Over the Hills and Far Away - Alberta's Oil Sands After the Wildfires

It will take at least a few weeks, but it seems likely that production in the Alberta oil sands will return to near normal levels, setting the stage for continued incremental growth over the next few years as expansion projects committed to when oil prices were much higher come online.  Although fires are still burning, the devastation in and around Fort McMurray, AB--the unofficial capital of the oil sands region—that forced tens of thousands of people from their homes, prompting oil sands staffing shortages, production scale-backs and a handful of temporary production shutdowns has moved beyond most oil sands operations.  But the wildfires’ chain of effects didn’t end there; at one point, crude oil output declines were estimated at upwards of 1 MMb/d (about one-third of Alberta’s normal production of 3.1 MMb/d) caused world oil prices to inch up, some refineries in the U.S. Midwest that depend on Alberta-sourced oil have been forced to scramble for replacement crude, and natural gas prices fell to near zero for a brief period. Today, we begin a two-part look at post-wildfire prospects for the region, and—looking ahead--at the possible need for more pipeline takeaway capacity.

It’s been a difficult spring for the people of Fort McMurray, AB. In recent days their lives have been up-ended by wildfires that consumed some 600,000 acres and caused the largest mass-evacuation in North America since the San Francisco earthquake more than a century ago. Entire neighborhoods burned to the ground. Fortunately, though—and despite the very dire nature of some media reports—90% of the structures in Fort McMurray are still standing, support for those left homeless is pouring in, the first steps toward rebuilding are being taken, and the area’s economy (based largely on oil sands production) is poised to begin what will hopefully be a quick recovery. As fierce and as far-reaching as the wildfires were, they didn’t cause any major damage to the oil sands production areas themselves, or to the pipelines that bring diluent in (to add to bitumen to improve its flow-ability) and crude oil out, though (as we said) some production was slowed or stopped (mostly for safety concerns and lack of staff) and some pipeline flows have been interrupted. There was some damage to the electric grid (which, unlike pipelines, is largely aboveground), but apparently not enough to slow the rebuilding of oil sands production over the coming days and weeks. Here are a few highlights from some of the public announcements from companies operating in the region:

  • Shell Canada on May 9 (2016) started ramping production back up at its 255 Mb/d Albian Sands bitumen mining operation north of Fort McMurray, which consists of the Athabasca Oil Sands Project’s (AOSP) two mines (Muskeg River and Jackpine). Shell (which operates and owns 60% of AOSP; Chevron Canada and Marathon Oil Canada own 20% each) had suspended operation of Albian Sands on May 3.

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