Minimal impact expected from oil line shutdown

Posted: Friday, May 28, 2010

JUNEAU - Energy analysts don't expect a temporary shutdown of the trans-Alaska pipeline system due to an oil spill this week to have much effect, if any, on crude prices and gas supplies.

Alyeska Pipeline Service Co. Via Alaska Division Of Spill Prevention And Response
Alyeska Pipeline Service Co. Via Alaska Division Of Spill Prevention And Response

While the pipeline could be back up Thursday or Friday, in the global scheme even if it's idled a week it "just not going to affect things much," said Doug Reynolds, an energy economist at the University of Alaska Fairbanks.

But Reynolds pointed to other repercussions: the relatively minor spill along with the massive slick in the Gulf of Mexico could add more fuel to calls for stricter regulations on the industry, an outcome that would impact Alaska's energy-reliant economy.

The 800-mile line was shut down Tuesday, after what operator Alyeska Pipeline Service Co. characterized as several thousand barrels of oil spilled into a 2.3 million-gallon storage tank, which overflowed into a containment area. The containment area, a yard lined with an impermeable barrier and surrounded by a berm, apparently captured all the oil.

Alyeska has proceeded cautiously with cleanup. However, spokeswoman Michelle Egan said late Wednesday night that crews were ready to begin recovery of the spilled oil.

The plan was to open a drain in the containment area and start suctioning the oil into tanker trucks overnight, Egan said.

"We don't know how long it will take," she said. Crews also planned to draw down the oil in the storage tank sufficiently that its vents are clear.

Alyeska also hoped to restore full power to the pump station by early Thursday, she said.

"Once we clear these hurdles, then we're very close to being able to pump oil," Egan said, adding it might be possible to restart the pipeline by midday Friday "or possibly do better."

Secondary power was restored earlier Wednesday at the pump station.

Oil companies operating on Alaska's North Slope were ordered Wednesday afternoon to further reduce production, from 16 percent of their regular output to 8 percent. Alyeska has storage capacity for that production until Friday noon, Egan said, and it's possible pumps on the main pipeline could be restored by then, allowing oil to flow at regular levels.

"We could be done sooner, it could take longer, but that's the window we've given ourselves - certainly not a guarantee," she said Wednesday night.

The storage tank was the site of a fire three years ago for which Alyeska Pipeline Service Co. faces fines of $506,000.

Alyeska continues to contest the proposed fines for safety violations connected to the fire at Pump Station 9 near Fort Greely, about 100 miles south of Fairbanks.

The federal Pipeline and Hazardous Materials Safety Administration concluded the fire was a high-risk event that warranted a steep fine.

The 800-mile trans-Alaska pipeline carries crude oil from Prudhoe Bay to Valdez, where tankers pick it up and deliver it to refineries.

On average last month, the aging line moved about 645,000 barrels a day from Alaska's North Slope to Valdez, where it's sent to market. That's far from the line's heyday, a peak of 2.1 million barrels a day in 1988.

Average daily domestic production is 5.5 million barrels.

"I can't imagine it would be noticed," said Adam Sieminski, chief energy economist at Deutsche Bank, who believed there was enough at Valdez to keep up with demand. He hadn't even heard about it until called by a reporter Wednesday.

Crude oil for July delivery settled Wednesday at $71.51 a barrel, up $2.76 on the New York Mercantile Exchange. Phil Flynn, a senior market analyst at PFGBest, said the shutdown may have factored in to that but not in a big way.

"In a different universe," one with tighter crude supplies, "it would be different," he said. "If this had happened prior to the economic crisis, in '05, '06, it might have rallied $1 to $2 itself."

Rayola Dougher, a senior economic adviser at the American Petroleum Institute, agreed that this shouldn't affect prices much. "But I never second guess what buyers, sellers and traders do," she said.

• Associated Press writer Dan Joling in Anchorage contributed to this report.



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