Monday, August 07, 2006

British Petroleum Shutdown Of Prudhoe Bay To Cost Alaska $6.4 Million Per Day

The decision by British Petroleum to completely shut down operations at Prudhoe Bay is expected to cost the State of Alaska an estimated $6.4 million in revenue per day, assuming today's oil price remains fairly constant. The following is a composite post of reports from several local Alaskan sources, to include KTVA Channel 11 and KTUU Channel 2, both of Anchorage. BP also issued two official statements, here and here.

BP's decision was triggered by a report of additional trouble spots in one of their transit lines. On Friday, data from an analysis of oil transit lines at Prudhoe Bay revealed 16 trouble spots along the Flow Station Two transit line. Further research revealed corrosion and a small oil spill at least one of this spots. When it was revealed that the corrosion they had found was new and different from corrosion discovered in the past, BP decided it needed to shut down the facility to do a thorough search.

We found 16 anomalies in 12 different locations, each of those indicating a wall thickness loss in excess of 70 percent,” said Steve Marshall, the president of BP Exploration Alaska. Another inspection showed the 30-inch diameter line was also leaking. “That leak resulted in about four to five barrels of oil spilled to the tundra. That was contained,” Marshall said

At a press conference Monday, BP discussed its decision to phase down all production at its Prudhoe Bay facility, saying it may have to replace 73 percent of the pipelines from the nation's largest oil field. This amounts to about 16 miles of pipeline. Prudhoe Bay supplies the nation with eight percent of its oil and this shut down could seriously crimp the nation's oil supplies.

“If the field were to shut down, we'd certainly be talking weeks and months. We're doing everything we can to identify pipe options both in state and out of state. Wherever we can locate material. Money is not an object in this,” said Steve Marshall.

Currently, production is down only 33 thousand barrels a day, the production capacity of the Flow Station Two. But a complete shutdown would mean a loss of 400,000 barrels of oil every day. At current oil prices around $70 per barrel, BP will lose approximately $29 million per day in gross revenue, and the state of Alaska would lose 6.4 million dollars every day.

“With about 90 percent of the general, unrestricted revenue coming from oil, the state is in a very, very difficult and precarious situation,” said Governor Frank Murkowski, Alaska (R). Governor Murkowski says it's too early to know just what actions will be taken to protect the state's budget and revenue. Early estimates say that the state has about a 60-day fiscal cushion before running a deficit for this fiscal year. BP today said they did not immediately know how much it would cost to replace the lines. They will continue to keep the oil field closed and bring parts back into service once it's safe to do so.

For BP, this is the latest round of trouble caused by corrosion this year. On March 2, a leak was discovered in an underground pipeline. Approximately 270,000 gallons of oil spilled onto the tundra, creating the largest spill ever on the North Slope. The incident resulted in the U.S. Department of Transportation ordering the company to inspect the remainder of the lines. This inspection uncovered this weekend’s discovery in the transit line.

We'll be taking a look at some of the records, as far as maintenance records and inspection records for that specific line,” said Leslie Pearson of the Alaska State Department of Environmental Conservation.

Pearson says right now there are no state or federal regulations on the books demanding oil companies inspect their pipelines, but that could be changing. “The situations for different fields would change, so I would venture to guess that we’d be looking at what industry standards do exist, whether there are other standards, say in Canada, that are prescriptive,” Pearson said.

According to BP, it had been 24 years since the last time the transit line was thoroughly inspected. Normally, a device called a "smart pig" is sent into the lines to inspect and analyze conditions from the inside. However, company officials did not engage in more frequent maintenance "pigging" of those lines because they only carry clean crude from which water and other known contaminants have been removed. However, the company indicates its inspections policies will change. “Clearly in hindsight that program was insufficient and will be rectified going forward,” Marshall said.

Outlook for consumers will be a short-term 3-to-5 cents rise at the pump over the next couple of weeks. Use of the Strategic Oil Reserve is expected to stabilize prices thereafter.

Being that it is campaign season in Alaska, several gubernatorial candidates weighed in. Almost all of them said the situation shouldn't be about blame, but about planning. KIMO Channel 13 in Anchorage reported their reactions:

Democratic candidate Tony Knowles is calling on BP to “make America whole” by making sure whatever oil is taken from the Strategic Oil Reserve will eventually be made up. He also wants to make sure this can't be used by BP as a tax-incentive when it comes to its drop in production.

Democratic candidate Eric Croft says there should have been better oversight, and that prevention is the key to this situation.

Republican candidate Sarah Palin agreed with those statements. She says there needs to be more focus on North Slope activities.

Republican candidate John Binkley says this is a perfect example of why we should have saved more of the surplus and have a better fiscal plan.

Analysis: BP should not necessarily be the bad guy in this deal. Since only clean crude went through the lines, their assumption that the lines would be more resistant to corrosion was understandable. However, there still should have been a thorough inspection at least every 10 years. And if the lines up at Flow Station Two were in this condition, wonder what this portends for the main trans-Alaska pipeline itself?

This development not only is likely to influence the legislative debate over oil taxes and the natural gas pipeline contract, but is likely to generate a legislative solution more favorable to the producers. Those who've been urging the state legislature to approve the natural gas pipeline contract forthwith, with a minimum of debate, have just had their hand strengthened. Just this past Saturday (August 5th), the State House passed an investment-based oil production tax along party lines; how will the shutdown of Prudhoe Bay affect the State Senate vote?

A lot of naysayers out there have been whining about Senator Ted Stevens being the "King of Pork". With 90% of our state's revenue from oil, perhaps you now understand why Stevens funnels "pork" to this state. It is in anticipation of a "doomsday" event like this. Certainly, we don't need all the pork; we can defer the Gravina Island Bridge. But the Knik Arm Bridge is a necessity. And where were you naysayers when we were trying to get ANWR opened? If Clinton hadn't vetoed ANWR, it would probably be open now. All you greenies and animal-worshippers shot yourselves in the foot when you helped Clinton kill ANWR. You get to pay the same $3.00 per gallon that the rest of us do.

A special place in hell must be reserved for Arizona Senator John McCain (pictured at left, courtesy of National Vanguard). He's always ragging Ted Stevens as the King of Pork, yet in 2004, he was one of seven Republican turncoats to join with the Democrats to vote to deny us the opportunity to open up ANWR for exploration and responsible development. As far as I'm concerned, that's treason. And what better cover for treason than to be a former POW. John McCain's opposition to immigration reform and support for amnesty for illegals borders on the treasonous, too. McCain has parlayed the POW card (boy, he shamelessly markets his former POW status) and his wife's beer money into a lifetime Senate seat. And don't forget - McCain was one of the infamous Keating Five, and once again played the POW card to slither out of accountability.

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  1. The jewish Bronfman family "made" McCain. He has to pay the devil his dues.

    As for BP, I guess time will tell whether this event is really just a war between the state of Alaska and the big wheels in the oil companies over future taxes.

  2. MSNBC reveals that there is a criminal investigation directed at BP not only because of insufficient maintenance of the pipeline, but also because of alleged price-fixing by one of their propane suppliers in the Midwest back in 2004.