Latest on Prudhoe ... Optimism and Pessimism

Here's the latest on Prudhoe Bay. I've excerpted two paragraphs that show optimism and pessimism.

The Optimist...

On Tuesday, Energy Secretary Samuel Bodman said that repairs are expected to take until January but that part of the pipeline may be operable before then. That would allow some oil from the Prudhoe Bay field, which supplies about 8 percent of the nation's oil production, to continue to flow.

The Pessimist...

“I think it is a much larger problem than people are led to believe,” said Chris Edmonds, vice president and director of research at Pritchard Capital Partners, a New Orleans energy investment firm. “This is 22 miles of transit pipe that BP runs in its Prudhoe Bay facility in Alaska in territory that is not that easy to get to or work in.”

You'll find the story here: http://www.msnbc.msn.com/id/14250620/

I find myself lining up with the pessimists. Remember, they use an awful lot of water to get that oil out of the ground. What comes out of the ground now is 3/4ths water. Since water contains carbon dioxide, it corrodes pipes. The water also contains sulfate reducing bacteria, which corrodes pipes even more.

The people at BP aren't fools. They spend $72 million a year fighting corrosion, and about half that money goes for millions of gallons of anti-corrosive chemicals that are put in the pipelines. In retrospect, those chemicals aren't doing the job.

Sure, the water is taken out of the oil once it's pumped to the surface. BP has viewed oil carrying transit lines, such as the line that developed a leak, as much less susceptible to corrosion than a water bearing line. OOPS!

I think there's risk to the Trans-Alaska pipeline as well. Yes, it's more market-ready crude -- the water cut is mostly removed. But the fact that BP was caught with its pants down on 22 miles of transit pipe shows that the potential for a nasty surprise to the Trans-Alaska Pipeline is quite real.

BP is replacing 73% of its pipes at Prudhoe. If the same percentage of the Trans-Alaska is damaged, that would be 584 miles of pipeline. That is a lot of pipe!

I'm not saying that all that pipe is damaged -- I'm saying there's a risk to at least some of it. And here's something to consider: BP only found this latest corrosion AFTER the pipe sprung a leak. But that still wasn't enough. Even after the leak, BP was content to rely on exterior ultrasound tests -- something else that proved in error -- until ordered to conduct interior ultrasound tests by the Federal government.

Why didn't BP do that extra test on its own? Are they afraid that would cut into the whole-hog profits they're reaping! BP earned $7.3 billion in the most recent quarter -- a 30% increase from last year. I think they could afford to spend a little more on maintenance.

The interior ultrasound machine is called a "smart pig." So is Alyeska Pipeline Service Company, the operator of the Trans-Alaska, sending a smart pig into the Trans-Alaska?

Now BP is only a part-owner of the field and pipelines at Prudhoe. But consider that five of the world's largest oil companies -- BP as well as Chevron Corp., ConocoPhillips, Exxon Mobil Corp. and Royal Dutch Shell PLC -- reported combined earnings in the second quarter of $34.6 billion, up 36% from a year earlier. I think they ALL can afford to spend a little more on maintance. Problems like this give the oil industry a black eye, and people in the industry work too hard for that kind of crap.

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