Canada’s oil industry to spar over forced output cuts

A catastrophic wildfire that has forced all 88,000 residents to flee Fort McMurray in Alberta, Canada exploded tenfold in size on Thursday, cutting off evacuees in camps and shelters north of the city.

Canada’s oil sector is divided over whether to force a temporary cut to production, with some major producers pushing the controversial idea in a bid to ease a supply glut and halt a steep plunge in prices, according to seven people familiar with the matter.

The out-of-control blaze has burned down entire neighborhoods of Fort McMurray in Canada’s energy heartland and forced a precautionary shutdown of some oil production, driving up global oil prices.

The producers called on Rachel Notley to invoke a provincial government power to force “curtailment,” the people said, at a time when Canadian heavy crude is selling for a near-record discount from U.S. benchmark prices, costing Alberta billions.

Three days after the residents were ordered to leave Fort McMurray, firefighters were still battling to protect homes, businesses and other structures from the flames. More than 1,600 structures, including hundreds of homes, have been destroyed.

But the push is opposed by Suncor Energy Inc.; ExxonMobil Corp.’s Canadian unit, Imperial Oil Ltd.; and Husky Energy Inc., the people say. Each has integrated operations, from production to refineries, that cushion the blow and therefore want to let the market sort out the oversupply issue.

Although the cause of the fire was unknown, officials said tinder-dry brush, low humidity and hot, gusting winds left crews unable to stop the massive conflagration. On Oct. 22, key industry figures gathered in an old downtown Calgary school now used as an office for the premier.

Frightened evacuees north of the city took to Twitter, asking when they would be able to drive south and whether areas to the north were safe. The gathering was so unusual that Suncor’s representative, COo Mark Little, began by warning the meeting itself might violate Canadian competition law, if it amounted to price-fixing, three of the people said.

“We’re just sitting in a camp praying to get out!! Give us answers!!! Please,” Twitter user @jennimac780 told the regional government. Pipelines are full and new ones are almost impossible to build thanks to regulatory and political challenges.

“We haven’t forgotten about you and you’re safe,” the government said on Twitter. Hundreds filled a community center on Thursday morning in Lac La Biche, a community about 170 miles south of Fort McMurray.

Many were second-round evacuees who were ordered to relocate from temporary refuges closer to Fort McMurray on Wednesday night as the flames grew. Canadian producers are not only being hit by the global plunge in oil prices, but face severe transport bottlenecks that have caused the northern nation’s customary discount to balloon to near record highs.

Other people bunked down in a Lac La Biche high school, its gym converted to a used-clothing station for the evacuees. Kirby Abo, who came from Fort McMurray with his wife and three children, said he worried that his job in a recycling depot may no longer exist when he returns home.

“I think it’s going to be a ghost town for quite a while,” he said. The winds gave the city a brief reprieve on Thursday by driving the fire to the southeast, away from populated areas. But officials warned that the unpredictable weather could quickly shift again.

Upstream producers didn’t suggest firm timelines, but some envision a 10% cut to production for anywhere from three to six months, the people said. The winds pushed flames toward the local airport, which suffered minor damage and was open for limited non-commercial operations, officials said.

A makeshift emergency operations center at the airport was evacuated for the second time in less than a day. Grant Fagerheim, chief executive at Whitecap Resources Inc., didn’t attend but nevertheless supports cutting production for a fixed period of time and potentially at different levels.

At least 640,000 barrels per day of crude output is offline, according to Reuters calculations, roughly 16 percent of Canada’s crude production. The outage is expected to climb as major players in the region cut production.

Pipeline giants TransCanada Corp. and Enbridge Inc. also sat in on the meeting, the people said, but stayed largely neutral to avoid aggravating one group of clients over another. A ConocoPhillips spokeswoman said the Surmont oil sands project had been evacuated as a precaution because of potential highway closures.

The fire was roughly 24 miles north of Surmont on Thursday. The forecast has called for cooler temperatures and a possibility of rain, offering hope that controlling the blaze could become easier.

Authorities said there had been no known casualties from the blaze itself, but fatalities were reported in at least one vehicle crash along the evacuation route. “Any decision would need be made thoughtfully and respect the orderly regulation of today’s oil and gas sector.”

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