BP Hints Leak May Not Halt Oil Production

BP said Tuesday that it had halted about half the output from its Alaska oil operations but hinted that it might stop short of completely shutting production from America’s largest oil field as it repairs corroded pipelines.

The news came as lawmakers in Washington, outraged by the interruption of a major source of U.S. crude, called for hearings on the BP debacle and pushed for tighter regulation of the nation’s pipelines.

BP said late Sunday that it would close its giant Prudhoe Bay oil field after severe corrosion was discovered in a key pipeline that feeds crude from the field to the Trans Alaska Pipeline. The North Slope field accounts for about 8% of U.S. oil production and is the source of 20% of the crude used by gasoline refineries in California, including those that serve BP’s Arco brand.

The news caused oil prices to surge 3% on Monday and raised fears of $4-a-gallon gasoline on the West Coast. But markets calmed Tuesday, in part on word that some North Slope crude may keep flowing. In addition, the Bush administration offered assurances that the nation’s crude stockpiles were adequate to make up for the lost production and that the Strategic Petroleum Reserve could be tapped to forestall supply disruptions.

BP said it completed the shutdown of the corroded pipeline, which carries about 200,000 barrels of oil a day, or half the company’s daily Alaskan output, so that the line could be replaced. The London-based company -- formerly known as British Petroleum -- offered no new time frame for how long that could take, although U.S. Energy Secretary Samuel Bodman said it could be January before the Prudhoe Bay oil field was back to full production.

The company, however, said it was “studying options” that could allow the field’s other major pipeline -- which is on the western side of the field and carries 180,000 barrels a day -- to remain open while it is inspected for corrosion.

Federal regulators confirmed that remained a possibility.

“That’s one of the issues we’re looking at now with BP,” said Thomas J. Barrett, head of the Pipeline and Hazardous Materials Safety Administration. He said BP wanted to “look at the western line and see what’s feasible and safe.”

“Obviously, our goal is to restore safe operations up there as quickly as we can -- or sustain some of [the production] if we can do that safely,” said Barrett, who took over as head of the pipeline safety agency June 1.

If not, BP said, it planned to proceed with its initial plan to shut the entire field this weekend.

Barrett, a former U.S. Coast Guard commander with experience in Alaskan waters, would not hazard a guess as to how long repairs would take. He noted that work would be hindered by the Alaskan winter, which will come to the North Slope in five or six weeks, and that temperatures could hit 40 below zero.

BP workers are running detailed checks on pipelines that have not been thoroughly cleaned or inspected in at least 14 years.

The pipelines were built in 1977, the same year the North Slope field began production.

The work involves running a computerized device shaped something like a torpedo through the pipes to check for corrosion, leaks and other problems. The machine is called a pig because of the squealing noise created as it moves through the pipe.

BP initially began inspecting the pipelines under orders from regulators after a leak in March spilled about 270,000 gallons of crude on the Alaskan tundra. It was during those checks that extensive corrosion was found in the pipeline currently under scrutiny. The corrosion in some places had eaten through 80% of the pipeline wall.

“They’re doing the types of things we would have liked to have seen earlier,” Barrett said. “If they had kept up a higher standard of care on these lines, this might have been prevented.”

Scott Dean, a BP spokesman, acknowledged the shortcomings in the company’s inspection program.

“Clearly, our inspection program wasn’t good enough,” he said. “We’d like to apologize.” BP staff was also making apologies during calls to Capitol Hill.

Unmoved, a number of lawmakers said they would call for hearings when Congress returns next month. They also claimed that regulators had been lax in monitoring BP’s Alaskan operations -- and wondered whether there were similar problems lurking elsewhere.

The Prudhoe Bay shutdown raises “the specter of lax maintenance in pipelines across the country, at a time when we simply cannot afford any more surprises in the oil markets,” said Sen. Charles E. Schumer (D-N.Y.), who accused regulators of being “asleep at the switch.”

Some lawmakers -- including at least one Republican who is usually an industry ally -- demanded to know whether BP, which recently posted $7.3 billion in second-quarter profit, neglected to invest in upkeep of its infrastructure.

“Extensive corrosion to a pipeline of such importance to our economy is unacceptable,” said Sen. Pete V. Domenici (R-N.M.), chairman of the Senate Energy and Natural Resources Committee.

The line where the massive corrosion was discovered is a low-pressure pipeline. These are typically smaller feeder lines and, unlike the Trans Alaska Pipeline, are exempt from federal safety regulation.

Efforts have been underway to broaden federal oversight to low-pressure lines since BP’s spill in March, but safety watchdogs have been unhappy with the results. This latest North Slope incident could change that, they say.

The leak “creates a whole new ballgame and you’ll probably see a lot more pressure from Congress to address this whole question,” said Carl Weimer, head of the Pipeline Safety Trust in Bellingham, Wash.

White House Press Secretary Tony Snow said the administration was “accelerating the rule-making process that would enable the creation of a robust regulatory regime over those pipelines.”

Energy Secretary Bodman said he believed that the lost North Slope production could be made up, possibly by drawing down abundant crude oil inventories, tapping the Strategic Petroleum Reserve and diverting more oil from producers such as Saudi Arabia and Mexico.

“When the hurricanes struck the Gulf Coast, we lost more than 1 million barrels a day of production -- and we made it through and recovered,” he said.

In New York trading Tuesday, oil futures fell 67 cents to $76.31 a barrel after rising Monday to a near-all-time high of $76.98.

After jumping Monday, wholesale gasoline prices retreated in California. And retail prices have yet to react, partly because the region’s oil and gasoline stocks are adequate for now and partly because the oil gap won’t hit for a few more weeks, experts said.

Among the states most affected by BP’s problems, California and Hawaii saw their retail average prices at the pump fall Tuesday -- albeit less than a penny for a gallon of self-serve regular. Statewide averages for Washington and Oregon rose less than a penny Tuesday, according to a daily survey by AAA. In California, the price for self-serve regular was $3.199 a gallon.

Tim Rogers, president of fuel distributor Tower Energy Group, believes that it’s a temporary calm.

“It really hasn’t gone through the system yet, so people really can’t see what kind of impact it’s going to have,” said Rogers, whose Torrance-based company supplies gasoline to many 7-Eleven stores in the West as well as to Tower Mart stations in Northern California. “I think you’ll see things heat up probably next week. The story’s not over yet.”

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Recent woes at BP

March 17, 2005: BP agrees to an $81-million settlement to resolve charges that it illegally released toxic gases from its Carson refinery for nearly a decade.

March 23, 2005: An explosion

at a BP oil refinery in Texas City, Texas, kills 15 and injures 170. The company later agrees to pay

$21.4 million for safety violations linked to the blast.

Dec. 19, 2005: An Alaska state agency sues BP and Exxon Mobil, claiming that the companies restricted the nation’s supply of natural gas to boost prices. A federal judge dismisses the suit in June 2006.

March 2006: About 270,000 gallons of crude oil spill from a corroded BP pipeline near Prudhoe Bay in northern Alaska.

April 6: A BP natural gas line on Alaska’s North Slope ruptures.

April 25: The Occupational Safety and Health Administration fines BP $2.4 million for safety problems at its Toledo, Ohio, plant.

June 28: Federal investigators accuse BP of secretly cornering the U.S. propane market in the winter of 2004 to illegally manipulate prices, driving up heating costs for rural consumers.

July 18: BP announces it will close 12 oil wells on Alaska’s North Slope as a precaution after whistle-blowers allege that more than 50 were leaking.

Aug. 6: BP discovers severe corrosion in a Prudhoe Bay oil transit line, forcing the shutdown of about half the oil production on Alaska’s North Slope.

Compiled by Scott J. Wilson

Los Angeles Times