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Apocalyptic Alberta Wildfire Could Stunt Canada’s Economy as Oil Production Slows

As workers evacuate the town and take refuge, oil production is slowing — and it might not pick up again for quite some time. That could hurt Canada's GDP growth.

by Hilary Beaumont
May 5 2016, 10:10pm

Photo via the Canadian Press/Mary Anne Sexsmith-Segato

An apocalyptic wildfire raging in the heart of Canada's oil sands is already having a major economic impact beyond the devastated town of Fort McMurray.

Canada's GDP will likely take a hit from the disaster, one economist tells VICE News, while oil production has slowed by as much as one million barrels per day, according to the Financial Post. The now 85,000-hectare forest fire spread south on Thursday, shutting down ConconoPhillips' Surmont oilsands project and Nexen's Long Lake facility.

The slowdown in production in Fort McMurray could push oil prices higher, and may have already begun to. The West Texas Intermediate (WTI), the North American index for oil, grew slightly as the fires raged in northern Alberta, hitting a high of $45 per barrel on Thursday before declining slightly as the trading day ended.

Other major oil producers had already reported slowdowns. Shell Canada stopped work at its Albian Sands operation, and a staff shortage led Suncor Energy to slow its Millenium and North Steepbank mines. The wildfire also reportedly cut off a diluent pipeline that was supplying Husky Energy's Sunrise thermal oilsands project.

Chelsie Klassen, spokesperson for the Canadian Association of Petroleum Producers (CAPP), told VICE News the slowed production in the oilsands was mostly due to companies evacuating non-essential staff to make room for fleeing residents. "It isn't [due to] a threat from the fire at all," she said. "It is [due to] making room for community members so that they can stay in a safe place."

Related: Muslims in Alberta Pray for Rain as Raging Wildfire Forces More People to Flee

Questions remain about whether the fire could potentially light the nearby oil sands. Tailing ponds aren't flammable, Klassen said, but it is possible for the oil sands to burn if the fire reaches areas where it is mined. "Any hydrocarbon does have the ability to burn, however with the oil sands composition being mostly sand, that is at a very, very slow rate," she said.

But while Klassen minimized the impact of the fire on production, an economist told VICE News the stoppage at oil sands facilities could have a nation-wide economic impact.

"The oil sands output is more than half right now of Alberta's oil production, and because they can't get workers in there, all of that production gets shut off right now," Todd Hirsch, Chief economist with ATB Financial, told VICE News. The second hit will be to the local economy, which will also have a negative impact on output, he added.

"Think about what kind of society you want to live in, and if you ever got hit with this shock, what would you hope the rest of Canadians would do for you in the long term — not just in the next couple weeks."

"For the month of May we will see a big drop in output, and it will probably show up on national numbers. ... Depending on what else is going on in the Canadian economy, I do expect that the disaster and the pullback in the Canadian oil sands production will be enough to probably move that national GDP number negative."

But those numbers will depend on how long the wildfire burns. "If the fire gets under control today and we get some rain up there and they're able to put it out, we get workers back into those facilities, say within a week, then that output pullback is not going to be enormous," he said. "But at this point, we have no idea how long it's going to be until we can get workers back up there, and at this point that fire in Fort McMurray is nowhere near under control."

"If it goes on for weeks, and that oil production is delayed or halted, even though it is temporary, then it does start to have an impact on the GDP of Alberta and of Canada."

The GDP numbers may actually increase in June and July due to disaster relief, but Hirsch cautioned against viewing those numbers as a positive economic benefit from the fire.

Related: 'No, You Can't Take the Cat': People Are Rescuing Pets Stranded By Alberta's Wildfire

University of Calgary economics professor Herb Emery concurred with Hirsch's thinking, calling any perception of an economic boost post-disaster "crazy."

"This is one of these bizarre perceptions that because we destroy the capital stock and rebuild we get this boost to the economy. But by that logic, we should be blowing up subdivisions every year at random and just getting the kick, and it makes no sense."

The wildfire hit during an economic downturn in Alberta due to a worldwide downturn in the price of oil, and for Emery, the hardest punch will be to the locals who called Fort McMurray home.

"You had a lot of people who might have been hanging around hoping for a recovery, and the jobs would come back, and so now when you look at this, it's just devastating," he said.

The future for Fort McMurray residents is uncertain, he said, with mounting questions of how long aid and insurance will take to come in, and whether they will have to look for work elsewhere.

"They don't even have a clue what the time horizon would be until the jobs do come back, and there's a good chance that that town and community will never rebound to what it was before," he said.

Related: 'It's a Fucking Ghost Town': Inside Canada's Fort McMurray As It Burns

On Thursday, Prime Minister Justin Trudeau pledged disaster relief and vowed the government would match individual donations to the Red Cross. Conservative leader Rona Ambrose applauded Trudeau's promise to match donations, and also asked that the government give priority to Fort McMurray in future infrastructure investments.

Natural disasters always trigger an outpouring of support for victims, Emery said, but he encouraged Canadians to think longer term about their generosity toward Fort McMurray residents.

"What people need to understand is that this is going to be a long adjustment and the families that are affected are going to need support for a long time, not just in the next few weeks, and this is going to require a commitment from both levels of government to be deliberate and consistent in sticking to helping them out," he said.

"Think about what kind of society you want to live in, and if you ever got hit with this shock, what would you hope the rest of Canadians would do for you in the long term — not just in the next couple weeks."

Follow Hilary Beaumont on Twitter: @HilaryBeaumont

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