Alaskans lose, BP keeps raking in profit

August 13, 2006

SPECTRUM/Larry Wood

BP shutting down the Prudhoe Bay field is not a product of unanticipated corrosion from caustics carried by Prudhoe crude. Rather, this shutdown is the known outcome of a failed experiment carried out in the early '90s by BP. I first heard about the experiment gone wrong in 1991.

The corrosion that has compromised the pipe and caused an earlier oil spill this year was caused by bacteria that were injected in the pipe around 1990-91 to consume paraffin carried by the crude. This was done as a cheap fix to prevent buildup at the bends in the pipe.

Unfortunately, even when you have all the money in the world, luck has its quirks. The bacteria decided that the steel comprising the pipe was more palatable than the paraffin. The little buggers went to work to reduce all of that luscious steel into junk. What resulted was corroding pipe that would eventually have to be completely removed, the extent of the damage depending upon the dispersal of the bacteria in the Prudhoe Bay field feeder pipe system.

BP was then left with a decision. Replace the affected pipe, or ignore the problem until BP absolutely was forced to replace the pipe? The spill of March 2 was the benchmark.

After all, how many years has the pipe lasted since the problem became known? Fifteen years. Pretty good gamble. This is also why it is alleged that there has been no smart pig assessment of these lines in 14 years.

Why get those pesky regulators at the state of Alaska and the feds concerned? Obviously, the less the regulators knew, the better.

Even after the largest oil spill on the North Slope in March of this year, BP still did not shut down the affected areas, knowing full well that the structural integrity of the pipe was so compromised that it was so much junk.

There is now concern that the extent of this &#8220corrosion” is greater than initially believed, meaning most of the feeder pipe system at Prudhoe may have to be replaced.

This means at least a $6.4 million per day loss to the state of Alaska for the duration. If this loss lasts a year, that is a loss to the state of $2.3 billion.

After BP's announcement of the Prudhoe production shutdown, the price of crude hit $77 a barrel, a jump of more than $2 per barrel and a record high.

Perhaps the most cynical part of the decision-making process on the part of BP was to delay the replacement of the corroded pipe until the corresponding completion of another oil pipeline. This is a new pipeline in the Caspian area transporting 1 million barrels a day.

The figures I have heard are that the shutdown at Prudhoe will cause a loss of about 380,000 barrels per day, or a loss of $29.3 million per day, leaving about $22 million after the state takes its $6.4 million in taxes. BP's new line provides $77 million per day or about $56 million over the loss of Alaska's production.

BP is well covered with the new oil from the Caspian. BP can well-afford Alaska's loss.

Given the idiocy of the PPT legislation proposed by the governor and by the House, to add insult to injury, the state of Alaska may have to pay for part of this replacement. Alaska should not pay for BP's mess. BP should pay the state for any loss in revenue during the period of repairs.

In the meantime, our governor has called for an investigation. Given his &#8220contract,” what does that mean?

It might be noted that Tony Knowles was the governor for eight years during which this pipe was corroding to junk.

One candidate has been consistent in speaking out about how she would deal with resource issues by putting Alaska and Alaskans first and holding Article VIII, Section 2 of Alaska's Constitution as the only benchmark for any development. That candidate is Sarah Palin.

Palmer resident Larry Wood is a frequent contributor to these pages.