Talking about oil spills, pipeline problems, gas shortages, and price hikes are great for sensationalism, but what's the real truth behind the stories in the news? The oil companies have made huge profits in the last couple of years, while America has watched a barrel of oil spiral upwards. It soared even higher on the news that part of BP's Prudhoe Bay, Alaska pipeline would be shut down because of corrosion. How much money does BP need to record as profit before they spend some it ensuring the foundation, the pipelines the oil flows through, are safe and sound?

In early August BP announced that it would be shutting down part of its Prudhoe Bay, Alaska pipeline. BP has three crude oil transmission pipelines in that area: the Western Operating Area (WOA), Eastern Operating Area (EOA), and the Lisburn crude oil pipelines. How much trouble is the United States in with this shutdown? Where does most of the gas pumped from the Alaska line go? What states are most affected? What percentage of this production is used in America's motor gasoline consumption? And what does a smart pig have to do with anything?

Why was the pipeline shutdown?

Think of an artery that runs to your heart. If everything is flowing fine, you don’t need any help. But what happens when your blood gets a little thicker? The doctor will give you a blood thinner to help your blood thin and move through your artery. The same goes for pipelines, but the blood thinner is known as corrosion inhibitors. Daren Beaudo, spokesperson for BP, speaking from the North Slope of Alaska said, "the GC-2 pipeline in Alaska that was corroded had separation that may have prevented the inhibitors from working." BP injected the inhibitors in the wellhead. The potential barrier was in the gathering center which is a processing center. BP started injecting the inhibitors in the pipeline directly, after the GC-2 spill.

How big of a deal is Alaska oil in our production?

Back in the late ’70s and early ’80s, the United States was producing between 8.5-9 million barrels per day of crude oil. As of the end of 2005, total crude oil produced in the United States has dropped to just over 5 million barrels per day. The United States is broken down into five different regions, called PADDs: Petroleum Administration for Defense District. PADD III is the largest producer of oil, almost 3 million barrels per day, and you can easily guess that Texas and the Gulf are included in that PADD. The West coast is PADD V which consists of Alaska, California and Federal offshore drilling. PADD V produces about 1.5 million barrels per day with 864 thousand of those barrels per day from Alaska. The total Alaskan crude production of oil represents 16 percent of all the oil produced in the United States, so losing 400,000 barrels per day represents 7.8 (or rounded to 8) percent of the U.S. production of crude oil.

What’s a Barrel?

Crude oil needs to be refined to make motor gasoline so that we can drive our gasoline powered vehicles. According to the California Energy Commission, "One barrel contains 42 gallons of crude oil. The total volume of products made from crude oil based origins is 48.43 gallons on average - 6.43 gallons greater than the original 42 gallons of crude oil. This represents a "processing gain" due to the additional other petroleum products such as alkylates are added to the refining process to create the final products."

"Additionally, California gasoline contains approximately 5.7 percent by volume of ethanol, a non-petroleum-based additive that brings the total processing gain to 7.59 gallons (or 49.59 total gallons)."

What does this mean for motor gasoline?

It is typically thought that half the barrel of oil, 21 gallons, is motor gasoline, but in California 25 gallons of gasoline is produced out of one barrel of oil. All of Prudhoe Bay’s production is 400,000 barrels/per day. As of August 12, 2006, after extensive consultations with state and federal regulators, BP will be allowed to continue drilling for oil and natural gas. The current production is 150,000, therefore, losing 250,000 barrels of crude oil. This amount equals 6,250,000 gallons of gasoline the west coast is losing every day.

According to Michael Burdette, Senior Analyst at Energy Information Administration (EIA), the United States uses 378 million gallons of gas per day, equaling a loss of 1.6 percent of our motor gasoline consumption per day."

Who are the players -- who is liable?

According to Beaudo, BP owns 26 percent of the Prudhoe Bay, including the oil and natural gas. Conoco-Phillips owns 36 percent, Exxon Mobil owns 36 percent and Chevron Texaco and Forrest Oil own 2 percent. BP is the field operator of the pipelines since 2000 when it was operated by ARCO. BP owns ARCO.

According to Burdette, "even though the west coast receives most the gasoline, no one is liable to the state for the extra gasoline. This is a free market and the oil companies deliver at will. Profit dictates that BP et al will find the extra gasoline to sell, because no gasoline means no profit and they can’t run their business that way."

Burdette says that, "we won’t be short that much gas. Already oil companies are scrambling to find tankers to move more gasoline from the Pacific Rim and/or the Middle East.

What is the Federal government doing?

According to the Environmental Protection Agency (EPA) and the Department of Transportation’s (DOT) office of Pipeline Safety (OPS), "We are looking into what happened, why it happened and how it occurred. There is a civil and criminal investigation going on and therefore we cannot make any comments at all." The OPS has already ordered two corrective action orders (CAO) directing the operator to take specific actions.

When a DOT employee was poised with the question of safety concerns over the construction of the Alaska National Wildlife Reserve (ANWR) for oil production they said, "I understand your safety concerns and you make a good point. OPS will use this hindsight for safety of pipelines in this region."

What options do we have to cure a shortage besides buying foreign oil?

There is always conservation of gasoline. The last time the price of gasoline went sky-high, 3-4 years ago, Californians decreased their oil consumption by 10 percent.

According to Neil Chapman, spokesperson for BP, "we are not looking at taking oil out of the Strategic Petroleum Reserve (SPR). You are seeing the market adjust to meet demand."

What about Ethanol instead of foreign oil?

The one energy that BP has not purchased is ethanol. Ethanol, a corn derivative, is a domestic energy that can be mixed with gasoline. When poised with the fact that BP was replacing domestic made energy with foreign oil, causing the United States to be more dependent on foreign oil when they could be using ethanol Chapman responded, "it takes longer to arrange and adjust. We are looking at the short-term (2-3 months)."

In response to the question that energy (oil) companies started calling ethanol producers to supplement their gasoline shortage right after Hurricane Katrina, Chapman responded, "That was different. We could see there was a long-term effect."

Currently, California uses 10 percent ethanol (approximately 5.7 percent by volume) in their gasoline mix. This allows the energy companies to receive the maximum 51 cent per gallon tax break that they will receive using ethanol. If they use more than 10 percent ethanol the energy companies will not receive more of a tax break.

Who suffers financially?

BP, as of August 11, 2006, has purchased more than 4.5 million barrels of crude on the global market to help cover the shortfall in Prudhoe Bay output. Additional crude oil and refined products will be acquired as necessary. According to John Manly, Alaskan Governor Frank Murkowski’s spokesperson, "We are looking at a loss of about $3 million a day. The Governor has put a hiring freeze on some jobs. We have about a 120-day surplus, but we are not sure when Prudhoe Bay will be back up. BP will be replacing the entire pipeline: the Eastside will be replaced first and brought up to production then the Westside will be replaced."

The Federal government will be losing money as well. 200,000 barrels per day at $70 a barrel is $14 million dollars BP will be spending on the foreign market, mainly Middle East. The federal money the government would have received from extra jobs (taxes), royalties, etc from that money would have gone towards the budget deficit.

What is a smart pig?

Smart pigs are inspection vehicles that have been in use since 1965, according to new-tchnologies.com, that checks for corrosion caused by water and carbon dioxide (CO2). There are a couple of types of pigs: I will call them the scourer and the tester. The scourer pig goes through the pipe with the force of the oil behind it, scouring the walls of the pipeline for little bubbles of water and CO2. The smart pig is the tester, the pig that detects corrosion, cracks, dents and gouges. Some smart pigs use using ultrasonic sensors, such as the ones BP uses on their pipelines in Prudhoe Bay. Some smart pigs have started using Global Positioning Systems (GPS) technology to exactly pinpoint the problem in the pipeline and some smart pigs can collapse, allowing them into multidiameter pipes.

According to an article by Deborah Zabarenko, Environment Correspondent for Reuters, BP didn’t use the smart pigs in the Prudhoe Bay for 14 years. When BP finally pigged its pipes, under government orders after a massive March oil spill, the results were shocking.

In an interview Zabarenko had with Dan Lawn, a retired regulator at Alaska’s Department of Environmental Conservation, which monitors oil pipelines, Lawn said, "The 800-mile Trans Alaska Pipeline, which receives oil drilled by BP and other North Slope producers, sends a scraper through its lines every week to 10 days and runs a smart pig every year to 18 months." According to the California Energy Commission, the Trans-Alaska Pipeline Systems (TAPS) connects the North Slope oil fields with the Port of Valdez in southern Alaska. From Valdez, crude oil is primarily shipped to refineries located on the U.S. West Coast.

According to BP’s Beaudo, "Smart pigging varies from line to line. In our Northstar line we smartpig every two weeks because of paraffin buildup. Our normal cycle for the GC-2 was ultrasounding every 8 years. The lines up here are above ground and we would strip the 3 inch insulation jacket and ultrasound the low areas where there was the greatest possibility that water would settle. We will continue to direct inject inhibitors into the wellhead and also inject into the pipeline itself."

Will anything change?

According to DOT, OPS and Alaska’s Manly, yes. Even though there isn’t a set time that pipelines have to be scoured and tested by smart pigs, Manly says, "BP was making assumptions about the pipelines they shouldn’t have. Going forward they will be under greater scrutiny."

Lou Ann Hammond, CEO of carlist.com, has previously worked for Chevron and brings with her extensive oil industry and automotive experience. She is a guest every Friday night on WABC's John Batchelor show, providing poignant insight on automobiles, energy and the oil business


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