Gas prices headed up as BP pipeline closes down

Bob Moon Aug 7, 2006


KAI RYSSDAL: 400,000 barrels of oil are disappearing from the US market. British Petroleum started shutting down its oil field up in Prudhoe Bay, Alaska this morning. Part of its pipeline is corroded and leaking. That’ll take away about eight percent of US domestic production. It’s already hit the oil markets. Crude closed just shy of $77 a barrel in New York today, a bump of almost three percent. Marketplace’s Bob Moon reports on the trickle down effects of a pipeline shutdown.

BOB MOON: The oil giant BP says it could take weeks, or even months, to replace 16 miles of pipeline from the Prudhoe Bay oil field. In the meantime, West Coast refineries will be deprived of as much as 25 percent of their usual crude intake. Some analysts say gasoline prices could reach heights never seen before.

Federal energy officials are offering to tap the nation’s emergency oil reserve, though getting that oil from the Gulf Coast, where it’s stored, all the way to the West Coast could be complicated. Global Insight oil analyst Mary Novak remains optimistic the repairs can be done before prices climb much higher.

MARY NOVAK: “It’s hard to believe that we can even, are in a position to withstand another half a million barrels per day loss of supply, but crude stockpiles are in pretty good shape. As long as it’s only two or three weeks, we can probably manage through this. But, I mean, prices are just not going to go down.”

One researcher says you can blame the PIGs for all this trouble. In this case, that’s short for the pipeline inspection gauges that are supposed to be used to check for problems inside the pipes.

Richard Fineberg, the former state oil analyst for Alaska, says BP has put off running those pigs at least two years beyond schedule, despite serious signs of trouble.

RICHARD FINEBERG:“Knowing from visual observation they had corrosion that warranted close inspection, they still didn’t run the PIG, and had the largest spill in the history of Prudhoe Bay operations, roughly 200,000 gallons that leaked for five days before they found they even had the spill.”

That was five months ago. Now, Fineberg says, BP claims surprise.

FINEBERG:“When this glaring discrepancy blows up in their face, they then say, ‘Oh, we’re going to get right on it and take every action to correct it.'”

A BP spokesman did not return our call by airtime. At a news conference today, BP said it now needs to replace close to 75 percent of all its Prudhoe Bay pipelines.

In Los Angeles, I’m Bob Moon for Marketplace.

RYSSDAL: Somebody’s gotta fix the leaks and repair the corrosion, right? Oil services company Halliburton picked up 1.6 percent today. Schlumberger rose a percent and a half.

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