ANCHORAGE, Alaska - Oil company BP has indefinitely shut down the nation's
biggest oilfield after finding a pipeline leak, removing about 8 percent of US
oil production and stoking fears that already high gas prices will shoot up
further.
Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night
that the eastern side of Prudhoe Bay would be shut down first, an operation
anticipated to take 24 to 36 hours. The company will then move to shut down the
west side, a move that could close more than 1,000 Prudhoe Bay wells.
Once the field is shut down, BP said oil production will be reduced by
400,000 barrels a day. That's close to 8 percent of US oil production or about
2.6 percent of US supply including imports, according to data from the US Energy
Information Administration.
BP officials said they didn't know how long the Prudhoe Bay field would be
off line. "I don't even know how long it's going to take to shut it down," said
Tom Williams, BP's senior tax and royalty counsel.
The shutdown comes at an already worrisome time for the oil industry, with
supply concerns stemming both from the hurricane season and instability in the
Middle East.
A 400,000-barrel per day reduction in output would have a major impact on oil
prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures
in Tokyo. A barrel contains 42 gallons of crude oil.
"Oil prices could increase by as much as $10 per barrel given the current
environment," Emori said. "But we can't really say for sure how big an effect
this is going to have until we have more exact figures about how much production
is going to be reduced."
But Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said
he expected the impact to be minimal since crude inventories are high.
"So while this won't have any immediate impact on US supplies, the market is
in very high anxiety. So any significant disruption, traders will take that into
account, even though there is no threat of a supply shortage."
Light, sweet crude for September delivery was up $1.23 to $75.99 a barrel in
mid-afternoon Asian electronic trading Monday on the New York Mercantile
Exchange.
Marshall said tests Friday indicated that there were 16 anomalies in 12 areas
in an oil transit line on the eastern side of Prudhoe Bay. Tests found losses in
wall thickness of between 70 and 81 percent. Repair or replacement is required
if there is more than an 80 percent loss.
"The results were absolutely unexpected," Marshall said.
BP America Chairman and President Bob Malone said Prudhoe Bay will not resume
operating until the company and government regulators are satisfied it can run
safely without threatening the environment.
"We regret that it is necessary to take this action and we apologize to the
nation and the State of Alaska for the adverse impacts it will cause," Malone
said in a statement.
The shutdown comes six months after the North Slope's biggest ever oil spill
was discovered on a Prudhoe Bay transit line. Some 267,000 gallons of oil
spilled. BP installed a bypass on that line in April with plans to replace the
pipe. Only one of BP's three transit lines is operating.
While BP suspects corrosion in both damaged lines, they can't say for sure
until further tests are complete. Workers also found a small spill, estimated to
be about 4 to 5 barrels, which has been contained and clean up efforts are under
way, BP said.
BP puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines
each year. It also examines pipes by taking X-rays and ultrasound images.
BP has a 26 percent stake in the Prudhoe Bay field, meaning its own
production would be cut by 100,000 barrels a day, or around 2.5 percent of the
company's worldwide production, said spokesman David Nicholas. He declined to
provide any forecast on the impact of the shutdown on earnings.
BP's shares dropped 2 percent to 623 pence (US$11.89) on the London Stock
Exchange.
A prolonged Prudhoe Bay shutdown would be a major blow to domestic oil
production, but even a short one could be crippling to Alaska's economy.
Alaska House Speaker John Harris said it was admirable that BP took immediate
action, although it's sure to hurt state coffers. "This state cannot afford to
have another Exxon Valdez," said Harris, R-Valdez.
The Exxon Valdez tanker emptied 11 million gallons of crude oil into Prince
William Sound in 1989, killing hundreds of thousands of birds and marine animals
and soiling more than 1,200 miles of rocky beach in nation's largest oil spill.
