December 17, 2009 / 2:50 PM / 8 years ago

UPDATE 6-Fire halves Suncor's oil sands upgrader output

* Cuts up to 150,000 bpd synthetic crude output

* Repairs may take two to four weeks

* Outage has little effect on crude futures

* Suncor shares drop 3.6 percent after incident (Adds company to go ahead with 2010 planned maintenance in pentultimate paragraph, closes shares.)

By Janet McGurty and Scott Haggett

TORONTO/CALGARY, Dec 17 (Reuters) - Suncor Energy Inc (SU.TO) said on Thursday that output of synthetic crude from its largest oil sands project north of Fort McMurray, Alberta, will be halved for up to a month after a brief fire damaged one of two upgraders at the site.

Canada's largest oil producer said it expects output to be reduced by 120,000 to 150,000 barrels per day during the two to four weeks it takes to repair the Upgrader 2 unit following Tuesday's fire.

"We are working to determine the cause of the fire," said company spokeswoman Sneh Seetal.

U.S. traders said the outage shouldn't have much impact on oil futures prices, since it comes at a time when U.S. crude stocks are well above five-year historical average levels for this season and refiners aren't competing much for barrels.

The fire at the Suncor unit followed an earlier blaze there in mid-October which cut output for around two weeks. The unit is capable of producing up to 175,000 barrels of synthetic crude a day.

Fires are not uncommon at the massive upgraders that Suncor and Syncrude Canada and others use to convert the tar-like bitumen stripped from the oil sands into refinery-ready synthetic crude.

A serious blaze broke out at the Suncor project in January 2005 and water used to fight the fire froze and encased an upgrader in ice. Production was cut in half for the eight months it took to complete repairs.

This week's fire broke out at 10 a.m. local time on Tuesday in the upgrader's coker unit. It was extinguished within an hour and there were no injuries.

The fire "is disappointing but it's not like we're not used to hearing about interruptions at Syncrude and Suncor," said Michael Dunn, an analyst at FirstEnergy Capital.

Despite the outage, Seetal said Suncor didn't expect to change its 2009 production outlook of between 290,000 and 305,000 bpd from the Fort McMurray site. The company had averaged output of 314,000 bpd in November.

Suncor recovers bitumen from oil sands operations in northern Alberta and upgrades it into synthetic light crude that can trade at a premium to other varieties because it contains few residual products. It also produces some diesel fuel.

The company's 135,000 bpd refinery in Edmonton, Alberta, runs oil sands-based feedstock to make gasoline and diesel but Fort McMurray output is not the sole supplier of feedstock.

"We have a number of other contractual agreements for supply," Seetal said.

The refinery, acquired by Suncor with the purchase of Petro-Canada in July, is fed by former Petro-Canada oil sands production as well as from Syncrude and outside contracts.

The refinery also has some bitumen upgrading capabilities of its own.

While traders said they didn't expect much of an impact on oil futures, the loss of Suncor supply may help push up some differentials for light, sweet cash crude or syncrude, since refiners may seek additional cargoes to substitute the Suncor crude.

"Lately, supply has been so abundant in most regions that single outages have had only a muted effect on prices," one trader said. "When you consider U.S. refinery capacity running at below 80 percent and (even that) has not helped product prices or improved refinery margins much at all. "

U.S. sour crude grades for February delivery, such as Mars MRS- and Poseidon PSD-, may weaken if some refiners refrain from running some sour crudes because they need to reduce the sulfur and residuals content of their inputs, a cash crude market source predicted.

Likewise, differentials for grades such as Light Louisiana Sweet LLS-, which has lower sulfur content than benchmark West Texas Intermediate WTC-, may trade at stronger differentials,

Suncor previously expected to do six weeks of work on Upgrader 2 during the second quarter of 2010. Seetal said the fire has not changed those plans.

Suncor shares fell C$1.35 to C$36.55 on the Toronto Stock Exchange on Thursday. (Additional reporting by Joshua Schneyer in New York; editing by Rob Wilson)

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