BP Plc is shutting down its giant Alaska Prudhoe Bay oil field due to a damaged pipeline and fears of wider corrosion, slashing West Coast supplies and prompting the U.S. government to consider releasing emergency stockpiles as prices jump.
International oil major BP on Sunday began turning off the taps after discovering a spill at the nation's largest field, which pumps 400,000 barrels per day of crude, or 8 percent of domestic output, and said it could be weeks or months before production resumes.
BP deeply regrets that it's been necessary for us to take this drastic action to have an orderly and planned shutdown of the Prudhoe Bay oil field. On behalf of the BP Group, I apologize for the impact this has had on our nation, newly appointed BP America Chief Executive Bob Malone said at an Anchorage news conference.
U.S. crude oil prices surged nearly $2.50 to over $77 per barrel amid fears that the shutdown could be lengthy. Shares of BP, already the focus of a criminal probe into a pipeline rupture at the same field in March, were down 2 percent.
U.S. Energy Secretary Sam Bodman said the government was ready to release crude from the government's Strategic Petroleum Reserve to supply refineries on the West Coast that rely heavily on Alaskan crude oil.
Meanwhile, travel club AAA said U.S. pump prices are poised to set a record on the field shutdown, which came during the heart of the U.S. summer driving season.
The surprise discovery of extensive corrosion in the line at the eastern side of Prudhoe Bay has led the company to suspect that corrosion in the aging pipelines may be widespread elsewhere in the field, Malone said.
We have now taken the decision that we will replace all the main transit lines in the Prudhoe bay field, he said, adding there are about 16 miles of pipeline in the field.
The closure was 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.
BP has come under intense regulatory scrutiny since a separate pipeline leaked an estimated 200,000 gallons of crude oil onto the Arctic tundra in March. Democratic members of the U.S. House of Representatives on Monday called on the U.S. Congress to hold hearings into BP's operations in Alaska.
U.S. Department of Transportation pipeline inspectors were heading to Prudhoe Bay on Monday to assess the extent of the corrosion problems.
The federal government had said in June that it would permit BP to continue to operate its oil pipelines in Alaska despite the company's inability to perform special internal corrosion detection operations.
The shutdown was started after analysis over the weekend found 16 weak spots at 12 locations in a transit line on the eastern side near the Prudhoe Bay. Those spots, where pipeline thickness had been eroded by at least 70 percent, were all in the bottom section, said Bill Hedges, team leader for BP's corrosion management and chemicals program.
The pipeline had been last tested by a smart pig, a corrosion-sensing device that runs inside, in 1992, Hedges said at the news conference. With hindsight, that's clearly a gap in our program, he said.
A leak from the line caused a spill of four to five barrels to the tundra, according to BP.
Last month, BP pledged 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.
The only difference between today and every other day ... I have been outraged over (corrosion) is today the world's looking, said Richard Fineberg, a Fairbanks-based economist and long-time critic of the oil industry and regulators for being too lax about pipeline corrosion.
A complete shutdown of Prudhoe Bay production will cost the state $6.4 million a day in expected taxes and royalties, according to the state Department of Revenue.
A senior delegate of the Organization of Petroleum Exporting Countries said Saudi Arabia, the world's top exporter, and fellow OPEC producers were ready to meet any shortage in crude oil supply following the shutdown.
Prudhoe Bay is operated by a BP-led group that includes ConocoPhillips and Exxon Mobil Corp., which was involved in Alaska's biggest oil spill when the 11-million-gallon tanker Exxon Valdez grounded in 1989.