- The Washington Times - Monday, August 7, 2006

BP halting oil flow; U.S. may open reserves

12:34 p.m.

ANCHORAGE, Alaska — The oil company BP scrambled today to assess the pipeline corrosion that will cut off shipments from the nation’s biggest oil field, removing about 8 percent of daily U.S. crude production and driving oil and gasoline prices sharply higher.

BP, which already is facing a criminal investigation over a large spill in March at the same Prudhoe Bay oil field, said it did not know how long the field would be offline. “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 news sent the price of light, sweet crude oil up $1.59 to $76.35 a barrel in electronic trading today on the New York Mercantile Exchange. Gasoline prices rose more than 4 cents to $2.2725 on the Nymex.

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 today 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 last 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 then will 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 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.

The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming 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,” Mr. 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.”

However, Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal because crude inventories are high.

“So while this won’t have any immediate impact on U.S. 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.”

BP America Chairman 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.

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