A Syncrude transformer failure takes 360 MBOPD offline

On Friday OPEC secured an agreement to add production back onto the market in order to avoid a possible oil shortage due to declining production in Venezuela and Iran.

A disruption in Canada, however, has now singlehandedly wiped out half of OPEC’s added output, at least in the short term.

Syncrude’s oil sands facility near Fort McMurray will shut down for several weeks for repairs, cutting off a major source of oil production. A power transformer failed, forcing the entire complex offline. The facility, which has a capacity of 360 MBOPD, is likely to be offline until at least July. Syncrude is a joint venture majority owned by Suncor Energy, with minority stakes held by Imperial Oil, Sinopec and Nexen.

This shutdown, then, will immediately offset much of OPEC’s planned increase in production. The group agreed late last week to theoretically add 1 MMBOPD to its output, but estimates vary widely regarding how much production will actually come online. Different oil ministers have quoted levels from 500 MBOPD to 700 MBOPD, meaning this shutdown will wipe out at least half of any OPEC increase.

The Syncrude shutdown will likely help other Canadian producers, as it temporarily opens up space on crowded Canadian pipelines. It may also benefit U.S. companies, as a shortage of 360 MBOPD in the peak of summer demand can cause larger-than-planned inventory draws, boosting prices.

A month-long shutdown of 360 MBOPD is a major disruption, equivalent to shutting down the crude output of EOG Resources (ticker: EOG). This pales in comparison to the largest disruption seen in Canada, however, the massive Fort McMurray fire two years ago. That fire took more than 1 MMBOPD of production offline, and Canadian crude output took three months to recover.

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