Prudhoe Bay Shutdown Serious Concern to StateEdit

FOR IMMEDIATE RELEASE: August 7, 2006 No. 06-176

BP Exploration (Alaska), operator of the giant Prudhoe Bay oil field, announced yesterday that it would shut down production until the extent of pipeline corrosion from gathering lines that transport oil to the Trans Alaska Pipeline System can be assessed. Governor Frank H. Murkowski today said that the State of Alaska is very concerned about the implications for Alaska’s economy and state government revenues if oil production at Prudhoe Bay remains off-line for too long. The state is also very concerned about a sufficient supply of crude oil for in-state refineries.

“This is a very serious problem for Alaska and for the nation because Prudhoe Bay produces approximately four percent of the nation’s domestic oil supply,” Murkowski said. “We estimate the loss of 400,000 barrels per day will mean a loss of $6.4 million in revenue to the state every day the field is off-line. In addition, we are very concerned about how this shutdown will impact the in-state refineries at North Pole, Valdez and Nikiski.”

The North Pole refinery, Flint Hills, relies heavily on royalty oil it purchases in varying amounts from the State of Alaska. While the volume for August was originally expected to be 56,000 barrels per day, the loss of Prudhoe Bay production will cut the amount available to 28,000-30,000 barrels per day. The Tesoro refinery at Nikiski and the Petro Star refinery at Valdez do not use royalty oil, but could be impacted by the shutdown, as well.

Murkowski said the pipeline is monitored and regulated by numerous state and federal agencies, and that addressing the corrosion problem will likely become more of an issue and expense as North Slope pipelines age. He said he was pleased to hear that BP’s Alaska president, Bob Malone, had announced today that BP will replace 16 miles of major gathering pipelines in the Prudhoe Bay Unit.

“The state will work with BP to ensure that the phased shutdown of the field is orderly, safe and efficient,” the governor said. “We also want to work with the company to restart production as soon as it is environmentally safe to do so.

“Alaska’s economy is highly dependent on continued oil production. This wake-up call is giving us a glimpse of the future that awaits Alaskans in about 2016 when production drops off due to declining oil reserves. It underscores how critical it is to incentivize oil and gas exploration and production throughout the North Slope, including at ANWR, and to build the gas pipeline.

“Pipeline operation and maintenance can be done safely and with respect to the environment, as we have shown for decades on the North Slope. We are confident the issues with pipeline corrosion will be addressed to the highest standard and production will resume in a timely manner.”

Based on estimates from the Department of Revenue, high oil prices have produced a surplus “buffer” above what would be needed for the FY2007 budgets that went into effect on July 1, but that buffer would be eroded within about 60 days if Prudhoe Bay remains out of service.

from State of Alaska News & Announcements