Canadian fire points to Alberta's infrastructure weakness: Fuel for Thought

It's been about three weeks since a wildfire broke out in the heart of Alberta's oil sands production area in the Athabasca region in Fort McMurray, and it is still raging.

Some 1,950 fire fighters, 208 helicopters, 29 air tankers and countless heavy equipment have been relentlessly fighting the "Beast" (as it has been nicknamed by firefighters), which has grown to engulf over 500,000 hectares.

The Alberta government was also successful in its Herculean task of  evacuating over 90,000 residents without a single loss of life.

The oil industry didn't fare so well as in a span of just three days, oil sands producers responded by either curtailing output or completely shutting production totaling roughly 1.03 million b/d.

The hasty pull-back raises strategic questions about the reliability of Athabasca as a growing oil production center on the world stage.

One of the questions is whether some of the shut-ins and ensuing force majeures could have been avoided as no production sites are directly impacted by the fire.

The shutting of condensate and diluted bitumen lines, crude-by-rail loaders and power, as well as a lack of storage all point to where industry and government need to focus.

"There is certainly a case for more tankage, and longer term, there is a need to manage it better," said Greg Stringham, an independent consultant and until recently a vice-president for oil sands and markets with the Canadian Association of Petroleum Producers.

"While mining facilities have adequate storage facilities on site, SAGD [steam-assisted gravity drainage] projects usually tend to use the Cheecham South terminal."

With a nameplate capacity of 1 million b/d, that terminal was one of the first few to be shut. Since it is the only major local storage option for SAGD producers, and pipelines and rail loading facilities were also shut, it was only a matter of time before production got backed up and producers had no choice but to stop output.

Gibson and Keyera have plans to build tank farms, but these are for near Hardisty and Edmonton, more than 200 miles from Fort McMurray.

Lack of storage was also a reason why certain SAGD producers turned down supplies of diluents offered by pipeline operators.

"Our Polaris pipeline was started up within a day of being shut," said Inter Pipeline's spokeswoman Breanne Feigel. "But one of our customers that operates a SAGD plant rejected diluents."

There was no need for diluent since there was no way to ship the blended dilbit.

Could lead to more automation

Pipeline operators will also need to take a closer look at their power supply and build more pump stations.

With pipelines buried more than 5 feet underground, there is little risk of them being impacted by fire. But with power lines feeding into pumping stations that were shut as a precautionary measure soon after the fire started, the pipelines need a more diverse energy source.

Yet another issue that impacted producers was the concentration of work camps near production sites.

There have been industry discussions about the relevance of operating camps and the risks associated with it. When it looked as if the fire might die down, workers were flown back to their camps. But when it didn't, they had to be flown out again.

The human factor is a major roadblock to restarting operations and there was a need for automation, Stringham said, pointing to the offshore industry, which is run by only a handful of personnel.

"We live in a region where forest fires have been on for thousands of years," said Steve Williams, CEO of Suncor Energy. "But this was an extraordinary one and we will have lessons to learn. We have been here for the past 50 years and will go on for the next 50 years."

There is a group the industry has established, Canada's Oil Sands Innovation Alliance, that works on environmental projects associated with oil sands production. But at least for now, wildfires are not part of the group's mission.

After last year's Cold Lake fire that shut-in about 230,000 b/d of crude, there was no industry reaction to the move on wildfire precautions.

While no efforts are spared by the province to spearhead oil export pipelines in all geographical directions, there is a need to prepare for the next wildfire.

"Mother nature has been our foe and not our friend," Alberta Premier Rachel Notley said while referring to the Beast.

Ironically, in late April, Notley defended her government's decision to slash Alberta's wildfire budget by C$15 million ($12 million) for fiscal 2016-2017.