News from Alaska:
BP shutdown sparks oil spike
Short form: A 'small' oil spill is requiring that half the oil that normally flows from Prudhoe Bay across Alaska to Valdez (yes, that Valdez) to stay on the North Shore. For some strange reason, this is sending world oil prices soaring. But it's just a small oil spill. No big.
BP said late on Sunday that it had begun closing the Prudhoe Bay field in Alaska after discovering a small pipeline spill in a move that will slash production by 400,000 barrels per day.
Prudhoe Bay accounts for about half of Alaska's total output and around 8% of total production in the US, according to the US Department of Energy.
Like I said. No big.
Let's go back to that whole 'little spill' thing. How long is this going to last?
Oh...just indefinitely.
Oil giant BP has indefinitely shut down the nation's biggest oilfield after finding a pipeline leak, removing about 8 percent of U.S. oil production and stroking fears that already high gas prices will shoot up further.
Steve Marshall, president of BP Exploration Alaska, Inc. said 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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Marshall said tests Friday indicated that there were 16 anomalies in 12 areas in an oil transit line on the eastern side of Prudhoe Bay. Tests found losses in wall thickness of between 70 and 81 percent. Repair or replacement is required if there is over an 80 percent loss.
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BP officials said they didn't 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.
So...indefinite reduction in North Shore oil production for reason that the pipeline is, in some places 70%-80% corroded, and nobody knows how long it will take to fix it. Good thing summer's just begun, so there will be time to fix it. Oops. Silly me. August. Summer's winding down in the Arctic Circle. My bad.
Must Be Them Furriners. Real Americans Don't Make Mistakes
I wish that I were kidding. This angle of attack surprised me, but it's already in play...and it's got legs.
From Bloomberg:
BP faces a grand jury probe after oil leaked from a Prudhoe Bay pipeline in March. Almost a year earlier, an explosion at a Texas refinery killed 15 workers and led to the biggest fine by U.S. refinery-safety regulators. Three BP traders stand accused of trying to corner the U.S. propane market.
The Alaskan shutdown ``will prompt further questions about BP's safety procedures,'' said Ivor Pether, who helps manage about $15 billion at Royal London Asset Management in London, including BP shares. ``It will have a big impact on earnings if it is shut down for a long period of time but they absolutely have to do it.''
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Exxon Mobil, the largest publicly traded oil company in the world, owns about 36 percent of Prudhoe Bay, according to its Web site. Company spokeswoman Susan Reeves declined to comment on the field's closure or the effect on the Irving, Texas-based company.
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A call by Bloomberg News to ConocoPhillips spokeswoman Dawn Patience's office in Anchorage, Alaska, on Sunday evening was not immediately returned. Chevron spokesman Don Campbell didn't immediately return calls by Bloomberg News to his office and cell phones on Sunday evening. Forest Oil spokesman Patrick Redmond didn't immediately return a call Sunday evening at his office.
Which Begs the Question
Everybody uses the same sort of pipelines. Makes a person wonder what Real American oil companies are doing that makes their pipelines so corrosion-resistant, whereas BP's are not.
The inference would be that BP needs to be booted out, so environmentally-conscious companies like ExxonMobil can develop Alaskan oil even better.
Or...that perhaps the American oil giants haven't been especially interested in learning about such troubles.
I sure hope those government inspectors check all the feeder lines up at Prudhoe Bay. I'm sure they will, what with this being the Bush Administration, and all.
Price Price Baby
Oil is up a bit today...and could be up a lot over the next few days:
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," 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."
But Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal since 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."
Light, sweet crude for September delivery was up $1.23 to $75.99 a barrel in mid-afternoon Asian electronic trading Monday on the New York Mercantile Exchange.
Wrap
This totally blindsided a commodities market that has been highly focused on geopolitical instability in both the Middle East and Nigeia.
Every once in a while, we are reminded, why oil development in exotic climates is a bit riskier than the average resource extraction project, and how.
To borrow a line from the movie City of Angels: We've definitely been beeped.