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BP shuts down major Alaskan oil field

MARY PEMBERTON, Associated Press | August 7 2006

ANCHORAGE, Alaska - Oil giant BP has indefinitely shut down the nation's biggest oilfield after finding a pipeline leak, removing about 8 percent of U.S. oil production and stoking fears that already high gas prices will shoot up further.

Steve Marshall, president of BP Exploration Alaska, Inc. said Sunday night that the eastern side of Prudhoe Bay 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.

A 400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo. A barrel contains 42 gallons of crude oil.

"Oil prices could increase by as much as $10 per barrel given the current environment," Emori said. "But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced."

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."

Light, sweet crude for September delivery was up $1.23 to $75.99 a barrel in mid-afternoon Asian electronic trading Monday on the New York Mercantile Exchange.

Marshall said tests Friday indicated that there were 16 anomalies in 12 areas in an oil transit line on the eastern side of Prudhoe Bay. Tests found losses in wall thickness of between 70 and 81 percent. Repair or replacement is required if there is more than an 80 percent loss.

"The results were absolutely unexpected," Marshall said.

BP officials said they didn't know how long the Prudhoe Bay field would be off line. "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.

BP America Chairman and President Bob Malone said Prudhoe Bay will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

"We regret that it is necessary to take this action and we apologize to the nation and the State of Alaska for the adverse impacts it will cause," Malone said in a statement.

The shutdown comes six months after the North Slope's biggest ever oil spill was discovered on a Prudhoe Bay transit line. Some 267,000 gallons of oil spilled.

While BP suspects corrosion in both damaged lines, they can't say for sure until further tests are complete. Workers also found a small spill, estimated to be about 4 to 5 barrels, which has been contained and clean up efforts are under way, BP said.

BP, a unit of the London-based company BP PLC, puts millions of gallons of corrosion inhibitor into the Prudhoe Bay lines each year. It also examines pipes by taking X-rays and ultrasound images.

A prolonged Prudhoe Bay shutdown would be a major blow to domestic oil production, but even a short one could be crippling to Alaska's economy.

Alaska House Speaker John Harris said it was admirable that BP took immediate action, although it's sure to hurt state coffers. "This state cannot afford to have another Exxon Valdez," said Harris, R-Valdez.

The Exxon Valdez tanker emptied 11 million gallons of crude oil into Prince William Sound in 1989, killing hundreds of thousands of birds and marine animals and soiling more than 1,200 miles of rocky beach in nation's largest oil spill.

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