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07 Aug 2006 14:16
Oil company BP has indefinitely shut down the United State’s biggest oilfield after finding a pipeline leak, removing about 8% of US oil production and stoking fears that already high oil prices will shoot up further.
Steve Marshall, president of BP Exploration Alaska, said on 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% of US oil production or about 2,6% US supply including imports, according to data from the US Energy Information
BP officials said they didn’t know how long the Prudhoe Bay field would be off-line.
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 159 litres 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 on Monday on the New York Mercantile Exchange.
Marshall said tests on 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%. Repair or replacement is required if there is more than an 80% loss.
“The results were absolutely unexpected,” Marshall said.
BP America chairperson 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 apologise 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 oil spill to date was discovered on a Prudhoe Bay transit line. About 1-million litres 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 four to five 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% stake in the Prudhoe Bay field, meaning its own production would be cut by 100 000 barrels a day, or around 2,5% of the company’s worldwide production, said spokesperson David Nicholas. He declined to provide any forecast on the impact of the shutdown on earnings.
BP’s shares dropped 2% to 623 pence (â,¬9,24) 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,” Harris said.
The Exxon Valdez tanker emptied 41-million litres of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1 900km of rocky beach in the United States’ largest oil spill. - Sapa-AP
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