Much of the oil flow shut down by the destructive wildfires in Fort McMurray, Canada, was destined for the United States, and it’s uncertain what effects the slash in oil shipments might have for an American market that has come to depend on imports from Canada.
Above average temperatures and unusually dry conditions have been cited as factors in the runaway blaze, which so far has burned approximately 400,000 acres (625 square miles), destroying thousands of homes and buildings. Colder, wetter weather on Monday offered some hope that firefighters might get some help slowing the fire’s spread.
The irony of the urban heart of Canada’s oil sands boom finding itself engulfed in flames possibly fanned by climate change was too rich for many to ignore. But any simplistic (not to mention callous) assertion that Fort McMurray is to blame for its own fate collapses under one simple fact: More than two-thirds of its product feeds American demand.
Canada, which has the world’s third-largest oil reserves, currently accounts for more than 40 percent of U.S. crude imports, about 3.5 million barrels per day. The largest portion of that flows to the Midwest, Oklahoma, Tennessee, and Kentucky.
Growing output from Canada’s carbon-intensive oil sands drove calls for—and protests over—Keystone XL and other pipeline projects. President Barack Obama rejected Keystone XL’s proposed northern leg last fall. “Shipping dirtier crude oil into our country would not increase America’s energy security,” he said.
Still, the amount of oil flowing across the border has grown steadily. “In recent years, U.S. refiners have increasingly relied on Canadian imports,” says Michael Green, spokesperson for AAA, which tracks the U.S. fuel market. “Midwestern refineries in particular have changed their production methods to take advantage of heavy Canadian crude oil.”
The fire knocked out an estimated 1 million oil barrels per day, about a quarter of Canadian output. Some of that flow is returning, but it’s not yet clear just how extensive, or how lasting, the outages will be. Major oil producers in the region, including Syncrude, Suncor, Shell*, Husky, and Canadian Natural Resources, had evacuated staff and shut down all or part of their operations.
Still, Alberta Premier Rachel Notley said in a press conference Tuesday that many facilities were still running, and others would “begin to resume production in the coming days and short weeks ahead.” But some projects still remained inaccessible and had more uncertain timelines.
Suncor, one of the largest producers, said that it had shut down production, but that none of its facilities had been damaged.
Suncor has routinely shut down production assets for maintenance and "safely ramped them back up within days,” said Steve Williams, Suncor president and chief executive officer. “We believe we can do so in these circumstances.”
Of course, the fire’s impact goes far beyond equipment shutdowns, and will be felt long after the smoke clears.
"The biggest thing is getting things back up after the fire's out,” says John Auers, executive vice president with oil industry consulting firm Turner, Mason & Company, noting Fort McMurray’s 88,000 residents were all evacuated. “A lot of those people were devoted to supporting ... work camps at the production sites.” Notley said companies were working to ensure housing, medical services, and safe transport for returning workers.
While the shutdowns in Canada aren’t large enough to significantly affect world markets, they will be felt keenly in Alberta, where the oil industry is already suffering from the lowest crude prices in more than a decade. Last month, the Canadian Association of Petroleum Producers reported that capital investment in the oil and gas sector had dropped 62 percent in two years. The number of wells drilled was expected to drop 66 percent over the same time period.
Refineries in the U.S. Midwest, Auers says, don’t have a lot of options to replace cheap heavy crude from Canada and will take a hit because of the fires, but he also notes that U.S. gasoline stores heading into the summer driving season are higher than ever before, providing a bit of a buffer against big price changes.
Green also warns that a steady disruption could increase costs for U.S. refiners, which would then get passed on to consumers. “In a typical year, gas prices would peak by Memorial Day,” he says, but the Fort McMurray blaze could change that. “The longer the fires go, the more likely it is that U.S. drivers will see an impact at the pumps.”