Grappling with fire aftermath

Oil sands producers face obstacles before resuming ‘full-scale’ operations, including repairs to power transmission, pipelines

GARY PARK

For Petroleum News

sA handful of oil sands producers have started inching back on line as the fires around Fort McMurray have been steadily snuffed out.

Others are at least two weeks from being able to even consider resuming operations and recovering lost supply of 1.2 million barrels per day of crude bitumen, nearly half the normal output.

The challenges facing the industry from the wildfires, which officially forced the evacuation of 94,000 residents, are immense, complex and costly.

Not only did the blazes destroy about 10 percent of the city, mostly involving homes, they damaged pipelines from outlying production sites and left a long list of essential services - power and water - in need of repairs before the upstream sector can return to full-scale operations.

A high-level summit of Alberta Premier Rachel Notley and oil, power and pipeline executives was hesitant about setting any timelines.

“Operations will only restart when it is absolutely safe to do so,” Notley said.

She said companies with oil sands mines north of Fort McMurray, where the majority of affected production is located, would begin operating in the “coming days and weeks.”

Notley said the only direct damage to oil sands facilities occurred south of the city, including Nexen Energy’s Long Lake project.

Steve Williams, chief executive officer of Suncor Energy, the dominant producer, said his company was working to restart production after taking about 300,000 bpd offline at three of its plants.

Shell Canada said its tentative steps to restart production will help provide fuel to firefighters, ambulances, planes and others involved in fighting a fire that is still classified as out-of-control in remote northern Alberta and Saskatchewan.

Tim McMillan, president of the Canadian Association of Petroleum Producers, said each facility faces a different set of obstacles, compounded by concerns about how the fires could affect citizens and oil sands workers if they flare up again.

Siegfried Kiefer, president of Canadian Utilities, a unit of Atco, told reporters at his company’s annual meeting that two key transmission lines - one with capacity to carry 240-kilovolts and the other 144-kilovolts - need to be repaired before all oil sands producers have the power to regain maximum operations.

However, he said work crews need to get on the ground and gain access to sites through muskeg country. For now, the downtime is costing producers an estimated C$70 million a day in lost revenues.

Jackie Forrest, vice president of research at ARC Financial, said there are “lots of fixed costs that don’t go away just by shutting in production,” including prepaid diluent costs and pipeline costs, which she said will show up in quarterly reports.

The disaster has also compounded problems for natural gas producers, who rely heavily on providing the fuel for steam-generated plants and upgrading of raw bitumen into synthetic crude.

The shutdowns of Fort McMurray-area oil sands plants have slashed gas demand by 25 percent, or 600 million to 900 million cubic feet per day, and caused a drop in price to below 50 cents a gigajoule, levels not seen in 31 years and $2.15 under sale prices of a year ago, FirstEnergy Capital reported.

That comes on top of depressed gas market during an unusually warm winter, undercutting exports to the United States that were already being eroded by a shift to the Marcellus region as a supply source for major cities.

As a result, Canadian gas in storage is at 428 billion cubic feet, close to capacity of 470 bcf, which FirstEnergy analyst Martin King said could be exhausted by the end.

Two weeks of production outages at the oil sands are estimated to add 11 bcf of gas pushed into storage.

Genscape, which follows energy data, says Alberta gas demand is now at 3.2 bcf per day, compared with 4.18 bcf per day in April.

King said gas producers are now faced with shutting in 800 million cubic feet per day of volumes during the summer.

Also suffering from the fires are producers of diluent - an oil condensate mixed with bitumen to aid pipeline transportation.

Some of those shipments have been affected by the shutdown of pipelines, notably to Statoil’s Leismer oil sands plant, Husky’s Sunrise facility and Shell’s Muskeg River and Jackpine mines.

Bitumen producers use about 400,000 bpd of diluent, just over half of which is imported from the United States, most of which moves through Enbridge’s Southern Lights pipeline and the Cochin pipeline operated by Kinder Morgan.