Energy industry shifts focus to restarting Alberta oil output

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The oil industry's focus is shifting to restarting more than a million barrels a day of output to generate badly needed money for companies and the Alberta government as they deal with the fires that levelled much of Fort McMurray.

Estimates of how long it will take to power oil sands mines, steam-driven projects and pipelines back up vary, with the minimum being about a week, assuming little to no damage was done to crucial equipment and infrastructure. That will be inspected in the coming days.

The situation is unprecedented, with so many operations offline and thousands of workers evacuated. Alberta Premier Rachel Notley is due to meet with energy-industry leaders in Edmonton on Tuesday to discuss restart plans in the oil sands. The government had already been coping with a massive loss in royalty revenue due to the collapse in crude prices.

All of the mines, bitumen extraction plants and upgraders at Syncrude Canada Ltd. and Suncor Energy Inc.'s base operation – accounting for 700,000 barrels a day of synthetic oil capacity – have been idled.

"We've never fully shut down the plant," Syncrude spokesman Leithan Slade said. "We've never had a full evacuation, so this is unprecedented." Syncrude halted operations on the weekend when smoke from the massive wildfire reached the site, north of Fort McMurray.

On Monday, Canadian crude production fell even more, when Statoil ASA said it was shutting off its Leismer, Alta., plant, which produces about 20,000 barrels a day.

Even so, crude prices fell as the market focus turned back to oversupplies of crude and traders wagered that Canadian production could resume in a reasonable time frame. U.S. benchmark West Texas Intermediate fell $1.22 (U.S.) to settle at $43.44 a barrel.

Canadian oil prices strengthened, however, as refiners were faced with some suppliers that declared force majeure, or that they are unable to meet obligations due to events beyond their control.

Michael Tran, commodities strategist at Royal Bank of Canada in New York, said prolonged outages would have implications for U.S. Midwest refineries, which consume about two million barrels a day.

BP PLC's Whiting, Ind., refinery and Exxon Mobil Corp.'s Joliet facility near Chicago – major buyers of Canadian oil – may have to find alternative supplies once inventories dwindle, Mr. Tran said.

"It is a Canadian-dominated market in terms of imports," he said. "If we see this wildfire-induced outage play out to a longer length and they start running down inventories, then perhaps we would need to see higher imports from other countries, particularly heavy oil."

Today, though, storage sites in Hardisty, Alta.; Superior, Wis.; and Cushing, Okla., have brimmed with crude, so that is helping temper fears of shortages, said Martin King, analyst at FirstEnergy Capital Corp. U.S. inventories are at a near-record 543 million barrels.

"Also, the market is being optimistic right now and working on the view that these shutdowns may last a week or 10 days, then things will start to scale back up. Suncor has already hinted at the possiblity that they could restart operations at any time," Mr. King said.

One hurdle will be getting staff back after thousands have been evacuated both north and south of Fort McMurray, he said.

Suncor said on Sunday it was assessing related infrastructure for possible damage, and that restart depends, in part, on the availability of critical pipelines that ship supplies to market.

"We have routinely brought down assets as part of planned maintenance and safely ramped them back up within days and we believe we can do so in these circumstances," chief executive officer Steve Williams said.

The fallout from the disaster is taking an extended toll on producers, even as the direct threat from the flames recedes.

Late on Monday, Imperial Oil Ltd. said it completely shut down its Kearl bitumen mine and removed all non-essential staff from the site, which is located about 70 kilometres north of Fort McMurray. It cited uncertainties associated with "inbound and outbound logistics" for the move. Kearl produced an average of 194,000 barrels of bitumen per day in the first quarter. Production had earlier been curtailed by an undisclosed amount.

"The physical plant and other assets are unaffected by the fires. A timeline for restart will be dependent on a number of factors," the company said, without providing specifics.

By contrast, Royal Dutch Shell PLC said it had partially restarted production at its Albian sands mining operation. It said conditions, including air quality and weather, had improved at the site. The company said it will fly in staff to help resume operations in coming days and weeks. The project has capacity of 255,000 barrels per day.

Operators that have equipment idling in so-called hot mode, rather than shutting down completely as with maintenance outages, will have an easier time resuming when it is safe to do so, said Rob Bedin, director of RS Energy Group.

Large steam-driven bitumen projects, such as Husky Energy Inc.'s Sunrise development and Nexen Energy ULC's Long Lake venture, could take a few weeks to fully restart as each grouping, or pad, of wells has to come back on line individually after lines are purged, Mr. Bedin said.

Eric Newell, who retired as CEO of Syncrude 13 years ago, said that operation could take about a week to restart.

"It's all planned out," he said. "You've got to bring it on slow, you've got to warm it up and bring the temperatures up, and that takes time. And get the catalysts circulating – all these good things us old chemical engineers like to talk about. Then you bring in the feed and you bring it up slowly and it may have a few hiccups along the way."