Warm Alaska Weather Poses Risks for Prudhoe Oil Output

HOUSTON Oct 26, 2006 (Dow Jones Newswires)

Unusually warm weather in Northern Alaska is threatening to curtail crude production at Prudhoe Bay just as BP PLC (BP) brings the nation's biggest oil field back to full speed.

The last few weeks have been some of the warmest on record in Alaska, with temperatures averaging 27 degrees, six degrees warmer than normal. Balmy weather was already blamed earlier this month for the worst power outage to hit the field in a decade, which slashed production for several days.

The weather complicates BP's task to keep the field operating at full capacity at a time when it's under intense scrutiny to bolster its maintenance of Prudhoe Bay and install miles of new pipeline on the Arctic tundra. The U.K. energy giant stunned global oil markets in August when it partially shut down the field after finding severe corrosion in a pipeline, prompting accusations that cost cutting had led to inefficient safety oversight, something the company denies.

BP says Prudhoe Bay is now operating normally, following three months of repairs and upgrades to combat the corrosion. Production has passed 400,000 barrels a day, and is climbing toward an expected winter peak of 450,000 barrels a day - weather permitting. Starting in the first quarter of 2007, BP will begin to replace all 16 miles of the transit pipeline with a new, smaller pipeline better suited to the oil field's declining production.

The construction won't affect production, BP says. But the weather is complicating the winter outlook for Prudhoe Bay, which accounts for about 9% of domestic oil production and nearly half of Alaska's unrestricted budget.

A marginal El Nino - the cyclical occurrence of warmer-than-normal temperatures in the equatorial Pacific Ocean that can have broad impacts globally - is adding to the recent trend of warmer winters in northern Alaska. That's led the National Weather Service to project that temperatures are likely to remain "significantly" above normal for most of the winter.

Weather Swing Factor

Higher temperatures slow down turbines used to separate crude from natural gas, which operate best below minus 20 degrees. State regulators consider the optimal temperature to be 20 to 30 degrees below zero. For every degree above that level, "crude oil production declines a few thousand barrels," said Michael Williams, chief economist for the Alaska Department of Revenue.

Production can vary by 60,000 barrels on any given day, with the weather as the deciding factor, according to data for the last three years provided by the Department of Revenue in Alaska.

"It's admittedly a ballpark figure," said BP spokesman Daren Beaudo of the 450,000 barrel production estimate. The temperature, he added, is the "number one variable."

Production plunged from 350,000 to as low as 125,000 barrels a day in August after BP partially shut the field and languished around 250,000 barrels a day before it began switching the east Prudhoe Bay field back on in late September. As top executives faced outraged state and federal officials in a series of public hearings, BP had workers manually inspect the main transit pipes, pledged to run cleaning and maintenance devices through the pipeline in a process known as "pigging," and quadrupled its 2007 maintenance budget from 2004 levels, to $195 million.

By the end of October, BP will also have completed a network of bypasses that will allow production to continue even if new problems are found on the main pipeline, Beaudo said.

The next step will be to build a new, smaller pipeline to replace the aging transit line from Prudhoe Bay to the Trans Alaska Pipeline, which brings crude 800 miles to Valdez where it's loaded onto tankers. BP has already ordered the steel it will need, and plans to begin construction sometime in early 2007, said Beaudo.

Although BP says the weather won't interfere directly with pipeline construction, it can shorten the amount of time it will have to work on the line. In order to protect the delicate tundra, which is extremely dry and easily scarred, the state of Alaska only allows heavy machinery, including drilling rigs and some construction gear, to travel offroad when the ground has frozen.

Whereas in 1970 tundra access might have lasted for 200 days companies typically have half that time today, said John Ford, a project manager with the U.S. Department of Energy in Tulsa who has worked with Alaskan state officials on tundra access issues. He said tundra access is usually granted by early December, and would be ready by January even in a warm winter.

Beaudo said he wasn't sure when BP would finish the new pipeline."We'll advance that project as rapidly as we can," he said. BP won't need to stop production to replace the pipeline, as the new line will be built parallel to the old one, Beaudo added.

Weather Already Hampered Production

At Prudhoe Bay, "average" is a moving target, both for the weather and the oil field itself. Crude output from the field has been falling since 1988 in line with general declines in Alaskan crude production, with losses in the last five years ranging from 3% to 9%. Winters are also warmer than they used to be.

Scientists who study global warming consider the polar ice cap a good indicator of climate trends and note that it has shrunk below normal in October for five straight years, according to the National Snow and Ice Data Center at the University of Colorado at Boulder. The melting ice can reinforce already warm weather, by allowing the exposed ocean to soak up the sun's energy, warming the surrounding air.

In the past, polar ice would often reach from the north pole to Alaska's northern coast year-round; as of mid-October, the ice edge was 150 miles offshore. "Twenty years ago it never, ever got that far north," said Rick Thoman, lead forecaster for the National Weather Service in Fairbanks.

The ice always returns in the winter but the receding cap may have already done its damage to oil production. Thoman said that may be part of the reason why temperatures hit 50 degrees on Oct. 10, nearly 30 degrees above normal.

That day, production at Prudhoe Bay fell from 335,000 barrels to 91,000 barrels a day, after the region lost power. Crude output bottomed out 55,000 barrels a day on Oct. 11, and it took nearly a week for BP to bring it back up.

The outage was caused by dust and debris collecting on power lines - a situation that never would have happened if Alaska's north slope hadn't seen record high temperatures a few days before, Thoman said.

"Normally on the north slope you'd have a solid snow cover by now," he said. "A blizzard wouldn't be uncommon this time of year, as opposed to blowing mud."

Copyright (c) 2006 Dow Jones & Company, Inc.