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Canadian Oil Sands Halts Crude Production at Oil-Sands Giant Syncrude

Canadian Oil Sands Halts Crude Production at Oil-Sands Giant Syncrude thumbnail

Problems affecting output at two Canadian oil-sands producers’ mainstay operations boosted synthetic crude prices—and experts say a prolonged dip in production could alter the volume of crude exports to the U.S.

Canadian Oil Sands Ltd. , the largest owner of the giant Syncrude oil-sands project, halted production of its synthetic crude oil after a fire Saturday damaged its processing facility in northern Alberta. It called the suspension temporary and said its strip mine remains operational.

That came after Nexen Energy ULC, the Canadian unit of Chinese state-controlled energy major Cnooc Ltd. , said Saturday it would comply with an order from regulatory authorities forcing it to shut down pipelines at another oil-sands plant in northern Alberta.

Neither company specified the loss of production in terms of barrels of oil or estimated how long the shutdowns would last, but prices for Canadian synthetic crude oil rallied in trading Monday amid concerns about a drop in shipments from Syncrude and Nexen. Both operations extract heavy oil from surface mines or wells and then process, or upgrade, it into a sweeter and lighter crude which fetches a higher price than lower grade Western Canadian Select.

Prices for Canadian synthetic crude for September delivery settled $1 a barrel below the U.S. benchmark, according to brokerage Net Energy. On Friday, September prices settled at $4.50 a barrel below the U.S. benchmark.

The government of Alberta said Monday its deficit will hit record levels because of the swoon in crude-oil prices and economic slowdown, estimating the budgetary shortfall would range from 5.9 billion Canadian dollars ($4.5 billion) to C$6.5 billion.

Syncrude’s synthetic crude output averaged 207,700 barrels a day in the second quarter and Nexen has said recently it produces about 50,000 barrels a day at its Long Lake plant. Canada’s total oil-sands production is around 2 million barrels a day, much of which is exported to the U. S.—the largest consumer of Canadian crude.

Industry observers say the effect on Canada’s crude production and pricing for its synthetic oil depends on the duration of the outages. “It all comes down to how long these facilities are down and out, “ said Kevin Birn, a director in charge of oil-sands analysis at consultancy IHS Energy.

Canadian Oil Sands said the fire, which was extinguished without any injuries, affected pipes connected to a water treatment unit at Syncrude’s heavy oil upgrader on the site of its Mildred Lake oil-sands surface mine. The cause of the blaze is under investigation, it said.

“Operations are continuing in areas not affected by the incident and employees and contractors continue to report for work,” said Will Gibson, a spokesman for the Syncrude consortium.

Canadian Oil Sands holds a 37% stake in Syncrude Canada, with six other companies owning the remainder, including the lead operator, Exxon Mobil Corp. unit Imperial Oil Ltd., and Suncor Energy Inc., Canada’s biggest oil producer. Nexen owns a 7.2% stake in the consortium. Unlike its partners, Canadian Oil Sands depends entirely on Syncrude’s output.

The incident adds to the woes of a company that has struggled with unplanned equipment outages at Syncrude and a slide in crude-oil prices to six-year lows. It came less than a week after Moody’s Investors Service cut Canadian Oil Sands’ credit rating to one notch above speculative grade and one month after the Calgary-based company posted a second-quarter net loss.

Nexen also faces challenges after Alberta’s chief energy regulator suspended operating licenses affecting 95 pipelines at its troubled Long Lake plant for suspected failure to comply with mandatory rules. The order comes amid an investigation into an accident reported in July involving a ruptured pipeline at the Long Lake facility that spilled 31,500 barrels of crude oil, wastewater and sand.

The Western Canadian province’s energy minister, Margaret McCuaig-Boyd, said Monday that she backed the Alberta energy regulator’s action and said the government expects Nexen to comply fully before the suspension is lifted.

“We take pipeline safety seriously and I support the preventative action taken by the AER. The regulator has assured me that the suspension of pipeline activity won’t be lifted until the company can fully demonstrate they can operate safely,” she said.

Nexen representatives declined to comment Monday, but the company said Sunday that it was cooperating with the regulatory authorities and planned to submit the missing information and documentation to ensure it is compliant with all provincial rules.

A spokesman for the Alberta energy regulator said Monday that none of the pipelines specified in the order had been shut down yet “due to the integrated nature of operations at Long Lake”, but that Nexen had assured the government that it is taking steps to make that happen.

The AER’s action poses challenges for parent company Cnooc, which bought Nexen for $15 billion in 2013 and installed its own management team to run it last year. The July pipeline leak forced Nexen to halt production of 9,000 barrels a day of heavy oil and raised questions about the safety of its operations.


6 Comments on "Canadian Oil Sands Halts Crude Production at Oil-Sands Giant Syncrude"

  1. Makati1 on Mon, 31st Aug 2015 8:30 pm 

    Oops! Another setback to the tar sands dream. The sooner it all shuts down, the better for the planet and the future of homo sapiens.

  2. Kenz300 on Mon, 31st Aug 2015 11:35 pm 

    Can this operation still be profitable with oil at these current prices?

    What is the break even cost of production?

    Seems like this would be one of the highest cost producers and the most likely to shut down production at these prices.

    They are having troubles maintaining pipelines……..

    Guess there is no reason to build the Keystone pipeline.

  3. marko on Tue, 1st Sep 2015 7:28 am 

    Can this operation still be profitable with oil at these current prices?
    Yes because they can get wet ink printed dollars as much as they need

  4. Kenz300 on Wed, 2nd Sep 2015 8:22 am 

    Exxon Mobil has enough cash to keep this project going even if it is losing money………

    Electric vehicles and bicycles are the future…….

  5. Makati1 on Wed, 2nd Sep 2015 8:57 am 

    Kenz, are you operating on the theory that if you say it often enough, it will be true? Or, are you a computer program subsidized by the ‘renewable’ crowd? Or are you so afraid of a future without all the conveniences we still enjoy?

    “US clean energy suffers from lack of wind”
    “Uncle Sam’s Solar Racket——A Cesspool Of Waste And Corruption”
    “How the US and the WTO Crushed India’s Subsidies for Solar Energy”
    “Shock as ministers end solar farm gold rush by slashing energy subsidies by 87 per cent”(UK)

    All on ricefarmer this week.

  6. onlooker on Wed, 2nd Sep 2015 9:42 am 

    I think Mak, that Kenz, was talking about keeping oil sands going not necessarily renewables going. I think oil sands is much worse for the future. At least with renewables a relative small amount of people can keep it going indefinitely without harming the surrounding area while with Oil sands it like nuclear is predicated on a stable technological civilization.

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