The Fort McMurray wildfire has hit the oil sands hard

Oil sands producers are slashing production due to the fire, and Canada’s economy is feeling the pain

A dump truck works near the Syncrude oil sands extraction facility near the city of Fort McMurray, Alberta on Sunday June 1, 2014. The furore over a New Democrat candidate's remarks about leaving a lot of Alberta's oilsands in the ground is a reflection of how poorly the issue is understood, say energy experts. (Jason Franson/CP)

(Jason Franson/CP)

The wildfires raging in Fort McMurray and the surrounding region could shave half a percentage point off May’s GDP and contribute to overall lower growth in the second quarter, according to bank economists, thanks mostly to a 40 per cent drop in production at nearby oil sands facilities. And it’s far from clear when things will get back to normal.

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This map and table show the oil sands region and how various operators have been affected by the fire and evacuation. The table was updated on Sunday, May 8.

Oil sands fire graphic

Reference number Company Project Status
1 Canadian Natural Resources Horizon normal
2 Syncrude joint venture Aurora / Mildred Lake shut down: 350,000 bbl/d, restart plan being developed, generator at Aurora started on May 10
3 Imperial Oil Kearl shut down: 194,000 bbl/d
4 Shell Canada Athabasca Oil Sands Capacity of 255,000 bbl/d, operating at reduced rate as of May 10
5 Husky Energy/BP Sunrise shut down: 60,000 bbl/d
6 Suncor Base operations shut down: 350,000 bbl/d, as of May 10 plan is to restart some Suncor facilities in 48 hours, others in 1 to 2 weeks
6 Suncor Mackay River shut down: 37,000 bbl/d "" ""
6 Suncor Firebag shut down: 200,000 bbl/d "" ""
7 Athabasca Hangingstone shut down: 8,000 bbl/d
8 Nexen (CNOOC) Long Lake shut down: 25,000 bbl/d
9 Japan Canada Oil Sands Hangingstone shut down: 10,000 bbl/d
10 Connacher Oil and Gas Great Divide operations returned to normal
11 ConocoPhillips Surmount shut down: 53,000 bbl/d
12 Statoil Leismer shut down: 20,000 bbl/d

(Source: RBC Dominion Securities, company releases, news reports)

Several major producers, including Shell Canada, Suncor, Nexen and the Syncrude joint venture, have announced precautionary shutdowns or reductions in recent days. (See graphic below.) Some said the decision was due to the need to focus on staff and other evacuees from Fort McMurray, who took up shelter in work camps well north of the city. Others saw their operations impacted by pipeline shutdowns that squeezed off supplies of flammable diluent, which are needed to thin the gooey oil sands bitumen. Still others found themselves in the path of advancing fires. Athabasca Oil Corp., for one, cited “the fire’s proximity and elevated safety risk” for its decision to shut down the company’s Hangingstone project and evacuate workers.

The combined impact of the work stoppages and slowdowns are predicted to reduce the oil sands’ output by as much as one million barrels of day, or about 40 per cent of total production, according to estimates by RBC Dominion Securities. Assuming operations are impacted for a period of two weeks, that could translate into a half percentage point reduction in May GDP growth and contribute to second-quarter GDP growth of 0.5 per cent, down from a previous estimate of 1.5 per cent, the RBC economists said. However, they noted, “the situation remains fluid and uncertainty remains about how long production disruptions will persist.”

The lowered GDP forecast takes into account the impact of the roughly 80,000 people who had to evacuate Fort McMurray, where wildfires have so far destroyed 1,600 buildings. Another estimate, by BMO Capital Markets, suggested the disaster could cost insurers as much as $9 billion if the entire town is razed, or between $2.6 billion to $4.7 billion if a quarter to half the town is impacted. Either way, that would make it the most expensive natural disaster for insurers in Canadian history.

The wildfires couldn’t have come at a worse time for Fort McMurray and the oil sands industry on which it depends. A global oversupply of oil coupled with weak economic growth outside the United States caused oil prices to plummet last year, with the price of a barrel of West Texas Intermediate, the North American crude benchmark, trading as low as US$26 earlier this year. By contrast, many oil sands operations—particularly large-scale surface mines—require average oil prices of around US$80 a barrel to make money. The price of oil is now trading around US$45 a barrel, up about US$1 over the past week—mostly because of the impact of the wildfires.

Even if the fires can be brought under control with the help of Mother Nature, it’s not known how long it will take oil sands producers to get back up and running again. Greg Pardy, an analyst at RBC, said in a note earlier this week that oil producers may have no choice but to fly homeless employees in and out of their work sites until Fort McMurray is rebuilt.


The Fort McMurray wildfire has hit the oil sands hard

  1. Although this is a terrible blow to the city of Ft. McMurray and its residents the biggest economic impact will be on the industry itself when many employees decide they have had enough of an unsustainable industry and take their insurance money and rebuild their lives elsewhere. Also, with the country getting a wake up call regarding the effects of climate change, calls to reduce our dependence on fossil fuels have already begun.

    Just as the Exxon Valdez spill resulted in $billions in economic stimulus for clean up, so too will Ft. McMurray get a boost as they rebuild their city.

  2. I know that your system of doing the much damaged oil sands and getting bitumen out which later produces gasoline is a labor intensive project, with no idea how this damages the real life of everything else. I assume you don’t have any concern for the planet, it’s needs & life in all the forms it has created some 6 billion years ago.

    When there is a superior form of energy …. Nikola Tesla was working on but he had JPMorgan to finance him, when he figured there was going to be no profit, he burned it to the ground. I hope that all people running this company had a live on SSI/SSDI. You’d see them go out of business, pronto. HHO energy is much superior than oil but as long as it’s supporters use deceptive means while polluting way above 400 ppm Carbon dio-mono oxide into our atmosphere …. there is little complaint. While protesters all over the place mass up for the shut down, it takes time. God works in mysterious ways. I feel sorry for the 80,000 people who’s lives are messed up. Maybe they’ll move to a non-polluting area.

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