Sunday, August 06, 2006

Impact of Alaskan Oil Shut Down

by Bill McBride on 8/06/2006 10:18:00 PM

The AP reports: Major Alaskan oil field shutting down

Half the oil production on Alaska's North Slope was being shut down Sunday after BP Exploration Alaska, Inc. discovered severe corrosion and a small spill from a Prudhoe Bay oil transit line.

BP officials said they didn't know how long the Prudhoe Bay field would be off line. "I don't even know how long it's going to take to shut it down," said Tom Williams, BP's senior tax and royalty counsel.

Once the field is shut down, in a process expected to take day, BP said oil production will be reduced by 400,000 barrels a day. That's close to 8 percent of U.S. oil production as of May 2006, according to data from the U.S. Energy Information Administration.
The reduction in crude oil production is similar in quantity to the impact from Hurricane Ivan in September 2004. The 400K barrels per day is much less than the loss from Katrina and Rita in 2005. However the duration of the Alaskan shutdown is unknown, and that is concerning.


Click on graph for larger image.

This graph shows domestic production and spot prices for the last 3 years. The impact of the hurricanes on production is clear (Ivan in 2004, Katrina and Rita in 2005).

Based on the previous disruptions to crude production, I'd expect something like a $5 per barrel increase in the spot price of crude oil ($80 Oil). For gasoline, the West Coast might see a significant price increase.

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