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March 5, 2007 at 5:53 pm #4043
Oil refiners hit by ‘the perfect storm’
Canada sits on the second largest oil reserves in the world, but that’s cold comfort for drivers running on empty and paying a buck a litre — if they could get it
ANTHONY REINHART AND NORVAL SCOTT
Canada may boast of oil reserves second only to Saudi Arabia, but a “perfect storm” of refining problems has forced gas stations to close this week in both Quebec and Ontario and showed how precarious the day-to-day supply really is.
Shortages pushed prices up and sparked calls from some federal politicians for greater regulation. The trucking industry pushed for permission to work longer hours and use a restricted form of high-sulphur diesel to keep deliveries moving.
The partial resumption of production midweek at a fire-damaged Imperial Oil refinery in Ontario was a ray of hope for motorists. But supply problems were still spreading at that point and the company said its refinery wouldn’t be fully operational until the middle of this month.
Dozens of gas stations, most of them in the Greater Toronto Area, have been strategically closed in order to keep others open through the shortage. There were reports that some were asking customers to limit their purchases voluntarily.
At the same time, problems at a Shell Canada refinery in Montreal led to a smattering of closed pumps in Quebec. There was no word when they would be reopened.
Through the week, David Bradley, president of the Ontario Trucking Association, grew increasingly concerned that fuel shortages could slow deliveries. Noting that trucks deliver 90 per cent of consumer products and foodstuffs and handle 75 per cent of trade with the United States, he worried about an economic spillover as company stockpiles ran short and truck stops had to close.
In spite of the difficulty, the trucking industry was turned down yesterday in its request to use the higher-sulphur diesel. According to the federal government, allowing that type of fuel into the supply chain could contaminate it “for some time.”
By now, it’s unlikely anyone with a car has not heard the official explanations for Central Canada’s fuel shortage: A fire Feb. 15 at an Imperial Oil refinery in Nanticoke, Ont., followed by a CN Rail strike that hampered efforts to bring in relief supplies of gasoline, followed by a rush on gas at Imperial’s retail competitors, further straining supply. There were also problems with machinery used to break down heavy hydrocarbons into simpler molecules at Imperial Oil’s refinery in Sarnia, Ont. The catalytic cracker required unscheduled maintenance this week and was down for several days, said a spokesman, who expected it to be restarted last night or this weekend.
Observers and refining firms have pegged the shortage on the “perfect storm” of circumstances not likely to be repeated soon. But others said it unmasked a razor-thin margin between supply and demand, wrought by a lack of refining capacity that leaves Ontario and Quebec particularly vulnerable, no matter how much oil might gush forth from Alberta — a province that, incidentally, could have faced similar problems during the rail strike had its refineries encountered breakdowns.
“This isn’t the first time we’ve had a tight situation in the province, but the oil companies couldn’t care less,” said Rick Hammond, vice-president of Gra-Ham Energy, an independent oil marketing firm based in St. Mary’s, Ont.
Mr. Hammond said refiners have been allowed to reduce their spare capacity in the region to wafer-thin levels, without providing adequate safeguards to prevent supply problems. He said Toronto suffered brief supply constraints in 2005 after hurricanes Katrina and Rita led to panic buying in advance of soaring prices.
“This is mismanagement,” Mr. Hammond said. “The government has managed to create a crisis because they don’t listen to the people on the ground. They don’t seem to care, but this could cause major problems in the economy.”
The problems that crossed Daniel Robinson’s mind were far more immediate after he arrived for work as Haldimand County’s fire chief on Feb. 15.
Morning broke cold that day, but it didn’t take long for Chief Robinson’s roster of volunteer firefighters to shake off the chill when the call from the Imperial Oil refinery in Nanticoke came in at 8:24 a.m.
It’s the kind of call for which municipal firefighters train through annual familiarization tours at all the big local industries, and continuing updates from the refinery on changes at the plant, which looms large on Lake Erie’s north shore.
Still, with 27 years of firefighting under his belt, Chief Robinson knows better than to make assumptions.
“Every time the pager activates, depending on what you hear coming from dispatch, you’re not sure what you’re going to get into,” said Chief Robinson, who followed two of his pumper crews — 20 men in all — to the refinery that morning, as protocol dictates. “You try to gear your emotions accordingly when responding.”
When they arrived at 8:38, it was clear that Imperial’s in-house emergency response team, led by Dave Otterman, the refinery’s full-time fire chief, was well on its way to bringing the fire to heel. “We just went in and assisted them and got the job done,” Chief Robinson said.
The fire had ignited, outdoors and at ground level, in a pump at the base of a vacuum tower, part of the refinery’s crude-oil processing unit. It took three hours for Imperial’s fire team and their Haldimand County colleagues to put the fire out with water and chemical foam.
“With the exception of the smoke, which may have led you to believe there was a problem on the property, there certainly wasn’t a lot of panic and stir within the property itself,” Chief Robinson said. “Everything was very regimented, and the emergency-response team from Imperial Oil had a job to do, and they went about their business and did their job.”
Just four hours after receiving the jolt of that initial call, the Haldimand crews were packed up and on their way back to their respective stations in Selkirk and Jarvis.
What had begun as a significant-sounding incident looked decidedly less so through Chief Robinson’s rearview mirror. The plume of black smoke was gone, and was never that big to begin with.
“Now, it’s easy for me to say that,” he said. “Somebody who lives two kilometres away might think differently; they see a plume of smoke coming from a refinery, I mean, their reaction might be somewhat different.”
Given what ensued in the days and weeks to follow, his words were apt.
Later on Feb. 15, news of the fire and resulting shutdown of the 118,000-barrel-a-day refinery was reported as a business story — and a somewhat positive one at that, as oil company shares rose on word of the drop in supply.
Five days later, the media began reporting rising retail prices for gasoline, beyond 90 cents a litre, as Imperial began to shut off pumps at 75, and then 100, of its 400 Ontario gas stations.
Calling the Nanticoke fire the “straw that broke the camel’s back,” a company official also cited a December fire at its Sarnia refinery for reducing supply, and the CN conductors’ strike and cold weather for impeding rail and marine transport of fuel into Ontario.
As pump prices continued to climb and the shortage spread to competing fuel chains, it became clear that the supply problem was not Imperial’s alone, but an industry-wide inability to make up the Nanticoke shortfall.
Refiners can usually cope with unplanned outages by securing supplies from elsewhere, using up inventories and maximizing production at other regional facilities. However, none of those options was available when Nanticoke went down.
When Imperial customers moved on to such competitors as Shell Canada and Petro-Canada, the latter boosted supply to its stations by about 10 per cent, but it wasn’t enough to meet demand that had jumped by 20 to 40 per cent. The company has shut down 25 small stations in the Greater Toronto Area for the duration of the supply problems, in an effort to keep its larger ones operating, while some Shell Canada, Husky Energy and Ultramar stations have also run short.
Separately, slow repairs at Shell Canada’s 130,000-barrel-a-day Montreal refinery have forced the company to reduce output there, causing stations in Quebec to run out of fuel as well.
Although the supply problems have centred on Ontario, and to a lesser extent Quebec, it shouldn’t be assumed that this couldn’t affect the rest of the country. Even Alberta could have seen gasoline shortages had its refineries encountered problems on top of the CN Rail strike.
In fact, Alberta’s gasoline supply system is even more reliant on rail transport than is Eastern Canada’s, and the lack of rail service during the CN dispute did cause some transportation issues for firms there, said Petro-Canada spokesman Jon Hamilton. The regional supply infrastructure has been put through a “huge test,” he said.
“If you wanted to see the system out west be tried, it has been,” he said. “But we’ve been able to keep communities wholly served and keep things rolling.”
Nevertheless, the province could have experienced shortages if its refineries hadn’t held up, even though the oil sands yield more than a million barrels of crude a day.
“Could this have happened in the Prairies? Absolutely — it’s a landlocked region, and that makes it difficult to bring in supplies,” said Jane Savage, chief executive of the Canadian Independent Petroleum Marketing Association. “It’s not improbable that refineries there could have had problems — it happens all the time.”
The question now is, when will it happen again?
Shell Canada’s proposed construction of a 150,000-250,000-barrel-a-day refinery in Ontario would remove some concerns, although it wouldn’t be completed until around 2010.
Until then, consumers left holding dry nozzles and lighter wallets will have to hope the outage really is a one-off, and not a harbinger of further shortages.
Demands on supply
Supply: Refineries in the Edmonton area provide the main supply hub, with crude readily available for processing from Alberta’s huge oil sands resources.
Vulnerability: Medium. Despite the abundant supply, the landlocked nature of the region leaves it relatively prone to gasoline disruptions. The Prairies’ reliance on rail for transporting crude is greater than Eastern Canada’s and, if Alberta had suffered unplanned refinery outages during the CN Rail strike, the outlook might have been bleak.
Supply: Chevron Corp. operates a 52,000-barrel-a-day refinery in Burnaby. B.C. is adjacent to U.S. refining hubs in Oregon and Washington.
Vulnerability: Low. Deepwater ports mean B.C. can meet any potential shortfall by acquiring product from overseas and the U.S. West Coast.
Supply: Four refineries process about 381,000 barrels a day of crude, supplying about 60 per cent of Ontario’s gasoline demands. Most of the rest is imported from refineries in Quebec; the amount has increased since Petro-Canada closed its 80,000-barrel-a-day Oakville refinery in April of 2005.
Vulnerability: Higher than previously thought, although the situation was clearly exacerbated by the CN Rail strike. If the St. Lawrence Seaway had been open, imports would also have been possible there.
Supply: Well supplied with refineries, with Ultramar, Shell Canada and Petro-Canada all operating large units in the region.
Vulnerability: Relatively low, despite present small-scale problems, which appear isolated to Shell Canada and in part related to companies’ current efforts to supply Ontario.
Supply: Irving Oil operates Canada’s largest refinery at Saint John. Harvest Energy and Imperial Oil also have refining facilities in the region.
Vulnerability: Negligible. The region produces far more gasoline and diesel than it consumes, largely for export to the U.S. Northeast. Product could easily be imported.
Filling up tanks from coast to coast
Imperial, Edmonton, Alta.
(180,000 barrels per day, bpd) Catalytic cracker taken down for repairs Dec. 18, 2006, after leak detected in a line feeding the unit. Refinery operated at 145,000 bpd until repairs completed about Jan. 10.
Starting Nov. 15, partial shutdown for 15 to 16 days to repair sulphur gas unit. Unplanned maintenance cut output by about 40,000 bpd.
North Atlantic Refining, Come By Chance, Nfld.
Suncor, Fort McMurray, Alta.
(260,000 bpd) (Oil sands plant) Fire at upgrader 2 diluent unit cut output by 50,000 bpd on Jan. 23. No restart date.
Syncrude, Fort McMurray, Alta.
(350,000 bpd) (Oil sands plant) Coker 8-2 unscheduled maintenance from Dec.13 to late January cut output by about 55,000 bpd.
Husky, Lloydminster, Alta.
(80,000 bpd) (heavy oil upgrader). Consumers’ Co-Operative, Regina, Sask. (55,000 bpd) (heavy oil upgrader).
Petrocan, Montreal, Que.
Shell, Montreal, Que.
Slow repairs have reduced output.
Imperial, Nanticoke, Ont.
(118,000 bpd) Fire at crude unit on Feb. 15 halted refining for several days.
Ultramar, St. Romuald, Que.
(215,000 bpd) 63,000 bpd fluid catalytic cracker unit was down for 32 days in May, 2006. No. 1 crude unit (165,000 bpd) down for 21 days and 30,000 bpd ccr reformer down for same amount of time, both in May.
Irving, Saint John, N.B.
(300,000 bpd) 130,000 bpd crude unit restarted Oct. 26, 2006 after 38-day turnaround that also included Naphtha hydrotreater and sulphur recovery units.
Imperial, Dartmouth, N.S.
Shell, Fort Saskatchewan, Alta.
Consumers’ Co-Operative, Regina, Sask.
(55,000 bpd) (heavy oil upgrader).
Shell, Sarnia, Ont.
(121,000 bpd) Fire at 18,000 bpd hydrocracker unit on Dec. 14, 2006. No date given on
return to service.
North Atlantic Refining, Come By Chance, Nfld.
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