BP shuts down largest U.S. oil field
Indefinite closure removes 8 percent of U.S. production, raises price fears
Updated: 50 minutes ago
ANCHORAGE, Alaska - Oil company BP scrambled Monday to assess suspected pipeline corrosion that will shut shipments from the nation’s biggest oilfield, removing about 8 percent of daily U.S. crude production and driving oil prices sharply higher.
BP, which is already facing a criminal investigation over a large spill in March at the same Prudhoe Bay oilfield, said it did not know how long the field would be offline. “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.
While BP suspects corrosion in both damaged lines, it can’t say for sure until further tests are complete. Workers also found a small spill of about 4 to 5 barrels, which has been contained and is being cleaned up, BP said.
The news sent the price of light, sweet crude oil up $1.53 to $74.57 a barrel in electronic trading Monday on the New York Mercantile Exchange.
Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of the Prudhoe Bay oilfield 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.
Possible major impact on oil prices
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 U.S. oil production or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.
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.
The U.S. Energy Department will consider loaning emergency crude oil to refiners caught short of supply following the Prudhoe Bay, a spokesman said Monday.
“We’re taking a very serious look at this,” said spokesman Craig Stevens.
Stevens said the department will be in contact with BP Exploration Alaska Inc. and West Coast refiners later in Monday to assess the situation.
Sen. Charles Schumer, D-N.Y., often a critic of the administration’s energy policy, said: "This is the appropriate and right thing to do. We’re glad the White House’s reluctance to use the Strategic Petroleum Reserve to prevent price spikes seems to have dissipated."
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 U.S. 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.”
No gasoline shortages seen
U.S. consumers will not face shortages of gasoline and other petroleum products because of the BP shutdown, the government’s top energy forecasting agency said on Monday.
“It certainly isn’t going to create any shortages in gasoline, diesel fuel and other petroleum products,” Tancred Lidderdale, an analyst with the federal Energy Information Administration, told Reuters.
Lidderdale said West Coast refiners, where most of Alaska’s crude oil is shipped, have plenty of oil supplies as crude inventories in the region are “above average.”
BP's 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 troubles at the Alaskan oil field add to other problems for BP in the United States, where the company is the largest oil producer, following an explosion at its Texas City refinery that killed 15 workers in March 2005 and a trading scandal.
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 now operating.
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.
Even a short shutdown of Prudhoe Bay 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.
The Associated Press and Reuters contributed to this report.
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