Just a Bump in the Beltway

Oil Prices Surge as BP Shuts Down Oil Field

By Fred Barbash
Washington Post Staff Writer
Monday, August 7, 2006; 9:08 AM

Worldwide crude oil prices surged today after BP oil announced that it was shutting down its Prudhoe Bay oil field in Alaska following discovery of a small leak and corrosion in a pipeline.

The North Slope field produces 400,000 barrels per day, about 8 percent of U.S. crude oil output.

The news sent September crude futures contracts--which represent prices anticipated by traders--up more than a dollar, beyond $76.00 per barrel.

Oil prices were already under severe pressure because of high demand and great uncertainty about supply caused by the wars in Iraq and in Israel and Lebanon.

BP, in a press release, said its engineers discovered a small leak and wall-thinning in a 22-mile long transit pipeline while conducting maintenance on August 4. It said analysis of data revealed 16 anomalies in 12 locations in the pipeline.

BP said the spill, estimated at 4 to 5 barrels, had been contained and that a clean-up effort was underway. The pipeline was shut down at 6.30 a.m. Sunday morning.

"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," said a statement from Bob Malone, president and chairman of BP America.

"However, the discovery of the leak and the most recent" maintenance runs have "called into question the condition of the oil transit lines at Prudhoe Bay," he said. "We will not resume operation of the field until we and the government regulators are satisfied that they can be operated safely and pose no threat to the environment."

BP had already announced plans to replace a three-mile segment of pipeline following inspections in the wake of a large spill in March, 2006, the company said.

Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo, told the Associated Press that a 400,000-barrel per day reduction in output would have a major impact on oil prices.

Regular unleaded was $3.11 at the corner gas station last night. How is it where you are?