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Wildfires are again burning forests in Canada’s oil sands region, with blazes on the outskirts of its main city putting petroleum production at risk.
Nearly 20,000 hectares (49,000 acres) were classified as out of control by Alberta Wildfire on Thursday, burning several kilometres from the oil sands capital of Fort McMurray.
The fires are in a region of Alberta province where energy companies mine thick bitumen deposits to be upgraded into synthetic crude oil. The growth of the oil sands industry has enabled Canada to become the world’s fourth-largest oil producer, producing 6 per cent of global supply.
The oil sands produced 3.2mn barrels a day in 2023, according to the Canadian Association of Petroleum Producers. Rystad Energy, a consultancy, said in a report that 2.1mn b/d of marketable output could be at risk if the fires materially worsen, or 1.7mn b/d if announced maintenance outages are taken into account.
The potential for output being shut comes as the oil market is vulnerable to geopolitical tensions in the Middle East and Russia.
The US is the largest buyer of oil from Canada. The price discount of heavy Western Canadian Select oil and US benchmark West Texas Intermediate crude has narrowed in the past week from $14.60 a barrel to $13.81 a barrel.
“If we did see a material supply impact metastasise out of these wildfires, then that could tighten the market a little more, and there could be upward price pressure potential,” said Thomas Liles, vice-president of upstream research at Rystad.
While cooler temperatures and rain have improved conditions, the fire remains uncontrolled and more than 6,000 people have evacuated from Fort McMurray, where a third of jobs are in mining and oil and gas extraction, according to the local economic development agency.
“This evacuation is a stark reminder that our province lives alongside the threat of wildfires and other natural disasters,” said Danielle Smith, the premier of Alberta, in an update on Wednesday.
Alberta has recorded 323 wildfires so far this year, scorching 30,000 hectares (75,000 acres).
Devastating wildfires swept through Alberta in 2016, which destroyed more than 2,000 homes and forced oil companies to cut more than a fifth of daily oil production. So far, oil sands producers have not reported disruptions. One of them, Cenovus, said it would “continue to monitor all areas of operation for wildfire impacts”.
Many parts of the world saw record breaking wildfire activity last year. The Copernicus Climate Change Service estimates wildfires generated 2,170 megatonnes of carbon emissions in 2023, with more than a fifth coming from Canada.
“Increasingly, wildfires have become a bigger risk to oil production,” said Hunter Kornfeind, an oil market analyst at Rapidan Energy. “A lot of market participants expect some weather-related incidents in the Gulf of Mexico but for Canada, it’s been a bit more fluid in the past couple of years.”
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