Alaskan shutdown to cost BP at least US$100m

Oil refineries on the west coast of the US face shortages of crude because of the closure of BP's corrosion-hit pipelines in Alaska.

ConocoPhillips, one of BP's co-investors in Alaska, informed its customers yesterday that it would not be able to make good on some shipments, raising the spectre of petrol shortages on the west coast.

Conoco has declared force majeure.

BP, which is in charge of the operations at the Prudhoe Bay oilfield in the Alaskan wilderness, has shut down half of the 400,000 barrels-a-day field and will decide today whether it must close the remainder.

It is expected to spend about US$100m to replace 16 miles of pipeline after corrosion caused two oil spills in the past six months and threatened an ecological disaster.

Conoco, which takes 36 per cent of the oil pumped from Prudhoe Bay, was not immediately able to say many refineries would face cuts in deliveries, or byhow much.

Exxon Mobil, which takes another 36 per cent, and BP, which takes 26 per cent, have been fighting to find other sources of supply in order to be able to meet their commitments.

Additional oil is being shipped from Russia, the Middle East and Angola.

The cost of chartering oil tankers has soared, but BP said it had been able to source 3.5 million barrels of oil to meet the needs of its west coast customers.

It will not be declaring force majeure, the company said.

BP's Alaskan operations have been dogged by accusations of negligence for several years, but regulators forced it to conduct a full inspection of its pipelines only after 200,000 gallons of oil spilled on to the Alaskan tundra in March.

The company discovered at the weekend that the pipeline has become dangerously corroded in 12 other places, and had already begun to leak again.

Replacing the pipelines will cost about US$100m, a company source said.

That includes up to US$30m just to buy new steel pipes, much more than the US$15m that one steel analyst estimated on Wednesday.

The higher cost was because the company was "a distressed buyer".

Whistleblowers inside BP in Alaska have claimed it skirted safety procedures and was warned about corrosion more than two years ago, but the company says it acted responsibly.

It could be January before Prudhoe Bay, which accounts for 8 per cent of US oil output, is producing at normal levels.

- INDEPENDENT