On March 14, 2017, a fire occurred at the naphtha hydrotreater located on the 350 Mb/d Syncrude upgrading facility in Fort McMurray, AB. With the upgrader representing approximately 30 percent of Western Canada’s synthetic crude oil (SCO) production capacity, the news of the fire had an immediate market impact seen in the widening of the Canadian Sweet Synthetic-WTI premium. With the Syncrude upgrader already scheduled for a spring turnaround in April (approximately 45 Mb/d planned impact), the company decided to move up the maintenance to start immediately due to the fire.
The production impact of the fire is substantial in the near term with up to 50 percent (roughly 175 Mb/d) of production capacity estimated to be off line in April, with majority owner Suncor stating in a press release on March 27 that “…Pipeline shipments of treated product are expected to resume at up to 50 percent capacity in April, gradually ramping up to full rates after the turnaround is complete.”
There have been some conflicting reports recently of the impact putting the facility completely offline with no deliveries for April, which differs from statements from Suncor, which reiterated that the 50 percent impact is the correct outlook for shipments from the upgrader for April. It is important to note this 50 percent is based off of shipments, which in normal operations could be sourcing from both production and standing inventory.
An additional indirect result of the fire is production at ConocoPhillips approximately 140 Mb/d SAGD Surmont facility has been scaled back, due to Syncrude synthetic volumes being used as diluent for Surmont bitumen production.
Price Impact
The Canadian Sweet Synthetic-WTI differential has been trading as wide as +$5.03 for May settlement. This has been driven by Suncor’s announcement of reduced shipments in April, signaling that customers with prior long-term contracts are being prioritized over short term/cash market customer shipments. WCS-WTI has also seen a substantial tightening, with May recently trading at -$9.70, most likely caused by the increased cost of SCO as diluent for the heavier WCS barrels.
Western Canadian Outlook
While the fire has had a pronounced effect on near-term prices of Canadian Sweet Synthetic and WCS, the full year production impact has been less dramatic, reinforced by Suncor’s announcement that 2017 full year guidance is unchanged. The expected impact of the outage has been factored in to Genscape’s most recent Canadian Crude Oil Production Forecast, with the current forecast for synthetic production at +105 Mb/d year-over-year, compared with Genscape’s outlook of +116 Mb/d year-over-year prior to the fire. The COP Surmont impact has also been factored into the forecast, with bitumen production growth at +240 Mb/d year-over-year, compared to +244 Mb/d pre-fire.
The forecasted impact of the hydrotreater fire for Syncrude production and the early turnaround start can be seen below in the chart from the Genscape Canadian Crude Oil Production Forecast.
Despite the disruption, Western Canadian production is still firmly in growth mode in 2017, driven by brownfield SAGD projects, upgrader capacity expansions, and the continued improvement in thermal extraction technologies.
Genscape’s Canadian Crude Oil Production Forecast uses a highly detailed bottom-up approach that examines the most significant oil producing areas in Canada providing a detailed production forecast and analysis. The report incorporates provincial well level data along with oil sands in-situ project and upgrader level data to provide the most accurate and detailed driven supply forecast report on the market. Click here to learn more about the Canadian Crude Oil Production Forecast.