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Fires near Fort McMurray have impacted Canada’s oilsands production

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Oilfield Technology,

In spite of the steady flow of evacuees returning to Fort McMurray, a state of emergency remains throughout Alberta, Canada, with oilsands production sites showing no signs of reopening. According to EIA estimates, disruptions to oil production averaged around 0.8 million bpd in Mya, with a daily peak in excess of 1.1 million bpd. It appears that projects are gradually restarting as fires subside, although it is thought that it will take weeks for production to return to previous levels, with disruptions expected to average 400 000 bpd in June.

Located mostly north of the fires, the oilsands facilities were not physically threatened by the them, however, facilities and work camps had to be evacuated in light of the threat of strong winds pushing the fires northward. Oilsands production companies operating near Fort McMurray either shut down completely or operated at reduced rates. Dangerous air quality conditions at facilities and surrounding towns have prevented a speedy return of workers despite the fires having now moved away from fort McMurray.

Local pipeline capacity was also shut down in response to the fire, which contributed to a reduction in crude oil takeaway capacity. Oilsands production yields very thick crude oil that often requires liquid diluent such as natural gas condensates to reduce viscosity so that the crude oil can flow in pipelines. Because this diluent is delivered to the production area by pipeline, the pipeline shutdowns also affected this diluent supply.

Effect on price

Thus far, the Fort McMurray fires have not significantly affected the regional crude oil price, Western Canadian Select (WCS). The price difference between WCS and the global crude oil benchmark Brent has narrowed slightly since the fires began, but WCS still remains at least $10 US/bbl less than Brent. The effect of the fire was most likely moderated by high inventories of crude oil in both the United States and Canada. Crude oil imports from Canada have fallen, but to a lesser extent compared with the oil sands production outage.

Oilsands operators use significant volumes of natural gas in their operations and for combined heat and power applications. Consequently, the oil production outages caused by the Fort McMurray fires have also led to decreased natural gas consumption and record-low Canadian natural gas prices. While Canadian spot prices rose in the early days of the fires, media reports estimated consumption of natural gas in Alberta fell by close to 25% in the immediate aftermath of the fires, and these declines in consumption pushed prices to record lows.

Sources: EIA

Adapted from a press release by Louise Mulhall

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