Canada's oil production weakened by Fort McMurray fire

EDMONTON, Alberta, May 13 (UPI) -- Even as the situation becomes less severe, it may be the third quarter of 2016 before Canadian oil sands operations return to normal, a government report shows.

Fires in the Fort McMurray area of Alberta have moved east toward the provincial border with Saskatchewan and most energy companies working in the oil-rich area have started to assess their situations.

A short-term market report from the Energy Information Administration in the United States, which counts Canada as its No. 1 oil supplier, said up to 1 million barrels per day were impacted by wildfires that struck the heart of the Canadian oil industry.

In its report, EIA said it expects second quarter oil production in Canada will be "significantly" lower than before the fires erupted in early May.

"Depending on the extent of damage, production outages could carry forward into summer," the report read. "Canada's production in the second quarter of 2016 will fall by an average of 0.5 million b/d from first-quarter levels before rebounding in the third quarter."

Alberta Premier Rachel Notley met this week with energy company executives to get a first-hand account of the situation. The provincial government said the Canadian oil sands industry was spared in large part by the fires.

Royal Dutch Shell was among the first to start a limited return to production and, this week, Enbridge announced it had restarted some of its pipeline services in the area.

Canada's oil sector is already feeling the impact of lower crude oil prices. Enbridge this week reported strong first quarter results, with President and CEO Al Monaco touting the performance as an indication of the industry's resilience.

"Our ability to generate predictable cash flow growth is a testament to the strength of our asset base and our low risk business model which is built to withstand the current downturn in commodity markets," he said in a statement.

Nevertheless, Alberta's government said it expects to linger in recession. The economy, measured in real gross domestic product, should shrink by 1.1 percent in 2016, after a 1.5 percent decline for full-year 2015. The total revenue forecast for the fiscal year of $31.2 billion is $478 million lower than estimated in the budget last year.

In its latest update on the fire response, the provincial government said it expects to release plans for re-entry into the Fort McMurray area within the next two weeks. Around 90,000 people were evacuated and the region remains off limits, except for essential personnel.