- The Washington Times - Friday, August 11, 2006

ANCHORAGE, Alaska (AP) — The leak that caused BP PLC to start shutting down the nation’s largest oil field this week could have a ripple effect on everyone from steel pipe makers to oil industry workers — and even perhaps the price Americans pay at the pump.

Some encouraging news came late yesterday, however, when BP said it might be able to keep open one side of the Prudhoe Bay oil field on Alaska’s North Slope.

The British oil giant was forced earlier this week to begin shutting the field down after discovering a small leak and severe corrosion in one part of its oil pipeline. The company is taking steps to replace 16 miles of pipeline.

The eastern side of the field was closed Tuesday, but BP officials now say they may be able to keep the western side open because they have confidence in that portion of the pipeline and don’t want to shut the system down completely.

A final decision was expected by early next week.

Craig Wiggs, a BP performance unit leader, said 140,000 barrels of oil per day were still flowing out of Prudhoe Bay as of late yesterday, down from 400,000 before the gradual shutdown began. BP said the western pipeline possibly could handle up to 185,000 barrels a day.

“It’s a line we have the best confidence in,” Mr. Wiggs said. “We’ve spent lots of time inspecting it in March, April and May after the spill.” The western pipeline was the source of a massive spill of up to 267,000 gallons discovered in March.

BP still plans to replace the western pipeline, but is considering keeping it open while it repairs the eastern pipeline.

The shutdown and repairs could be a benefit to steel pipeline makers that must supply replacement materials, and to the workers that BP is bringing in to assess damage and complete the job. But it could hurt refiners dependent on Prudhoe Bay supplies, and the psychological impact of a shutdown also could cause a spike in gas prices on the West Coast where many of the refineries that process the Alaskan oil are located.

But Mark Gilman, analyst with the Benchmark Co., said the shutdown should have little impact on overall U.S. gas prices, because there are plenty of other sources of crude oil that could compensate for any potential shortfall. Still, he said the psychological impact of the shutdown could cause prices across the country to go up, if people start to think there won’t be enough gas to go around.

The average U.S. retail gasoline price rose a couple of cents soon after BP’s announcement on Sunday that a leak would require it to shut down the oil field, but has hovered around $3.036 a gallon for regular unleaded since then. Unleaded gasoline prices on the West Coast, where refiners get about 30 percent of their oil from Alaska, have risen more than in the rest of the country, but the bigger jumps have been in diesel fuel. In Washington and Oregon, diesel fuel prices were at the states’ record highs, at $3.347 a gallon and $3.245 a gallon, respectively

BP spokesman Scott Dean said yesterday that the company had signed contracts with United States Steel Corp. and Nippon Steel Corp. to supply pipeline for about 10 of the 16 miles of pipeline it intends to replace.

Chuck Bradford, an analyst with Soleil Securities, said the BP orders, while not huge, will nevertheless be a boon for those companies.

Mr. Bradford said he also expects the pipeline shutdown to have a longer term effect, because it may prompt others in the industry to rush to replace their decades-old pipeline, with an eye toward avoiding similar trouble.

For oil refineries that normally get supplies from Prudhoe Bay, analysts say the shutdown is unlikely to cause short-term problems because most have a stockpile that stretches 30 to 45 days. But if the shutdown stretches for several months, analyst John Thieroff with Standard & Poor’s said it could create difficulties.

ConocoPhillips spokesman Bill Tanner said yesterday that the company had invoked a “force majeure” clause in the contracts it has with customers who receive oil from Prudhoe Bay. Such an action alerts those customers that it may not be able to supply all the crude oil it has promised because of an unforeseen emergency, and allows them to seek alternative sources.

Petroleos Mexicanos, Mexico’s state-owned oil monopoly, offered yesterday to speed up oil deliveries to the U.S. to help offset supply shortages caused by the pipeline shutdown, though the level of exports wouldn’t be increased.



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