This is an excerpt from EERE Network News, a weekly electronic newsletter.

August 09, 2006

Closure of Alaskan Oil Field Likely to Impact Oil and Gasoline Prices

BP announced August 7th that it is closing down at least part of its Prudhoe Bay oil field for an indefinite period to replace its main oil transit pipelines, which are severely corroded. BP discovered the corrosion during pipeline inspections on August 4th, and follow-up inspections over the following weekend found a small leak, causing BP to start shutting down its oil production on the morning of August 6th. As of August 8th, BP had shut down 200,000 barrels per day of oil production, or about half the oil field, and was assessing options to keep some of the oil field in production. A shutdown of the full 400,000 barrels per day would equal about 8 percent of U.S. oil production. See the BP press releases and BP's new "Alaska Corrosion Response" Web site.

The shutdown is likely to impact the U.S. price for crude oil, which has been hovering around $75 per barrel in recent weeks, and may also push up gasoline prices. The latest "Short-Term Energy Outlook" from DOE's Energy Information Administration (EIA) boosts its oil price projection for August by $3 per barrel, to $76.50, because of the Prudhoe Bay shutdown. The EIA currently projects summer (April 1st to September 30th) prices for regular gasoline to average $2.92 per gallon, an increase of 4 cents per gallon over last month's projection. The report notes that the impact will be greatest on the West Coast, which consumes almost all of Alaskan oil production, but high oil inventories should help to moderate the price increases. See the EIA's "Short-Term Energy Outlook."

As of August 8th, the average U.S. price for regular unleaded gasoline was at $3.036, just 2 cents below the record price set during last year's disruption of oil production in the Gulf of Mexico. See the latest crude oil and gasoline prices from the New York Mercantile Exchange and the Daily Fuel Gage Report, a service of the American Automobile Association.