BP faces daunting repair on crippled pipeline

John W. Schoen Senior producer • Profile • E-mail

As officials at BP scrambled to reopen a major Alaskan pipeline, gasoline prices continued to drift higher on financial markets Tuesday — a sign that worries over tight crude oil supplies could bring consumers even more pain at the pump.

A lot depends on just how much crude oil is lost to the market. And that depends on how long it takes to repair the line, which was shut down Sunday after multiple areas of heavy corrosion were discovered. Analysts and oil industry experts say the company has its work cut out for it.

On Tuesday, Energy Secretary Samuel Bodman said that repairs are expected to take until January but that part of the pipeline may be operable before then. That would allow some oil from the Prudhoe Bay field, which supplies about 8 percent of the nation's oil production, to continue to flow.

“A complete shutdown of the Prudhoe Bay system may not be necessary,” Bodman told reporters.

Based on current information, the Energy Department estimated the shutdown will keep some 50 million barrels of oil from getting to market before full service can be restored. That's roughly 10 days' worth of all U.S. production and about 5 days' worth of oil imports.

Key facts: Prudhoe Bay oil field — Largest field in North America and the 18th-largest ever discovered — Located 650 miles north of Anchorage, 250 miles north of the Arctic Circle — Spread over 200,000 acres. — Originally had 25 billion barrels of oil, about half recoverable with current technology — Discovered in 1968 by Atlantic Richfield Co. and Exxon — Production started in 1977, more than 1,000 wells drilled so far — Operator BP owns 26 percent, ConocoPhillips Alaska and Exxon Mobil 36 percent each. — Peak production was 1.5 million barrels per day from 1979 to 1989 — Current output around 400,000 bpd Sources: Reuters, BP

In the short term, the hardest hit will be refiners — and drivers — on the West coast, where much of much of the Alaskan oil is processed. While any potential squeeze wouldn’t be felt for a few weeks, the loss of North Slope crude will be cushioned by plentiful crude stockpiles, which are currently running well above their five-year averages for this time of year. Bodman said the government was also prepared to draw oil from the U.S. Strategic Petroleum Reserve, if needed.

The upward pressure on gasoline prices also could ease in the next few weeks as the summer driving season winds down and demand for gasoline begins to fall.

Beyond the potential for pain at the pump, the state of Alaska stands to lose millions of dollars in lost tax revenues. At current prices, the complete loss of Prudhoe production is costing the state $6.4 million a day, according to Revenue Commissioner Bill Corbus.

So a lot is riding on how long it takes to fix the pipeline. And the current four-month estimate is just a guess.

"We have taken all nonessential persons off the slope,” Steve Marshall, president of BP Alaska Exploration Inc. said Tuesday morning. More than 100 workers will begin removing insulation to get a better look at the corroded pipes, he said.

Only after those inspections are completed can the repair work begin.

“I think it is a much larger problem than people are led to believe,” said Chris Edmonds, vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. “This is 22 miles of transit pipe that BP runs in its Prudhoe Bay facility in Alaska in territory that is not that easy to get to or work in.”

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