just happens to be the world's economic and military super power. So it has got to have some psychological effect at some point. And this will be the last psychoanalysis I am going to attempt during this conversation, especially for an accountant.

When it comes to energy, though, I am contrasting now that initial view to energy. We come all the way out of the shell and we believe Canada is second to none in terms of searching for, developing, and producing energy of all forms. We have the technical skills to develop these resources, although we are smart enough to know the benefits of the free flow of talents, technology, and capital across the border. Of course, as you see in the slide here, Canada has massive energy resources that position us to become an energy super power. (5) Canada has the second largest proved reserves of crude oil at 178 billion barrels and the ultimate reserve potential is somewhere past 300 billion barrels. (6)

Now, in 2009, Canada provided ninety percent of all United States natural gas imports. (7) We also share, as you know, an integrated electricity grid and supply virtually all of each others' electricity imports. (8)

Finally, on this point, over the last decade, as Canadians we have discovered, I think, what is a newfound confidence in that our economic model actually works. On that point, our banks weathered the financial collapse very well. (9) In fact, the World Economic Forum now ranks Canada as the strongest banking system in the world. (10) The International Monetary Fund ranks Canada with the lowest debt to gross domestic product ("GDP"). (11) You can see that on the left there. (12) On the right, total employment has increased rapidly with most new jobs coming from full-time areas in high-wage industries. (13)

Canada no doubt then is in a strong position but the reality behind that is a lot of it has to do with our energy as a significant part of our economy. So that is my quick analysis on the Canadian psyche when it comes to our place in the world alongside the United States.

Energy is an important part of our economic engine, which means that the energy relationship between us is equally important. Trade between the two countries on energy totals $88 billion. (14) Canada exports two million barrels every day of crude oil to the United States and 330 billion cubic feet of natural gas monthly. (15) Right here in Ohio, the biggest import from Canada is energy at $4 billion. (16) Oil sands investments over the next decade are going to be in the order of $200 billion at least. (17) That is actually a number that came to us as we were moving through the downturn. That is estimated to generate about 300,000 jobs in the United States through spin-off benefits (18) and upwards of $30 to $40 billion in increased GDP in the United States over the next decade. (19)

Now I am going to turn to our role in the North American energy chain. I think we bring a unique continental perspective here as we are focused on both sides of the border. On the left top there, we operate the world's longest crude oil system and that puts through about two million barrels per day of crude. (20) On the right, we own Canada's largest gas utility with two million customers. (21) Bottom left, we bring natural gas and gas products to the Chicago market. (22) On the Gulf Coast, again on the bottom left, we have an extensive gathering and processing business which positions us to capitalize on the gas growth, (23) and I am going to touch on that one a little later on.

We also move about forty percent of offshore deep gas. (24) Finally, we recently added a new platform and that is on the bottom right, including wind, solar, and waste heat recovery. (25) There are environmental benefits of adding this platform, but the strategy is also driven by the need to sustain our earnings and growth in the longer term. In a way, this is a bit of a microcosm, I think, of my overall view on this in that we need to transition to green energy over time. You can see that that is a part of our strategy at Enbridge as well. (26)

Now, this slide illustrates the sheer scale and scope of our liquids pipelines business connecting the growing Canadian supply with the very important United States path to refining market in the Midwest. (27) Now, I think I counted Keystone's name about seven or eight times, or maybe more, but we already move about seventy percent of all the crude oil out of Western Canada and Canada provides twenty-one percent of all United States imports. (28) That is the most of any country. (29) That is very likely to grow because of a number of factors I will get into. In fact, the President recently reinforced the importance of security of supply and Canada's role in his recent statements. (30) I can assure you there were a lot of Canadians looking very carefully at his comments.

I want to briefly cover a project here that best exemplifies the power of the Canada-United States energy relationship. Corporately, we talk about synergies and I think that word is often used but in loose terms, to us, what it means is can you get one and one and somehow add that up to three? I think this is a good example of that. The development of the Canadian oil sands, as you know, has resulted in a significant increase in oil production. (31) Our goal was to get the product to the United States...

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