Shutdown likely means big rise in gasoline prices

Posted: Tuesday, August 08, 2006

NEW YORK - Gasoline prices are expected to rise at least 5 cents a gallon in the next few days - and maybe double that in coming weeks - following an announcement Monday by BP that it has shut down Alaska's Prudhoe Bay oil field, the largest in the United States, because of pipeline corrosion and a leak.

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About 400,000 barrels a day of production is being shut, BP said in a statement. Immediately after the announcement, oil prices jumped more than $2, surpassing $77 a barrel. They closed at $76.98 on the New York Mercantile Exchange.

Bob Malone, BP America chairman and president, said in a statement that "We regret that it is necessary to take this action and we apologize to the nation and to the State of Alaska for the adverse impact it will cause." BP said its decision to close down the Prudhoe Bay field came after an examination of data from inspections along the pipeline system in late July. The inspections, BP said, revealed 16 "anomalies" in 12 locations in an oil line on the eastern side of the field.

The Prudhoe oil field accounts for about 8 percent of U.S. output.

Although 80 percent of the oil BP produces in Alaska is used on the West Coast, and mostly in California, gas prices are nonetheless expected to rise nationwide because supplies are already tight as a result of disruptions in Iraq, Nigeria and Venezuela, analysts said. The highest prices, however, are likely to be in California, they said.

At a teleconference, BP officials said they did not know how long it will take to repair the pipeline.

The longer that takes, the higher gas prices are expected to rise, analysts said.

"Unfortunately, I think the worst is yet to come," said John Kilduff, senior vice president for risk management at Fimat USA Inc. in Manhattan. "I think this is a situation where the pipeline is going to be out for months." Kilduff said the price of self-serve, regular gas in the New York metro area could rise 5 to 10 cents in the next few weeks. "This could be the catalyst to get us over $80 a barrel," Kilduff said.

The price of regular gas on Long Island now averages $3.259, according to the Long Island Gasoline Retailers Association. Last year at this time, regular averaged $2.519.

"Prices will go up, mostly because the oil companies will raise them because of this," said Kathy Odessa, the group's executive director.

Energy Secretary Samuel Bodman said the United States will release oil from the nation's Strategic Petroleum Reserve, if asked, to make up for the loss of supplies from Alaska. The SPR holds about 688 million barrels of oil, the Energy Department said.

Information from Prudhoe Bay was sketchy Monday, said Larry Goldstein, president of PIRA Energy Group in Manhattan. But, he said, "The early indications are that this may not be days (to repair) but weeks and maybe months. If that is so, then it will be a really serious event."

"The key to this market is that there are no safety margins and there are no cushions" to buttress unexpected disruptions in supply, Goldstein said.

The BP situation comes at a particularly bad time, said Peter Beutel, an energy consultant and president of Cameron Hanover Inc. in New Canaan, Conn. "Part of the problem is we're already missing production from the Gulf Coast, Nigeria and Iraq," Beutel said. "We were already standing on one foot wondering what's going to happen with hurricanes, and all of a sudden the other leg is pulled out from under us."

Distributed by the Los Angeles Times-Washington Post News Service

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