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Canadian oil producers, consumers set to feel Harvey’s wrath
FILE PHOTO: An oil pump jack pumps oil in a field near Calgary, Alberta, Canada July 21, 2014. REUTERS/Todd Korol/File Photo

Canadian oil producers, consumers set to feel Harvey’s wrath

CALGARY: Canadian oil producers and consumers are set to be lashed by the powerful storm that has battered Houston and the wider Gulf Coast region, a key oil and natural gas refining and processing hub. Harvey, the hurricane that hit the United States over the weekend, has so far poured 42 trillion litres of water on Houston and the deluge has forced residents from their homes, flooded large areas of the city and knocked out 2.2 million barrels per day, or 24 per cent of the region’s refining capacity.

Calgary-based Encana Corp., which produces 77,000 barrels of oil per day in the U.S., primarily from the Eagle Ford and Permian shale formations in Texas, said it had been affected by the storm, but declined to say how much of the production was offline. “We continue to restore production and are working with our midstream providers,” Encana Corp. spokesperson Jay Averill said in an email. “Our staff are safe and our assets were not damaged.” Canadian pipeline companies Enbridge Inc. and TransCanada Corp. said they had shut their offices in Houston. TransCanada spokesperson Matthew John said the company is assessing “the extent and duration of this historic flood” and the company’s oil and natural gas pipelines are safe.

Precision Drilling Corp.’s investor relations manager Ashley Connolly said her company had 300 employees in Houston, in addition to a corporate office, technology centre and other facilities. All were closed Monday, but undamaged. Baytex Energy Corp., which produced an average of 21,000 barrels of oil per day from the Eagle Ford in Texas in the second quarter, did not respond to a request for comment. Baytex shares were down 4.23 per cent, Precision was off by 2 per cent, and Encana was 1.5 per cent lower, underperforming the S&P TSX Capped Energy Index, which fell 0.90 per cent on Monday.

Even though most Canadian crude oil production is shipped to refineries in the U.S. Midwest, there has so far been a modest impact of $1 per barrel on Western Canadian Select, the domestic heavy crude benchmark, according to Calgary-based GMP FirstEnergy economist Martin King. King said the discount for WCS relative to U.S. benchmark Western Texas Intermediate prices could increase depending on the length of the refinery outage in Houston. For the moment, however, he expects most Canadian barrels en route to the Gulf Coast to be stored in the Midwest, where there is available storage capacity. IHS Markit’s director of oilsands dialogue Kevin Birn said the storm’s impact on Canadian producers depends on how long the refineries are offline. “Refiners will work hard to come up, but longer they are down, as a major demand center for Canadian heavy, differentials to offshore crudes could widen,” Birn said.