Posted AT 11:47 PM EST ON 02/03/07
http://www.theglobeandmail.com/servlet/story/RTGAM.20070302.wxgas0303/BNStory/Front/home
Oil refiners hit by 'the perfect storm'
ANTHONY REINHART AND NORVAL SCOTT
From Saturday's Globe and Mail
When it comes to crude oil, it's been a decidedly odd week in Canada, an undisputed land of plenty.
In Alberta, where the supply of recoverable oil in the tar sands is said to be second only to Saudi Arabia's, the province had to ship $396-million in emergency funds to Fort McMurray to keep the boom town's lagging infrastructure from drowning in the coveted black goo.
On the same day, motorists in Southern Ontario pulled up to gas pumps that had run dry.
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.
Smoke rises from stacks as processing slowly resumes at the Imperial Oil refinery in Nanticoke, Feb. 28. Gas shortages in Southern Canada resulted after a February 15 fire knocked out production from the refinery, approximately 150 km (93 miles) south of Toronto. (REUTERS/J.P. Moczulski)
As a result, dozens of gas stations, most of them in Greater Toronto, have been strategically closed in order to keep others open through the shortage, which continued to spread through the week, even as the Nanticoke refinery resumed production.
At the same time, problems at a Shell Canada refinery in Montreal have led to a smattering of closed pumps in Quebec.
Motorists have been told to expect relief by the end of next week, while the trucking industry, faced with a dwindling supply of diesel, is pressing the federal government to temporarily relax rules requiring use of low-sulphur fuel.
Observers and refining firms pegged the shortage on a “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 early 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 about three hours for Imperial's fire-suppression 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 an earlier fire at another Imperial refinery in December for reducing supply, and the CN conductors' strike and cold weather on the Great Lakes 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 industrywide 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.
Ontario's other refineries had operational problems toward the end of 2006, with another fire at the province's largest refinery ? Imperial's 121,000-barrel-a-day Sarnia refinery ? limiting output there by 18,000 barrels a day, production that is still offline. As a result, regional distributors and retailers were already using up their stocks well before February, and inventories were thus in no shape to deal with the extra supply burden imposed by the Nanticoke fire.
Finally, firms couldn't bring in the gasoline and diesel necessary to relieve the situation, as the CN strike both prevented the use of railways and stretched the availability of road haulage.
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 oil-soaked 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.
http://www.theglobeandmail.com/servlet/story/RTGAM.20070302.wxgas0303/BNStory/Front/home
Oil refiners hit by 'the perfect storm'
ANTHONY REINHART AND NORVAL SCOTT
From Saturday's Globe and Mail
When it comes to crude oil, it's been a decidedly odd week in Canada, an undisputed land of plenty.
In Alberta, where the supply of recoverable oil in the tar sands is said to be second only to Saudi Arabia's, the province had to ship $396-million in emergency funds to Fort McMurray to keep the boom town's lagging infrastructure from drowning in the coveted black goo.
On the same day, motorists in Southern Ontario pulled up to gas pumps that had run dry.
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.
Smoke rises from stacks as processing slowly resumes at the Imperial Oil refinery in Nanticoke, Feb. 28. Gas shortages in Southern Canada resulted after a February 15 fire knocked out production from the refinery, approximately 150 km (93 miles) south of Toronto. (REUTERS/J.P. Moczulski)
As a result, dozens of gas stations, most of them in Greater Toronto, have been strategically closed in order to keep others open through the shortage, which continued to spread through the week, even as the Nanticoke refinery resumed production.
At the same time, problems at a Shell Canada refinery in Montreal have led to a smattering of closed pumps in Quebec.
Motorists have been told to expect relief by the end of next week, while the trucking industry, faced with a dwindling supply of diesel, is pressing the federal government to temporarily relax rules requiring use of low-sulphur fuel.
Observers and refining firms pegged the shortage on a “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 early 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 about three hours for Imperial's fire-suppression 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 an earlier fire at another Imperial refinery in December for reducing supply, and the CN conductors' strike and cold weather on the Great Lakes 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 industrywide 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.
Ontario's other refineries had operational problems toward the end of 2006, with another fire at the province's largest refinery ? Imperial's 121,000-barrel-a-day Sarnia refinery ? limiting output there by 18,000 barrels a day, production that is still offline. As a result, regional distributors and retailers were already using up their stocks well before February, and inventories were thus in no shape to deal with the extra supply burden imposed by the Nanticoke fire.
Finally, firms couldn't bring in the gasoline and diesel necessary to relieve the situation, as the CN strike both prevented the use of railways and stretched the availability of road haulage.
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 oil-soaked 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.
