Power output in Alberta oil sands near pre-fire levels

(Reuters) - The amount of power generated by cogeneration electric plants around the fire-ravaged town of Fort McMurray in Alberta, Canada, climbed near levels seen before wildfires forced oil sands producers to shut their facilities in May.

A group of South African firefighters work to uproot a tree as they remove hot spots from a massive wildfire outside of Fort McMurray, Alberta, Canada June 2, 2016. REUTERS/Topher Seguin/File Photo

Analysts look to the rising output from the cogeneration plants as a precursor to an increase in production from the oil sands facilities.

“The rising cogeneration output says that most of these operations are fully up or on the way back,” said Martin King, an analyst at Alberta energy advisory FirstEnergy Capital.

Cogeneration plants produce electricity that powers oil sand operations, as well as steam to cook the oil sands to produce crude.

Total cogeneration production around Fort McMurray hit 1,216 megawatts midday Thursday as several plants boosted output, up from 989 MW Wednesday morning, according to the Alberta Electric System Operator, which operates the province’s power grid.

Before the wildfires started on May 1, the Fort McMurray units were producing about 1,300 MW, according to local media reports. Power production fell as low as 342 MW on May 17.

A couple of cogeneration units remain out of service at the Nexen and MacKay River facilities, the latter of which is dealing with a clogged pipeline.

Oil sands production in the Fort McMurray area was still curtailed by about 400,000 barrels per day on Wednesday, down from a peak of about 1.2 million bpd shut in mid-May, according to FirstEnergy. That includes maintenance outages started prior to the fires and shut-ins since the fires started on May 1.

Since the start of May, oil sands crude output has been reduced by an average of 780,000 bpd, FirstEnergy said.

Alberta’s oil sands capacity is about 2.2 million bpd, according to Reuters data.

The loss of the oil sands curtailed Alberta demand for gas by as much as 0.6 to 0.9 billion cubic feet per day, according to FirstEnergy research in May.

That caused prices at the Alberta benchmark AECO gas hub to collapse to record lows below 50 cents Canadian per thousand cubic feet in early May.

AECO prices have since recovered to over C$2/mcf this week in part due to increased demand for the fuel from oil sands facilities and rising exports to the United States during a heat wave there earlier this week.

“The oil sands are providing a home for local gas production in Alberta that does not have a place in storage, which is mostly full in the western part of Canada,” said Richard Redash, managing director, natural gas, at energy consultancy PIRA in New York.

Gas storage in Western Canada was over 91 percent full last week according to data provider Enerdata Ltd.

Reporting by Scott DiSavino; Editing by Chizu Nomiyama