- The Washington Times - Monday, August 7, 2006

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

BP officials said they didn’t know how long the Prudhoe Bay 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.

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’s nearly 8 percent of U.S. oil production as of May 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 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 reduction in output would have a major effect on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.

“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.”

Mr. 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 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 that “corrosion-related wall thinning appeared to exceed BP criteria for continued operation,” the company said in a release.

Workers also found a small spill, estimated to be about four to five barrels. A barrel contains 42 gallons of crude oil. The spill has been contained and cleanup efforts are under way, BP said.

“Our production while all this is in place is going to be marginal,” said Will Vandergriff, spokesman for Alaska Gov. Frank Murkowski. “That presents some technical problems because it’s a high-capacity line, and it’s meant to be filled.”

Mr. Vandergriff said he did not know exactly what potential problems a sudden drop in oil flow might cause the pipeline. Alyeska Pipeline Co. officials could not immediately be reached for comment.

A prolonged shutdown would be a major blow to domestic oil production, but even a short one could be crippling to Alaska’s economy.

According to forecast figures from the Alaska Department of Revenue, a production drop of 400,000 barrels of oil per day would mean approximately $4.6 million per day lost to the state. That is money going to both the state treasury and the state’s oil-wealth savings account, the Alaska Permanent Fund.

“That starts adding up to big bucks in a hurry,” said Alaska House Finance Committee Co-Chairman Mike Chenault, a Republican. “It could start having a disastrous effect on the state as early as today.”

BP said it was sending additional resources from across the state and North America to hasten the inspection of the remaining transit lines. About 40 percent of the lines have been inspected.

BP previously said it would replace a 3-mile-long segment of pipeline following inspections conducted after as much as 267,000 gallons of oil spilled onto the frozen ground about 250 miles above the Arctic Circle in March.

Alaska House Speaker John Harris, Valdez Republican, 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,” Mr. Harris said.

The Exxon Valdez tanker emptied 11 million gallons of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1,200 miles of rocky beach in the nation’s largest oil spill.

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