Fort McMurray wildfire slows down oilsands production

As the wildfire in the Fort McMurray area continue to burn, it is not yet possible to assess the economic harm to the region — too much is unknown.

We do know that the Wood Buffalo region of Alberta is the economic heart of the province, and key to world oil markets. It produces more than half of Canada's oil each day and is an important exporter to the United States. 

While the oilsands plants themselves are not at risk at this moment, production has slowed down and in some cases stopped, simply because the plants can't operate at full capacity without staff. The entire population of Fort McMurray has been evacuated, thousands of homes have been lost and it's unclear when the city will be habitable again.

Short-term reduction in supply

As the news of the Fort McMurray fires circulated Wednesday morning, the oil market reacted by pushing the price of Western Canada Select higher, according to Tim Pickering, chief investment officer at Auspice Capital.

'The morale of this community is at stake.' - Tim Pickering, Auspice Capital

Production has shut down at Shell's Albian oilsands mines, as well as at Suncor's base mines north of Fort McMurray. Production has been curtailed at other Suncor operations, as well as at by Syncrude, Husky, and Connacher. 

"But not because it's at risk," said Pickering, "but because of the people issue. Of course, they're being sensitive to their employees and family issues."

"Let's play that out, if Shell takes out a couple hundred thousand barrels a day, if Suncor does the same, all of a sudden you've got 500,000 barrels a day that's off the market."

As of late Wednesday, more than 600,000 barrels a day had been taken off the market. World oil production is around 96 million barrels a day, and is oversupplied by approximately one million barrels a day, with lots of oil in tanks, so even if oilsands production slows in the short term, it will not have an effect on the world price. 

Key staff evacuated from area

But in the medium term, the question becomes how to operate the oilsands without its key staff. Last year, Fort McMurray's population stood at 78,000, with a shadow population of 43,000. Most of the shadow population lives in work camps around the oilsands operations. Many of those workers have been sent home to other parts of the country because the camps are now housing residents evacuated from Fort McMurray.

But a substantial number of Fort McMurray's permanent residents live in the city and commute daily to work at the oilsands plants. Just one bus line, Diversified Transportation, carries 14,000 passengers a day to and from oilsands plants. It has seven routes a day from the Timberlea neighbourhood to the Syncrude plant. Timberlea is one of the neighbourhoods that has suffered serious losses in the fire.

Loss GFX

While the energy sector has put into place its emergency response plans, the question is whether those plans include the displacement of a significant portion of the workforce.

"What makes the Canadian energy sector great is that we have highly skilled people, and these people are now in a very difficult state," said Gaetan Caron, former head of the National Energy Board.

"The most significant impact in the short term and the midterm is the people whose lives have been affected; their priority right now is to stay safe and go back eventually to a normal life. That will have an impact on the resources available to companies in terms of the experience, the know-how, and the knowledge."

In the long term, Fort McMurray will have to rebuild with some haste and care for its people.

"We're not talking about 100 people being displaced, we're talking about 80,000," said Pickering. 

"The morale of this community is at stake and I think we need to be serious about it."

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