Fire in oil boomtown cuts Canada’s output by nearly 1 million barrels a day

Canada’s daily production of heavy oil has been cut nearly in half as a result of the raging wildfire that has turned the Alberta city of Fort McMurray, once the boomtown of the northern Athabasca oil sands, into a ghost town.

Daily production is down this week by an estimated 800,000 to 1 million barrels.

Production last year averaged 2 million barrels a day, according to Dirk Lever, managing director and head of the energy research group at the financial advisory firm AltaCorp Capital Inc. in Calgary.

The bulk of that came from northern Alberta, which has already been hit with massive job layoffs as oil prices have fallen.

Oil production facilities and pipelines have not been harmed. But the 90,000 people forced to evacuate from the region include many workers, thousands of whom have lost their homes to the fire, emergency officials said.

“The problem is that you’ve got an entire town evacuated and a lot of the workers have disappeared, so there’s not enough manpower, resulting in rolling shutdowns,” Lever said.

“Companies will have to figure out a way to house people so production can come back up,” he said. “So you may see one company sharing extra beds with a competitor at one of its work camps.”

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Paul Newmarch, a spokesman for Suncor Energy Inc., said that prior to last week’s wildfire, the Calgary-based company was producing about 300,000 barrels per day. Now it is producing none, having shut down operations at three facilities north of Fort McMurray.

Its focus is how to accommodate about 2,000 people displaced by the wildfire at its camps that normally house some of its 6,000 workers.

Suncor is ready to resume production when the fire is under control and Alberta authorities lift the province-wide state of emergency, Newmarch said.

“We have been planning for a restart and are well advanced in that planning to enable a safe and proper return to full production,” he said. “We did a safe shutdown of our operations and left them in good condition, so we could restart as quickly as possible.”

Some analysts have expressed serious concern over the impact the wildfire will have on Canada’s economy.

Economists at the Royal Bank of Canada have warned that a two-week production shutdown could shave half a percentage point from this month’s gross domestic product.

Charles St-Arnaud, a foreign exchange strategist at Nomura Securities in London, said a reduction of 1 million barrels a day could reduce Canada’s economic growth by 0.24 of a percentage point for every week of stoppage.

Shares of Canadian companies involved in constructing or operating work camps at the oil sands have surged this week as fire evacuees seek temporary refuge.

In the long term, Fort McMurray will have to be rebuilt.

“The devastation that occurred there is apocalyptic,” Lever said.

The effect of the evacuation, he said, is “really no different than we saw happen 11 years ago in Louisiana with Hurricane Katrina.”

Guly is a special correspondent.

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