North Slope Shutdown to Cut U.S. Oil Output

In a sudden blow to the nation’s oil supply, half the production on Alaska’s North Slope was being shut down Sunday after the Alaska exploration group of BP Global discovered severe corrosion in a Prudhoe Bay oil transit line.

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

The field’s shutdown, a process expected to take days, will reduce oil production by 400,000 barrels a day, BP officials said. That’s close to 8% of U.S. oil production as of May or about 2.6% of U.S. supply including imports, according to 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.

“We apologize to the nation and the state of Alaska for the adverse impacts it will cause,” BP America Chairman and President Robert A. Malone said in a statement.

A daily reduction of 400,000 barrels will have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures Ltd. in Tokyo.

“Oil prices could increase by as much as $10 per barrel given the current environment,” Emori said.

Malone said the field would not resume operations until the company and government regulators were satisfied it could run safely without threatening the environment.

BP officials said a cleanup was underway for a spill of four to five barrels of crude oil. A barrel contains 42 gallons.

“Our production while all this is in place is going to be marginal,” said Will Vandergriff, spokesman for Gov. Frank H. Murkowski. “That presents some technical problems because it’s a high-capacity line, and it’s meant to be filled.”

Vandergriff said he did not know exactly what potential problems a sudden drop in oil flow might cause the pipeline. Alyeska Pipeline Service Co. officials could not immediately be reached for comment.

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

Alaska Department of Revenue figures indicate a production drop of 400,000 barrels of oil per day will mean a loss of approximately $4.6 million per day to the state.

“That starts adding up to big bucks in a hurry,” said state House Finance Co-Chairman Mike Chenault. “It could start having a disastrous effect on the state as early as today.”