Oilsands production throttled back as Fort McMurray burns

TORONTO (miningweekly.com) – Oil and gas companies operating in Canada's oil sands capital of Fort McMurray have scaled back their operations in the face of an exteme wildfire hazard advisory issued by the Alberta Department of Agriculture and Forestry.

Major oil sands producer Suncor Energy announced late on Tuesday that it would lower regional output, while Shell Canada had also shut down production at its 255 000 bl/d Albion Sands mining operations.

The magnitude or potential duration of these cuts were unclear.

Although Suncor's operations, which are 25 km north of Fort McMurray, were not in immediate danger as a result of the wildfires raging in Alberta, a spokesperson confirmed that the company's operations were operating at reduced rates, but told Mining Weekly Online that it was still too early to determine the impact on production.

Fires in the regional municipality of Wood Buffalo had caused substantial residential damage, nearly destroying entire neighbourhoods.

Suncor had made resources available to provide transportation and accommodation to support the evacuation of neighbourhoods. “Our focus is on the safety of our employees and the community,” the company stated.

Wildfires were raging out of control elsewhere in Alberta too. According to provincial statistics Wednesday morning, in the last 24 hours there had been 12 new wildfires in the Forest Protection Area of Alberta. One was considered out of control, two were being held, six were under control and five had been extinguished. There were 31 wildfires in the Forest Protection Area of Alberta at the time.

The Alberta economy had been devastated in the past three years by plummeting crude oil prices, even as the West Texas Intermediate (WTI) traded around $44/bl on Wednesday.

OILPATCH PERFORMANCE
Northern Alberta is the largest oil producing area in Canada, while Canada is the largest foreign supplier of oil to the US.

"If over 500 000 bbl of oil are taken offline a day for a prolonged period of time, the storage cushion – which we indeed have – will be depleted. However, it is too early to say if this will happen," Auspice Capital Advisors founder and chief information officer Tim Pickering told Mining Weekly Online.

He pointed out that, despite the wildfires, the Alberta oil industry had performed "very, very well" so far this year, citing the example that since Canadian crude’s low on January 20, the Canadian Crude Index had risen $15.65, or 99%, as at April 26. In that same timeframe, WTI had rallied $16.08, or 61%.

Meanwhile, the differential to WTI had tightened, Pickering noted. Canadian oil was now trading closer to WTI by as much as $1.

He said it appeared as if the market was taking this as a bullish sign. "The market is now rallying after having initially fallen on the bearish [American Petroleum Institute] numbers that were released," Pickering stated, noting that the Energy Information Agency reported that crude inventories rose by about 2.8-million barrels in the week to April 29, overshooting expectations by roughly one-million barrels.

Pickering believed Alberta would need significant federal aid as a direct result of this wildfire, seeing as the province was out of money owing to the downturn in crude oil prices.