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A second whammy Oil sands ‘capital’ of 88,000 evacuated; damage to city, production facilities GARY PARK For Petroleum News
Reeling from 18 months of measured production cutbacks, thousands of layoffs and tens of billions of dollars in reduced capital spending, northern Alberta’s oil sands region has been brought to its knees.
Until the start of May the enemy was global market forces.
No one was counting on an even greater force - one that has turned out to be unmanageable, verging on devastation.
After six months of negligible rain and snow falls, the area which accounts for 4 million barrels per day of Canada’s total crude output of 5 million bpd and was expected to push those volumes above 6 million bpd by mid-June, turned tinder dry.
Without warning the boreal forest ignited, fueled by strong winds, and invaded the outskirts of Fort McMurray, the operations center of the oil sands.
Some communities in the city of 88,000 were wiped out, with an estimated 1,600 homes, some small businesses and other structures destroyed, and with the airport, hospital and downtown under dire threat, authorities ordered a mandatory evacuation.
That mission, despite some harrowing moments for those driving down a tunnel of towering flames, was accomplished as residents made the five-hour trip to evacuation centers in Edmonton, and other communities.
Production offline Although none of the 14 oil sands operations - seven mines and seven in-situ plants - were hit by the wildfire, most took the precautionary measure of taking all or some of their production offline, led by the giant Syncrude Canada facility which has design capacity of about 350,000 bpd.
By the end of the fire’s first week, the cutbacks were approaching 1.3 million bpd, or more than a quarter of Canada’s total volumes, as Imperial Oil, Cenovus Energy, ConocoPhillips, Total, Suncor Energy, Royal Dutch Shell and Husky Energy joined the list of those halting oil sands activity or lowering production.
Enbridge shut down its major Cheecham terminal and reduced staff at its Athabasca terminal, affecting storage for about 6.9 million barrels.
Even before the fire hit, the Canadian government reported that almost 21,000 jobs were lost in Alberta during April as out-migration from the province far exceeded in-migration.
The insurance costs related to the disaster are already estimated at C$9 billion, exceeding Canada’s largest previous claim by five-fold.
The Royal Bank of Canada calculates that if the production outages lasted by only two weeks, half a percentage point would be shaved from Canada’s gross domestic product in May.
Long outages for services But Alberta Premier Rachel Notley and emergency officials are warning that it could take until 2017 at the earliest to restore essential water and electricity services along with damaged oil pipelines.
Some industrial transformers, large power lines and fiber-optic cables occupy swampy muskeg areas that are largely impassable in warmer weather and could take up to a year to replace because of backlogs at the manufacturers, said Jason George, a manager at Catch Engineering in Calgary.
He said that diesel powered generators might be able to operate basic facilities, but would never run industrial plants.
No one was even hazarding a guess at a timetable for restarting oil production.
Aside from that Fort McMurray city officials and councilors are quietly warning that many people under stress from the drastic downsizing of the oil sands sector may take the chance to leave the area permanently.
For those who would like to stay, they could be deterred by the fact that Fort McMurray is hundreds of miles from major supply centers which could send repair and reconstruction costs soaring to unacceptable heights.
Greg Pardy, an analyst at RBC Dominion Securities, said in a note that staffing operations could require the use of more fly-in, fly-out labor at the level of Canadian Natural Resources’ Horizon project which uses its own airport to transport 78 percent of employees to the work site.
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