ANCHORAGE, ALASKA In a sudden blow to the nation's oil supply, half the production on Alaska's North Slope was being shut down Sunday after BP Exploration Alaska, Inc. 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. "I don't even know how long it's going to take to shut it down," said Tom Williams, BP's senior tax and royalty counsel.
Once the field is shut down, in a process expected to take days, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production as of May 2006 or about 2.6 percent of U.S. supply including imports, according to data from 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 regret that it is necessary to take this action and we apologize to the nation and the State of Alaska for the adverse impacts it will cause," BP America Chairman and President Bob Malone said in a statement.
A 400,000-barrel per day reduction in output would have a major impact on oil prices, said Tetsu Emori, chief commodities strategist at Mitsui Bussan Futures in Tokyo.
"Oil prices could increase by as much as $10 per barrel given the current environment," Emori said. "But we can't really say for sure how big an effect this is going to have until we have more exact figures about how much production is going to be reduced."
Malone said the field will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.
Officials at BP, a unit of the London-based company BP PLC, learned Friday that data from an internal sensing device found 16 anomalies in 12 locations in an oil transit line on the eastern side of the field. Follow-up inspections found "corrosion-related wall thinning appeared to exceed BP criteria for continued operation," the company said in a release.
Workers also found a small spill, estimated to be about 4 to 5 barrels. A barrel contains 42 gallons of crude oil. The spill has been contained and clean-up efforts are under way, BP said.
A prolonged shutdown would be a major blow to domestic oil production, but even a short one could be crippling to Alaska's economy.
A 400,000 barrels of oil per day production drop could mean approximately $4.6 million per day lost to the state.