Prudhoe Bay Oil Spill - Immediate Impact

Immediate Impact

The Alaska oil spill had a major impact on BP as it was a loss to its image as well as a financial loss. On March 15, the U.S. Transportation Department ordered BP to test its three low-pressure lines in Prudhoe Bay for corrosion using an internal probe known as a "smart pig." The western line had not been smart-pigged since 1998 and an eastern section of pipe had not been tested since 1992. Instead, BP relied on imprecise spot checks of the line using methods such as ultrasound testing. On August 7, BP announced data from a smart pig run completed in late July revealed severe corrosion and 16 anomalies in 12 locations in an oil transit line on the eastern side of the oil field. They said that that information along with another small spill prompted them to shut down the Prudhoe Bay oil field, which would reduce Alaska North Slope oil production by an estimated 400,000 barrels per day. Later BP decided not to shut the western side of the field, meaning Prudhoe Bay would still produce about 200,000 barrels a day, half its normal total. Oil revenue accounts for 90% of Alaska's tax income.

As a result of news of the shutdown, the price of crude oil on NYMEX jumped US$2.22 a barrel closing at US$76.98 per barrel. Following the Prudhoe Bay pipeline leak in March 2006, due to slow progress in stopping the oil spill, BP was forced to shut down its Prudhoe Bay oil facility, which produced about 2.6% of the United States demand for gasoline. The scenario was a contributing factor for pushing the price of oil to US$77 per barrel in August 2006.

The impact of the leak was so severe that BP shares slumped nearly 2 percent. BP estimated that it would cost US$100 million to replace the 16 miles (26 km) of corroded pipeline. The company had to face tough questions from the public and shareholders about why the US$200 million a year it spent in maintenance wasn't enough to keep the 400,000-barrel-per-day (64,000 m3/d) field, the country's largest, running smoothly.