A minor oil leak that has big implications

The closure of the Trans-Alaska Pipeline puts BP once again in the storm of debate swirling around the environmental dangers posed by the big energy firms.

An Alyeska Pipeline Service Company sign hangs near a section of the 800-mile Trans Alaska Pipeline about 80 miles outside of Valdez, Alaska, Sunday, August 14, 2005. Photographer: Daniel Acker/BloombShow more

A small oil leak at a pump station feeding the Trans-Alaska Pipeline at the weekend is the latest threat to the battered reputation of BP, which leads the consortium operating the 1,280km pipeline and pumps two-thirds of the oil passing through it.

The British energy giant's share price has dropped this week; in contrast the price of US crude has hit nearly US$90 (Dh330) per barrel.

The amount of oil spilled, however, was reported to be minor, and it may have been completely contained within an underground concrete "sump" beneath the building housing the pumping equipment.

Analysts downplayed the incident, attributing the stock movement to investor sensitivity after BP's catastrophic oil spill last April, when the company's deep-water Macondo well leaked what is estimated to have been more than 4 million barrels of crude into the Gulf of Mexico.

"I think if BP had not had the Macondo incident last year, then this [the Alaskan leak] would have been just a minor operational incident for the company," said Jason Kenney, an analyst with ING Financial Markets.

Nevertheless, Alaska authorities did order an immediate shutdown of the Trans-Alaska pipeline and took the extreme step of requiring Alaska North Slope oil producers to cut their output by 95 per cent until the cause of the oil release has been determined and the problem remedied.

Alyeska Pipeline Service, the BP-led consortium, said it closed the pipeline, which carries about 630,000 barrels per day of crude from Prudoe Bay in the Arctic to the Pacific tanker terminal at Valdez, Alaska, on Saturday morning. The shutdown came shortly after workers discovered the leak from a concrete-encased feeder line at Pump Station 1 in Prudhoe Bay. An unknown quantity of oil entered the basement of the pump station building when it flowed into the sump - a tank installed to catch spilt oil - Alyeska said.

"There are no injuries or apparent impacts to the environment," said the group, whose other partners are the US petroleum companies ConocoPhillips, ExxonMobil, Chevron and Koch Industries.

"There is no visible oil on the tundra," added Michelle Egan, an Alyeska spokeswoman.

Alaska state officials, however, expressed concernthat additional oil that might be trapped in the space between the leaky pipe and the surrounding concrete could contaminate a gravel bed. Alyeska used vacuum trucks on Saturday to remove any potentially oiled gravel.

Alyeska is uncertain as to when the pipeline will reopen. As a precaution, it is installing a temporary pipe to bypass the problem area and prevent new leaks.

"We want to make sure that we aren't going to make the situation worse by restarting, so we're being very careful and methodical," Ms Egan said.

The Alaska environment department's decision to order a drastic curtailment of oil output from Prudhoe Bay, the biggest US oilfield, appeared unusual under the circumstances. It is not clear that it was taken purely as a precaution to protect the environment.

The decision may also have been a practical step related to stockpiles at the oilfield and the Valdez terminal, where storage facilities are said to be nearly full.

US government reports of an unexpected increase in the nation's oil inventories capped a rally in crude prices last week and widened the gap between US and European benchmark crudes.

But news of the latest Alaskan spill still comes at a sensitive time for BP as the company faces potential criminal charges over the Macondo disaster.

BP also has a history of oil spills on the Alaskan tundra, with past incidents often linked to corroded pipelines. Last August, about 5,000 barrels of crude leaked from the Trans-Alaska Pipeline, prompting a three-day closure.

That pales in comparison with the volume of oil leaked into the Gulf of Mexico last year in the biggest environmental disaster within US waters. One result of that incident was to put environmentalists on high alert about any potential contamination from Arctic oil drilling, because ecosystems in the region are understood to be especially fragile.

Alaska's oil and gas producers already worried about new regulatory and fiscal threats to their industry, which powers about a third of the state's economy.

A downturn in drilling and exploration, prompted partly by heightened environmental concerns, and a political impasse about easing high Alaska state taxes on oil production have contributed to declining output.

North Slope producers pumped 7 per cent less crude last year than in 2009, and the Alaska government expects a 4 per cent drop this year. Around the world, other northern oil drillers are under pressure.

Last August, Greenpeace activists boarded a drilling rig off the coast of Greenland, where the Scottish firm Cairn Energy was exploring for oil and gas, temporarily halting operations.

In Norway, the country's biggest oil firm, Statoil, not only pumps oil and gas from above the Arctic circle but is also the world's biggest deep-water oil producer. Not surprisingly, it is on a mission to project a clean, green international image. The company is at the forefront of commercial efforts to develop industrial-scale carbon capture and storage. It also hopes to develop remote-controlled deepwater drilling platforms that sit on the ocean bed instead of floating precariously above it.

Statoil is not immune to environmentalist criticism, most recently over its involvement in Canadian oil sands.

Nevertheless, Norway is widely perceived as the country that has come the closest to getting oil development right by striking a viable balance between social, environmental and commercial concerns. The corporate strategies of its national oil champion reflect this.

After the Macondo incident, a few well-regarded companies such as Statoil stand as a last bastion between the upstream oil industry and its howling critics. Only time will tell if they will continue to fend off the wolves.