As of May 7, 82 active wildfires have burned approximately 391,000 hectares
Multiple wildfires have sparked across the Canadian province of Alberta this month, forcing tens of thousands of residents to evacuate from their homes and interrupting oil and gas production across the region.
According to the Government of Alberta, there were 82 active wildfires across Alberta, 24 of which are categorized as “Out of Control” as of May 9 at 5:00 p.m. local time (Figure 1). Approximately 391,000 hectares of forest have burned as of May 7, the majority in the Silver Lake Forest Area in central Alberta and the Edson Forest and Rocky Mountain Forrest Areas in southwestern Alberta.
Strong winds and high temperatures caused the unusually dry conditions that are responsible for the early-season wildfire breakout in Alberta. Wildfires are not uncommon in western Canada; however, the early start to the 2023 wildfire season is a result of low precipitation totals from both rain and snowfall during the winter months.
Conditions are expected to improve slightly during the week of May 8 when the high-pressure system sitting over Alberta moves east, allowing cooler temperatures and wetter conditions can move into the area.
Cost of Living: Mandatory Residential Evacuations
A provincial state of emergency was declared on May 6. Mandatory evacuation orders are in place across the province for more than 29,000 residents, according to a press release issued on May 8 by the Alberta government. Many residents who are under evacuation orders or whose homes have sustained wildfire damage reside in smaller, sparsely populated regions.
Standard homeowner policies in Canada cover wildfire damage, including the cost of living expenses for those forced to evacuate. “Cost of living” is an umbrella term that encompasses hotels, food and other expenses incurred while away from a primary residence. However, purchasing a new policy or renewing an existing one while one’s home is in a mandatory wildfire evacuation zone may limit the types and amount of coverage available. While homeowner insurance is not mandatory, many Canadian banks require proof of insurance prior to lending.
The residential insurance industry may not incur a catastrophic impact on loss ratios and reserves from this particular outbreak, but the wildfire season has only just begun. By year-end, the aggregated impact of a long wildfire season, thanks in part to a warmer and dryer climate, could be detrimental to the industry.
Operations on Hold: Oil and Gas Industry Across Alberta
The Alberta wildfires will likely have substantial impacts on oil and gas production operations in Alberta. Figure 2 depicts the Canadian crude oil pipeline network, much of which is at risk of shutdown due to the wildfires.
Alberta is home to some of Canada’s oil sands, the largest crude oil deposits in the world. According to the Canadian Association of Petroleum Producers (CAPP), Alberta is home to five oil sand areas totaling approximately 14 million hectares. The largest is the Athabasca Oil Sand Area, which covers 9.33 million hectares in northeastern Alberta.
Oil production in Alberta is responsible for 80% of Canada’s total oil production. In 2021, the region generated 2.84 million barrels per day. In addition to crude oil, Alberta is home to 213 trillion cubic feet of natural gas reserves, which in 2021 produced about 10.1 billion cubic feet per day. Surface mining, refining and distribution systems are in place across the province and are at risk of damage and shutdowns due to the wildfire activity.
Pembina Pipeline Corporation halted operations at some of its facilities due to mandatory evacuations, according to a press release from Monday, May 8. Natural gas plants north of Hilton and west of Fox Creek, Alberta were shut down along with their combined production capacity of 443 million cubic feet per day. Additional infrastructure, such as pumps and pipelines shut down as well. Whitecap Resources Inc., an oil producer in Alberta, reported on Monday, May 8 that proactive shutdowns of production and downstream third-party interruptions will result in lower Q2 production volumes.
Little wildfire physical damage has been reported to oil and gas infrastructure; however, the interruptions to production may have substantial downstream impacts due to decreased volumes and delays in energy transport.
In 2016, wildfires burned approximately 580,000 hectares in northern Alberta, hitting many of the same regions under evacuation orders today and resulting in the costliest natural disaster in Canadian history. According to the Canadian Public Safety Office, over 2,400 homes and businesses were destroyed and 90,000 people were evacuated, resulting in an estimated total cost of $4.1 billion, approximately $3.6 billion of which were insurance payouts. The wildfires in Alberta this month are not as severe as in the 2016 season. Conditions are improving thanks to firefighting efforts and changes in weather patterns.
The CoreLogic Hazard HQ Team will continue to monitor the situation in Alberta.
Please email [email protected] with questions regarding the Alberta wildfires or any CoreLogic event response notifications.
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