Paula Dittrick
Senior Staff Writer
HOUSTON, Aug. 8 -- BP Exploration (Alaska) Inc.'s shutdown of Prudhoe Bay oil field because of transit pipeline corrosion has prompted statements of concern from US congressional members, but a pipeline group said the shutdown demonstrates industry's focus on safety.
A small leak and severe corrosion problems prompted the BP unit to decide to replace 16 miles of its 22-mile Prudhoe Bay field pipeline system. These gathering lines transport oil to the Trans-Alaska Pipeline System (OGJ Online, Aug. 7, 2006).
The field's shutdown caused a loss of 400,000 b/d in oil production, triggering higher oil and gasoline prices and potential supply problems for refineries in California and Washington.
US Rep. John D. Dingell (D-Mich.), chief minority member of the House Energy and Commerce Committee, described the shutdown as "appalling." He 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 issued a statement calling the shutdown unfortunate but noting that the action confirms industry's commitment toward safety.
AOPL Executive Director Benjamin S. Cooper noted that 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.
"In the future BP's North Slope pipeline, in addition to operators of all low-stress pipelines, will be covered by elements of DOT's integrity management program," Cooper said. "This program has a proven track record of success that will only get better as pipeline companies continue to implement innovative integrity-testing techniques."
US Sen. 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."
Impact on Alaska
Alaska Gov. Frank H. Murkowski estimated the 400,000 b/d oil production loss translates into $6.4 million in lost state revenues/day. 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.
Refineries
Murkowski said he was concerned about a sufficient supply of oil for Alaska refineries that rely on royalty oil purchased in varying amounts from the state of Alaska.
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.
Separately, Tesoro said only 10% of its total crude supply comes from Prudhoe Bay field. It also receives crude from Cook Inlet and Alpine field in Alaska.
For the next 30-45 days, Tesoro said it had a secure crude supply for its Golden Eage 161,000 b/cd refinery in Martinez, Calif., and its 113,300 b/cd refinery in Anacortes, Wash. Both of those use Prudhoe Bay oil.
Meanwhile, ConocoPhillips said it was developing plans to replace supply to West Coast refineries. ConocoPhillips 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.
California Energy Commission spokesman Rob Schlichting said five refineries in the state use ANS crude. He expects business as usual at those refineries for at least 2 weeks.
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.
Contact Paula Dittrick at [email protected].
