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A Price Rise is in the Pipeline

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A Price Rise is in the Pipeline

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A Price Rise is in the Pipeline

A Price Rise is in the Pipeline

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Oil prices rise more than $2 a barrel today after BP announces it is shutting down production from Alaska's Prudhoe Bay field because of corrosion in its pipelines.

MICHELE NORRIS, host:

From NPR News, this is ALL THINGS CONSIDERED. I'm Michele Norris.

MELISSA BLOCK, host:

And I'm Melissa Block.

The nation's largest oilfield is in the process of shutting down. The oil company BP announced that it's temporarily halting production at Prudhoe Bay, Alaska, after finding heavier than expected corrosion in some of its pipelines there. BP says it doesn't know how long the shutdown will last. Oil prices jumped more than $2 a barrel in response.

NPR's Scott Horsley reports.

SCOTT HORSLEY reporting:

BP operates about 22 miles of pipeline at Prudhoe Bay. After a big oil spill there in March, the company promised to clean and test all of its pipes. The results it got in last Friday were alarming. BP found signs of trouble in twelve different locations on one pipeline. Further tests showed in some areas corrosion had eaten away as much as 80% of the pipe, and in one spot four or five barrels of oil leaked out.

What's more, the corrosion doesn't fit the model BP developed after the March spill, meaning the company doesn't really understand what's causing the pipes to break down. That mystery is what's prompting BP to close the entire field. In a conference call from Anchorage today, BP America Chairman Bob Malone said he deeply regrets having to take such drastic action.

Mr. BOB MALONE (BP America): On behalf of the BP Group, I apologize for the impact this has had on our nation and to the great state of Alaska.

HORSLEY: It's too soon to say just what that impact will be. BP says it will take three to five days just to turn off the Prudhoe Bay spigot. Malone says the company has already made the decision to replace some 16 miles of pipeline in the area.

Mr. MALONE: BP will commit the necessary human and financial resources to complete this job safety and as quickly as possible.

HORSLEY: In the meantime, the 400,000 barrels of oil a day that used to come from Prudhoe Bay will be missing from the market. Phil Flynn of Aleron Trading in Chicago says the first effects will be felt by drivers on the West Coast, who rely on gasoline made from Alaskan oil. Those drivers were already paying well over $3 a gallon.

Mr. PHIL FLYNN (Aleron Trading, Chicago): You know, I think the West Coast is going to feel it first. They're going to get the brunt of it. But don't think you're safe if you live, you know, on the East Coast, because we've learned in these past outages that we're a real, truly global market right now.

HORSLEY: The Prudhoe Bay oil represents only about one-half of one percent of global oil production, but there's not a lot of surplus oil to make up the difference. Crude oil prices jumped $2.22 a barrel today. Flynn notes that jump came despite assurances that OPEC and the strategic petroleum reserve will supply additional oil if necessary.

Mr. FLYNN: That's going to help in the short run but if this is an ongoing problem, it's going to be difficult to continue to just, you know, take oil from the bank account.

HORSLEY: BP's Malone says his company may be able to restart production in some parts of Prudhoe Bay before all those pipelines are replaced.

Mr. MALONE: We will be conducting a parallel study to determine if it is possible to safely continue operating portions of the Prudhoe Bay field in a safe manner. And I emphasis the word safe.

HORSLEY: BP's record for safety has been tarnished in the last couple of years, not only by the March oil spill, but also a deadly refinery accident in Texas. Two weeks ago, BP reported quarterly profits of $7.25 billion. The company promised at the time to spend more money on refinery safety and to ensure the integrity of its Alaskan pipelines.

Scott Horsley, NPR News.

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