Oil price soars as BP closes down Alaskan production

Oil traded near record highs today after the discovery of pipeline corrosion caused BP to close the biggest production field in the United States.

The phased shutdown of the Prudhoe Bay oil field in Alaska will cut output by around 400,000 barrels a day, equivalent to 8% of US oil production.

Oil prices in New York rose by more than one US dollar to around 76 US dollars a barrel, while BP shares fell 2% as investors came to terms with the latest in a series of problems faced by the company’s north American operation.

BP’s Alaskan arm is already facing a criminal investigation into an oil spill in which 270,000 gallons of crude leaked into Prudhoe Bay in March.

BP began shutting down oil production on Sunday following the discovery of severe corrosion and a spill of four to five barrels from a pipeline. BP, which owns around quarter of the field, is in the process of inspecting pipelines.

It is not known for how long the field will be out of action, adding to the oil market’s anxieties over recent events in the Middle East.

Victor Shum, an analyst with Purvin & Gertz in Singapore, said: “The Middle East violence is a threat to the oil supply, but Alaska is a real disruption.”

Crude inventories in the US are at a five-year high, meaning the shutdown at the Prudhoe Bay field should not have an immediate impact on supplies.

“But the market is in very high anxiety, so a real disruption affects the prices, even if there is no threat of a supply shortage,” Mr Shum added.

BP regularly treats its Prudhoe Bay lines for corrosion and examines the pipes by taking X-rays and ultrasound images.

Steve Marshall, president of BP Exploration Alaska, said: “Up until Friday of this weekend we were of the opinion the techniques we were using were ultimately reliable.”

BP America chairman and president Bob Malone said the field would not resume operating until the company and government regulators are satisfied it can run safely without threatening the environment.

He added: “We regret that it is necessary to take this action and we apologise to the nation and the State of Alaska for the adverse impacts it will cause.”

Other problems for BP in the US include an explosion at its Texas City refinery that killed 15 workers in March 2005.

The Exxon Valdez oil spill in 1989 was the largest in US history. Some 11 million gallons (42 million litres) of crude oil were emptied into Prince William Sound, near Anchorage, killing hundreds of thousands of birds and marine animals.