Canada’s already sliding economy faces another setback as wildfires ravage the Alberta city at the heart of the world’s third-largest crude oil reserves.
Suncor Energy Inc, Royal Dutch Shell PLC, CNOOC Ltd’s (中國海洋石油) Nexen and Husky Energy Inc are among companies shutting plants or cutting production following the worst wildfire in the province’s history. ConocoPhillips, Imperial Oil Ltd and Statoil ASA were also affected.
The damage to Alberta and its heavy crude industry is still being tallied, with 80,000 people evacuated from Fort McMurray.
Photo: Reuters
Morgan Stanley energy analyst Benny Wong estimated between 400,000 and 550,000 barrels a day of production are offline.
Royal Bank of Canada said in a report that between 900,000 and 1 million barrels a day of oil sands production might be offline because of the blaze, equal to between 35 and 38 percent of the 2.6 million barrels a day of average output forecast for this year.
“Implications could stretch beyond the border of Canada,” said Wood MacKenzie Ltd analyst Afolabi Ogunnaike, who projects output could be curtailed as much as 700,000 barrels a day because of the blaze.
The fire has caused the evacuation of more than 80,000 people in Fort McMurray, the town at the heart of the Athabasca deposit, one of three large bitumen reserves that make up Alberta’s oil sands.
Alberta oil sands production was about 2.5 million barrels a day in February, according to the province’s oil regulator.
“That this adds a heavy headwind to the economy in the second quarter is increasingly clear,” Scotiabank vice president of economics Derek Holt said in Toronto. “The shock that is hitting the heart of Canada’s energy sector only adds to risk of very little growth in Q2 and risk of contraction.”
Canada’s output growth for the second quarter was already forecast to slow to a 1.2 percent annualized pace from 2.8 percent in the first quarter, according to a Bloomberg News economist survey taken before the fires.
The slowdown is being driven by a slump in exports to the US that will only be exacerbated by the oil production disruptions.
The fires also might deepen a recession in Alberta, Canada’s main oil-producing province, which is already reeling from the slump in prices. Ten times the number of people have been displaced by this week’s fire than one in 2011 that triggered a plunge in production and helped bring the nation’s economy to a near halt.
The 2011 fire triggered a 0.2 percent fall in Canada’s GDP in May of that year, led by an 11 percent drop in oil sands production. Oil and gas extraction fell 4.8 percent that month. The disaster slowed national quarterly economic growth to a 0.8 percent annualized pace, though the return of regular production boosted economic growth over the following months.
“That’s just something that adds to the weakness in the second quarter,” said Jimmy Jean, a strategist in the fixed-income group at Desjardins Capital Markets in Montreal.
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