BP pipeline break not as dire as predicted

By | October 02, 2006
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Economic forecasters and the mainstream media predicted dire consequences when a corroded pipeline forced BP plc to halt and reroute oil production at Prudhoe Bay, Alaska, in early August. BP typically produces about 400,000 barrels of domestic crude oil per day in Prudhoe Bay; initial estimates indicated that the entire production would be halted.

However, the company Web site stated that it was able to keep the western pipeline open. "As it worked out, [BP was] able to keep part of the pipeline running and is now doing around 200,000 barrels per day, which is not a lot, relatively," said Ron Planting, information and analysis manager for the Statistics Department at the American Petroleum Institute. This amount did not result in the predicted $10 increase per barrel of oil.

Nevertheless, a 200,000 barrel disruption did require BP to purchase supplemental fuel. By Aug. 12, BP had "purchased more than 4.5 million barrels of crude on the global market to help cover the shortfall in Prudhoe Bay output," said a company statement. "Additional crude oil and refined products will be acquired as necessary."

The shortfall, which primarily affected the West Coast, may have been less dire because of ethanol's presence in the region. "When refiners were voluntarily getting rid of MTBE, part of what you saw was a migration of [ethanol] from conventional blending markets to places that needed it to meet the Clean Air Act," said Matt Hartwig of the Renewable Fuels Association.

Both Planting and Hartwig said that, in general, ethanol helps by extending the supply of gasoline. However, they also downplayed the impact that ethanol may have had on supply after the BP disruption. "Ethanol doesn't play an enormous role in the price of gasoline, as 95 percent of ethanol is sold on long-term contracts," Hartwig said.

Planting added, "Ethanol does matter, but whether it's a swing factor, I don't really know."