IS MOTHER NATURE FORCING US TO "KEEP IT IN THE GROUND"?

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Fort McMurray wildfire forces a quarter of Canada’s oil output off-line...

The Alberta wildfire that has destroyed entire neighbourhoods in Fort McMurray is taking a growing toll on the energy industry, forcing as much as a quarter of the country’s oil output off-line.

Oil sands projects, pipelines and electrical facilities around Fort McMurray have shut down and workers have been sent to safer locales.

With the inferno having expanded more than tenfold in a day, there is no estimate yet of when many of the operations can resume.

Northern Alberta’s fiery disaster, and fears of a worsening supply problem, have prompted global oil traders to bid up crude prices. U.S. benchmark West Texas intermediate rose 38 cents (U.S.) to settle at $44.70 a barrel on Friday. Prices for Canadian heavy oil also rose on tightening supplies in the affected region.

If operations can get back online relatively quickly, as was the case last year when wildfires caused outages far south of Fort McMurray – and if there is no damage to facilities – the market impact should be relatively small, said Jackie Forrest, vice-president at ARC Financial Corp.

“The thing is, we’re not certain it’s going to stay that way. It could be that this fire grows and that we actually see some damage to oil sands facilities that isn’t temporary,” Ms. Forrest said.

Estimates place the volume that companies have shut off at between 800,000 and one million barrels a day. Prices have yet to spike dramatically, largely because the outages come at a time of brimming inventories in North America. No companies are estimating when evacuated staff can return from shelters and other temporary housing around the province.

The disaster follows months of economic turmoil in the once-booming region, which had been hit hard by project cancellations and mass layoffs in the oil sands owing to the global oil-price collapse.

By Thursday, the fire had expanded by more than 10 times the size it was just 24 hours earlier. It also took a more southerly path, forcing evacuations in the Anzac area south of Fort McMurray. The day before, as Fort McMurray’s situation worsened, more than 80,000 people fled.

Suncor Energy Inc. said it had halted output at its steam-driven MacKay River and Firebag sites owing to related pipeline shutdowns. The facilities produced a combined 235,800 barrels a day in the first quarter. The company said there is no damage to the facilities. It had briefly shut down its 350,000-barrel-a day base plant.

Imperial Oil Ltd. said it had reduced staffing and production at its Kearl oil sands project by undisclosed numbers. Kearl, located well north of the city, produced an average of 194,000 barrels of bitumen a day in the first quarter. “This action was taken to conserve critical supplies as we manage uncertainties associated with inbound and outbound logistics,” the company said in a statement.

Meanwhile, Athabasca Oil Corp. shut down its Hangingstone steam-driven oil sands plant, which is south of Fort McMurray, and was in the process of evacuating workers, as fire approached within five kilometres, the company said. It had been producing about 8,000 barrels a day.

These moves followed shutdowns at ConocoPhillips’ Surmont steam-driven project, Nexen Energy’s Long Lake development, and Royal Dutch Shell PLC’s Albion sands operation, which has a capacity of 255,000 barrels a day.

There were no reports of energy facilities being damaged.

Cenovus Energy Inc. said all but essential staff had been sent away from its Christina Lake oil sands plant as a precaution, citing a high risk of wildfire in the area. The operation is more than 100 kilometres south of fires to the north, and production remained unaffected, it said.

Once the blazes are extinguished, staffing at projects is expected to become a problem, given that hundreds of homes in Fort McMurray have been destroyed, RBC Dominion Securities analyst Greg Pardy said in a research note. It will necessitate solutions such as more fly-in, fly-out labour, he said.

Canadian Natural Resources Ltd. runs the Horizon oil sands mining operation north of the city, and several steam-driven bitumen and heavy oil projects to the south. Its chief executive officer, Steve Laut, said the company’s output “remains stable.”

Numerous regional pipelines have been shut down, including those operated by Inter Pipeline Ltd. and Pembina Pipeline Corp., as oil sands facilities tapered production.

Enbridge Inc. said it shut down its Cheecham terminal and removed employees, and reduced staff at its Athabasca terminal to a minimum. As a result, related pipelines were taken off-line.

Enbridge has about 6.9 million barrels of oil storage associated with its Athabasca regional operations in Northern Alberta, including about three million at its Athabasca Terminal and about 2.3 million at its Cheecham, according to the company’s website.


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