Major oil sands producers scale back output as Fort McMurray wildfire rages
Posted by Zig Zag
Jeff Lewis and Shawn McCarthy, The Globe and Mail, May 04, 2016
Major oil sands operators evacuated staff and curtailed production indefinitely as Fort McMurray burned, forcing the industry into emergency mode amid one of the worst disasters in Alberta’s history.
Wildfires raging in the Northern Alberta city prompted some of the biggest companies to abruptly shut nearby facilities or scale back production, while all but essential personnel were hastily moved to safety.
Royal Dutch Shell PLC on Wednesday halted output at its Muskeg River and Jackpine bitumen mines, which pump about 255,000 barrels a day.
Husky Energy Inc. said it was cutting output at its steam-driven Sunrise project, a joint venture with BP PLC, by 20,000 barrels a day to 10,000 barrels. The move was prompted by a related shutdown of a pipeline that supplies the project with bitumen-thinning diluent, spokesman Mel Duvall said.
Meanwhile, Suncor Energy Inc. said it cut output by an unspecified amount at facilities closest to the inferno. And Syncrude Canada Ltd. said its operations, including the Mildred Lake and Aurora facilities, as well as its refinery-like upgrader, were operating at reduced rates. Syncrude has capacity of 350,000 barrels a day.
There were no indications late on Wednesday of when output could return to normal levels. Company officials said affected facilities were not immediately threatened by the spreading fires, and that production was curtailed so that staff members could evacuate safely with their families.
“Our focus is on the safety of our employees and the community,” a Suncor spokesman, Paul Newmarch, said in an e-mail on Wednesday.
The cuts prompted Inter Pipeline Ltd. to shut down its regional Corridor pipeline system, which connects Shell’s mines to the company’s refinery complex near Edmonton. Inter said it also partially closed its Polaris oil sands system, though a spokeswoman said the moves were precautionary and that none of its assets had been damaged.
The fast-changing threat to Canada’s oil sands operations – which together produce more than two million barrels a day of crude – provoked only muted reaction on international markets still grappling with oversupply and spotty demand.
West Texas intermediate oil rose in early trading on Wednesday but gave up much of those gains on reports in the United States of another large weekly increase in the amount of crude in storage. The contract gained 13 cents (U.S.) to close at $43.78 a barrel.
Analyst Gene McGillian, of Tradition Energy in Stamford, Conn., said it was unclear how much production was ultimately threatened or what impact evacuations would have on companies’ ability to maintain operations.
“If we get word that they’re going to be shutting in a significant amount of production, that will support us getting back to the highs of last week,” when WTI hit $46 a barrel, he said in an interview.
However, Canadian crude prices did rise in response to an anticipated downturn in supply. Western Canadian Select – a blend of heavy conventional oil and oil sands crude – rose 80 cents a barrel, while synthetic crude, or upgraded bitumen, was up $1.05.
Amrita Sen, chief oil analyst at Energy Aspects, said she understood from industry contacts that as much as 800,000 barrels per day of production was either taken off-line or was in the process of being shut down on Wednesday.
“The situation remains fluid and further disruptions cannot be ruled out,” she wrote in a note. “These have supported WCS and Syncrude prices [on Wednesday] and we expect Canadian prices to find further support as the extent of the shut-ins becomes clearer.”
Not all companies were slowing output, however, while others had opened remote work camps to evacuees.
Canadian Natural Resources Ltd. said Wednesday that its daily operations “remain stable” and that it provided accommodation for roughly 800 Fort McMurray residents, including employees and their families.
It also said its aerodrome was being used by government officials and that some of its firefighters were in the city tackling the blaze. Shell was flying employees to Edmonton and Calgary, and had provided two fire teams to support municipal and provincial squads.
A spokeswoman for Syncrude said the company was housing nearly 2,000 workers at its camp about 30 kilometres north of the city with the intent of eventually evacuating them.
Imperial Oil Ltd. said there were no direct impacts on its Kearl bitumen mine “at this time.” However, staffing levels had been cut to essential personnel at the site, which is 70 kilometres north of the city.
A big human and economic toll
The wildfire that raged unchecked in Fort McMurray forced disruptions throughout much of Canada’s oil sands industry as major developers shut down some or all of their mining and extraction operations. Most sent away all but the most essential personnel so that Fort McMurray-based workers could evacuate with their families against a frightening backdrop of advancing flames. On Wednesday, provincial officials said at least 1,600 buildings in the city had been destroyed, including a great many houses.
Once the last embers are doused, rebuilding will begin and it could take years. Meanwhile, displacement of so many people will take a big toll on the oil industry that sustains the region, and numerous businesses that provide services to it – from welding and trucking to serving coffee and pumping gas. Manpower had already been slashed because of mass layoffs fuelled by the collapse in oil prices, so this will represent new pressure on the industry.
Companies are concentrating on dealing with the immediate crisis, including housing evacuees at their work camps, so the long-term impact on the industry’s work force is only beginning to be tallied.
“I think it’s a question mark, long-term,” said Chelsie Klassen, spokeswoman for the Canadian Association of Petroleum Producers.
Oil sands producers
- Suncor Energy Inc., whose oil sands operations are closest to the city, said its main plant 25 kilometres to the north was safe, but it was reducing crude production in the region to allow employees and families to get to safety.
- Royal Dutch Shell PLC chief financial officer Simon Henry told reporters on a conference call that one of the company’s oil sands mines was closed, and another was in the process of closing down.
- Connacher Oil and Gas Ltd. said it has cut production at its Great Divide operation, which is 80 km south of the city, to about 4,000 barrels of bitumen a day.
- Canadian Natural Resources Ltd. said it was working to ensure that any affected CNRL workers and their families could use its camps, which can hold about 800 people. It has offered its aerodrome services to government officials for firefighting efforts and some of its firefighters and equipment are in the city helping to fight the fires. “Daily operations remain stable,” it said.
- Representatives of Syncrude, owned by a consortium of companies, CNOOC Ltd. subsidiary Nexen Energy and pipeline company Enbridge Inc. all said their operations were unaffected.
- Athabasca Oil Corp., which operates a thermal plant south of the city, where the fire was located, said it has not been affected by the wildfire.
- A Cenovus Energy Inc. spokesman said its oil sands operations are not affected by the fires, and output remained steady.
- Imperial Oil Ltd.’s Kearl operation, located about 70 km north of Fort McMurray, is not seeing any direct impact “at this time,” said a spokeswoman for the company, a subsidiary of Exxon Mobil Corp. “We continue to monitor the situation closely,” she said.
- Statoil ASA said it was “being vigilant” and the company has plans in place. Its Leismer facility is about 120 km south of Fort McMurray.
- MEG Energy Corp. said its operations were not affected by the Fort McMurray fire. Its Christina Lake project is 150 km south of the city.
- TransCanada Corp. said it does not expect the wildfire to affect deliveries of natural gas. The nearest pipeline is about 18-20 km west of the current wildfire. It played down the potential for damage to equipment as its pipelines are designed to withstand a number of natural scenarios and high-pressure natural gas pipelines are buried underground. Valves can also be closed manually or from its gas control centre, if needed.
- Enbridge’s pipelines are starting shutdown procedures due to the wildfire, the Alberta government said.