Canadian Wildfires Introduce Downside Risks for Canadian Midstream in Q2

Canadian wildfires in the Western Canadian Sedimentary Basin have shut in likely in excess of 300,000 barrels per day of production, per Rystad Energy, primarily across the Montney and Duvernay plays. The number of wildfires are about 17% above 10-year averages year to date with 944 fires, but the area burned is nearly 10 times 10-year averages year to date with nearly 500,000 hectares, according to the Canadian Interagency Forest Fire Center. The impact on our Canadian midstream firms (Enbridge ENB , Keyera, Pembina, and TC Energy) is likely to be notable for second-quarter earnings but not material enough to result in fair value estimate or moat changes at this time.

Out of our coverage, Pembina is the only firm to provide an update, though we would expect assets at other firms to be affected. The firm commented that several of its gas plants shut down May 8 but were able to resume operations on May 11. It has not noted any material damage to its assets. We consider the bigger risk to be likely lower volumes running through the plants due to production outages and thus lower fees for midstream operators. For example, TC Energy’s NGTL system has already seen lower volumes of almost 2 billion cubic feet per day.

The wildfires put nearly 2.7 million barrels per day of production at risk given their locations in high risk (classified as very high or extreme) areas, per Rystad Energy. With hot, dry, and windy conditions currently expected over the next few months, we may continue to see ongoing production and volume disruptions throughout the second quarter and into the third quarter.