TOPICS > Economy

Alaska Oil Pipeline Shutdown May Force Government to Open Emergency Stockpile

BY Admin  August 7, 2006 at 2:50 PM EDT

Worker at Prudhoe Bay oil field

The move sent crude oil prices up 2 percent and prompted the U.S. government to consider opening emergency oil reserves.

Severe corrosion in one of the field’s pipelines led to the shutdown, the first ever at the giant Prudhoe Bay field in Alaska. The field produces 400,000 barrels of crude oil per day, about 8 percent of U.S. output.

“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,” BP America Chief Executive Bob Malone, said in a statement, according to Reuters.

The announcement sent crude oil prices up by $1 to above $76 per barrel, raising fears prices could rise above the $78 per barrel record high set in July.

Chief oil analyst at the New Jersey-based Oil Price Information Service Tom Kloza told CNN the shutdown would likely push gasoline prices to record highs.

“Prices are likely to rise 3 to 5 cents a gallon for the next few days,” he said.

The average price of gasoline was $3.036 on Monday, according to Kloza. The record high is $3.057, hit in September 2005 following Hurricane Katrina.

On Monday, the federal Energy Information Administration said the shutdown would not cause shortages in gasoline and other petroleum products.

“It certainly isn’t going to create any shortages in gasoline, diesel fuel and other petroleum products,” government analyst Tancred Lidderdale told Reuters.

But, the U.S. Department of Energy said it was prepared to release crude from the Strategic Petroleum Reserve, the government’s emergency stockpile in the Gulf Coast, to supply refiners on the West Coast hit hardest by the Prudhoe Bay shutdown.

The BP operation in Alaska mostly supplies West Coast refiners. The emergency shutdown will cut by half shipments to the West Coast from Alaska’s North Slope.

“If there is a request for oil we’ll certainly take a serious look at that,” Energy Department spokesman Craig Stevens told the Associated Press.

The damaged Alaska pipeline further hurts BP’s image in the United States. In March, 200,000 gallons of crude oil leaked onto the Arctic tundra because of a damaged pipeline, leading U.S. regulators to question the company’s corrosion prevention practices, according to Reuters.

After the March spill, the government allowed BP to continue operations but warned it could force a shutdown if leaks continued.

The process of shutting down the field is expected to take days, the company said. There was no timetable for when it would reopen.

“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,” BP spokesman Ronnie Chappell said, according to Reuters.

Meanwhile, the Organization of Petroleum Exporting Countries, or OPEC, said it was prepared to fill any gap in crude oil supplies caused by the crisis.

“Saudi Arabia and other OPEC producers are willing and capable of replacing any missing oil when the market demands it,” an OPEC official told Reuters.