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Oil sands restart plans thwarted as Alberta fire threat returns

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Plans to bring back more than 1 million barrels a day of lost production in Canada's oil sands are being delayed as wildfires sweeping across northern Alberta threaten operations again, prompting Suncor Energy Inc to evacuate three sites it was restarting.

[CALGARY] Plans to bring back more than 1 million barrels a day of lost production in Canada's oil sands are being delayed as wildfires sweeping across northern Alberta threaten operations again, prompting Suncor Energy Inc to evacuate three sites it was restarting.

The nation's largest oil producer is flying employees from its MacKay River, Firebag and base plant sites as it shuts down the facilities days after beginning the process of resuming output. The wildfire that's raged for more than two weeks circled back north of the city toward the main operations in the oil sands, the world's third-largest reserves.

About 8,000 workers were removed from lodging facilities as the blaze grew to about 3,550 square kilometres (1,370 square miles), Alberta Premier Rachel Notley said. That's an area bigger than Rhode Island. Horizon North Logistics Inc's Blacksand lodge, a work camp about 40 kilometres (24 miles) northwest of Fort McMurray that serves Suncor and Syncrude Canada Ltd sites, some of the largest oil-sands facilities, was destroyed by fire, Ms Notley said.

"Mother Nature continues to be our foe in this regard and not our friend," Ms Notley said in a briefing. Westerly winds will push the fire closer to Suncor and Syncrude oil-sands plants, though fireproofing should mean "very high resiliency" of both facilities, she said.

"We expect fire growth in the area of many of these camps today."

The delay to restarts is another setback for Canada's economy and energy industry in what is already estimated to be the country's costliest disaster, following the evacuation of more than 80,000 people from their homes earlier this month as entire neighborhoods in Fort McMurray were razed.

Oil-sands output has been reduced by about 1.2 million barrels a day, according to estimates from the Conference Board of Canada. The research group forecasts that 14 days of production cuts represents a hit of about C$985 million (S$1 billion) to the Alberta economy.

Suncor is focused on moving people out of the oil-sands region, Sneh Seetal, a spokeswoman, said by phone. The MacKay River, Firebag and base plant mine sites together have a capacity to produce about 740,000 barrels a day.

Syncrude, a joint venture controlled by Suncor, also evacuated workers because of the fire threat, Will Gibson, a spokesman, said in an e-mail.

Syncrude's Mildred Lake and Aurora mines together have a capacity to produce about 407,000 barrels a day.

Winds from the south and west and hot weather are expected to cause fires to continue to spread, Travis Fairweather, an Alberta Forestry spokesman, said by phone.

There are 1,754 firefighters, 208 helicopters, 412 pieces of heavy equipment and 29 air tankers currently battling fires across Alberta, including the blaze around Fort McMurray, the provincial government said.

The renewed threat to oil-sands production helped push crude to a seven-month high on Tuesday. West Texas Intermediate gained as much as US$1.04 to US$48.76 a barrel in after-hours trading as of 5:21 pm on the New York Mercantile Exchange, the highest since Oct 12.

The reduced production will cut Alberta's gross domestic product by about 0.33 per cent this year and erode Canada's GDP by 0.06 per cent, the Conference Board said in a statement Tuesday.

The rebuilding effort to replace the 2,400 homes and buildings in Fort McMurray destroyed by the fires will add about C$1.3 billion to the economy next year.

"The shutdown of activity in Fort McMurray and in the oil sands will have a major impact on the local economy in the short term," the Ottawa-based group said.

The Conference Board estimates are in the range of what the Alberta government is considering, though it's too early to provide specific figures, Ms Notley said.

Oil-sands production came offline as companies took precautionary measures including evacuating workers and shutting down power lines and pipelines. Companies are taking similar measures again. Inter Pipeline Ltd said Tuesday it had partially shut down its Polaris and Corridor systems due to fires.

The fires came within a kilometre of Enbridge Inc's Cheecham oil terminal, where crude is stored and shipped from the Athabasca region about 75 kilometres southeast of Fort McMurray.

Enbridge sought to widen an existing firebreak around the terminal and spray down the facilities, Graham White, a company spokesman, said by e-mail Monday. Some pipelines in and out of the terminal were operating.

Other work camps are currently threatened by the fire, in addition to the Horizon North facility that was already destroyed, officials said on Tuesday.

Highway 63, the main road in and out of Fort McMurray that has been closed for periods during the fire, is very likely threatened and may close again, Ms Notley said.

Horizon's Blacksand lodge, a 665-room facility, was safely evacuated and the company assumes it was entirely lost, Rod Graham, the company's chief executive officer, said in a phone interview.

"If the workers are being evacuated, it would delay getting back to full capacity" in the oil sands, Mr Graham said.

"This fire is unpredictable and volatile."

BLOOMBERG