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Casualty of the inferno

Damage spreads across supply chain

OIL MARKETS have been focused on how western Canada's wildfires would affect crude production. The impact on natural gas may prove worse. The fires in Fort McMurray in May forced oil sands producers to shut in 1.3m barrels a day for most of the month and much of June. But those plants consume nearly 1bn cubic feet a day of natural gas to generate heat and steam for extraction. Analysts estimate that only a third of lost gas demand has returned.

The impact on domestic gas markets has been devastating. Intra-Alberta pricing at the Alberta Energy Company (Aeco) hub fell to C$0.05 ($0.04) per million British thermal units on 9 May, before ending at C$0.38, the lowest settle price since records began in 1985.

Domestic markets recovered somewhat as fires receded and oil production was restored. But the Alberta government's monthly reference price - used by regulators to calculate royalties to the Crown - stood at C$1/m Btu in May, also the lowest since 1985.

Gas production continues to outstrip demand. US exports have long been dwindling so the outages have accelerated a build-up in inventory. According to field-level pipeline receipts from the major shippers, western Canadian producers now export only 8bn cf/d to the US - down from more than 10bn cf/d in 2007 - against production of about 14bn cf/d.

Once May's local demand of 4bn cf/d was accounted for, the impact of the fires left about 2bn cf/d stranded with nowhere to go. Storage typically peaks at 0.7 trillion to 0.8 trillion cf in October before falling as winter sets in and heating demand takes up the slack.

But in late May, the levels stood at 0.637 trillion cf, or 92% capacity, the highest in five years and well above the 449bn cf at this time last year.

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