Monday, August 07, 2006

BP Shuts Down Prudhoe Bay Oil Field Due to "Severe" Pipeline Corrosion

[This just in from the New York Times:]
As BP continued working today to shut down the huge Prudhoe Bay oil field in northern Alaska after finding “unexpectedly severe corrosion” in a pipeline, company executives would not say how long they expected the facility to be out of commission.

Taking the field off line will reduce domestic oil production by 400,000 barrels a day, or 8 percent — equivalent to about one-third of the amount the United States imports daily from Venezuela. With demand for energy now high and production capacity already stretched, the shutdown raises the possibility that the Energy Department may release oil from the nation’s strategic petroleum reserve.

Bob Malone, president of BP America, said in a news conference today that the company “will not commit to a date” for restoring oil production in Prudhoe Bay. But Mr. Malone added that BP will look for a way to quickly get oil flowing safely from at least some of the field, to limit the impact on the nation’s oil supply.

The shutdown is the latest in a string of embarrassments for BP, which has suffered from a host of safety, environmental and regulatory problems in recent months, including a large oil spill at Prudhoe Bay earlier this year [see previous post].

In the news conference, Mr. Malone issued an apology. “BP deeply regrets that it’s been necessary for us to take this drastic action,” he said . “On behalf of the BP Group, I apologize for the impact this has had on our nation.”

Word of the shutdown rattled global commodities and equities markets. In the United States, oil prices rose more than a dollar a barrel in early trading, with the benchmark contract for light, sweet crude delivered next month rising nearly to $77 a barrel. In London, spot prices rose as much as 2 percent on the news, to almost $78 a barrel.

Stocks, meanwhile, fell in American trading and slid across Europe. Major indexes in Britain, Germany and France all posted substantial declines for the day.

Craig Stevens, a spokesman for the Energy Department, said this morning that oil could be released from the reserve if refiners request it, but that none had done so yet. According to Mr. Stevens, Samuel W. Bodman, the Secretary of Energy, has instructed his staff to reach out to BP and to be prepared if the company or any other refiners ask the department to tap the reserves. If such a request is approved, stored oil can be flowing within 24 to 48 hours, Mr. Stevens said.

BP said that inspections of its facilities at Prudhoe Bay over the weekend had found pipeline walls in more than one location that had been made too thin by corrosion to meet the company’s safety standards. In one area, it said, the equivalent of four to five barrels of oil had already leaked out of the pipeline and spilled on the tundra.

BP said that spill had been contained, and that workers were in the process of cleaning it up.

The company is still inspecting other pipelines and production facilities at the field. So far, BP said this morning, 40 percent of the company’s 22 miles of pipeline in Prudhoe Bay had been completely inspected.

In March, pipeline corrosion caused a leak of more than 200,000 gallons of oil, the worst spill since production began on Alaska’s North Slope [see previous post]. The incident raised questions about whether BP, based in Britain, had been properly maintaining its aging oil production network there, which it acquired when it merged with Amoco in 1998.

The latest corrosion problem was detected during an inspection that the government required BP to perform after the March oil spill. A “smart pig” examination, using a machine that travels through the inside of a pipeline to measure wall thickness, revealed that the steel had corroded in 16 places to thicknesses less than BP considers safe.

Daren Beaudo, a BP spokesman, said that for the pipeline in question, safety standards require that at least 70 percent of the steel in a 3/8-inch-thick wall must be intact.

The problems at Prudhoe Bay are also likely to add to the debate about whether to expand oil drilling on the North Slope. In May the House voted to approve drilling for oil and gas in the Arctic National Wildlife Refuge. But in the Senate, where support for drilling in the reserve is not as strong, efforts to pass similar legislation have failed.

Last year, an explosion at a BP refinery in Texas killed 15 workers, raising questions about the company’s compliance with government regulations. The company is also under investigation over suspicions that it manipulated propane prices.

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