BP Pipeline Leak Closes Down Biggest US Oilfield

Posted 07 August 2006 @ 05:10 pm EET     Print     Reprint     E-Mail     Comments

LONDON (Reuters) - British energy major BP was shutting down the biggest oilfield in the United States to tackle a pipeline leak, driving up oil prices on prospects that US output might fall by eight percent.

BP said late on Sunday it had begun shutting down the Prudhoe Bay oil field in Alaska after discovering severe corrosion on a pipeline and a small spill.

But the incident had revealed unexpectedly severe corrosion and raised concerns about other pipes in the network, the company said.

When complete, the shutdown will cut Alaska North Slope production by 400,000 barrels per day, BP said in a statement in the US.

Prudhoe Bay accounts for about half of Alaska's total production and about eight percent of total US production, according to the US department of energy.

News of the output reduction drove oil prices up by more than two percent.

At first on Monday, the price of Brent North Sea crude spiked in London to 77.73 per barrel in electronic trading, the highest level since July 17 when it struck a record high of 78.18 dollars as violence erupted in the Middle East.

New York crude was being traded at about two dollars below its all-time peak of 78.40 dollars which was set on July 14.

Analysts expressed uncertainty over when the oil field would kick back into full production.

"People just do not know when the field is going to be back in production again," said Investec analyst Bruce Evers.

"It could be days, it could be weeks or months. It entirely depends on how quickly they can sort the problem out."

He added that "400,000 barrels per day in a fairly tight market is quite a lot of crude to come off the market".

The new production strains come at a time when prices are already well supported by geopolitical tensions in the Middle East and Nigeria, Africa's biggest oil exporter.

BP America chairman and president Bob Malone said in a statement: "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."

The shutdown began on Sunday and would take days to complete, the company said, without specifying a target date.

The decision followed an internal report received on Friday of an inspection of an oil transit line in late July, among the 22 lines the company operates in Prudhoe Bay.

Onsite inspections found "unexpectedly severe" corrosion on the pipeline, a leak and a small spill estimated at four to five barrels, the company said.

The spill has been contained and the clean-up operation is underway.

BP said it had notified state and federal officials of the decision and will work closely with the US Department of Transportation and the Alaska Department of Environmental Conservation, among others.

BP plans to speed up inspection of the remaining oil transit lines in Prudhoe Bay, North America's largest oil field.

The problems discovered "have called into question the condition of the oil transit lines at Prudhoe Bay", Malone added.

"We will not resume operation of the field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment."

The latest incident strikes another blow to BP's reputation in the United States.

About one million litres (267,000 gallons) of oil leaked from a damaged pipeline in Prudhoe Bay, about 1,040 kilometres (650 miles) north of Alaska's biggest city, Anchorage, on March 2.

It was the worst spill in the region's history. The company is already facing a criminal probe into the spill and has said it would replace a three-mile segment of the damaged pipeline.

The company also accepted responsibility for a fatal explosion in March 2005 at its Texas City refinery in the United States, in which 15 people died and more than 170 were injured.