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Alberta wildfire could cut oil sands production by 1.1 MMbbl/d

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Alberta wildfire could cut oil sands production by 1.1 MMbbl/d

A wildfire that has devastated the oil sands hub of FortMcMurray, Alberta, has the potential to slash crude production from the regionby 1.1 million barrels per day, leading to a surge in prices for syntheticcrude oil and Canada's benchmark heavy oil blend.

Synthetic oil, which is upgraded to refinery-ready crude atoil sands sites, jumped C$2.64/bbl, to C$57.69, on May 4 as news of the wildfire,covering more than 300 square miles, began to spread. Benchmark western Canadaselect, a blend of tar-like bitumen and other oils, gained C$1.54, to C$39.85,as producers and pipelines began announcing shutdowns in one of the biggestproducing regions in North America. Most oil sands output is shipped to the U.S.

The destruction of Fort McMurray and the evacuation ofalmost 90,000 people have sapped oil sands operations of staff and turnedworker camps at the facilities into makeshift refugee shelters. More than 1,110firefighters, 22 air tankers, 145 helicopters and 138 pieces of heavy equipmentare fighting the blaze, according to the Alberta government.

"Late yesterday, the wildfire grew rapidly due to anincrease in winds," Chad Morrison, a senior official with Alberta'swildfire branch, said in a May 5 news conference. "The fire has [run] pastthe airport and our tanker base and warehouse facilities, but my understandingat this point is both those structures are still intact."

The fire was creating its own weather, including windstorms,clouds and lightning, Morrison said. Firefighters and tankers have been calledin from across the country.

Producers began shutdowns and slowdowns May 4, withSuncor Energy Inc.,Syncrude Canada Ltd.,Royal Dutch Shellplc, and Husky EnergyInc. announcing cuts. The combined output of their oil sands plantsis as much as 985,000 bbl/d. Canadian Natural Resources Ltd. said power issues couldreduce output at its Horizon oil sands plant, which had 127,000 bbl/d in March.Inter Pipeline Ltd. saidit shut the Corridor pipeline, which moves crude out of the oil sands region,and partially closed its Polaris pipeline, which hauls diluent needed forshipping into the area.

"While our operations are currently far from the fires,we have shut down production at our Shell Albian Sands mining operations so wecan focus on getting families out of the region," Shell spokesman CameronYost said in an email. "Right now, our priority is providing support forour people, their loved ones and others in the area. Our work camp, theAlbian Village, is now open to all evacuated Fort McMurray residents who need asafe place to stay, and we are evacuating non-essential staff to make room forthose who need it most."

Extremely hot, dry weather has pushed Alberta's wildfirerisk to extremes, Premier Rachel Notley said at the May 5 briefing. There are49 wildfires burning in the province and 18 new fires started May 4, she said.

The catastrophe could be Canada's most expensive naturaldisaster, with potential losses of as much as C$9 billion, Tom MacKinnon, ananalyst at BMO Capital Markets, told the Canadian Broadcasting Corp.