The shut down of a major Alaskan pipeline responsible for nearly 10 percent of US crude oil output for a second day has resulted in another black-eye for BP, many analysts say, but it could also have ramifications for other oil producers as well as crude oil prices in the days and weeks ahead.
The Trans-Alaska Pipeline, which runs from the state's North Slope to the Port of Valdez, was shut down Saturday morning. It is operated by Alyeska Pipeline, which is owned by a consortium of major oil producers including BP, Conoco Phillips , Exxon Mobil , and Chevron .
As a result of the pipeline leak that forced the shutdown, all North Slope producers have been forced to cut their production rate to 5 percent, according to a statement from Alyeska.
BP is the largest owner of the Trans-Alaska Pipeline with a 47 percent stake, Conoco Phillips owns 28 percent and Exxon Mobil has a 20 percent stake, according to Alyeska's website. The shutdown is a "significant" event, says BP spokesman Steve Rinehart.
"We've been asked to reduce production along with other producers and that is what we are doing," he said.
The market impact on oil futuresand equitieswill obviously depend on how long the pipeline is down. This outage could easily cause crude futures "to make their way back to $92" the short run, says Tradition Energy analyst Addison Armstrong.
Oil prices nearly touched $90 and have seen climbing in electronic trading this evening, up over $1.50 since Friday's close.
"It is a big deal, psychologically," says energy analyst Peter Beutel. Oil markets were not "tight" before this happened, he says, "but bullish supply stories are still going to gain traction on the upside."
Crude oil prices outside of the U.S may see even greater gain. Light, sweet crude (or WTI futures) may have a delayed reaction to the impact of the Alaska pipeline outage compared someother grades. The outage will likely have an impact on Asian crude oil, then Middle Eastern crude oil, then Europe's Brent crude contract.
"WTI should be the last market to be impacted as the West Coast is disconnected from the main U.SM Gulf or Midwest markets," says oil analyst Olivier Jakob of Petromatrix.
On the corporate front, Beutel says BP was looking at alternate routing possibilities, "but it has been 30 hours and nothing has come to mind, so any easy possibilities have been explored and ruled out, already, I believe." For now, other options are replacing the affected section of the pipeline or installing a "C" junction around the problem, which could take some time. These factors and the uncertainty of the duration of the outage could significantly depress BP's shares.
The shutdown of this pipeline, which carries 740,000 barrels a day of crude oil from northern Alaska to the southern port, also comes on heels of outages and bottleneck issues in Canada which have disrupted oil flows into the U.S. Midwest and impacted supplies at the key delivery point for NYMEX crude futures in Cushing, Okla.
As a result of the pipeline shutdown, BP has two major issues—operations and public perception—that could ultimately impact its shares.
BP and other North Slope producers now have to deal with the impact of shutting operations in the middle of winter, as production is already down due to extreme temperatures and North Slope operators are trying to use a small window to do necessary work on existing and new production areas, says PFC Energy analyst David Kirsh.
But a bigger issue for BP has to do with public perception, he says.
The U.S. presidential commission report on the Gulf of Mexico oil spill, released last week, described systemic problems in the oil industry and with government regulators as the root causes of the disaster.
Now with another outage, BP will need to contend with perceptions that once again it is in the middle of an environmental issue.
