MARY PEMBERTON Associated Press Writer
ANCHORAGE, Alaska Oil company BP scrambled today to assess the pipeline corrosion that will shut shipments from the nation’s biggest oil field, removing about 8 percent of daily U.S. crude production and driving oil and gasoline prices sharply higher. BP, which is already facing a criminal investigation over a large spill in March at the same Prudhoe Bay oil field, 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. The news sent the price of light, sweet crude oil up $1.59 to $76.35 a barrel in electronic trading today on the New York Mercantile Exchange. Gasoline prices rose more than 4 cents to $2.2725 on the Nymex. Because of the disruption of supplies, the Energy Department is prepared to provide oil from the government’s emergency supplies if a refinery requests it. Spokesman Craig Stevens said the department will be in contact with BP and West Coast refiners later today to assess the situation. “If there is a request for oil we’ll certainly take a serious look at that,” he said. Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of the Prudhoe Bay oil field 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 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. BP said Sunday workers found a small spill of about 4 to 5 barrels, which has been contained and is being cleaned up. 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 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.” 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 PresidentBob 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 Xrays 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. U. S. shares of BP PLC fell $1.26, or 1.7 percent, to $71.28 in morning trading on the New York Stock Exchange. Shares of BP Prudhoe Bay Royalty Trust, which derives revenue from royalties of BP’s Prudhoe Bay oil, fell $8.49, or 9.7 percent, to $79.40 on the NYSE. 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.