VitalAccurateThinking

BP Pipeline Closure

Early this morning (7-Aug-2006) I heard the BP pipeline closure story. I am not sure the effect of the supply disruption on the over supply/demand balance.

BP said Monday it discovered corrosion so severe that it will have to replace 16 miles of pipeline at the huge Prudhoe Bay oil field -- work that could shut down the nation's single biggest source of domestic crude for months and drive gasoline prices even higher.

Oil prices went up $2 a barrel on the news. Not a big surprise here as oil traders are sophisticated to figure out the shift in price point. After the busy hurricane season of 2005 when a lot of the Gulf petroleum and gas was knocked out (and is still not back in operation), I fully expected a much higher increase in prices. However, that did not happen. I will be very interested to see what the mix of a slowing economy with a supply disruption.

What was amazing to me is this passage in the story:

The oil company said it was surprised to find such severe corrosion, and had gone 14 years without using a device called a "pig" to clean out its lines because it did not believe it was necessary.

I am gonna have to call "bullshit" on that assertion. No responsible pipeline operator goes 14 years without corrosion testing their pipelines. In fact, unless they can prove a good track record of non-corrosion, I would say they were fooling themselves or were downright neglectful of the pipeline. When I say "neglectful", I mean "cheap and irresponsible". I am sure someone in the pipeline industry will contradict me and say 14 years is not too long. At the same time, news stories have been circulating with patches and clamps on the condemned portion of the pipeline. Those just don't happen by themselves. The problem was systemic.

For people that know me, I have been very harsh on chemical and petroleum companies who do not act responsibly with their assets and in their community. After the Texas City BP Refinery blast, I hammered BP for not taking care of the flawed design before it became a disaster that killed 15 people.

The choice in the US chemical industry is this: either be proactive and fix problems before they get out of control or face condemnation when something big does happen.

posted by Jim VAT @ 6:03 PM