Oil producer BP Plc began shutting down on Sunday the biggest oilfield in the United States, Alaska's Prudhoe Bay, after discovering a small pipeline leak, cutting output by 400,000 barrels daily and sending oil prices up nearly 2 percent.
Oil producer BP Plc began shutting down on Sunday the biggest oilfield in the United States, Alaska's Prudhoe Bay, after discovering a small pipeline leak, cutting output by 400,000 barrels daily and sending oil prices up nearly 2 percent.
BP, already part of a criminal probe into a much bigger Alaskan pipeline rupture in March, was unable to estimate when output might resume at the field, which accounts for about 8 percent of U.S. domestic crude oil production.
The closure is the latest incident to hit BP's Alaskan operations, a cornerstone of its global upstream portfolio, and deals another blow to its U.S. image following a deadly refinery explosion last year and a trading scandal.
"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," newly appointed BP America Chairman and President Bob Malone said in a statement.
Prudhoe Bay is operated by a BP-led group that includes oil majors ConocoPhillips and Exxon Mobil Corp., which itself was involved in Alaska's biggest oil spill when the 11 million-gallon Exxon Valdez tanker was grounded in 1989.
BP gave no estimate on how long the field would be offline, but shutting down a major onshore oil facility -- a process that takes at least several days -- is usually a last resort.
"It will depend on the rate at which we can complete the inspection of these lines and satisfy ourselves and state and federal regulators that they pose no risk to the environment," company spokesman Ronnie Chappell said by telephone.
The outage, which will cut global daily oil output by about half a percent, sent U.S. crude oil futures as much as 1.7 percent or $1.29 higher to $76.05 a barrel as dealers fear it will put more strain on an already tight market. Prices are near their record-high of $78.40 touched in mid-July.
PIPELINE CORROSION
BP said it shut down the pipeline on Sunday morning and had begun a phased shutdown of the Prudhoe Bay oilfield after finding "unexpectedly severe corrosion" during an inspection that followed a 200,000-gallon spill discovered in March, the biggest ever recorded on the North Slope.
So far it has inspected 40 percent of its transit lines and is conducting speed inspections of the remainder, BP said.
BP spokesman Daren Beaudo later said it would take 24 to 36 hours to shut down the eastern half of Prudhoe Bay, but did not give an estimate on closing western wells. The shutdown does not include the Lisburne field, also on the North Slope, as inspection results showed that pipeline integrity was intact.
The Prudhoe Bay shutdown decision came after data received on Friday from a pipeline scanner showed 16 irregularities in 12 locations in an oil transit line on the eastern side of the oilfield. Follow-up inspections found corrosion, a leak and a small spill estimated at four to five barrels, the company said.
Beaudo said the line continued to leak and that BP had collected another 70 barrels since finding the corrosion.
Chappell said BP had never previously had to shut down the oilfield, which includes 22 miles (35 km) of pipelines.
However, it has had to curb production at Prudhoe Bay several times in the past year due to a series of incidents and spills on the North Slope, an oil-rich area that pumps a total of about 800,000 barrels per day (bpd), nearly as much oil as consumed by Australia.
PAST TROUBLES
BP pledged last month to spend an extra $1 billion on top of the $6 billion it has earmarked for upgrading safety at its U.S. refineries and to repair and replace Alaskan pipelines.
BP holds just over 25 percent of Prudhoe Bay, which opened up a new era of U.S. oil exploration when it was discovered in 1968. It is expected to pump over 14 billion barrels over its lifetime.
Output from the northern state peaked at over 2 million bpd in the late 1980s, but has more than halved since then.
Chappell said it was premature to estimate what impact the outage would have on BP's annual production target of 4.1-4.2 million barrels of oil equivalent per day (boepd).
At 100,000 bpd, BP's share of Prudhoe Bay accounts for 2.5 percent of that total, although its overall Alaskan crude oil output was a higher 268,000 bpd last year.
The Alaska shutdown brings further U.S. scrutiny to BP, which is being investigated for a March 2005 explosion at its Texas City refinery, in which 15 people died and 170 injured. BP accepted full responsibility for the blast.
In June, the U.S. futures market regulator said BP tried to manipulate U.S. propane prices by cornering the market in February 2004. BP denies any market manipulation.
The shutdown on Sunday was the result of inspections required in the wake of the spill discovered in March, which forced BP to shut in 100,000 bpd of output for more than a month and triggered an investigation by a U.S. Federal grand jury. It installed a bypass line in order to resume production.
Investigators from the Department of Transportation's Pipeline and Hazardous Materials Safety Administration are to travel to Alaska to conduct their own examination of the situation, PHMSA spokesman James Wiggins said on Sunday.
The incident comes at a key time for Alaska's oil industry, as the state considers a massive natural gas pipeline and the legislature debates an overhaul of state oil taxes that is intended to pull in more revenue at times of high prices. (Additional reporting by Michael Flaherty)
Source: Reuters
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