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Tuesday, August 8, 2006 - Page updated at 12:00 AM

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Oil shutdown adds to problems for BP

Seattle Times staff reporter

BP's unprecedented decision to shut down production from Alaska's Prudhoe Bay oil field because of severe pipeline corrosion comes as the corporation's safety and environmental record is already under scrutiny from Congress, regulators and a federal grand jury.

The grand jury is investigating how BP maintained a segment of pipe that leaked during a March spill on the North Slope of more than 200,000 gallons of oil, and whether the company's actions violated the federal Clean Water Act.

The Prudhoe Bay shutdown is a major setback for BP as it seeks to fashion an image as a green oil company with a high standard of environmental conduct.

But the impacts go far beyond BP.

BP officials on Monday said they plan to replace 16 miles of feeder pipelines, a process that could take weeks or months to complete. During construction, it is unclear how much — if any — Prudhoe Bay production can be resumed.

That creates huge uncertainty for oil markets already spooked by the Middle East conflict and for the state of Alaska, which depends on oil taxes and royalties for most of its revenue. The shutdown is expected to reduce U.S. oil supplies by 2.6 percent.

Aging oil fields

The unexpected levels of corrosion detected Friday also raise new questions about the ability of the oil companies to safely maintain — and detect problems in — aging fields, at a time when the Bush administration and the industry's allies in Congress have pushed hard for more oil exploration in Alaska's far north.

"BP deeply regrets it has been necessary for us to take this drastic action," said Bob Malone, president and chairman of BP America. "I apologize for the impact this has to the nation and the great state of Alaska."

Ronnie Chappell, a company spokesman, said BP will try to minimize the impacts of the shutdown. To resume partial oil production during construction, for example, BP could bypass some of the damaged areas by using other pipelines in the field. But any such moves would have to be approved by state and federal regulators.

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Société Générale, an international investment bank, citing an assessment by one of its engineers with an oil-service background, told The Associated Press it could take six months to a year for production to return to normal.

Prudhoe Bay operator

In Alaska, BP is the operator of the giant Prudhoe Bay field, the largest in North America, and also provides oil for ConocoPhillips, Exxon/Mobil and several other companies.

In recent years, BP has tried to position itself as a greener company, taking a high-profile role in trying to find ways to combat climate change and running ad campaigns that refer to its investments in renewable fuels.

This week's shutdown is the result of inspections ordered by the federal government after the March oil spill.

BP officials said that after the oil spill, they believed that large amounts of viscous oil had piled up sludge in the pipe, restricting the flow of chemicals intended to reduce corrosion. That sludge — and the section of pipeline involved in the leak — is now caught up in the federal grand jury investigation, with a subpoena requiring it to be removed and delivered, along with the sludge, to the Justice Department.

"We are fully cooperating with the Department of Justice," Chappell said. "We have to cut it out, but that has to be carefully planned and executed."

BP officials did not expect severe corrosion in pipes in another part of its oil fields. But on Friday, as part of a broader inspection ordered by the federal government, BP found major corrosion in those pipes and a small leak of four to five barrels. In 16 spots, inspectors found corrosion had worn away between 70 and 80 percent of pipe wall.

In recent years, whistle-blowers have alleged that a series of cost-cutting measures, unreported leaks and other actions by BP operators have compromised environmental protections at Prudhoe Bay.

Many of these complaints have been funneled to federal officials by Chuck Hamel, longtime critic of oil-industry environmental and safety practices in Alaska.

Just last week, BP announced it was closing 12 oil wells on the North Slope as a precaution after whistle-blowers in contact with Hamel alleged that the wells were leaking. And Hamel alleges that there is a "systemic deficiency" in BP's safety culture, and has repeatedly urged federal regulators to step up oversight.

More oversight

Federal oversight did increase after the March spill.

On March 15, the federal Office of Pipeline Safety ordered BP to undertake a series of tests for pipeline corrosion and other measures.

A month later, in a letter to Rep. John Dingell of Michigan, Acting Transportation Secretary Maria Cino questioned the effectiveness of BP's corrosion inspections. Cino cited BP for going years without cleaning out the pipelines to help accurately inspect for corrosion.

This was contrasted with scraping inspections every 14 days on the larger trans-Alaska pipeline, which sends oil south to a Valdez terminal.

"In our opinion, based on current information, this length of time does not represent sound management practices for internal corrosion control," Cino wrote to Dingell.

Then, on July 20, the federal Office of Pipeline Safety issued a corrective-action order that cited the "presence of continued hazardous conditions" on certain segments of pipelines that risked "serious harm to life, property or the environment."

Chappell, the BP spokesman, said fighting corrosion has always been a high priority for the company, and that the budget had greatly expanded to $72 million this year since the company assumed sole operating responsibility for the Prudhoe Bay field in 2000.

Copyright © 2006 The Seattle Times Company

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