Pipeline Closure Sends Oil Higher
Tuesday, August 8, 2006
After noticing an oil spill on a deserted stretch of frozen road in Alaska's North Slope in early March, workers needed three days to find the quarter-inch-wide hole in a pipeline, just where it dipped into a culvert to allow the caribou to pass.
On Sunday, five months after that unwelcome discovery, BP PLC conceded that the tiny hole was part of a widespread corrosion problem that will force it to replace 16 miles of a 22-mile pipeline from Prudhoe Bay and to shut down 400,000 barrels a day of production from the largest oil field in the United States.
News that BP would have to suspend production equal to 8 percent of U.S. petroleum output for an indefinite period helped push the price of crude oil up by 3 percent yesterday, to $76.98 a barrel on the New York Mercantile Exchange. The price jump underlined the fragility of world oil markets, already anxious about the thin cushion between global supply and demand and potential threats to flows from Iran, Nigeria, Iraq and the hurricane-prone Gulf of Mexico.
Shutting down the field will take three to five days, BP said, and Merrill Lynch & Co. oil analyst John P. Herrlin said that the repairs would take "a minimum of two to three months," dealing another blow to the chances of motorists getting relief from high gasoline prices anytime soon.
Alaskan crude oil usually goes to refineries on the West Coast, where there is enough surplus to last about two weeks, analysts said. After that, some refiners will have to scramble to line up new supplies.
Energy Secretary Samuel W. Bodman said yesterday that the Bush administration would consider releasing supplies from the Strategic Petroleum Reserve, though getting that oil from the salt caverns along the Gulf of Mexico to the West Coast would take some time or involve some swaps.
BP's announcement also gave another black eye to a firm that has fashioned an image as a responsible, environmentally concerned company, and it drew new criticism from pipeline experts and environmentalists who have been saying for years that the company had failed to do the maintenance needed to keep the pipeline free from sludge and protect it from corrosion in the harsh Alaska conditions. The Environmental Protection Agency has launched a criminal probe to determine whether the company was negligent in managing the pipeline, said sources who had talked to government investigators.
"They have known about these problems for a long time and promised for many years to fix them, and they haven't done so," said Peter van Tuyn, an environmental lawyer based in Anchorage.
Thomas J. Barrett, head of the Pipeline and Hazardous Materials Safety Administration, visited BP's operations in early July and said in a July 26 letter to Rep. John D. Dingell (D-Mich.) that he was "disappointed by the lack of progress BP had made" since the agency had ordered repairs and an analysis on March 15, after the spill was discovered.
There are 1,100 miles of pipelines in Alaska's North Slope, most of them small lines that lead into three major, 36-inch-diameter transit lines called Prudhoe West, where the March leak occurred; Prudhoe East, which was closed on Sunday; and Lisburne. BP operates the pipelines and owns about 26 percent of Prudhoe Bay; Exxon Mobil Corp. and ConocoPhillips Co. are the other major shareholders. These pipelines in turn feed into the 800-mile-long, 48-inch-diameter Trans Alaska Pipeline.
The oil companies have to regularly clean the lines to prevent a sludge of sand and solid residue from building up, and they must monitor the aboveground lines to detect corrosion in the harsh Arctic climate. To clean the pipelines, they usually use a device known as a "pig" because of the screeching noise it makes as it works its way through the line. A separate "smart pig" is used to detect weak spots in the pipeline.
Steve Marshall, president of the BP subsidiary BP Exploration Alaska Inc., said yesterday that BP had discovered 16 "anomalies" in 12 locations after inspecting about 40 percent of the 22-mile of transit lines. In some places, corrosion had eaten away more than 70 percent of the 3/8 -inch pipeline wall. In one spot, the company said it found a leak of four to five barrels.