BP shutdown shakes oil markets

BP Exploration Alaska began halting its 400,000-barrel-a-day production at Prudhoe Bay, in Alaska‘s North Slope region on Sunday, because leakage stemming from severe corrosion in its pipeline.

 

Analysts say the shutdown could not have come at a worse time as the conflict in Lebanon and concerns of Middle East stability had already propelled oil prices to historic highs.

 

Markets have also been rattled by violence in Nigeria, Africa‘s biggest oil producer and concerns over storms in the Gulf of Mexico.

 

The oilfield provides nearly a tenth of total US production.

 

BP officials said it could take weeks or months to restore lost production but the company would try to put portions of the network back into operation as they are repaired.

 

The news drove crude oil to a trading peak of US$77.30 on Monday before it settled at US$76.98 a barrel.

 

It was the highest settlement price since July 14, when crude settled at a record US$77.03 a barrel.

 

Crude oil prices fell on Tuesday after prices had jumped more than US$2 a barrel in response to the shutdown.

 

Supply worries

BP America Chief Executive Bob Malone said the discovery of extensive corrosion in the line at the eastern side of Prudhoe Bay has led the company to suspect that corrosion may be widespread elsewhere in the field.

“We have now taken the decision that we will replace all the main transit lines in the Prudhoe bay field,” he said, adding there are about 26km of pipeline in the field.

BP has come under intense regulatory scrutiny in the US since a separate pipeline leaked an estimated 200,000 gallons of crude oil onto the Arctic tundra in March.

“We’ve seen a pattern emerge over the last four to six years of the company getting more and more sloppy in their work as they try to milk the remaining oil from Prudhoe Bay,” said Justin Tatham, an advocate for the Public Interest Research Group (PIRG).

However Malone said that safety was a top priority for the company and that it would not re-open “until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment”.

BP operates the Prudhoe field for a consortium that also includes US giants ExxonMobil, Chevron and ConocoPhillips.

 

Global oil pressures

Earlier this year, crude oil prices rose to a record $78.40 a barrel following worries that Iran, OPEC’s second largest producer, could cut supplies if it gets involved in the fighting in Lebanon and Israel.

Iran is also embroiled in a standoff with the United Nations over its nuclear programme and Iranian officials have not ruled out using oil as a bargaining chip.

 

Meanwhile in Nigeria – the fifth-largest supplier of crude oil to the US – rebel attacks this year have shut down one quarter of the 2.6 million barrels of oil it normally produces each day.

 

Oil prices are 20% higher than a year ago, but still below all-time, inflation-adjusted, highs of around US$90 a barrel.