On August 7, BP, operator of America’s largest oilfield, Prudhoe Bay, announced that it was shutting down production, amounting to about 400,000 barrels per day, half of the field’s total output. The next day, oil prices jumped to near-record levels, and although they eased a bit later, the market remains anxious about what will come next.
BP was forced to act after it found a leak in the pipeline system at the field and claimed that it was surprised at the level of corrosion it found in those pipes.
U.S. energy secretary Samuel Bodman weighed in almost immediately, first hinting that the strategic petroleum reserve could be marshaled to cover the shortfall. Then he suggested that Saudi Arabia might come to the rescue. Bodman forgets that the Saudis, for all their efforts to increase their production and jawbone the price of oil downward, have had little success at keeping oil prices below $75 or so.
In spite of the soothing assurances by the energy secretary and some other pundits, the impact of removing 400,000 barrels per day of presumably safe domestic production, coming on the heels of the geopolitical upheavals of the last three years, will have a major impact on the oil markets and prices. The oil industry is a margin business. A change in supply of one-half of one percent — in either direction, over-supply or under-supply — can cause huge fluctuations in the price of oil. Already, the Department of Energy is talking of a 400,000 barrel-per-day shortfall in September and October. And the Prudhoe Bay problem may take six months to resolve because, according to Bodman, “pipeline construction work is usually done during the winter, when the ground is frozen.”
The full impact of the Prudhoe Bay shutdown remains to be seen. But the biggest questions are about BP, which despite its repeated claims that it’s the most progressive energy company in the business, is simply not on par with the other supermajors.
First and foremost, a company of BP’s size, which should be equipped with first-rate managers and engineers, should never be surprised about corrosion. Some reports have suggested that the last time Prudhoe’s gathering pipelines were tested for corrosion was in 1992!
Second, preparedness for all eventualities is an integral part of oilfield management. People in that business pride themselves on their ability to anticipate problems and solve them before they get out of hand. Why didn’t BP have the pipeline and procedures in place to fix this problem immediately? Why are they saying it might take six months?
Third, although the shutdown is a national problem, it is even more pressing for Alaska. The state still draws a huge part of its income from oil royalties and pipeline tariffs. It won’t help the oil industry in Alaska if the local population is angry. How will the shutdown affect the industry’s claim that it can safely develop the Arctic National Wildlife Refuge?
Prudhoe Bay is not the only example of BP’s troubled past. The company has long had a reputation as one that puts profits ahead of safety. One former BP executive who spent more than two decades at the company said last spring that the profit-first attitude comes from very top ranks of BP’s management.
The best evidence of BP’s negligence is the accident at the company’s Texas City refinery on March 14, 2005, which killed 15 workers and injured 170. That plant is the worst-polluting industrial plant in America. The refinery emitted three times more pollution in 2004 than in 2003, according to the Environmental Protection Agency. That March 14 accident led to an investigation by the U.S. Occupational Safety and Health Administration, which is seeking a record $21.3-million fine against the company for a myriad of safety and health violations at the Texas City site. The Texas City explosion was just one of five significant accidents that BP had at its Houston-area installations in a span of 11 months – from September 2004 to August 2005. Those accidents left 17 workers dead.
The company’s profit-first attitude has the attention of federal regulators. In August 2005, the Chemical Safety and Hazard Investigation Board ordered BP to appoint an independent safety review panel. It was the first time in the board’s eight-year history that it has taken such an action. The board said BP’s poor management poses an “imminent hazard” to its workers and the public and that the Texas City accident was the product of "systemic lapses in organizational decision-making, safety oversight, and safety culture."
At the same time that BP ignores basic safety, environmental, and maintenance practices, it’s spending tens of millions of dollars on fancy advertisements and public relations programs to tell us how green it is, and how it’s going “beyond petroleum.”
Hogwash. BP can’t handle the oil it has right now, much less lead us to something better.