Oil industry expecting prompt recovery after Alberta wildfire

  • 13 May 2016 14:24

Article written by Junior Risk Analyst Owen Spalding, published 13/05/2016


Oil industry expecting prompt recovery after Alberta wildfire

On 1 May, a wildfire broke out approximately 15km south of the town of Fort McMurray in Alberta’s Athabasca oil sands region, prompting authorities to order the mandatory evacuation of some 88,000 residents. The fire spread rapidly, covering some 2,000 square kilometres and destroying approximately 10 percent of Fort McMurray’s homes. Safety concerns prompted several major oil companies across the region to suspend or scale-back operations, reducing the total number of barrels produced by oil sands producers to an estimated one million per day. While residents have yet to return to Fort McMurray, recent safety assessments indicate that the damage to critical infrastructure is less than initially anticipated. However, given poor air quality and low visibility, it will likely be several weeks until electricity, gas and water are fully restored and residents can return home.

At present, the fires are continuing to move eastwards, away from Fort McMurray. Fortunately, the onset of favourable weather across the region in recent days has slowed the fire’s advance and the majority of physical infrastructure, including mines and pipelines, remains unscathed. However, given the fire’s magnitude, it will likely take several months before it is contained and extinguished. While it is too soon to gauge the broader economic impact of the fire given that oil production is only just starting to resume, the incident has underscored Canada’s need for greater fire defence spending, especially the construction of barriers against so-called “urban interface” fires that transition quickly between urban and rural areas.

While the fire has curtailed Canada’s oil output by as much as a third, normalisation is likely to occur faster than initially anticipated. Oil infrastructure has largely escaped direct fire damage meaning that production can resume immediately when staff return to work, albeit at a limited capacity. However, the logistical effort required to assemble a sufficient workforce following the mass evacuations suggests that the recovery process may be piecemeal, especially for smaller firms. Larger companies have steadily begun to resume operations. As of 10 May, Shell Canada has resumed production at its Albian Sands mining operation, approximately 95km north of Fort McMurray, stating that while the facility is currently operating at a reduced rate, output will likely normalise within two weeks. Other firms, including Suncor, have also said that operations are likely to resume in the coming days, subject to ongoing safety assessments.

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