August 31, 2015 / 2:41 PM / in 2 years

Canada synthetic crude spikes on Syncrude fire, Nexen pipelines

The Nexen building is seen in downtown Calgary, Alberta, July 23, 2012. REUTERS/Todd Korol

CALGARY, Alberta (Reuters) - Canadian light synthetic crude prices spiked higher on Monday after a weekend explosion and fire at the Syncrude oil sands project in northern Alberta halted production and regulators ordered pipeline shutdowns at a separate Nexen Energy site.

Traders scrambled to secure temporarily short supply after a fire early Saturday morning at the 326,000 barrel per day (bpd) Syncrude facility, Canada’s largest synthetic crude project, disrupted output.

Canadian Oil Sands Ltd, the largest-interest owner in the Syncrude joint venture, did not give any estimate as to when production would resume.

In a separate incident, CNOOC-owned subsidiary Nexen Energy said it was working to comply with a weekend order from the Alberta Energy Regulator to shut in 95 pipelines at its Long Lake oil sands facility, also in northern Alberta. Long Lake produces around 50,000 bpd of bitumen, which is upgraded on site into refinery-ready synthetic crude.

Light synthetic crude from the oil sands for September delivery jumped to a one-month high of $1 per barrel below the West Texas Intermediate benchmark, according to Shorcan Energy brokers, rallying hard from $4.50 per barrel below WTI on Friday.

Volumes in the Canadian crude market were thin, adding to volatility, as the market is outside the nearly three-week-long trading window - from the first of each month until the day before pipelines nominations are due - in which the bulk of activity takes place.

Canadian Oil Sands said the fire damaged equipment at its processing facility. It occurred in the interconnecting piping between the hydrotreating units and environmental units at Syncrude’s Mildred Lake upgrader.

The main coker conversion units were not damaged and Syncrude continues to operate. However, the company suspended synthetic crude oil production and is developing a recovery plan, COS said in a statement late on Sunday.

Syncrude produced 326,000 bpd in July but has averaged 261,500 bpd so far this year following a major turnaround in the second quarter.

Nexen was ordered to shut in pipelines on Friday at its Long Lake project because of safety issues identified following a large bitumen emulsion spill in July.

Nexen said on Saturday it will provide more information about the impact of the suspension as it becomes available.

Nexen is also a partner in the Syncrude joint venture. Other partners are Suncor Energy Inc, Imperial Oil Ltd, Nippon Oil subsidiary Mocal Energy Ltd, Murphy Oil Corp and China’s Sinopec.

Additional reporting by Supriya Kurane in Bengaluru and Catherine Ngai in New York; editing by Gopakumar Warrier and James Dalgleish

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