BP forced to shutdown Prudhoe Bay oil field

BP has begun an "orderly and phased shutdown" of the Prudhoe Bay oil field following the discovery of unexpectedly severe corrosion and a small spill from a Prudhoe Bay oil transit line. Shutting its North Slope operations is only the latest problem for oil giant BP, which already is the target of a federal grand jury, the Environmental Protection Agency and congressional investigators for letting its Alaska pipeline crumble. The price of crude oil on the New York Mercantile Exchange rose 3 percent on Aug. 7, to $76.98 a barrel, on the announcement that BP would have to suspend production for an indefinite period. The Prudhoe Bay oil field produces over 400,000 barrels of oil per day, equal to 8 percent of US petroleum output. The price jump underlined the fragility of world oil markets, already anxious about the thin cushion between global supply and demand and potential threats to flows from Iran, Nigeria, Iraq and the hurricane-prone Gulf of Mexico. Shutting down the field will take three to five days, BP said, and Merrill Lynch & Co. oil analyst John P. Herrlin said that the repairs would take "a minimum of two to three months," dealing another blow to the chances of motorists getting relief from high gasoline prices anytime soon. Simon Wardell, an oil analyst at Global Insight, said the initial impact of the shutdown on the oil price may be exaggerated, but any fall back from the current record levels would now be delayed. He said: "The loss of 400,000 barrels of crude production at the current time is, to put it mildly, unhelpful. Markets have reacted and will react to this shut-in, which is by itself only just short of the 500,000 barrels per day shut-in currently being seen in Nigeria as a result of continued civil strife. While it is true that BP has been unable to indicate a time-frame, production will resume once repair work is completed and the situation is not as uncertain as that in Iraq and Nigeria." Though some industry analysts are downplaying the potential effects of the shutdown, the US Energy Department said it would consider loaning oil to refiners from its emergency reserves as it did last year when hurricanes shut a quarter of US crude and fuel output. On Aug. 7, politicians were threatening the company and the industry with tougher regulations. John Dingell, the top-ranking Democrat on the House of Representatives energy and commerce committee, said it was appalling that, despite record profits, BP had let a critical pipeline deteriorate. "The United States Congress has an obligation to hold hearings to determine what broke down here and what laws and regulations need to be improved to ensure problem pipelines like these are found and fixed earlier," he said. BP chief executive John Browne was in Alaska last week to try to polish the company's image and apologize for pipeline problems. BP, which used to be known as British Petroleum, has tried to cultivate an environmentally friendly image, saying that BP stood for "beyond petroleum." An official from a competing oil company said it stood for "big problems." The Prudhoe Bay shutdown is another black eye to a firm that has fashioned an image as a responsible, environmentally concerned company, and it drew new criticism from pipeline experts and environmentalists who have been saying for years that the company had failed to do the maintenance needed to keep the pipeline free from sludge and protect it from corrosion in the harsh Alaska conditions. BP is facing a criminal investigation by the Environmental Protection Agency over potential lapses in its safety record and violation of the Clean Water Act at Prudhoe Bay. Concerned employees had contacted environmental campaigners and federal authorities to allege the company skirted safety and environmental regulations. The Prudhoe Bay shutdown comes on the heels of a 270,000 gallon oil spill in the region in March of this year, the largest on-land oil spill in Alaskan history.