Indefinite closure removes 8 percent of U.S. production, raises price fears.
MSNBC staff - August 7, 2006
Two caribou near the Prudhoe Bay oil field in Alaska
ANCHORAGE, Alaska - In what could be another blow to consumers already hard hit by high energy costs, petroleum giant BP PLC said Monday its Prudhoe Bay facilities in Alaska will be shut down for weeks or months due to damage that will require it to replace 73 percent of a pipeline from the field.
The shutdown, which drove oil and gasoline prices sharply higher on energy markets, removes about 8 percent of daily U.S. crude production.
Light, sweet crude oil rose $1.59 to $76.35 a barrel in electronic trading on the New York Mercantile Exchange, while gasoline prices rose more than 4 cents to $2.2725 a gallon.
BP, the world’s second-largest oil company, began shutting down the pipelines on Monday and said it would replace 16 miles of the 22 miles of transit pipeline in the Prudhoe Bay field following a leak discovered Sunday.
Company officials told a news conference they did not immediately know how much it would cost to replace the lines. They will continue to keep the oil field closed and bring parts back into service once it’s safe to do so.
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 Monday 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.
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.
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.