Different River

”You can never step in the same river twice.” –Heraclitus

August 7, 2006

“Oil Companies Care Only About Short-Term Profits”

Filed under: — Different River @ 2:29 am

Yet another myth was shattered today — the myth that oil companies don’t care about anything but short-term profits, and will do anything to get them unless government regulators control them. BP Exploration Alaska, Inc., a unit of British Petroleum, annouced they are shutting down the entire Prudhoe Bay oil field — accounting for half the production of Alaska North Slope oil. They are doing this because they found some corrosion in the pipeline that carries the oil out — in other words, there’s a risk of leakage, which would be an environmental disaster.

Major Alaskan Oil Field Shutting Down

Aug 6, 10:40 PM (ET)

By Mary Pemberton

ANCHORAGE, Alaska (AP) – 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.

Malone said the field will not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

Of course, the “regulators” wouldn’t have even known there was a problem if the company hadn’t said so.

This will, unfortunately, increase oil prices, and thus the price of gasoline and anything else made from oil. Here’s the estimate:

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.”

Some cynics will say that this is a plot by BP to increase oil prices. But that’s wrongheaded — BP can only benefit from high oil prices to the extent that they can sell oil. When they are selling less oil, they make less. The ones who will make money off of this are all the other oil companies — in other words, BP’s competitors. Shutting down the oil fields hurts consumers a little, helps competitor’s a little, and hurts BP a lot. But in the long run, it’s the right thing to do.

2 Responses to ““Oil Companies Care Only About Short-Term Profits””

  1. Kevin Baker Says:

    Well, no. It’s “pay now, or pay bigger later.” Businesses understand the need for preventive maintenance. A catastrophic pipeline failure would cost just as much from the perspective of loss of production, man-hours and pipe, but it would also come with clean-up costs and environmental fines – so, “Pay me now or pay me later.”

    BP would rather pay now. It just makes financial sense.

  2. PabloD Says:

    To pig or not to pig? BP’s oil pipeline question

    WASHINGTON (Reuters)
    (…)
    Pigs are in-the-pipe testing tools that might have done a better job at spotting the corrosion that prompted Sunday’s partial shutdown of BP’s Prudhoe Bay oil field, but the company didn’t use them there for 14 years.

    When BP finally pigged its pipes, under government orders after a massive March oil spill, the results were shocking.
    (…)
    The government ordered BP to smart-pig its pipeline after a March spill of 200,000 gallons of crude onto the Arctic tundra.
    (…)

    It seems this more recent piece of news contradicts your reading on the earlier piece of news.

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