Canadian oil disruption sends ripples from Alberta to Louisiana

By Robert Tuttle on 4/6/2017

CALGARY (Bloomberg) -- An ongoing disruption at Canada’s second-biggest oil sands upgrader has sent prices soaring from Alberta to Louisiana.

A fire at Syncrude Canada Ltd.’s plant is restricting supplies of both light synthetic crude and heavy Alberta oil. Syncrude, which can process 350,000 bpd of bitumen from oil sands formations, moved forward maintenance following the fire last month.

The worst disruption since a wildfire forced companies to reduce production last year has reduced output from ConocoPhillips’s Surmont site, which mixes light oil produced at Syncrude with bitumen to make it flow through pipelines.

“The shortage of synthetic is impacting output,” Michelle McCullagh, a spokeswoman at ConocoPhillips, said in an email. “We are working with suppliers to understand the timeline as the Syncrude owners work toward a full recovery.”

Synthetic crude in Edmonton climbed to the strongest level in almost four years Wednesday, according to data compiled by Bloomberg, while Canadian heavy oil was the highest since 2015. Prices in the U.S. also surged, with Bakken oil from North Dakota also reaching a four-year high and Light Louisiana Sweet the priciest since May.

The oil produced by ConocoPhillips at Surmont is composed of between 40% and 60% synthetic crude, according to company documents. The company plans to ramp up production at the site to the full 150,000 bpd capacity by the end of this year.

Nexen Energy, a unit of Cnooc Ltd., has mixed synthetic crude with bitumen to produce Long Lake Heavy, according to Crude Quality Inc.’s crudemonitor.ca. Brittney Price, a spokeswoman at Nexen, declined to comment on operations in an email. Athabasca Oil Corp. said its Leismer oil sands site, which used synthetic crude as a diluent when it was owned by Statoil ASA, now uses condensate and production hasn’t been affected by the Syncrude shutdown.

Pipeline shipments of “treated product” from the Syncrude site are expected to resume at up to 50% capacity this month, Sneh Seetal, a spokeswoman for Suncor, said by phone Wednesday, reiterating a statement by Suncor last month.

Suncor units

The shutdown at Syncrude coincides with maintenance on other plants. Work on one section of Suncor Energy Inc.’s upgrader will curtail output by 30,000 bpd over the quarter, the company said in February. Suncor’s Firebag site, which produces heavy oil, was also scheduled for maintenance this quarter, affecting 46,000 bpd of production.

The price of heavy  Western Canadian Select strengthened, with its discount to West Texas Intermediate futures narrowing to $9.80/bbl on Wednesday, the smallest since June 2015, data compiled by Bloomberg show. At that time, a fire near Cold Lake curtailed about 10 percent of the region’s oil sands production.

Synthetic crude rose to a $5.40/bbl premium to WTI and Bakken climbed to a $1.35 premium, both the highest since June 2013, data compiled by Bloomberg show. Condensate traded at a $1.35 premium to futures Wednesday, the highest in more than a year. LLS in St. James, Louisiana, was $2.20 above WTI, the biggest gap since May.

Oil inventories in Western Canadian storage centers, including Hardisty and Edmonton, have shrunk since the Syncrude fire, dropping to 52% of capacity the week ended March 31, from 59% the week ended March 10, according to Genscape Inc.

“With unplanned maintenance taking synthetic barrels out of the market at the moment, prices of comparable barrels like Bakken are now attractive substitutes so are being bid up,” said Carl Evans, an analyst at Genscape.

 

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