BP Exploration (Alaska) Inc. said it’s unsure how long Prudhoe Bay oil field might be shut down pending replacement of an estimated 16 miles of a severely corroded oil transit line that resulted in a small spill.
The field was expected to take days to shut down, BP executives said during an Aug. 7 conference call with reporters, adding that a total shutdown would reduce Alaska North Slope oil production by 400,000 b/d.
BP was working with state and federal authorities to determine whether it might be possible to continue operating portions of the field, BP America Chairman and Pres. Bob Malone said.
Meanwhile, engineers studied how to replace 16 miles of the 22-mile transit line, and BP said there was no cost estimate yet. Executives also said they were studying how to obtain the pipe.
The transit system moves oil from the field to the Trans-Alaska Pipeline System.
US Energy Sec. Samuel Bodman said it will take months to fix the pipeline, but he told reporters in Washington on Aug. 8 that crude oil inventories and crude production from elsewhere can make up for Prudhoe Bay field production.
“Substitutions for Alaska crude oil, we believe, are available,” he said.
Upon reports of the field shutdown, crude oil prices rose on the New York Mercantile Exchange, and analysts questioned how West Coast refineries would make up for the lost ANS crude production.
US Rep. John D. Dingell (D-Mich.), chief minority member of the House Energy and Commerce Committee, described the shutdown as “appalling.”
Dingell called for congressional hearings to determine “what laws and regulations need to be improved to ensure problem pipelines like these are found and fixed earlier.”
Separately, the Association of Oil Pipelines called the shutdown unfortunate but noted that the action confirmed industry’s commitment toward safety.
AOPL Executive Director Benjamin S. Cooper said BP discovered these weak spots in its pipeline because the US Department of Transportation ordered the company to apply techniques used by the pipeline industry for 5 years to prevent leaks.
The field shutdown marked the latest in a series of problems for BP’s Prudhoe Bay Operating Area pipelines.
On Mar. 2, about 6,000 bbl of crude oil leaked in another part of the field from the Aug. 6 spill.
Corrosion
BP said analysis of smart pig data from late July showed 16 anomalies in 12 locations in a pipeline on the field’s east side, prompting inspections of anomalies where corrosion-related wall thinning appeared severe.
It was during these inspections that BP discovered a leak and a 4-5 bbl spill, which has been contained. One flow station on the transit pipeline was shut down Aug. 6.
Malone said the leak and smart pig run called into question the condition of the oil transit lines at Prudhoe Bay.
“BP deeply regrets that it has been necessary to take this action,” Malone said, vowing that the company will use all available human and financial resources to resolve the problem as soon as possible.
He declined to suggest when Prudhoe Bay field activities might be resumed.
“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,” Malone said.
BP is working to speed inspection of its oil pipeline at Prudhoe Bay. Smart pigging inspection had been completed over about 40% of the route as of early Aug. 7.
BP Alaska Pres. Steven Marshall reported a wall thickness loss of more than 70% in the 30-in. pipeline. He said the corrosion appears to be of a different type than the corrosion that was responsible for a Mar. 2 leak in Prudhoe Bay Operating Area pipelines.
“Clearly, there is another corrosion mechanism occurring here,” Marshall said.
Last month, the US Pipeline and Hazardous Materials Safety Administration (PHMSA) increased pressure on BP to improve its North Slope operations after the company missed deadlines to repair and clean leaking pipelines (OGJ Online, July 31, 2006).
The order followed BP’s failure to meet earlier deadlines under a Mar. 15 Corrective Action Order.
West Coast refiners
US Department of Energy spokesman Craig Stevens said DOE would consider loaning Strategic Petroleum Reserve oil to West Coast refiners if a refiner were to request this.
DOE staff members talked with BP and representatives of refiners using ANS crude, Stevens said.
Analyst Olivier Jakob, managing director of Petromatrix GMBH, Zug, Switzerland, noted an SPR release to West Coast refiners would be difficult to implement. SPR oil is stored along the US Gulf of Mexico coast, and there is no pipeline link to California.
“The only feasible solution would be for the SPR to release some stocks to gulf refiners that would then redirect cargoes to the West Coast,” Jakob said. “But this is also unlikely to be a solution as one would need a Panama Canal-size cargo, and it will still take 21 days to reach the West Coast.”
He said the SPR would be of no use in this situation “apart from trying to calm the market down through reassuring statements.”
Refiners depending upon ANS crude reported no immediate short-term effects.
A Valero Energy Corp. spokeswoman said, “It is too early to know if there will be any long-term impact to our operations as a result of this outage. However, short-term, we are able to substitute similar crude oils and do not anticipate any near-term operational impacts.”
Shell Oil Products US reported that the 148,600 b/cd Anacortes refinery in Puget Sound in Washington state uses ANS crude. Shell spokesman Stan Mays said that refinery already had sufficient crude en route for near-term operations.
Shell is studying alternate crude supply sources, Mays said, although he declined to elaborate.
Meanwhile, ConocoPhillips was developing plans to replace disrupted supply to West Coast refineries. Conoco- Phillips owns 36% interest in Prudhoe Bay field.
“We are looking at what we will do for future cargoes and where they may come from,” a ConocoPhillips spokesman said.
BP had no immediate comment on its refineries. The 247,000 b/cd refinery in Carson, Calif., near Los Angeles, and the 220,400 b/cd Cherry Point refinery near Ferndale, Wash., use ANS crude, analysts said.
Alaska Gov. Frank H. Murkowski said he was concerned about a sufficient supply of oil for Alaska refineries that rely on royalty oil purchased from the state.
Koch Industries Inc. unit Flint Hills Resources LP, Wichita, Kan., has a 215,175 b/cd refinery at North Pole, while Arctic Slope Regional Corp. unit Petro Star Inc. has a 17,500 b/cd refinery at North Pole.
“While the volume for August was originally expected to be 56,000 b/d, the loss of Prudhoe Bay production will cut the amount available to 28,000-30,000 b/d,” Murkowski said.
Independent refiner Tesoro Corp. has a 72,000 b/cd refinery at Kenai, Alas., that does not use royalty oil. Petro Star’s 48,000 b/cd Valdez, Alas., refinery also does not use royalty oil, Murkowski said.
Reaction
US Senate Energy and Natural Resources Committee Chairman Pete V. Domenici (R-NM) noted that 2 weeks ago BP announced record second-quarter net earnings of $7.32 billion.
“I am troubled by BP’s announcement,” Domenici said. “We are living too close to the supply margins and have been for too long. While both houses are working to expand production, we expect the private sector to sharply step up its investment in its own critical infrastructure.”
Domenici urged BP executives to swiftly address the infrastructure problem. “Extensive corrosion to a pipeline of such importance to our economy is unacceptable.”
Gov. Murkowski estimated a 400,000 b/d oil production loss translates into $6.4 million/day in lost state revenues. He also said corrosion problems likely will become more of an issue and expense as ANS pipelines age.
“This wake-up call is giving us a glimpse of the future that awaits Alaskans in about 2016 when production drops off due to declining oil reserves,” Murkowski said. “It underscores how critical it is to incentive oil and gas exploration and production throughout the North Slope,” including the Arctic National Wildlife Refuge coastal plain
For decades, ANS pipeline operation and maintenance has been done safely and in an environmentally sound manner, noted Murkowski, who advocates construction of a gas pipeline from ANS to the Lower 48.
“We are confident the issues with pipeline corrosion will be addressed to the highest standard and production will resume in a timely manner,” he said.