Tue, Aug 08, 2006 - Page 1 News List

US oil supply hit by BP line closure

AP , ANCHORAGE, ALASKA

In a sudden blow to the US' oil supply, half the production on Alaska's North Slope was being shut down after BP Exploration Alaska Inc discovered severe corrosion in a Prudhoe Bay oil transit line.

BP officials said on Sunday they did not know how long the Prudhoe Bay field would be off line.

"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 incident drove up oil prices.

Once the field is shut down, in a process expected to take days, BP said oil production will be reduced by 400,000 barrels a day. That is close to 8 percent of US oil production as of May or about 2.6 percent of US supply including imports, according to data from the US 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.

"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," BP America chairman and president Bob Malone said in a statement.

A 400,000-barrel per day cut in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

"Oil prices could increase by as much as US$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."

Malone said the field will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

Officials at BP, a unit of the London-based company BP PLC, learned on Friday that data from an internal sensing device found 16 anomalies in 12 locations in an oil transit line on the eastern side of the field. Follow-up inspections found "corrosion-related wall thinning appeared to exceed BP criteria for continued operation," the company said in a release.

Steve Marshall, president of BP Exploration Alaska, said at an Anchorage news conference 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.

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