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| Canada’s Oil Sands Industry Staggers After a Devastating Fire | Canada’s Oil Sands Industry Staggers After a Devastating Fire |
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| FORT McMURRAY, Alberta — Oversize transport trailers typically barrel dangerously along Highway 63 as they deliver heavy loads of equipment and even prefabricated metal buildings to the multibillion-dollar oil sands projects that dominate this area. But more than a dozen such trailers, still full, now sit at pull-ins and rest stops, abandoned by drivers who unhitched their tractors and fled south on warnings of a devastating forest fire. | FORT McMURRAY, Alberta — Oversize transport trailers typically barrel dangerously along Highway 63 as they deliver heavy loads of equipment and even prefabricated metal buildings to the multibillion-dollar oil sands projects that dominate this area. But more than a dozen such trailers, still full, now sit at pull-ins and rest stops, abandoned by drivers who unhitched their tractors and fled south on warnings of a devastating forest fire. |
| As the fire ripped through Fort McMurray, oil companies severely pulled back or stopped pumping altogether. Production dropped by a million barrels a day, roughly 40 percent of Alberta’s output. | As the fire ripped through Fort McMurray, oil companies severely pulled back or stopped pumping altogether. Production dropped by a million barrels a day, roughly 40 percent of Alberta’s output. |
| While the oil markets have remained relatively stable and production is slowly picking up, the economic blow is significant to a region and a country already battered by weak oil prices and uncertainty over global growth. | |
| Oil companies could take weeks or months to get fully up and running, depriving the province of Alberta of royalty payments. And rebuilding costs will add to the strain on a national government that had only recently, and perhaps not fully, recovered from a mild recession. Ultimately, the financial fallout from the fire could sap what little growth Canada was expected to eke out in the latest quarter. | Oil companies could take weeks or months to get fully up and running, depriving the province of Alberta of royalty payments. And rebuilding costs will add to the strain on a national government that had only recently, and perhaps not fully, recovered from a mild recession. Ultimately, the financial fallout from the fire could sap what little growth Canada was expected to eke out in the latest quarter. |
| “Everything is kind of in a state of flux,” said Derek Burleton, the deputy chief economist at the Toronto-Dominion Bank. “But ultimately, it is a pretty big deal. Growth is going to fizzle out.” | “Everything is kind of in a state of flux,” said Derek Burleton, the deputy chief economist at the Toronto-Dominion Bank. “But ultimately, it is a pretty big deal. Growth is going to fizzle out.” |
| Fort McMurray, the heart of the province’s oil sands production, plays an outsize role in the country’s prospects. | Fort McMurray, the heart of the province’s oil sands production, plays an outsize role in the country’s prospects. |
| When oil prices were surging, the city and its vast reserves of oil sands fed an economic boom. Energy companies poured billions of dollars into projects and thousands of workers flowed into Fort McMurray. | When oil prices were surging, the city and its vast reserves of oil sands fed an economic boom. Energy companies poured billions of dollars into projects and thousands of workers flowed into Fort McMurray. |
| But the oil slump of the last year brought an end to the prosperity. Even before the fire, the government projected an $8 billion deficit, in contrast to an $800 million surplus in 2014. | |
| The damage to the oil sands industry, which makes huge payments to the provincial government, will deepen the morass. And the fire-related costs will probably be in the billions, although the federal government will eventually cover 90 percent of that amount. As a result, several economists predict that the province will slip into negative growth this quarter. | The damage to the oil sands industry, which makes huge payments to the provincial government, will deepen the morass. And the fire-related costs will probably be in the billions, although the federal government will eventually cover 90 percent of that amount. As a result, several economists predict that the province will slip into negative growth this quarter. |
| “The deficit and the government’s economic outlook still relies on a very bullish outlook for oil,” said Andrew Leach, an economist at the University of Alberta. | “The deficit and the government’s economic outlook still relies on a very bullish outlook for oil,” said Andrew Leach, an economist at the University of Alberta. |
| The national economy will feel the pain. Oil sands workers come from around the country, so the job losses often show up in other provinces. Newfoundland, for example, has an unemployment rate of 13.1 percent, sharply higher than those of Alberta and Canada. | |
| Before the fire, Canada’s economy was expected to grow around 1 percent for the quarter. Zero, or even negative, growth is now a possibility, said Mr. Burleton of Toronto-Dominion Bank. | Before the fire, Canada’s economy was expected to grow around 1 percent for the quarter. Zero, or even negative, growth is now a possibility, said Mr. Burleton of Toronto-Dominion Bank. |
| The full toll will depend largely on the health of the oil sands. | The full toll will depend largely on the health of the oil sands. |
| The largest projects, north of Fort McMurray have been largely unscathed, protected in part by their wide, deforested perimeters. And Alberta’s premier, Rachel Notley, along with 12 senior oil executives, announced that production was slowly starting up again at several plants, since Fort McMurray no longer appears to be under imminent threat. | The largest projects, north of Fort McMurray have been largely unscathed, protected in part by their wide, deforested perimeters. And Alberta’s premier, Rachel Notley, along with 12 senior oil executives, announced that production was slowly starting up again at several plants, since Fort McMurray no longer appears to be under imminent threat. |
| But oil companies are still assessing the damage to the electrical network, the aboveground buildings and the pipelines that ship Fort McMurray’s production. Then there is the complex nature of the projects, which means that oil will not necessarily start flowing again quickly. | But oil companies are still assessing the damage to the electrical network, the aboveground buildings and the pipelines that ship Fort McMurray’s production. Then there is the complex nature of the projects, which means that oil will not necessarily start flowing again quickly. |
| “There are a lot of challenges ahead of us,” Tim McMillan, the president and chief executive of the Canadian Association of Petroleum Producers, told reporters on Tuesday. “Each facility has its own timeline ranging from days to weeks and, potentially, beyond that.” | |
| Adding to the uncertainty, many employees who were evacuated when the fire hit Fort McMurray have nowhere to live. The fire has consumed about 2,400 buildings, mostly houses. Officials will need two more weeks just to figure out when it may be possible to reopen Fort McMurray to the 88,000 residents who fled on May 3. | |
| Suncor Energy, one of the largest and earliest oil sands operators, is trying to arrange work camp accommodations for employees who have lost their houses. It evacuated about 10,000 employees. | Suncor Energy, one of the largest and earliest oil sands operators, is trying to arrange work camp accommodations for employees who have lost their houses. It evacuated about 10,000 employees. |
| “People shouldn’t be a barrier to opening up,” Steve Williams, Suncor’s president and chief executive, said on Tuesday. “Early this morning I looked at my phone and we have more rooms than we needed.” He added that the company would continue to pay employees whether or not they can come to work. | “People shouldn’t be a barrier to opening up,” Steve Williams, Suncor’s president and chief executive, said on Tuesday. “Early this morning I looked at my phone and we have more rooms than we needed.” He added that the company would continue to pay employees whether or not they can come to work. |
| Suncor’s initial assessment, Mr. Williams said, found that the pipeline system is in good shape, since it is largely underground. But there is far more work to be done to the electrical networks. | |
| The status of smaller plants, which are largely south of the city, is less clear. That area remains under a mandatory evacuation order because of the lingering potential for renewed fire. | The status of smaller plants, which are largely south of the city, is less clear. That area remains under a mandatory evacuation order because of the lingering potential for renewed fire. |
| The southern plants, for the most part, bring the tarlike bitumen of the oil sands to the surface by injecting vast quantities of steam underground. Plants of that variety, like Japan Canada Oil Sands, have been operating for several years and have built up so much heat underground they can sit idle for up to 12 months and be restarted with comparative ease. | The southern plants, for the most part, bring the tarlike bitumen of the oil sands to the surface by injecting vast quantities of steam underground. Plants of that variety, like Japan Canada Oil Sands, have been operating for several years and have built up so much heat underground they can sit idle for up to 12 months and be restarted with comparative ease. |
| But the outlook for newer operations, like Hangingstone, a 12,000-barrel-a day project owned by Athabasca Oil, look shakier. Rob Broen, the company’s president and chief executive, said that there remained a danger that its underground “steam chambers” might collapse if too much time passed without fresh infusions. If the bitumen in its wells has solidified, restarting the operation will be a long and costly process. | But the outlook for newer operations, like Hangingstone, a 12,000-barrel-a day project owned by Athabasca Oil, look shakier. Rob Broen, the company’s president and chief executive, said that there remained a danger that its underground “steam chambers” might collapse if too much time passed without fresh infusions. If the bitumen in its wells has solidified, restarting the operation will be a long and costly process. |
| The global oil markets are sensitive to that timeline. | The global oil markets are sensitive to that timeline. |
| Goldman Sachs estimates that the lost production, assuming companies can ramp up production over 10 days, will total 14 million barrels. If so, that would have a relatively minor impact on North American stockpiles, which are nearly full. | Goldman Sachs estimates that the lost production, assuming companies can ramp up production over 10 days, will total 14 million barrels. If so, that would have a relatively minor impact on North American stockpiles, which are nearly full. |
| But not everything in those stockpiles suits the needs of American refineries that rely on heavy oil produced in the sands. If those inventories become depleted, refiners may have to look to import from elsewhere. | But not everything in those stockpiles suits the needs of American refineries that rely on heavy oil produced in the sands. If those inventories become depleted, refiners may have to look to import from elsewhere. |
| Already, the rebuilding process is underway. On Highway 63, convoys of trucks from utilities as well as Telus, the regional telecom, have joined the columns of wildfire fighters in pickup trucks heading north. | Already, the rebuilding process is underway. On Highway 63, convoys of trucks from utilities as well as Telus, the regional telecom, have joined the columns of wildfire fighters in pickup trucks heading north. |
| It indicates the potential for new spending to help offset some of the economic losses, at least after a while. “There’s that awkward notion that disasters are ultimately a benefit in the long run,” said Mr. Burleton of Toronto-Dominion Bank. “The recovery money is going to be coming in from other places.” |