Raging Alberta Wildfires Depress Canadian Crude Production, Have Little Impact On Prices

Tyler Durden's picture

Contrary to conventional wisdom, America does not import the bulk of its crude from the volatile middle east region, but from its sleepy and unremarkable northern neighbor (by a factor of two compared to the second largest source of crude). Which is why the recent eruption of pervasive wildfires in Alberta, which have substantially disrupted production, probably should have far more of an impact on crude risk perception than what happens to 2 million of daily crude output out of Libya, most of which does not even reach the US. From Reuters: "Canadian heavy crude prices have changed little despite wildfires raging in northern Alberta and forcing production cuts, showing there is plenty of supply in storage, market sources said on Wednesday. Western Canada Select heavy blend for June delivery fetched around $17.30 a barrel under benchmark West Texas Intermediate crude, close to levels of a week ago. Dozens of forest fires that have spread in recent days have led to the shutdown of more than 100,000 barrels a day of output in the north-central Alberta region, most of it due to the outage of the 187,000 barrel a day Rainbow pipeline. The southern leg of the line, operated by Plains All American Pipeline LP, was shut due to the blazes. The northern leg has been out of service since a rupture and oil spill in late April." Perhaps the reason why none of this is perceived as a risk is that for about a decade now neither supply nor demand have actually been factors in determining equilibrium prices, which in turn is defined almost exclusively by the amount of free liquidity in the system, and correspondingly, speculator, and margin, scapegoating.

Supply demand irrelevance notwithstanding, there are signs that the blazes may be controlled soon:

Firefighters may begin to gain the upper hand over Alberta’s wildfires as winds ease and humidity rises, lessening the risk to crude production sites, said a spokesman from Alberta Sustainable Resource Development.

Wind speeds have begun to fall from a peak of almost 100 kilometers (62 miles) per hour on May 15 when fires swept through the town of Slave Lake, forcing the evacuation of all 7,000 inhabitants, said Dave Ealey, the spokesman. About 1,000 firefighters have been deployed across the northern half of the province as of May 18.

“What’s really needed is precipitation and cool temperatures,” said Dan Kulak, a meteorologist at Environment Canada, the national weather service, in Edmonton. “The conditions we have right now are pretty good.”

Today’s forecast in Slave Lake calls for a high of 22 degrees Celsius (72 Fahrenheit) and a 30 percent chance of precipitation, according to Weather Underground, a private forecaster based in Ann Arbor, Michigan.

And some more on the closings:

Fires forced Plains All American Pipeline LP (PAA) to stop cleanup work from an earlier oil spill and shut down its Rainbow pipeline system on May 15. Cenovus cut its production at Pelican Lake to 8,000 barrels a day from 22,000, said Reg Curren, a spokesman for the Calgary-based company. Cenovus will stop production at the site when storage tanks are full.

Small producers like Calgary-based Exall Energy Corp. (EE) have also turned off wells. Exall said in a May 16 statement that it shut 921 barrels a day of output because of the fires and mandatory evacuation orders in the town of Slave Lake.

“No crude production is directly threatened by the fires,” said Judith Dwarkin, an economist at Ross Smith Energy Group in Calgary. Some oil produced in the region is being stored onsite because of the Rainbow shutdown, she said.

Oilsands not at risk:

Wildfires have destroyed 186,000 hectares (460,000 acres) this year, said Ealey, the Alberta government spokesman. Fires in the past 72 hours burned the same amount of forest as was destroyed in all of last year.

Syncrude Canada Ltd., the biggest oil-sands miner, is evacuating non-essential personnel from its Aurora project in northeastern Alberta because smoke from the fires is causing air-quality and visibility concerns, said Alison Trollope, a spokeswoman for Canadian Oil Sands Ltd., owner of the largest stake in Syncrude.

“The facilities are not at risk” and production of bitumen from the sandy deposits continues, Trollope said.

Read more here and here.