Bodman cites sources to replace cut ANS oil supplies

Nick Snow
Washington Correspondent

WASHINGTON, DC, Aug. 9 -- US energy officials tried to assure markets and consumers that other crude supplies are available to offset up to 400,000 b/d of production which will be missing as BP Exploration (Alaska) Inc. shuts down the eastern operating area of its Prudhoe Bay gathering system in Alaska.

US Energy Sec. Samuel W. Bodman said Aug. 8 that he directed his staff to contact not only the BP America division but also West Coast refiners that are most likely to directly feel the shutdown's impact.

"From those conversations, there appears to be a belief that a complete shutdown of the Prudhoe Bay system may not be necessary," Bodman said. "As we get a clearer picture over the next several days, we will be able to determine any necessary government actions."

He added that the US Energy Information Administration gave its preliminary assessment of the situation when it released its latest short-term energy outlook earlier in the day.

"First off, it appears from those conversations that there are enough supplies of crude oil to last for a couple of weeks. And the news is, by and large, good," said Bodman.

In its short-term outlook EIA said West Coast refiners, which process about 800,000 b/d of Alaskan crude, could replace the amount unavailable as a result of the shutdown by drawing down crude and product inventories and by obtaining supplies from other sources.

It noted that crude stocks on the West Coast at the end of July were almost 5.5 million bbl higher than a year earlier, while the region's year-to-year gasoline and distillate stocks were 1.4 million bbl and 1.9 million bbl higher, respectively.

EIA said the Strategic Petroleum Reserve, which currently holds about 688 million bbl, also could be another crude oil source.

Worldwide sources
It also estimated that another 1.1-1.8 million b/d of refining capacity is available worldwide, mostly in Saudi Arabia. "Since West Coast (PADD 5) refinery configurations are complex enough to handle various crude qualities, substitutes for Alaskan crude oil are available," EIA said. "Incremental production from Saudi Arabia as well as diverted shipments of crude oil from Ecuador, Colombia, and Mexico can offset all or part of the shortfall."

Bodman said, "We appreciate that oil-producing countries are monitoring our situation in Alaska and have already commented through press reports that they are able, if needed, to increase production to keep offset any disruption."

Noting that crude also is available from the SPR, Bodman added that a waiver to the Jones Act could also be requested so that non-US flag vessels could crude oil from Alaska to ports in the Lower 48 states.

"And I'd like to remind people that when the hurricanes struck the Gulf Coast, we lost more than 1 million b/d of production—and we made it through and recovered. We know how to handle this type of situation," Bodman said.

At a press conference in Anchorage, BP America Pres. Bob Malone said that the company was working with state and federal regulators to begin an orderly shutdown at Prudhoe Bay.

"In addition, we will be conducting a parallel study with the agencies to determine if it is possible to safely continue operating portions of the field," he said.

Bodman said that it was appropriate to review whether to shut down the entire field. "Taking down the entire field is a big decision, as returning that area to full production could take a considerable amount of time," he said.

EIA initially estimated that missing oil production from Prudhoe Bay would average 300,000 b/d in September, 400,000 b/d in October, 300,000 b/d in November, 200,000 b/d in December, and 100,000 b/d in January 2007.

A BP spokesman in Anchorage on Aug. 9 reported that about half of Prudhoe Bay field production, or 200,000 b/d, might not have to be shut down. He said a final decision was expected by the end of the week, adding BP was in talks with federal and Alaska state officials.

White House assessment
Meanwhile, White House Press Secretary Tony Snow told reporters on Aug. 8 that the Transportation Department's Pipeline and Hazardous Materials Safety Administration dispatched investigators to Prudhoe Bay to assess the situation there.

"They're going to have an evaluation� They're going to outline steps that the company has to take to make sure that the pipelines are safe to be carrying oil," he said.

Snow said that the Bush administration is accelerating the rule-making process to create "a robust regulatory regime" over low-pressure, low-volume crude oil pipelines similar to what exists for systems that handle higher volumes and pressures.He also said that the U.S. government was in contact with Saudi Arabia and Mexico.

"If there are supply shortages, they have agreed to help us in trying to address those. At this point, no refineries have reported shortages in petroleum, but, obviously, if those become a factor, we will address it and address it vigorously and in a timely manner," Snow said.

Contact Nick Snow at [email protected].