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Shutdown of BP Operations in Alaska Causes Spike in World Oil Price


The price of oil has moved sharply higher on world markets following the BP company's decision to shut down operations at its Prudhoe Bay, Alaska site because of a pipeline leak. Company officials are not sure how long it will take to rectify the problems they have found.

In a telephone conference call with reporters Monday, BP/Alaska officials said the extraordinary action of shutting down operations at Prudhoe Bay came as a result of inspections carried out in recent days hat revealed numerous problems in the pipeline carrying crude oil out from the facility.

At first, inspectors found only what they termed "anomalies" in the pipes, where corrosion of an unknown nature was weakening the material used to seal the pipe. But the president of BP Exploration Alaska incorporated, Steve Marshall, says concern deepened after they encountered a leak at the facility's Flow Station Two on Sunday.

"At the moment, all that is shut down is Flow Station 2," said Marshall. "Then, we are proceeding, starting later today, to sequentially shut down other facilities. We expect that process will take in the range of three to five days to accomplish that."

Marshall said he could not predict exactly how long operations would be shut. He said BP is concentrating now on the immediate problem of the leak and the potential damage it could cause to the environmentally sensitive tundra, where the facility is located. "That leak resulted in about four to five barrels of oil spilled to the tundra," said Marshall. "That was contained and, while the leak is still continuing, it is all being contained and vacuum-trucked away, and the spill volume remains at four to five barrels, and about half of that has been cleaned up as we speak."

The shutdown of BP operations at Prudhoe Bay will take 400,000 barrels-a-day of production offline. That represents nearly eight percent of U.S. oil production as of May, according to the U.S. Department of Energy.

Energy traders say world oil prices could climb even more, if the Alaska field is shut down for an extended period. The market is already tight because of increased demand and limits on production caused by unrest in Nigeria and the Middle East. BP officials refuse to speculate on how long the repairs at Prudhoe Bay may take, but experts say such an undertaking could easily take weeks, even months.

But U.S. energy analysts say the shock to prices may be lessened by other factors, such as the four percent rise in crude oil inventories in the United States over last year. The U.S. Energy Department says it is also possible that the Strategic Petroleum Reserve could be tapped, if refineries are running low.

The reserve holds 700 million barrels of oil, and has been used sparingly in the past to ease supply problems caused by hurricanes or other disruptions.