A day after crews put out a massive fire at an Alberta oil sands operation, the blaze raised fears a months-long repair process will have a prolonged impact on the supply of Canadian crude.
Though crews managed to extinguish the fire at Canadian Natural Resources Horizon mine by 7:15 p.m. MT Thursday, the towering blaze triggered a sharp drop in the company's shares Friday as investors braced for a lengthy production halt at a plant that pumped just over 90,000 barrels per day in 2010.
But officials with CNRL said late Friday that they have already begun ordering replacement parts in hopes that the damage was less extensive than some had initially feared.
"It's better than the worst-case scenario," Peter Janson, senior vice-president of Horizon operations, said in an interview.
Investors, however, had already prepared for the worst, dropping the company's shares by $2.35, or more than 5 per cent. The price of several blends of Canadian crude rallied on supply shortage fears, even as international oil prices retreated slightly. Horizon accounts for more than 6 per cent of the Canadian oil sands' output, and 16 per cent of CNRL's daily total.
But while Mr. Janson said it's far too early to assess how long it will take to bring the plant back into operation - it could still take months - he said some early signs show promise. The fire took place in the company's upgrader, which uses extreme temperatures to transform a thick, heavy form of crude called bitumen into a lighter oil that can be refined into fuels like gasoline.
Inside the upgrader are four drums, which operate as two pairs. Although CNRL has just begun its investigation, it believes it "probably won't" have to replace any of the drums, even if there is extensive damage to some of the structures that sit on top of them.
"We know that all four were involved, and based on what we can see from the road, there's definitely one pair that's worse off than the other. But how extensive that is, we don't know," Mr. Janson said.
Because Horizon is midway through an expansion effort, it also has two new drums on-site that could be used to replace damaged equipment, he said. And it can operate at half-capacity if two of the drums can be more quickly fixed.
Mr. Janson was in Horizon's administration building Thursday afternoon when he heard what he thought was a truck running into a wall. It was, instead, an explosion that triggered a huge fire. Crews from four other oil sands operators responded to the blaze, which was extinguished nearly four hours later. Crews did not use any water, which can weaken hot metal, but instead cut off the fuel supply and let the flames die out.
The upgrader had been running at a rate of 98,000 barrels per day, which is below its design capacity and "pretty much at a sweet spot in terms of rates as well as stability," Mr. Janson said. "What we can gather at this point in time was that there would have been a leak, probably gaseous, and that would have ignited," he said.
Upgraders run at temperatures over 500 C, and a key area of interest for investigators is whether a leak developed in any of the plant's pipes, which would have allowed hot gases to escape and ignite.
CNRL, Alberta Environment, Alberta Occupational Health and Safety and the province's Energy Resources Conservation Board have each launched investigations into what went wrong.
"If we find that this incident occurred as a result of anyone's negligence, those parties will be brought before any form of repercussion … available within the legislation," Employment and Immigration Minister Thomas Lukaszuk said Friday.
Five workers were injured. Three of those were operators who were "in very close proximity" to the fire, Mr. Janson said.
His comments came after a day of frustration for analysts and investors, who complained of an absence of clear facts from CNRL, which had declined to provide any comment other than several brief news releases, and refused to answer basic questions about its Horizon operation. After markets closed, however, CNRL said its insurance will cover $2-billion in material repairs.
The lack of information throughout Friday left many turning to a dramatic YouTube video of the fire to gain a sense for how severe the impact on Horizon was.
"You'd think people would learn from BP how to respond to a crisis appropriately and in a timely fashion. In the absence of real information, people have to make up their own conclusion, which usually makes it the worst-case scenario," said Eric Nuttall, a portfolio manager with Sprott Asset Management who was ready to buy the moment CNRL stock hit $40.50, a mark it dipped below late Friday.
"If you're buying CNQ right now, it's almost like buying BP the day of the Macondo spill. You just don't know how bad it's going to be."
Other investors, however, pointed to the frequency of oil sands upgrader fires as proof that the Horizon blaze does not necessarily indicate broader problems with the mine.
Jim Carter, the former president of Syncrude Canada Ltd., estimated that 10 blazes have knocked out a total of 5 million barrels of production over the past half-decade across the industry.
The reason stems from the extraordinary demands placed on upgraders. Unlike refineries, which are fed by crude oil, upgraders run on bitumen, a very heavy form of oil that is packed with abrasive particulates that eat away at pipes. The bitumen can also contain chlorides, or salts, which can turn into hydrochloric acid if they contact water, delivering another beating to upgrader pipes.
Finally, the frigid temperatures of northern Alberta can cause pipes to freeze and crack.
"So the temperature environment and corrosion-erosion mechanisms are more severe than you would have in a conventional refinery by quite a margin," Mr. Carter said.