Saudi disruption leaves Canada’s biggest refinery vulnerable

CALGARY (Bloomberg) - Canada may hold the world’s third-largest crude reserves, but that’s little help to its largest refinery after a weekend attack disrupted production in Saudi Arabia, its biggest oil supplier.

Nearly all of the kingdom’s oil shipments to Canada travel to New Brunswick, home to a single refinery, Irving Oil Ltd.’s Saint John plant, which can process about 299,000 bpd. The refinery relied on Saudi crude for more than 40% of its supplies in July, Statistics Canada data show.

A drone attack Saturday on Saudi Arabia’s biggest crude-processing plant knocked out about half the country’s output. Saudi Aramco faces weeks or months before the majority of supply from its Abqaiq plant is restored, according to people familiar with matter.

A longer-term outage is especially problematic for Irving’s plant, which relies mostly on imports.

The bulk of Canada’s reserves are located in the oil-sands region of Northern Alberta, in the west of the country. Most of that oil is exported to the U.S. and while some can be shipped to eastern Canada on Enbridge Inc.’s Line 9, the pipeline only serves refineries as far east as Montreal.

Now, Irving may have to pay up for its crude.

Crude Flexibility

“It’s more likely to play out on a price effect, rather than physical shortage” of oil, Kevin Birn, IHS Markit’s director of North American crude oil markets, said by telephone.

Brent futures jumped almost $12 in the seconds after the open on Monday, the most in dollar terms since their launch in 1988 and traded as high as $71.95/bbl during the session. The sudden rise in oil prices hurts refiners such as Irving, raising the cost of their primary input for making fuel. Irving ships more than half of the fuels it produces, including gasoline, diesel, heating oil and jet fuel, to the northeast U.S.

The Irving refinery does have the flexibility to shift to other supply sources, Birn said. Plus, shipments from Saudi Arabia that take weeks to arrive to eastern Canada would already be on the water, he said.

On Saturday, two tankers were bound from Saudi Arabia for Canaport, where a deep-water terminal serves the refinery, according to ship-tracking data compiled by Bloomberg. They were the ultra-large crude carrier New Solution and very-large crude carrier Yuan Qiu Hu.

Irving didn’t respond to both a call and email seeking comment.