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This Isn't Good News for Gas Prices

Updated

BP is shutting down its Alaska pipeline because of possible corrosion. The shutdown will remove about 8 percent of the US oil production from the marketplace and drive up gas prices:

Oil company BP scrambled Monday to assess suspected pipeline corrosion that will shut shipments from the nation's biggest oilfield, removing about 8 percent of daily U.S. crude production and driving oil prices sharply higher.


BP, which is already facing a criminal investigation over a large spill in March at the same Prudhoe Bay oilfield, said it did not know how long the field would be offline. "I don't even know how long it's going to take to shut it down," said Tom Williams, BP's senior tax and royalty counsel

While BP suspects corrosion in both damaged lines, it can't say for sure until further tests are complete. Workers also found a small spill of about 4 to 5 barrels, which has been contained and is being cleaned up, BP said.

The news sent the price of light, sweet crude oil up $1.53 to $74.57 a barrel in electronic trading Monday on the New York Mercantile Exchange.

Steve Marshall, president of BP Exploration Alaska Inc., said Sunday night that the eastern side of the Prudhoe Bay oilfield would be shut down first, an operation anticipated to take 24 to 36 hours. The company will then move to shut down the west side, a move that could close more than 1,000 Prudhoe Bay wells.

Once the field is shut down, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production or about 2.6 percent of U.S. supply including imports, according to data from the U.S. Energy Information Administration.

The shutdown comes at an already worrisome time for the oil industry, with supply concerns stemming both from the hurricane season and instability in the Middle East.

Dan Riehl also comments on how this shut down could affect international politics:

Iran will at least think it has more power due to their ability to threaten the Strait of Hormuz. And that's only one factor. No doubt everyone will be discussing some of the others this week.

Update: The Energy Department is set to access the emergency oil reserves to make up for BP's shut down:

The Energy Department is prepared to provide oil from the government's emergency supplies if a refinery requests it because of the disruption of supplies from Alaska, a department spokesman said Monday.


"We're taking a very serious look at this," said spokesman Craig Stevens, referring to the loss of nearly half of oil shipments from Alaska's North Slope because of a pipeline corrosion problem.

Stevens said the department will be in contact with BP Exploration Alaska Inc. and West Coast refiners later in Monday to assess the situation. "If there is a request for oil we'll certainly take a serious look at that," he said.

The Strategic Petroleum Reserve is the nation's emergency stockpile of crude oil. It was created after the 1973 oil embargo when Arab countries halted petroleum exports to protest U.S. support for Israel.

The reserve has about 700 million barrels in storage on the Gulf Coast to be used in case of a serious supply disruption. The Energy Department in the past has lent SPR oil to refineries when there were disruptions because of pipeline or other problems.

Most of Alaska's oil goes to refineries on the West Coast. It was unclear how those refineries would be supplied with oil on the Gulf Coast. However any oil put into the market to replace lost Alaska oil would tend to ease prices, market experts say.


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Comments (8)

Gosh, isn't it interesting ... (Below threshold)
John:

Gosh, isn't it interesting that anti-drilling in ANWR people say that ANWR oil won't make a difference, but when the oil from Alaska is cut off, gas prices go up.

I consider this empirical evidence that if we do drill in ANWR, gas prices will go down.

problem is through the idio... (Below threshold)
jp:

problem is through the idiotic lense these idiots see the world through, they won't make the logical supply/demand connection and think that the evil oil companies and bushCo are lying about the pipelines in an attempt to push prices up.

I posted these questions on... (Below threshold)
John:

I posted these questions on another blog where a poster alleged that the oil companies were cutting off the Alaskan oil to drive up prices:

Why would BP cut production when prices are already at record high levels? They would want to INCREASE production to take advantage of selling at high prices. How could they take advantage of slightly higher prices if they don't have oil to sell due to cutting production? I realize that BP has other sources for sale and that they could make more money if prices jumped so much that the price increase offsets the loss of revenue from non-production, but that would take a far bigger increase in the price of crude than will result from the temporary loss of this production.

There have been a couple of leaks/spills on the Alaskan pipeline recently, and BP got (appropriately) hammered for lax inspections/maintenance of the pipeline. The discovery of this corrosion now is no surprise, it is the logical consequence of increased inspections.

I do not "question the timing," because the timing makes perfect sense.

Gosh, isn't it interesti... (Below threshold)
mantis:

Gosh, isn't it interesting that anti-drilling in ANWR people say that ANWR oil won't make a difference, but when the oil from Alaska is cut off, gas prices go up.

BP, Conoco-Phillips and Chevron-Texaco all decided that the amount of oil in ANWR was too small to be worth it, and stopped lobbying for access. So I guess even the pro-drilling in ANWR people say it won't make a difference.

I consider this empirical evidence that if we do drill in ANWR, gas prices will go down.

Yeah, probably not. It would decrease our oil trade deficit by a small amount, but wouldn't produce enough to have much affect on prices.

For the record I'm not necessarily against drilling in ANWR, but it needs to be done right. BP's maintenance negligence and this pipeline shutdown are further evidence that we cannot trust the oil companies to properly maintain their facilities without increased regulation.

From todays <a href="http:/... (Below threshold)
mesablue:

From todays Chicago Tribune:

But Victor Shum, an energy analyst with Purvin & Gertz in Singapore, said he expected the impact to be minimal since crude inventories are high.

"So while this won't have any immediate impact on U.S. supplies, the market is in very high anxiety. So any significant disruption, traders will take that into account, even though there is no threat of a supply shortage."

The only thing this is going to do is slow down an expected decrease in oil prices as the current oversupply situation finally takes some air out of the "bubble".

It would have been nice if it didn't happen, but it is no real cause for concern.

When are we going to stop d... (Below threshold)
krazy kagu:

When are we going to stop depending on OPEC drill in the ANWR and tell GREENPEACE to take a flying leap?

Exactly. Inventories have ... (Below threshold)
Jim Addison:

Exactly. Inventories have been consistently building up for a couple of years now.

We certainly need to authorize ANWR drilling, as well as off of our coasts. These are things which needed to be done before the oil price spike began in early 2003, and will still need to be done even if the price comes down by half.

The suspension of deliveries from this pipeline won't impact pricing at all unless it takes too long to effect the repairs.

We seek energy sources abro... (Below threshold)

We seek energy sources abroad so furiously that we forget we have our own. I think investments are uncomparable.




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