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***Countdown to $100 oil (29) - Alaska joins axis of evil (unreliable oil suppliers)

by Jerome a Paris Wed Aug 9th, 2006 at 04:23:32 AM EST

(I had written a longer version of this, but it was eaten by the computer. See Benito's earlier diary on the topic as well:http://www.dailykos.com/...)

After armed insurgencies (Iraq, Nigeria), evil-regimes-bent-on-destroying-the-US (Venezuela, Iran) and hurricane-prone weather (Gulf of Mexico), another cause can be added to the various items in the long list that have the power to influence(upwards) oil prices: the sheer incompetence of US oil majors.

Aug. 7 (Bloomberg) -- BP Plc said it's shutting Alaska's Prudhoe Bay oil field, the largest in the U.S., because of pipeline corrosion, cutting supplies to West Coast refineries and raising new criticisms of the company's safety record.

From the front page

You'd think that oil majors, currently shut out of many countries (Saudi Arabia, Kuwait, Mexico), kicked (Equador) or taxed (Venezuela, Russia) out of others, or having major trouble developing new fields without major cost overruns all over the place (Sakhalin, Kashagan, oil sands) would at least make sure that existing fields in stable countries work properly...

BP's decision to close down the Prudhoe Bay field follows the analysis of data from inspections along the pipeline system in late July, which revealed 16 anomalies in 12 locations in an oil line on the eastern side of the field, BP said. BP operates 22 miles of oil transit lines at Prudhoe Bay and has inspected about 40 percent of the system.

The pipeline leak and the discovery of corrosion ``have called into question the condition of the oil transit lines at Prudhoe Bay,'' Bob Malone, BP America President, said in the statement. ``We will not resume operation of the field until we and government regulators are satisfied that they can be operated safely and pose no threat to the environment.''

But it seems to be part of a trend:

the spill is the second to hit BP's Prudhoe Bay field this year. In March it discovered a large spill and has already commited to replace a three-mile section of pipeline as a result.

Last month BP raised the amount it is to spend on overhauling safety procedures at the American subsidiary by $1 billion to $7 billion. Its US credibility has suffered a buffeting over the past 18 months.

Last year, a fatal fire forced BP to shut down its Texas refinery, the knock-on effect of which is ongoing with full production there yet to resume.

Hurricanes off the West Coast of America last summer also caused extensive damage. The combined effect of hurricanes Rita, Wilma and Katrina has presented BP with a repair bill seen at $900 million at the last count.

Most recently BP has had to contend with claims that some of its traders were involved in alleged price fixing in the market for propane trading. BP has strenuously denied any wrongdoing and called in a team of external auditors to examine compliance procedures.

But it's not just BP: Exxon and Conoco are shareholders of Prudhoe Bay, the largest US field, and they either said nothing or knew nothing.

Let's add them to the axis of evil, and Alaska to that of unreliable oil provinces, along Nigeria, Iraq and the Gulf of Mexico, pronto.




Earlier Countdown diaries here: http://www.eurotrib.com/story/2006/7/14/103439/905

I do miss these...

and of course, the dKos crosspost link: http://www.dailykos.com/story/2006/8/7/63425/25850

In the long run, we're all dead. John Maynard Keynes

by Jerome a Paris (etg@eurotrib.com) on Mon Aug 7th, 2006 at 07:05:44 AM EST
Here we go again...

By the way, I love these stories.

Peak oil is not an energy crisis. It is a liquid fuel crisis.

by Starvid on Mon Aug 7th, 2006 at 07:14:40 AM EST
I seem to recall that after Katrina, Gulf refineries were ordered/authorized to skimp on maintenance (as a matter of fact, here's an independent $100 person blogging about that as recently as April).

I wonder when that bill is going to come due.

The fact is that what we're experiencing right now is a top-down disaster. -Paul Krugman

by dvx (dvx.clt št gmail dotcom) on Mon Aug 7th, 2006 at 08:01:17 AM EST
Thanks, Jerome. This is an important topic obviously and I like the title a lot.

I have been thinking about it since this morning, wondering how this may affect the old-timers of the axis of evil, in particular Iran. On the one hand, it should boost Ahmadinejad. An attack on Iran would make oil even more expensive, hence less likely. Or on other hand, once we reach 100 bucks a barrel, it's pretty much Armageddon anyway, so why the hell not just go biblical on the middle-east. No party can be reelected with a $100 barrel. Once they appreciate this fact, what would they do?

by STA (sta.blog@gmail.com) on Mon Aug 7th, 2006 at 10:54:09 AM EST
I've been reading the $100 oil series, and I've got to say that I think it's an easy mark. A huge proportion of Saudi oil production, over 80%, comes from 3 super giant oilfields discovered in the late 40s / early 50s and whose output the Saudi's are struggling with even keeping steady, even as they use more and more water injection to try and maintain the pressure, enabling the wells to continue producing at high rates, and use more and more sophisticated horizontal multi-lateral wells to snake through the reservoirs and suck out the remaining oil without breakthroughs of gas (which is above the oil) and water (which is below the oil). It is inevitable that they start to decline, and when it happens it can be quite sudden. There is nothing that has been or is likely to be found that can come close to replacing them...

Just consider, back in 1992, ...

67.1 million bpd = world total oil production (BP)

from which

5.00 million bpd (7.5%) was from Ghawar oilfield
0.96 million bpd (1.4%) was from Safaniya field
0.65 million bpd (1.0%) was from Abqaiq oilfield

In other words, just under 10% from 3 huge fields. So, when they decline, there's potential (likelihood) that it'll be much sharper than the fall off the peak of (say) the hundreds of small US fields that started production at different times and peaked at different times so as to smooth out the overall peak of US oil production. The Saudi decline can and probably will be much more dramatic. Many, like Matt Simmons, incline toward believing that it's likely sooner rather than later... (see his book, "Twilight in the Desert").

Peak oil is not only coming, but it likely will come more suddenly than we expect and sooner than we imagine.

However, you can imagine that given growing demand a gap between supply and demand can open quite fast and when the markets see it, given their propensity for hysterical over-corrections, ... $100? Nah! $300!!!

Have a nice evening!

by Nick Oz on Mon Aug 7th, 2006 at 12:35:35 PM EST

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